<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997
REGISTRATION NO. 333-09297
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
COMPUTER GENERATED SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 7379 13-3208358
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
1675 BROADWAY
NEW YORK, NEW YORK 10019
(212) 408-3800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
PHILIP FRIEDMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMPUTER GENERATED SOLUTIONS, INC.
1675 BROADWAY
NEW YORK, NEW YORK 10019
(212) 408-3800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
DENNIS J. FRIEDMAN, ESQ. GERALD S. TANENBAUM, ESQ.
CHADBOURNE & PARKE LLP CAHILL GORDON & REINDEL
30 ROCKEFELLER PLAZA 80 PINE STREET
NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10005
(212) 408-5100 (212) 701-3000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 3, 1997
3,540,000 SHARES
[LOGO] COMPUTER GENERATED SOLUTIONS, INC.
COMMON STOCK
-----------
Of the 3,540,000 shares of Common Stock offered hereby, 2,900,000 shares are
being issued and sold by Computer Generated Solutions, Inc. (the "Company") and
640,000 shares are being sold by the Selling Stockholders. The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price of the Common Stock will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "CGSI."
Immediately after this offering, Philip Friedman, the Company's President and
Chief Executive Officer, will own approximately 66.0% of the outstanding shares
of Common Stock (assuming no exercise of the Underwriters' over-allotment
option). See "Principal and Selling Stockholders."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total (3) ....................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and for other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $850,000.
(3) The Company has granted an option to the Underwriters exercisable within 30
days of the date hereof, to purchase up to 531,000 additional shares of
Common Stock for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered severally by the Underwriters when, as
and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares of Common Stock will be made against payment on or about , 1997 at
the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, NY 10281.
-----------
OPPENHEIMER & CO., INC. FURMAN SELZ
The date of this Prospectus is , 1997.
<PAGE>
[LOGO] COMPUTER GENERATED SOLUTIONS, INC.
ACS OPTIMA
PRODUCTS &
SERVICES
INFORMATION IT OUTSOURCING
SYSTEMS AND SUPPORT
SERVICES SERVICES
PROFESSIONAL HELP
SERVICES DESK
TRAINING CALL
MANAGEMENT
THE "COMPOSITE SOLUTION"
The "Composite Solution" allows the Company to utilize its products and services
to create customized solutions for its clients and to provide multiple entry
points into the client's organization.
PROFESSIONAL SERVICES
The Company provides a variety of professional services, delivered on a project
basis or through staff augmentation, to address clients' systems requirements,
ranging from strategy and design through development and implementation to
maintenance and support. The Company has been designated by IBM as one of six
current national "Business Partners" for its Year 2000 engagements.
TRAINING
The Company provides, through more than 3560 course offerings, comprehensive
technical and end user training to its clients' programmers, system
administrators, operations personnel and management.
ACS OPTIMA PRODUCTS & SERVICES
The Company provides comprehensive, integrated business information systems
specifically designed for the apparel industry. The Company's solution includes
its ACS Optima Software and a number of fully integrated complementary products
licensed to the Company that allow apparel manufacturers to manage all phases of
the production process, from planning and design to manufacturing, inventory
control, distribution and financial reporting.
HELP DESK
The Company provides on-site and remote help desk services, primarily through
IBM and AT&T, to major companies that have outsourced technical support for
their internal IT systems.
CALL MANAGEMENT
The Company provides call management services that facilitate the entire call
management process, including call receiving, inbound and outbound
telemarketing, data collection and overflow services.
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 OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, or the context
otherwise requires, all information in this Prospectus (i) gives effect to the
amendment and restatement of the Company's certificate of incorporation and by-
laws and certain other related actions regarding the conversion of the Company
from S corporation to C corporation and the restructuring of the Company's
capital stock, all of which will take place immediately prior to the
consummation of this offering and is more fully described below under "The
Company," and (ii) assumes the Underwriters' over-allotment option is not
exercised.
THE COMPANY
Computer Generated Solutions, Inc. offers its clients a Composite Solution
for their information technology ("IT") requirements. The Composite Solution is
based on a modular approach which allows the Company to utilize its products
and services to create customized solutions for its clients. Products and
services provided by the Company range from the ACS Optima Software (as
defined) bundled with IBM AS/400 hardware and related support services, to
professional services, technical training, full service on-site and remote help
desk support and call management services. The marketing of many of the
Company's products and services is enhanced through its strategic and other
relationships with recognized leaders in the IT industry, including
International Business Machines Corporation ("IBM") and AT&T Corp. ("AT&T").
IBM and AT&T accounted for, in the aggregate, approximately 40% of the
Company's total revenues in 1996.
The Company is a leading supplier of integrated business information systems
to the apparel industry. Its solution includes its proprietary ACS Optima
software and a number of fully integrated complementary products licensed to
the Company (the "ACS Optima Software"), a comprehensive, integrated business
information system specifically designed for the apparel industry. The Company
provides the ACS Optima Software to many leading United States apparel
manufacturers. Representative examples of the Company's ACS Optima Software
clients include several divisions of Polo Ralph Lauren Corporation ("Polo Ralph
Lauren"), Quicksilver, Inc. ("Quicksilver") and Fritzi of California
("Fritzi"). These representative clients accounted for, in the aggregate,
approximately 14% of the Company's total revenues in 1996.
The Company also provides a variety of professional services, delivered on a
project basis or through staff augmentation, to address clients' systems
requirements, ranging from strategy and design through development and
implementation to maintenance and support. The Company provides these
professional services primarily to clients in the financial, entertainment and
communications industries. Representative examples of the Company's clients for
professional services include Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Merrill Lynch & Co., Inc. ("Merrill Lynch") and EMI Music Publishing
("EMI Music"). These representative clients accounted for, in the aggregate,
approximately 4% of the Company's total revenues in 1996. Through its technical
training services, the Company provides approximately 350 comprehensive
technical and end-user training classes to its clients' personnel in many
leading-edge technologies, including Visual Basic, PowerBuilder, Visual C++ and
Sybase. To meet the Company's needs for technical resources, the Company
maintains a national proprietary database consisting of technical profiles and
resumes of approximately 30,000 professionals. The Company believes that this
database, its existing technical staff and other software tools enable it to
offer its clients the technical resources necessary to meet their IT
requirements and address the challenges of creating "Year 2000" compliant
systems.
Pursuant to an agreement between IBM and the Company entered into in November
1996, the Company has been designated by IBM as one of six current national
"Business Partners" for its "Year 2000" engagements. IBM will utilize the
Company and its personnel to meet certain resource requirements for IBM and IBM
clients in connection with its "Year 2000" engagements. To date, the Company
has not recognized any revenues in connection with this agreement.
3
<PAGE>
The Company provides a complete range of IT outsourcing support services,
including on-site and remote help desks and integrated call management centers
staffed and managed by the Company's personnel. In providing these services,
the Company uses sophisticated tools that enable it to serve as the transparent
extension of its clients' technical support infrastructure. These services
provide the Company's clients with immediate access to skilled technical
personnel and a cost-effective solution to their IT outsourcing support needs.
Representative examples of the Company's IT outsourcing support clients include
IBM and AT&T. The Company was advised by IBM that, effective January 1, 1997,
call management services previously provided by the Company to IBM would be
provided directly by IBM with IBM personnel as a part of its worldwide call
center strategy to support IBM's "core" business functions. The Company
recognized revenues of approximately $8.7 million for providing these services
to IBM in 1996, representing approximately 15% of the Company's total revenues.
In January 1997, the Company and IBM agreed to extend a separate agreement
whereby the Company will continue to provide help desk services to IBM and its
customers for an additional three-year term. All of the Company's contracts are
generally cancellable by the client at any time or, with respect to some of the
Company's larger contracts, including those with IBM, on 30 to 90 days notice.
At January 31, 1997, the Company had 690 employees operating through
facilities located in New York, Atlanta, Chicago, Dallas, Los Angeles, Tampa
and Rochester, MN. The Company's total revenue increased from $12.2 million in
1992 to $57.5 million in 1996.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,900,000 shares
Common Stock offered by the Selling Stockholders... 640,000 shares
Common Stock to be outstanding after the offering.. 12,700,000 shares (1)
Use of proceeds.................................... Repayment of certain
indebtedness, including
approximately $2.5 million
of indebtedness owed to
Philip Friedman, the
Company's President and
Chief Executive Officer,
fund distributions to the
Company's existing
stockholders of the
cumulative amount of the
Company's undistributed
taxable earnings for the
entire period it was an S
corporation (approximately
$4.8 million at December
31, 1996) and for general
corporate purposes,
including working capital,
potential strategic
acquisitions, strategic
business partnerships and
future product
enhancements. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. CGSI
</TABLE>
- --------
(1) Excludes 1,270,000 shares of Common Stock to be reserved for issuance under
the Company's 1997 Long-Term Incentive Plan. The Company currently
anticipates that options to purchase 587,500 shares of Common Stock will be
granted immediately prior to consummation of this offering. See
"Management--1997 Long Term Incentive Plan."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Services, software license and
maintenance fees................... $ 6,270 $ 8,514 $19,962 $31,704 $47,846
Hardware............................ 5,919 17,489 4,748 4,243 9,641
------- ------- ------- ------- -------
Total revenues.................... 12,189 26,003 24,710 35,947 57,487
Direct costs:
Services, software license and
maintenance fees................... 3,751 5,186 12,988 22,970 35,734
Hardware............................ 5,112 15,796 3,882 3,007 8,123
------- ------- ------- ------- -------
Total direct costs................ 8,863 20,982 16,870 25,977 43,857
------- ------- ------- ------- -------
Gross profit......................... 3,326 5,021 7,840 9,970 13,630
Selling, general and administrative
expenses............................ 1,973 2,916 4,725 6,690 9,995
Compensation amounts to S corporation
stockholders........................ 1,232 1,950 3,041 1,502 760
Amortization of cost in excess of
fair value of assets purchased...... -- -- 213 320 320
------- ------- ------- ------- -------
3,205 4,866 7,979 8,512 11,075
------- ------- ------- ------- -------
Operating income (loss).............. 121 155 (139) 1,458 2,555
Interest expense..................... -- -- 77 473 540
------- ------- ------- ------- -------
Income (loss) before income taxes.... 121 155 (216) 985 2,015
Income taxes......................... 31 39 60 33 169
------- ------- ------- ------- -------
Net income (loss).................... $ 90 $ 116 $ (276) $ 952 $ 1,846
======= ======= ======= ======= =======
PRO FORMA (UNAUDITED)
Historical income before income taxes................................ $ 2,015
Pro forma provision for income taxes(2).............................. 829
-------
Pro forma net income................................................. $ 1,186
=======
Pro forma net income per share(3).................................... $ 0.12
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 3,023 $27,866
Total assets.......................................... 13,776 36,133
Short-term debt, including current portion of capital
lease obligations.................................... 2,670 164
Long-term debt, including capital lease obligations... 2,617 471
Stockholders' equity.................................. 3,254 30,263
</TABLE>
- --------
(1) For all periods shown, the Company was treated as an S corporation for
income tax purposes. Therefore, the Company's historical statements of
operations data do not include a provision for U.S. federal income taxes.
(2) Adjusted for all periods to record a provision for income taxes as if the
Company had been a C corporation. See "The Company."
(3) Computed by dividing pro forma net income by the weighted average number of
shares of Common Stock outstanding during the periods. Pro forma net income
per share for the year ended December 31, 1996 is based on the weighted
average number of shares of Common Stock of the Company outstanding prior to
this offering, after giving effect to the stock split described in Note 12 of
Notes to Financial Statements and increased by the sale of approximately
441,700 shares of Common Stock assuming an offering price of $12.00 per share
($10.87, net of underwriting discount and expenses), the proceeds of which
would be necessary to pay the cumulative amount of undistributed taxable
earnings to the Company's existing stockholders. See "Use of Proceeds."
Supplemental pro forma net income per share is $0.14 for the year ended
December 31, 1996 and is based on the weighted average number of shares of
Common Stock of the Company outstanding prior to this offering after giving
effect to the stock split described in Note 12 of Notes to Financial
Statements and increased by the sale of approximately 869,800 shares of
Common Stock assuming an offering price of $12.00 per share ($10.87, net of
underwriting discount and expenses), the proceeds of which would be necessary
to repay bank and stockholder indebtedness and to pay the cumulative amount
of undistributed taxable earnings to the Company's existing stockholders. See
"Use of Proceeds."
(4) Adjusted to reflect this offering and the use of a portion of the net
proceeds therefrom to repay bank and stockholder indebtedness and to pay the
cumulative amount of undistributed taxable earnings to the Company's existing
stockholders (see "Use of Proceeds") and the recording of a deferred tax
asset of $295,000 as a result of becoming subject to Federal and additional
state and local income taxes.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing any of the shares of Common
Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
Actual events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the risk factors set forth below and the matters set forth in this
Prospectus generally.
DEPENDENCE ON COMPUTER INDUSTRY TRENDS AND MOVEMENT TOWARDS OUTSOURCING
The Company's future success is dependent upon the continuation of a number
of trends in the computer industry, including the migration by IT end-users to
multivendor and multisystem computing environments, the overall increase in
the sophistication and interdependency of computing technology and a focus by
IT managers on cost-efficient solutions. The Company believes these trends
have resulted in an increased demand for support service providers that have
the ability to deliver a broad range of IT and support services and a movement
by many clients towards outsourcing. The Company's business and growth will
depend in large part on the movement toward outsourcing IT services
continuing. There can be no assurance that these trends will continue, as
organizations may elect to perform such services in-house or that the trends,
should they continue, will not serve as an inducement to other companies to
enter the Company's market. A significant reversal of these trends could have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Industry Background."
DEPENDENCE ON SIGNIFICANT RELATIONSHIPS; ABSENCE OF LONG-TERM CONTRACTS
The Company's largest client, IBM, accounted for 35% of the Company's
revenues for 1996. The Company was advised by IBM that, effective January 1,
1997, call management services previously provided by the Company to IBM would
be provided directly by IBM with IBM personnel as a part of its worldwide call
center strategy to support IBM's "core" business functions. The Company
recognized revenues of approximately $8.7 million for providing these services
to IBM in 1996, representing approximately 15% of the Company's revenues.
Client contract terms vary depending on the nature of the engagement, and
there can be no assurance that a client will renew a contract when it
terminates. In addition, the Company's contracts are generally cancellable by
the client at any time or, with respect to some of the Company's larger
contracts, including those with IBM, on 30 to 90 days notice, and clients may
unilaterally reduce their use of the Company's services under such contracts
without penalty. The termination or significant reduction of its business
relationship with any of its significant clients would have a material adverse
effect on the Company's financial condition and results of operations. See
"Business."
ABILITY TO ATTRACT AND RETAIN QUALIFIED PROJECT MANAGERS AND OTHER TECHNICAL
EXPERTS
The Company's future success will depend, in part, on its ability to hire
and retain adequately trained project and resource managers, systems analysts,
business analysts, programming staff and other technical experts who can
fulfill the increasingly sophisticated needs of its clients. The Company's on-
going need for technical expert resources arises from (i) increased demand for
the Company's services, (ii) turnover, which is generally high in the
industry, and for the Company, was approximately 55% in 1996 (excluding
personnel associated with the call management contract with IBM which is no
longer in effect) and (iii) client requests for programmers trained in the
newest software technologies. Competition for highly skilled employees in the
information systems and services and IT outsourcing support services industry
is intense. In particular, competition is intense for the limited number of
qualified project managers and professionals with certain specialized skills,
such as a working knowledge of certain leading software products. The Company
enters into non-competition agreements and does not enter into employee
contracts with its project managers and technical experts. There can be no
assurance that the Company will be successful in attracting and retaining the
qualified personnel it requires to continue its growth.
6
<PAGE>
EXTREMELY COMPETITIVE INDUSTRY
The industry in which the Company operates is extremely competitive, highly
fragmented and subject to rapid changes. While many companies provide
information systems and services and IT outsourcing support services,
management believes that no one company is dominant. There are numerous and
varied providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, divisions of large hardware and software
companies and niche providers of IT services, many of which compete in only
certain markets. The Company competes with and faces potential competition
from a number of companies that have significantly greater financial,
technical and marketing resources, greater name recognition and a more
established client base than the Company. In addition, many of the services
offered by the Company historically have been provided, and could in the
future be provided, by the in-house personnel of its clients. The Company
believes that its ability to compete depends, in part, on a number of factors,
including the ability of the Company to hire, retain and motivate a
significant number of highly skilled employees and the development by others
of products and services that are competitive with the Company's products and
services.
Management believes that price is not the primary factor in a client's
determination to purchase ACS Optima Software and related services but that
product functionality and methodology for implementation are the principal
competitive considerations. The Company believes that the principal
competitive factors in its professional services business include the nature
of the services offered, quality of service, responsiveness to customer needs,
business experience and technical expertise. With respect to its IT
outsourcing support services, the Company competes primarily on the basis of
quality of service and price, and the Company could be adversely affected by
the price at which others offer comparable IT outsourcing support services.
Many of the Company's larger clients purchase IT outsourcing support services
primarily from a limited number of preferred vendors. The Company has
experienced and continues to anticipate significant pricing pressure from
these clients in order to remain competitive.
Although the Company believes that it can meet its client's demands for
information systems and services and IT outsourcing support services, there
can be no assurance that the Company will continue to compete successfully
with its existing competitors or will be able to compete successfully with any
new competitors.
FLUCTUATIONS IN OPERATING RESULTS
The Company's revenue and operating results historically have varied from
quarter to quarter and may continue to vary in the future due to a combination
of factors, including (i) the timing and amount of significant orders from the
Company's clients, (ii) the Company's success in developing, introducing and
shipping ACS Optima Software enhancements and new versions of ACS Optima
Software, (iii) pricing actions by the Company or its competitors, (iv) the
requirements of the Company's business partners and (v) general economic
conditions. A high percentage of the Company's operating expenses,
particularly personnel and rent, are relatively fixed in advance of any
particular quarter. As a result, unanticipated variations in employee
utilization rates may cause significant variations in operating results in any
particular quarter. An unanticipated termination of a major project, a
client's decision not to pursue a new project or proceed to succeeding stages
of a current project, or the completion during a quarter of several major
client projects could require the Company to pay underutilized employees and
therefore have a material adverse effect on the Company's results of operation
and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of
Operations."
In addition, ACS Optima Software and related systems integration sales,
which accounted for approximately 38% of the Company's revenues in 1996, are
specifically designed for the apparel industry, and the Company may experience
substantial period-to-period fluctuations or a downturn in future operating
results relating to ACS Optima Software due to general apparel industry
conditions and overall economic conditions.
INTERNAL EXPANSION AND ACQUISITION RISKS
The Company's continued growth through internal expansion is dependent on
the Company's ability to generate additional revenue from existing and new
clients. The Company believes that internal expansion also
7
<PAGE>
will depend on the Company's ability to obtain and develop new products and
services, including those related to the "Year 2000" problem, and there can be
no assurance that the Company will be able to obtain or develop such products
or services. Part of the Company's strategy in enhancing its professional
service revenues is to provide solutions to its customers' "Year 2000"
problems through products and services, including professional resources.
There can be no assurance that any products for "Year 2000" will be accepted
by the Company's clients or that the Company will recognize any revenues from
such products or related professional resources. See "Business--Information
Systems and Services--Professional Services."
As part of its business strategy, the Company intends to expand by acquiring
IT solutions, outsourcing support, consulting and systems integration
businesses in attractive markets or which have desirable client relationships.
While the Company from time to time evaluates acquisition opportunities, it
has not entered into any definitive agreement or understanding with respect to
any particular acquisition. The success of this strategy depends not only upon
the Company's ability to identify and acquire businesses on a cost-effective
basis, but also upon its ability to integrate acquired operations into its
organization effectively, to retain and motivate key personnel and to retain
clients of acquired firms. In addition, the Company expects to experience
competition for acquisitions, and there can be no assurance that suitable
acquisition candidates will be available, that acquisitions can be completed
on reasonable terms or that the Company will have access to adequate funds to
effect any desired acquisition.
In addition, as part of its business strategy, the Company intends to expand
internationally. The Company's success in expanding internationally will be
affected by, and any future international operations will be subject to,
certain additional risks, including general economic and political conditions
in each applicable country, the effect of any applicable foreign tax
structures, tariff and trade regulations, difficulties in obtaining local
licenses, the difficulty of managing an organization spread over various
jurisdictions and geographical regions and compliance with a variety of
changing local laws and regulations. In addition, legislation in foreign
countries may not always provide adequate protection for the Company's
proprietary intellectual property rights. International operations may also
subject the Company's operating results to the effects of fluctuations in
foreign currency exchange rates.
RISKS ASSOCIATED WITH MANAGEMENT OF A LARGE AND RAPIDLY CHANGING BUSINESS
The Company has experienced significant growth, which has placed and, if
sustained, will continue to place a substantial strain on its operational,
administrative and financial resources. The Company's ability to effectively
manage growth of its staff and facilities will require it to continue to
improve its operational, financial and other internal systems, and to train,
motivate and manage its project managers and other technical experts. If the
Company's management is unable to manage growth effectively or its employees
are unable to achieve anticipated performance levels, such occurrences could
have a material adverse effect on the Company's financial condition and
results of operations.
RELIANCE ON KEY EXECUTIVES
The Company's success depends to a significant extent upon the continued
services of its executive officers and other key management and sales
personnel, in particular Philip Friedman, the Company's President and Chief
Executive Officer. The Company has no employment contracts with any of its
employees and maintains key man insurance on Philip Friedman in the amount of
only $500,000. The unavailability of the continuing services of any of its
executive officers and other key management and sales personnel could have an
adverse effect on the Company's financial condition and results of operations.
See "Management."
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent, in part, upon its proprietary
intellectual property rights. The Company relies on contractual arrangements,
such as trade secrets and non-disclosure agreements, and copyright and
trademark law to protect its proprietary intellectual property. While the
Company holds registered copyrights with respect to certain modules of the ACS
Optima Software, generally enters into confidentiality agreements
8
<PAGE>
with its employees, consultants, clients and potential clients and limits
access to and distribution of its confidential and proprietary data, there can
be no assurance that the steps taken by the Company in this regard will be
adequate to deter misappropriation of its proprietary information or that the
Company will be able to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights.
The Company's business includes the development of custom software
applications in connection with specific client engagements. Ownership of such
software is generally assigned to the client. Although the Company believes
that its products and services do not infringe on the intellectual property
rights of others, there can be no assurance that such a claim will not be
asserted against the Company in the future.
RISK OF EMERGENCY INTERRUPTION OF HELP DESK AND CALL MANAGEMENT OPERATIONS
The Company's operations are dependent upon the ability to protect its help
desk and call management operations and its information databases against
damage that may be caused by fire, power failure, telecommunications failures,
unauthorized intrusion, computer viruses and other emergencies. At its
facilities, the Company has taken precautions to protect itself and its
customers from events that could interrupt delivery of the Company's services.
These precautions include off-site storage of backup data, fire protection and
physical security systems. Notwithstanding such precautions, there can be no
assurance that a fire, natural disaster, human error, equipment malfunction or
inadequacy or other event would not result in a prolonged interruption in the
Company's ability to provide services to its clients. Such an event could have
a material adverse effect on the Company's financial condition and results of
operations. In addition, at its clients' facilities, protecting help desk and
call management operations is the responsibility of its clients. While
management believes that its clients have taken precautions similar to those
taken by the Company at its facilities, there can be no assurance that this
will continue to be the case. To the extent such precautions are not taken,
this could have a material adverse effect on the Company's financial condition
and results of operations.
CONTROLLING STOCKHOLDER; ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK
Upon consummation of this offering, Philip Friedman, the Company's President
and Chief Executive Officer, and his brother Victor Friedman, the Company's
Executive Vice President (collectively, the "Principal Stockholders"), will
beneficially own 66.0% and 6.2%, respectively, of the outstanding shares of
Common Stock. As a result, Philip Friedman will be able to control the outcome
of matters requiring a stockholder vote, including electing directors,
adopting or amending certain provisions of the Company's Certificate of
Incorporation (as defined) and By-Laws (as defined) and approving or
preventing certain mergers or other similar transactions, such as a merger
involving the Company or a sale of substantially all of the Company's assets
(including transactions that could give holders of the Common Stock the
opportunity to realize a premium over the then-prevailing market price for
their shares). Therefore, purchasers of Common Stock offered hereby will
become minority stockholders of the Company and will be unable to control the
management or business policies of the Company. Moreover, subject to
contractual restrictions and general fiduciary obligations, the Company is not
prohibited from engaging in transactions with its management, the Principal
Stockholders or entities in which such persons are interested. The Certificate
of Incorporation also provides for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms and certain
super majority voting provisions. The Company's Certificate of Incorporation
does not provide for cumulative voting in the election of directors and, as a
result, Philip Friedman will be able to elect all the directors. Furthermore,
the Company is subject to Section 203 of the Delaware General Corporation Law.
The existence of these provisions, together with the stock ownership of the
Principal Stockholders, would be expected to have an anti-takeover effect,
including possibly discouraging takeover attempts that might result in a
premium over the market price for the shares of Common Stock. See "Description
of Capital Stock" and "Principal and Selling Stockholders."
The Company's Certificate of Incorporation authorizes the issuance of "blank
check" preferred stock ("Preferred Stock") with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
In the event of issuance, such Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. In
9
<PAGE>
addition, the issuance of Preferred Stock may adversely affect the voting and
dividend rights, rights upon liquidation and other rights of the holders of
Common Stock (including the purchasers of Common Stock in this offering).
Although the Company has no present intention to issue any shares of such
Preferred Stock, the Company retains the right to do so in the future.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that, following this offering, an active
trading market for the Common Stock will develop or be sustained or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the Representatives (as defined) and will
not necessarily be indicative of the market price of the Common Stock after
this offering. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. In addition, the
market price of the Common Stock could be subject to significant fluctuations
in response to variations in quarterly operating results, changes in earnings
estimates by securities analysts, general trends in the technology and
emerging growth company sectors and other factors. The securities markets have
experienced significant price and volume fluctuations from time to time in
recent years that often have been unrelated or disproportionate to the
operating performance of particular companies and which have particularly
affected the market price of equity securities of technology companies. These
broad fluctuations may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect the prevailing market price of the shares of
Common Stock offered hereby and the Company's ability to raise additional
capital through additional public offerings of equity securities. In addition
to the 3,540,000 shares of Common Stock offered hereby, as of the date of this
Prospectus, there are 9,160,000 shares of Common Stock outstanding, all of
which are "restricted" shares (the "Restricted Shares") under the Securities
Act of 1933, as amended (the "Securities Act"), and are held by the Principal
Stockholders. Beginning 180 days after the date of this Prospectus, upon the
expiration of certain lock-up agreements with the Underwriters, the Restricted
Shares will first become eligible for sale in the public market subject to
certain volume and other resale restrictions pursuant to Rule 144 under the
Securities Act. The Principal Stockholders are also entitled to certain rights
with respect to the registration under the Securities Act of shares held by
them. See "Certain Relationships and Related Party Transactions." In addition,
after this offering, the Company intends to file a registration statement
under the Securities Act to register 1,270,000 shares of Common Stock reserved
for issuance upon the exercise of options or awards of restricted stock that
may be granted under the 1997 Long-Term Incentive Plan. See "Management--1997
Long-Term Incentive Plan," "Principal and Selling Stockholders" and "Shares
Eligible for Future Sale."
NO DIVIDENDS
The Company anticipates that, for the foreseeable future, all earnings, if
any, will be retained for the operation and expansion of its business and that
it will not pay dividends after the payment of the dividends to the Company's
Principal Stockholders as described under "The Company." See "Dividend
Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock will experience immediate
dilution after this offering. See "Dilution." In addition, an aggregate of
1,270,000 shares of Common Stock are reserved for issuance under the Company's
1997 Long-Term Incentive Plan, which shares, when and if issued, may cause
additional dilution to the purchasers of Common Stock offered hereby. The
Company currently anticipates that options to purchase 587,500 shares of
Common Stock at the initial public offering price will be granted immediately
prior to consummation of this offering.
10
<PAGE>
THE COMPANY
The Company was founded in April 1984. Prior to this offering, Philip
Friedman and his brother Victor Friedman owned 90% and 10%, respectively, of
the common stock.
Since its incorporation, the Company has been treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Company's earnings have been taxed
for federal and certain state income tax purposes directly to its stockholders
rather than to the Company. See Note 13 to the financial statements of the
Company. The Company will terminate its S corporation status effective as of
the day preceding the consummation of this offering (the "S Termination
Date"). As a result, the Company will have a final S short year ending on and
including the day preceding the S Termination Date. On and after the S
Termination Date, the Company will no longer be treated as an S corporation
and, accordingly, will be fully subject to federal, state and local income
taxes.
Upon consummation of this offering, the Company plans to distribute to its
stockholders of record immediately prior to this offering the cumulative
amount of its undistributed earnings for the entire period that it was an S
corporation (i.e., from inception through the day preceding the S Termination
Date), which earnings have been or will be taxed to such stockholders for
federal and certain state income tax purposes. As of December 31, 1996, the
cumulative balance of such undistributed S period taxable earnings was
approximately $4.8 million. To this amount will be added, for purposes of
calculating the amount of the distribution, the taxable earnings of the
Company from January 1, 1997 to the day prior to the S Termination Date (less
any distributions made by the Company during such period).
Should there be any adjustments to the Company's federal taxable income that
result in a shifting of income from taxable years in which the Company was an
S corporation to subsequent non-S corporation taxable years of the Company, or
vice versa, the stockholders of record immediately prior to this offering
shall pay to the Company (in the former circumstance) or the Company shall pay
to such stockholders (in the latter circumstance), the amount of federal,
state and local income taxes, including penalties and interest, incurred by
the Company or the stockholders, as the case may be, as a result of such
adjustment to income (without regard to any tax benefit that the stockholders
may realize from an increase in the basis of their Common Stock that results
from such adjustment); provided that the stockholders' obligation to the
Company cannot exceed the amount of the income that was shifted from an S
corporation year to a non-S corporation year less the federal, state and local
income taxes incurred by the stockholders with respect to such income. To the
extent that any such amount is paid to a stockholder after the date which is
one year from the S Termination Date, such amount will be increased in an
amount, if any, necessary to reimburse such stockholder for taxes required to
be paid by him as a result of his receipt of such amount (as so increased).
The cost to the Company of any such payment could exceed the amount of the
savings realized by the Company as a result of such adjustment to income. The
stockholders of record immediately prior to this offering will also indemnify
and hold harmless the Company from any federal and New York state income tax
liabilities (including interest and penalties) that result from the failure of
the Company to qualify as an S corporation for any year or years ending on or
prior to December 31, 1996 or for the period from January 1, 1997 through the
day prior to the S Termination Date.
Prior to the consummation of this offering, the Company will also adopt an
amended and restated certificate of incorporation (the "Certificate of
Incorporation") and by-laws (the "By-Laws"). The Certificate of Incorporation
will provide for "blank check" Preferred Stock, a Board of Directors that will
be divided into three classes of directors serving staggered three-year terms
and certain super majority voting provisions. See "Description of Capital
Stock." Also immediately prior to this offering, the Company will effect a
1,300.42 for one stock split of its existing common stock, following which the
Company's current stockholders, Philip Friedman and Victor Friedman, will
exchange such common stock on a one-for-one basis for Common Stock.
The Company is incorporated in the State of Delaware and maintains its
principal executive offices at 1675 Broadway, New York, New York 10019. The
Company's telephone number is (212) 408-3800.
11
<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 $31.5 million (or
approximately $37.4 million if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and estimated
offering expenses and assuming an initial offering price of $12.00 per share.
The Company intends to use the net proceeds (i) to repay all outstanding
indebtedness (a) owed to Philip Friedman in the aggregate amount of
approximately $2.5 million, which indebtedness is payable upon demand and
bears interest at 10.0%, (b) under the Company's revolving credit facility
($2.1 million as of December 31, 1996), which indebtedness bears interest at
the bank's prime rate (8.25% at December 31, 1996) and matures in May 1997,
and (c) under the Company's term loan ($133,000 outstanding as of December 31,
1996), which indebtedness bears interest at 1.25% per annum above such prime
rate and matures in June 1997, (ii) to distribute to its stockholders of
record immediately prior to this offering the cumulative amount of the
Company's undistributed taxable earnings for the entire period that it was an
S corporation (approximately $4.8 million at December 31, 1996) and (iii) for
general corporate purposes, including working capital, potential strategic
acquisitions, strategic business partnerships and future product enhancements.
While the Company from time to time evaluates acquisition opportunities, it
has not entered into any definitive agreement or understanding, and is
currently not participating in any negotiations, with respect to any
particular acquisition. The Company currently anticipates that any acquisition
would be of a business similar or complementary to the business currently
conducted by the Company.
The Company will not receive any proceeds from the sale of the Common Stock
by the Selling Stockholders.
DIVIDEND POLICY
The Company has not paid any cash dividends on its common stock in the last
three years ended December 31, 1996. The Company intends to retain its
earnings for reinvestment in the Company and, therefore, does not anticipate
paying any dividends on the Common Stock in the foreseeable future, other than
the payment of the dividend to the Company's Principal Stockholders as
described under "The Company." Subject to any restrictions in any future
financing agreements, any future determination as to the payment of dividends
will be at the discretion of the Company's Board of Directors and will depend
on the Company's results of operations, financial condition, capital
requirements and other factors deemed relevant by the Board of Directors.
12
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of December 31, 1996, (ii) the pro forma capitalization of the Company
adjusted to give effect to (a) the declaration of an S corporation
distribution to its then existing stockholders representing all of its
previously earned and undistributed S corporation taxable earnings through
December 31, 1996, (b) the expected repayment of subordinated indebtedness
owed to Philip Friedman using a portion of the net proceeds from the sale by
the Company of the 2,900,000 shares of Common Stock offered hereby and, (c)
the recording of a deferred tax asset of $295,000 as a result of becoming
subject to Federal and additional state and local income taxes and (iii) the
pro forma capitalization of the Company as adjusted to give effect to the sale
by the Company of the 2,900,000 shares of Common Stock offered hereby after
deducting the estimated underwriting discount and estimated offering expenses
payable by the Company and the anticipated application by the Company of the
estimated net proceeds therefrom. See "Use of Proceeds" and "Certain
Transactions."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA (1) AS ADJUSTED(1)
--------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current por-
tion of capital lease obligations...... $2,670 $9,616 $ 164
====== ====== =======
Long-term debt, including capital lease
obligations............................ $ 471 $ 471 $ 471
------ ------ -------
Subordinated debt-stockholder........... 2,146 -- --
------ ------ -------
Stockholders' equity:
Preferred Stock, $.001 par value,
1,000,000 shares authorized, no
shares issued and outstanding........ -- -- --
Common Stock, $.001 par value,
25,000,000 shares authorized,
9,800,000 shares issued and outstand-
ing actual; and 12,700,000 shares is-
sued and outstanding as adjusted(2).. 10 10 13
Additional paid-in capital............ 77 77 27,083
Retained earnings (deficit)........... 3,167 (1,388) 3,167
------ ------ -------
Total stockholders' equity.......... 3,254 (1,251) 30,263
------ ------ -------
Total capitalization................ $5,871 $ (780) $30,734
====== ====== =======
</TABLE>
- --------
(1) After giving effect to the proposed stock split and subsequent exchange
discussed under "The Company."
(2) Issued and outstanding shares do not include 1,270,000 shares of Common
Stock reserved for issuance under the Company's 1997 Long-Term Incentive
Plan. The Company currently anticipates that options to purchase 587,500
shares of Common Stock will be granted immediately prior to consummation of
this offering. See "Management--1997 Long-Term Incentive Plan."
13
<PAGE>
DILUTION
As of December 31, 1996, the net tangible book value of the Company was
approximately $2.8 million or $0.28 per share of Common Stock. "Net tangible
book value per share" represents the total amount of tangible assets of the
Company reduced by the amount of total liabilities and divided by the number
of shares of Common Stock outstanding after giving effect to the stock split
described in Note 12 of Notes to Financial Statements. After giving effect to
the sale by the Company of 2,900,000 shares of Common Stock in this offering,
at an assumed initial public offering price of $12.00 per share and after
deducting the estimated underwriting discount and offering expenses, the net
tangible book value of the Company at December 31, 1996 would have been
approximately $29.7 million or $2.34 per share of Common Stock. This
represents an immediate increase in net tangible book value of approximately
$2.06 per share of Common Stock to existing stockholders and an immediate
dilution of approximately $9.66 per share of Common Stock to new investors in
this offering. Dilution per share represents the difference between the price
per share paid by new investors and the net tangible book value per share
immediately after this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $12.00
Net tangible book value per share as of December 31, 1996....... $0.28
Increase in net tangible book value per share attributable to
new investors.................................................. 2.06
-----
Net tangible book value per share after this offering............. 2.34
------
Net tangible book value per share dilution to new investors....... $ 9.66
======
</TABLE>
The following table sets forth, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total consideration
paid to the Company and the average price per share of Common Stock paid by
existing stockholders and by new investors purchasing shares of Common Stock
in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION
--------------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ---------------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 9,800,000 77.2% $ 87,000 0.3% $ 0.01
New investors........... 2,900,000 22.8 34,800,000 99.7% $12.00
------------- -------- ----------- -----
Total................. 12,700,000 100.0% $34,887,000 100.0%
============= ======== =========== =====
</TABLE>
- --------
(1) The foregoing table does not reflect the sale of Common Stock by the
Selling Stockholders. Sales by the Selling Stockholders in this offering
will reduce the number of shares held by existing stockholders to 9,160,000
or approximately 72.1% of the total number of shares of Common Stock
outstanding after this offering (9,160,000 or approximately 69.2%, if the
Underwriters' over-allotment option is exercised in full), and will increase
the number of shares to be purchased by the new investors to 3,540,000.
After this offering, the new investors will own 27.9% of the total number of
shares of Common Stock outstanding after this offering (4,071,000 or
approximately 30.8%, if the Underwriters' over-allotment option is exercised
in full). See "Principal and Selling Stockholders."
(2) The foregoing table does not give effect to 1,270,000 shares of Common
Stock to be reserved for issuance under the Company's 1997 Long-Term
Incentive Plan, which shares, when and if issued, may cause additional
dilution to new investors. The Company currently anticipates that options to
purchase 587,500 shares of Common Stock at the initial public offering price
will be granted immediately prior to consummation of this offering. See
"Management--1997 Long Term Incentive Plan" and "Risk Factors--Immediate and
Substantial Dilution."
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for the years
ended December 31, 1995 and 1996 are derived from the financial statements of
the Company which were audited by Ernst & Young LLP, independent auditors. The
report of such auditors with respect to such financial statements appear
elsewhere in this Prospectus. The following selected financial information of
the Company as of and for the years ended December 31, 1992, 1993 and 1994 are
derived from the financial statements of the Company which were audited by BDO
Seidman, LLP, independent auditors. The report of such auditors with respect
to the financial statements for the year ended December 31, 1994 appears
elsewhere in this Prospectus. Historical results are not necessarily
indicative of future results. The following selected financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operation," "Capitalization" and the
Company's financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Services, software license and
maintenance fees................... $ 6,270 $ 8,514 $19,962 $31,704 $47,846
Hardware............................ 5,919 17,489 4,748 4,243 9,641
------- ------- ------- ------- -------
Total revenues.................... 12,189 26,003 24,710 35,947 57,487
Direct costs:
Services, software license and
maintenance fees................... 3,751 5,186 12,988 22,970 35,734
Hardware............................ 5,112 15,796 3,882 3,007 8,123
------- ------- ------- ------- -------
Total direct costs................ 8,863 20,982 16,870 25,977 43,857
Gross profit......................... 3,326 5,021 7,840 9,970 13,630
Selling, general and administrative
expenses............................ 1,973 2,916 4,725 6,690 9,995
Compensation amounts to S corporation
stockholders........................ 1,232 1,950 3,041 1,502 760
Amortization of cost in excess of
fair value of assets purchased...... -- -- 213 320 320
------- ------- ------- ------- -------
3,205 4,866 7,979 8,512 11,075
------- ------- ------- ------- -------
Operating income (loss).............. 121 155 (139) 1,458 2,555
Interest expense..................... -- -- 77 473 540
------- ------- ------- ------- -------
Income (loss) before income taxes.... 121 155 (216) 985 2,015
Income taxes......................... 31 39 60 33 169
------- ------- ------- ------- -------
Net income (loss).................... $ 90 $ 116 $ (276) $ 952 $ 1,846
======= ======= ======= ======= =======
PRO FORMA (UNAUDITED):
Historical income before income taxes................................ $ 2,015
Pro forma provision for income taxes(2).............................. 829
-------
Pro forma net income................................................. $ 1,186
=======
Pro forma net income per share(3).................................... $ 0.12
=======
<CAPTION>
DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 549 $ 953 $ 1,296 $ 1,943 $ 3,023
Total assets......................... 3,092 6,454 7,727 11,653 13,776
Short-term debt, including current
portion of capital lease obliga-
tions............................... 608 -- 2,272 4,088 2,670
Long-term debt, including capital
lease obligations................... 476 934 2,383 2,625 2,617
Stockholders' equity................. 364 480 456 1,408 3,254
</TABLE>
- -------
(1) For all periods shown, the Company was treated as an S corporation for
income tax purposes. Therefore, the Company's historical statements of
operations data do not include a provision for U.S. federal income taxes.
(2) Adjusted for all periods to record a provision for income taxes as if the
Company had been a C corporation. See "The Company."
(3) Computed by dividing pro forma net income by the weighted average number
of shares of Common Stock of the Company outstanding during the periods.
Pro forma net income per share for the year ended December 31, 1996 is
based on the weighted average number of shares of Common Stock of the
Company outstanding prior to this offering, after giving effect to the
stock split described in Note 12 of Notes to Financial Statements and
increased by the sale of approximately 441,700 shares of Common Stock
assuming an offering price of $12 per share ($10.87, net of underwriting
discount and expenses), the proceeds of which would be necessary to pay the
cumulative amount of undistributed taxable earnings to the Company's
existing stockholders. see "Use of Proceeds."
Supplemental pro forma net income per share is $0.14 for the year ended
December 31, 1996 and is based on the weighted average number of shares of
Common Stock of the Company outstanding prior to this offering, after giving
effect to the stock split described in Note 12 of Notes to Financial
Statements and increased by the sale of approximately 869,800 shares of
Common Stock assuming an offering price of $12 per share ($10.87, net of
underwriting discount and expenses), the proceeds of which would be
necessary to repay bank and stockholder indebtedness and to pay the
cumulative amount of undistributed taxable earnings to the Company's
existing stockholders. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives its revenues principally by providing IT services. The
Company's information systems and services include the ACS Optima Software and
IBM's AS/400 hardware, as well as a complete range of professional services
and training. The Company's IT outsourcing support services consist of on-site
and remote help desk and integrated call management services.
Information systems and services revenues were 78.0%, 64.0% and 54.0% of
total revenue in 1994, 1995 and 1996, respectively. Information systems and
services revenues as a percentage of total revenues decreased as a result of
the growth in revenues from IT outsourcing support services. The Company
achieved 19.1% and 33.6% growth in information systems and services revenue
dollars in 1995 and 1996, respectively, principally as a result of the growth
of the ACS Optima Software business. In May 1994, the Company purchased the
business operations of ACS Software Products Group, which included the ACS
Optima Software package. Previously, the Company had been a remarketer of ACS
software and had received commission revenues from the sale of ACS software.
The excess of the total acquisition cost over the fair value of net assets
acquired of $959,000 is amortized on a straight-line basis over three years.
In October 1994, the Company enhanced its ability to provide professional
services to the financial community when it purchased the business operations
of Real-Time Technology, Inc. ("Real-Time"), an information consulting company
which provided professional services primarily to the financial community.
Real-Time was then owned by Victor Friedman. For the years 1994, 1995 and
1996, substantially all of the Company's information systems and services
revenues, other than revenues from sales of hardware and software, were
generated on a time plus materials basis. Research and development costs
associated with the ACS Optima Software are expensed as incurred and are
included in direct costs.
In 1994, the Company undertook a focused effort to increase revenues from
ACS Optima Software and services and IT outsourcing support services and
decrease revenue from hardware sales, which generally have lower margins. As a
result, total revenues decreased 5.0% in 1994, but gross profit increased
56.1%. For 1995, revenues excluding hardware revenues, increased 59.0% from
1994 and hardware revenues decreased 11.0%. In 1996, revenues excluding
hardware revenues increased 50.9% from 1995 and hardware revenues increased
127.2%. The increase in hardware revenues was the result of increased ACS
software sales which usually have an AS/400 hardware component as part of the
sale.
The Company's IT outsourcing support services have grown significantly since
1993. In 1993, IT outsourcing support services revenue represented only 7.0%
of total revenues, compared to 46.0% for 1996. Revenues from the Company's IT
outsourcing support business increased 107.0% in 1996. In October 1995, the
Company was awarded a contract by IBM to provide its customers with call
management support at IBM's Atlanta and Dallas facilities. In 1996, the
Company was advised by IBM that, effective January 1, 1997, call management
services previously provided by the Company at facilities in Dallas and
Atlanta to IBM would be provided directly with IBM personnel by IBM as a part
of its worldwide call center strategy to support IBM's "core" business
functions. The Company recognized revenues of approximately $8.7 million for
providing these services to IBM in 1996, representing approximately 15% of the
Company's total revenues. Outsourcing support services revenues from remote
help desk and call management services were $5.2 million, $11.0 million and
$21.2 million for 1994, 1995 and 1996, respectively. The Company's on-site
help desk support services, which were started in mid-1994, provided $1.9
million in revenues for 1995 and $5.4 million for 1996. During 1994 through
1996, IT outsourcing support services revenues were generated on a time plus
materials basis. Beginning January 1, 1997, remote help desk services will be
billed primarily on a per call basis.
The Company, with the consent of its stockholders, has elected to be taxed
as an S corporation pursuant to the Code and certain state tax laws. As such,
the Company has not been subject to federal and certain state income taxes and
the stockholders have included the Company's taxable income or loss in their
individual income tax returns. Income taxes in 1994, 1995 and 1996 primarily
represent New York City corporate income taxes. The New York City income tax
rate is 8.85%.
16
<PAGE>
STATEMENT OF OPERATIONS
The following table sets forth certain items from the Company's statement of
operations as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Services, software license and maintenance
fees........................................ 80.8 % 88.2% 83.2%
Hardware..................................... 19.2 11.8 16.8
-------- -------- --------
Total revenues............................. 100.0 100.0 100.0
Direct costs:
Services, software license and maintenance
fees........................................ 52.6 63.9 62.2
Hardware..................................... 15.7 8.4 14.1
-------- -------- --------
Total direct costs......................... 68.3 72.3 76.3
-------- -------- --------
Gross profit................................... 31.7 27.7 23.7
Selling, general and administrative............ 19.1 18.6 17.4
Compensation amounts to S Corporation stock-
holders....................................... 12.3 4.2 1.3
Amortization of cost in excess of fair value of
assets purchased.............................. 0.9 0.9 0.6
-------- -------- --------
32.3 23.7 19.3
-------- -------- --------
Operating income (loss)........................ (0.6) 4.0 4.4
Interest expense............................... 0.3 1.3 0.9
-------- -------- --------
Income (loss) before income taxes.............. (0.9) 2.7 3.5
Income taxes................................... 0.2 0.1 0.3
-------- -------- --------
Net income (loss).............................. (1.1)% 2.6% 3.2%
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. The Company's total revenues increased 59.9% to $57.5 million in
1996 from $35.9 million in 1995. Information systems and services revenues
increased 33.3% to $30.8 million in 1996 from $23.1 million in 1995. This was
primarily due to an increase in revenues from ACS Optima Software and related
systems integration sales of $9.8 million to $22.0 million in 1996 from $12.2
million in 1995. This increase was partially offset by a decrease in revenues
from professional services of $2.8 million to $5.9 million in 1996 from $8.7
million in 1995. The decrease in professional services revenues resulted
principally from a discontinuance in 1995 of the Company's sales and services
of certain financial and distribution software packages. IT outsourcing
support revenues increased 107.0% to $26.7 million for 1996 from $12.9 million
for 1995, in part due to the start of the Company's call management business
in October 1995. The Company recognized revenues of approximately $8.7 million
in 1996 for providing call management services to IBM, representing
approximately 15% of the Company's total revenues in 1996. Effective January
1, 1997, the Company no longer provides call management services to IBM. The
balance of the increase in IT outsourcing support revenues resulted from
growth in existing remote help desk services and the expansion of on-site help
desk services.
Direct Costs. Direct costs, which are comprised primarily of direct
salaries, direct benefits and related costs and resale purchases of third
party hardware and software, increased 68.8% to $43.9 million (76.3% of
revenues) for 1996 from $26.0 million (72.3% of revenues) for 1995. Direct
costs increased as a percentage of revenues primarily due to (i) the
significant increase in the number of employees associated with the Company's
growth in IT outsourcing support revenues and (ii) the resale purchase of
third party hardware and software,
17
<PAGE>
which increased to $8.9 million for 1996 from $3.0 million for 1995. Gross
margins on hardware sales for 1996 were 15.8% as compared to 29.2% in 1995.
The decrease in gross margin is principally the result of network hardware
sales which generally have lower margins than AS/400 margins. Network hardware
sales increased to $3.3 million in 1996 from $1.3 million in 1995. Direct
costs which are associated with sales of third party hardware and software are
larger as a percentage of revenues than direct costs associated with
professional services or IT outsourcing support services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") consist primarily of indirect salaries and
facility costs for administrative, selling and executive personnel, as well as
insurance costs, advertising, professional fees and other non-direct costs.
SG&A expenses increased 49.4% to $10.0 million (17.4% of revenues) for 1996
from $6.7 million (18.6% of revenues) for 1995. The overall increase in SG&A
resulted from the Company supporting its growing infrastructure. Some of the
larger increases were selling and administrative salaries ($1.8 million),
facility costs (approximately $500,000) depreciation (approximately $175,000),
full satisfaction of a dispute with the Pension Benefit Guaranty Corporation
(approximately $150,000) and advertising (approximately $100,000). SG&A
decreased as a percentage of revenues because certain SG&A costs are fixed and
for 1996 were absorbed over a larger revenue base.
Compensation Amounts to S Corporation Stockholders. Compensation amounts to
S corporation stockholders represent salaries and bonuses paid to
stockholders. Compensation amounts to S corporation stockholders decreased
approximately $742,000 to approximately $760,000, (1.3% of revenues) for 1996
from $1.5 million (4.2% of revenues) for 1995. For 1996, the Company recorded
compensation amounts to S corporation stockholders to reflect the aggregate
base salary in effect during 1996.
Amortization of Cost in Excess of Fair Value of Assets
Purchased. Amortization of cost in excess of fair value of assets purchased,
which consists of cost in excess of fair value of assets purchased related to
the acquisition of the ACS Software Products Group, was approximately $320,000
for 1996 and 1995.
Interest Expense. Interest expense increased to approximately $540,000 (0.9%
of revenues) in 1996 from approximately $473,000 (1.3% of revenues) in 1995.
This increase was principally the result of increased working capital
borrowings used to finance the Company's growth.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. The Company's total revenues increased 45.5% to $35.9 million in
1995 from $24.7 million in 1994. Information systems and services revenues
increased 19.1% to $23.1 million in 1995 from $19.4 million in 1994,
principally because of revenues associated with the full year effects of the
ACS acquisition which was consummated in May of 1994. IT outsourcing support
revenues increased 143.3% to $12.9 million in 1995 from $5.3 million in 1994,
primarily due to increased revenues realized from existing and additional
remote help desk services and the start up of call management and on-site help
desk services.
Direct Costs. Direct costs increased 54.0% to $26.0 million (72.3% of
revenues) for 1995 from $16.9 million (68.3% of revenues) for 1994. Direct
costs increased as a percentage of revenues because of the addition of a
number of technical personnel in connection with the increase in ACS Optima
and IT outsourcing support services revenue, which technical personnel needed
to be properly trained, thereby resulting in lower than normal billable
production. In addition, the increase in IT outsourcing support services
revenue, which generally realize lower margins, also contributed to the
increase in direct costs as a percentage of revenues. Finally, during the
early part of 1995, the Company completed certain professional services
contracts related to AS/400 programming, which generally have higher margins.
Selling, General and Administrative Expenses. SG&A expenses increased 41.6%
to $6.7 million (18.6% of revenues) for 1995 from $4.7 million (19.1% of
revenues) for 1994. The Company incurred an increase of approximately $1.1
million in selling and administrative salaries to support its operational
growth and approximately $900,000 of additional SG&A expense related to the
Company's move into larger facilities in New York and Atlanta, the expansion
of its Los Angeles facility and the opening of its Dallas office. SG&A
decreased as a percentage of revenues because certain SG&A costs are fixed and
in 1995 were absorbed over a larger revenue base.
18
<PAGE>
Compensation Amounts to S Corporation Stockholders. Compensation amounts to
S corporation stockholders for annual periods represents annual salaries and
year-end bonuses. Such compensation decreased approximately $1.5 million in
1995 to $1.5 million (4.2% of revenues) from $3.0 million (12.3% of revenues)
in 1994. A portion of each year's compensation amounts to S corporation
stockholders was subsequently loaned to the Company in the form of
subordinated debt in the amounts of $1.2 million and approximately $300,000 in
1994 and 1995, respectively.
Amortization of Cost in Excess of Fair Value of Assets
Purchased. Amortization of cost in excess of fair value of assets purchased
increased 50.2% to approximately $320,000 (0.9% of revenues) for 1995 from
approximately $213,000 (0.9% of revenues) for 1994. The 1995 balance reflects
a full year of amortization.
Interest Expense. Interest expense increased to approximately $473,000 (1.3%
of revenues) in 1995 from approximately $77,000 (0.3% of revenues) in 1994.
This increase is a result of increased working capital borrowings used to
finance the Company's growth, as well as interest expense associated with an
increase in subordinated debt to stockholders.
PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED)
Since 1984, the Company has elected to be taxed as an S corporation pursuant
to the Code and certain state tax laws. The pro forma statements of operations
differ from the historical statements of operations as a result of an
adjustment to record a provision for income taxes on income as if the Company
had been a C corporation.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C>
Revenues:
Services, software license and maintenance fees....... $47,846
Hardware.............................................. 9,641
-------
Total revenues...................................... 57,487
Direct costs:
Services, software license and maintenance fees....... 35,734
Hardware.............................................. 8,123
-------
Total direct costs.................................. 43,857
-------
Gross profit............................................ 13,630
Selling, general and administrative expenses............ 9,995
Compensation amounts to S corporation stockholders...... 760
Amortization of cost in excess of fair value of assets
purchased.............................................. 320
-------
11,075
-------
Operating income........................................ 2,555
Interest expense........................................ 540
-------
Income before income taxes.............................. 2,015
Income taxes............................................ 829
-------
Pro forma net income.................................... $ 1,186
=======
Pro forma net income per share(1)....................... $ 0.12
=======
</TABLE>
- --------
(1) Computed by dividing pro forma net income by the weighted number of shares
of Common Stock outstanding during the period. Pro forma net income per
share for the year ended December 31, 1996 is based on the weighted average
number of shares of Common Stock of the Company outstanding prior to this
offering, after giving effect to the stock split described in Note 12 of
Notes to Financial Statements and increased by the sale of approximately
441,700 shares of Common Stock assuming an offering price of $12 per share
($10.87, net of underwriting discount and expenses), the proceeds of which
would be necessary to pay the cumulative amount of undistributed taxable
earnings to the Company's existing stockholders. See "Use of Proceeds."
Supplemental pro forma net income per share is $0.14 for the year ended
December 31, 1996 and is based on the weighted average number of shares of
Common Stock of the Company outstanding prior to this offering after giving
effect to the stock split described in Note 12 of Notes to Financial
Statements and increased by the sale of approximately 869,800 shares of
Common Stock assuming an offering price of $12.00 per share ($10.87, net of
underwriting discount and expenses), the proceeds of which would be
necessary to repay bank and stockholder indebtedness and to pay the
cumulative amount of undistributed taxable earnings to the Company's
existing stockholders. See "Use of Proceeds."
19
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statements of operations
data for each of the past eight quarters, as well as the percentage of the
Company's total revenues represented by each item. The unaudited financial
statements have been prepared on the same basis as the annual information
presented elsewhere in this Prospectus and, in management's opinion, includes
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the information for the quarters presented. The
operating results for any quarter are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services, software license and
maintenance fees.......................... $6,886 $7,289 $7,808 $9,721 $10,962 $11,944 $12,477 $12,463
Hardware................................... 256 1,063 1,564 1,360 1,474 2,973 2,884 2,310
------ ------ ------ ------ ------- ------- ------- -------
Total revenues............................ 7,142 8,352 9,372 11,081 12,436 14,917 15,361 14,773
Direct costs:
Services, software license and
maintenance fees.......................... 4,785 5,066 5,736 7,383 8,242 8,927 9,063 9,502
Hardware................................... 176 545 1,226 1,060 1,172 2,545 2,536 1,870
------ ------ ------ ------ ------- ------- ------- -------
Total direct costs........................ 4,961 5,611 6,962 8,443 9,414 11,472 11,599 11,372
------ ------ ------ ------ ------- ------- ------- -------
Gross profit................................ 2,181 2,741 2,410 2,638 3,022 3,445 3,762 3,401
Selling, general and administrative expenses.. 1,421 1,587 1,766 1,916 1,988 2,516 2,630 2,861
Compensation amounts to S corporation
stockholders............................... 100 100 100 1,202(/1/) 190 190 190 190
Amortization of cost in excess of fair value
of assets purchased........................ 80 80 80 80 80 80 80 80
------ ------ ------ ------ ------- ------- ------- -------
Operating expenses........................ 1,601 1,767 1,946 3,198 2,258 2,786 2,900 3,131
------ ------ ------ ------ ------- ------- ------- -------
Operating income (loss)..................... 580 974 464 (560) 764 659 862 270
Interest expense............................ 118 107 122 126 147 148 139 106
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before income taxes........... 462 867 342 (686) 617 511 723 164
Income taxes................................ 15 45 11 (38) 54 41 62 12
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)........................... $ 447 $ 822 $ 331 $ (648) $ 563 $ 470 $ 661 $ 152
====== ====== ====== ====== ======= ======= ======= =======
PRO FORMA (UNAUDITED):
Historical income before income taxes............................................ $ 617 $ 511 $ 723 $ 164
Pro forma provision for income taxes (2)......................................... 254 210 298 67
------- ------- ------- -------
Pro forma net income............................................................. $ 363 $ 301 $ 425 $ 97
======= ======= ======= =======
</TABLE>
- --------
(1) Compensation amounts to S corporation stockholders for the fourth quarter
of 1995 include discretionary annual bonuses which were expensed in the
fourth quarter. Such amounts were approximately $900,000.
(2) Adjusted for all periods to record a provision for income taxes as if the
Company had been a C corporation. See "The Company."
20
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Services, software
license and
maintenance fees...... 96.4% 87.3% 83.3% 87.7% 88.1% 80.1% 81.2% 84.4%
Hardware............... 3.6 12.7 16.7 12.3 11.9 19.9 18.8 15.6
----- ----- ----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Direct costs:
Services, software
license and
maintenance fees...... 67.0 60.7 61.2 66.6 66.3 59.8 59.0 64.3
Hardware............... 2.5 6.5 13.1 9.6 9.4 17.1 16.5 12.7
----- ----- ----- ----- ----- ----- ----- -----
Total direct costs.. 69.5 67.2 74.3 76.2 75.7 76.9 75.5 77.0
Gross profit............ 30.5 32.8 25.7 23.8 24.3 23.1 24.5 23.0
Selling, general and
administrative
expenses............... 19.9 19.0 18.8 17.3 16.0 16.9 17.1 19.4
Compensation amounts to
S corporation
stockholders........... 1.4 1.2 1.1 10.9 1.5 1.3 1.2 1.3
Amortization of cost in
excess of fair value of
assets purchased....... 1.1 0.9 0.9 0.7 0.6 0.5 0.6 0.5
----- ----- ----- ----- ----- ----- ----- -----
22.4 21.1 20.8 28.9 18.1 18.7 18.9 21.2
----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. 8.1 11.7 4.9 (5.1) 6.2 4.4 5.6 1.8
Interest expense........ 1.6 1.3 1.2 1.1 1.2 1.0 0.9 0.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 6.5 10.4 3.7 (6.2) 5.0 3.4 4.7 1.1
Income taxes............ 0.2 0.6 0.1 (0.3) 0.4 0.3 0.4 0.1
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 6.3% 9.8% 3.6% (5.9)% 4.6% 3.1% 4.3% 1.0%
===== ===== ===== ===== ===== ===== ===== =====
PRO FORMA (UNAUDITED):
Historical income before income taxes........................ 5.0% 3.4% 4.7% 1.1%
Pro forma provision for income taxes......................... 2.0 1.5 1.9 0.5
----- ----- ----- -----
Pro forma net income......................................... 3.0% 1.9% 2.8% 0.6%
===== ===== ===== =====
</TABLE>
The Company's quarterly operating results have varied and are expected to
continue to vary in the future. These fluctuations may be caused by many
factors, including, among others: the size and timing of ACS Optima Software
and hardware sales; customer order deferrals in anticipation of new ACS Optima
Software releases; variation of ACS Optima Software and hardware sales as a
percentage of total revenues; timing of introduction or enhancement of
products by the Company or its competitors; changes in the Company's operating
expenses; personnel changes and general industry and economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has relied primarily upon cash flows from
operations, borrowings under its revolving credit facility and capital lease
financings to finance its operations and acquisitions.
Net cash provided by (used in) operating activities was ($4.7 million),
($1.3 million) and $2.5 million for 1994, 1995 and 1996, respectively.
Net cash used in investing activities for 1994, 1995 and 1996 was
approximately $874,000, $579,000 and $683,000, respectively. Cash used in
investing activities in 1994 is primarily related to the ACS acquisition and
for 1994 and all other periods includes capital expenditures for computer
equipment and furniture and fixtures.
21
<PAGE>
Net cash provided by (used in) financing activities in 1994, 1995 and 1996
was $3.1 million, $1.5 million and ($2.0 million), respectively. During 1996,
the Company repaid the balance of certain acquisition debt and a portion of
its notes payable to the bank.
The Company's revolving credit facility consists of a revolving line of
credit with Bank Leumi Trust Company of New York ("Bank Leumi") providing for
outstanding borrowings of up to 80% of eligible accounts receivable with
maximum borrowings of up to $7.0 million. The line of credit, which expires in
May 1997, is collateralized by a security interest in substantially all of the
assets of the Company. The line of credit bears interest at the bank's prime
rate (currently 8.25%). At December 31, 1996, the Company had $2.1 million
outstanding under the revolving credit facility. Outstanding amounts under the
revolving line of credit are also supported by a 10% compensating balance
arrangement. A portion of the net proceeds from this offering will be used to
repay amounts at such time outstanding under the revolving credit facility.
See "Use of Proceeds."
The Company also had an outstanding balance of $133,000 at December 31, 1996
on an $800,000 three year term loan with Bank Leumi. The term loan is payable
in equal monthly installments of approximately $22,000 and bears interest at
1.25% per annum above the bank's prime rate. Net proceeds from the term loan
were used to fund the acquisition of ACS Software Products Group. The term
loan contains financial covenants relating to minimum tangible net worth,
working capital and a maximum debt-to-equity ratio. A portion of the net
proceeds from this offering will be used to repay amounts outstanding under
the term loan. See "Use of Proceeds."
The Company had an outstanding balance of approximately $2.5 million at
December 31, 1996, payable to Philip Friedman, the Company's President and
Chief Executive Officer, pursuant to a demand note that bears interest at 10%
per annum. A portion of the net proceeds from this offering will be used to
repay all amounts outstanding under this demand note. See "Use of Proceeds."
Historically, cash flow from operations and borrowings under the revolving
credit facility have been sufficient to satisfy the Company's liquidity needs.
The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with anticipated cash flow from operations and
borrowings under the revolving credit facility, will be sufficient to finance
the Company's current operations through approximately the end of 1997;
however, as the Company's operations continue to expand, it may require
additional funds. In addition, while the Company presently anticipates that
capital expenditures for the foreseeable future will be consistent with those
incurred on an historical basis, as the Company's operations continue to
expand, there can be no assurance that this will be the case. To the extent
that additional funds are needed, whether to finance the Company's operations,
future acquisitions or capital expenditures, the Company may be required to
obtain additional financing through one or more offerings of equity or debt
securities, the amendment of the Company's existing revolving credit facility,
a new credit facility or any combination of the foregoing.
INFLATION
In the last three years, inflation has not had a significant impact on the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years
beginning after December 31, 1995 and prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock
appreciation rights. SFAS 123 requires compensation expense to be recorded (i)
using the new fair value method or (ii) using existing accounting rules
prescribed by Accounting Principles board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have been had
the Company adopted the new fair value method. It is the Company's intention
to present such information in accordance with APB 25 as described in (ii)
above.
22
<PAGE>
BUSINESS
The Company offers its clients a Composite Solution for their IT
requirements. The Composite Solution is based on a modular approach which
allows the Company to utilize its products and services to create customized
solutions for its clients. Products and services provided by the Company range
from the ACS Optima Software bundled with IBM AS/400 hardware and related
support services, to professional services, technical training, full service
on-site and remote help desk support and call management services. The
marketing of many of the Company's products and services is enhanced through
its strategic and other relationships with recognized leaders in the IT
industry, including IBM and AT&T. IBM and AT&T accounted for, in the
aggregate, approximately 40% of the Company's total revenues in 1996.
The Company is a leading supplier of integrated business information systems
to the apparel industry. Its solution includes the ACS Optima Software, a
comprehensive, integrated business information system specifically designed
for the apparel industry. The Company provides the ACS Optima Software to many
leading United States apparel manufacturers. Representative examples of the
Company's ACS Optima Software clients include several divisions of Polo Ralph
Lauren, Quicksilver and Fritzi. These representative clients accounted for, in
the aggregate, approximately 14% of the Company's total revenues in 1996.
The Company also provides a variety of professional services, delivered on a
project basis or through staff augmentation, to address clients' systems
requirements, ranging from strategy and design through development and
implementation to maintenance and support. The Company provides these
professional services to clients primarily in the financial, entertainment and
communications industries. Representative examples of the Company's clients
for professional services include Morgan Stanley, Merrill Lynch and EMI Music.
These representative clients accounted for, in the aggregate, approximately 4%
of the Company's total revenues in 1996. Through its technical training
services, the Company provides approximately 350 comprehensive technical and
end-user training classes to its clients' personnel in many leading-edge
technologies, including Visual Basic, PowerBuilder, Visual C++ and Sybase. To
meet the Company's needs for technical resources, the Company maintains a
national proprietary database consisting of technical profiles and resumes of
approximately 30,000 professionals. The Company believes that this database,
its existing technical staff and other software tools enable it to offer its
clients the technical resources necessary to meet their IT requirements and
address the challenges of creating "Year 2000" compliant systems.
Pursuant to an agreement between IBM and the Company entered into in
November 1996, the Company has been designated by IBM as one of six current
national "Business Partners" for its "Year 2000" engagements. IBM will utilize
the Company and its personnel to meet certain resource requirements for IBM
and IBM clients in connection with its "Year 2000" engagements. To date, the
Company has not recognized any revenues in connection with this agreement.
The Company provides a complete range of IT outsourcing support services,
including on-site and remote help desks and integrated call management centers
staffed and managed by the Company's personnel. In providing these services,
the Company uses sophisticated tools that enable it to serve as the
transparent extension of its clients' technical support infrastructure. These
services provide the Company's clients with immediate access to skilled
technical personnel and a cost-effective solution to their IT outsourcing
support needs Representative examples of the Company's IT outsourcing support
clients include IBM and AT&T. The Company was advised by IBM that, effective
January 1, 1997, call management services previously provided by the Company
to IBM would be provided directly by IBM with IBM personnel as a part of its
"core" business functions. The Company recognized revenues of approximately
$8.7 million for providing these services to IBM in 1996, representing
approximately 15% of the Company's total revenues. In January 1997, the
Company and IBM agreed to extend a separate agreement whereby the Company will
continue to provide help desk services to IBM and its customers for an
additional three-year term. The Company's contracts are generally cancellable
by the client at any time or, with respect to some of the Company's larger
contracts, including those with IBM, on 30 to 90 days notice.
23
<PAGE>
INDUSTRY BACKGROUND
Historically, enterprise-wide computing was conducted on proprietary host-
based systems operating on mainframes and minicomputers typically supplied by
a single vendor. These host-based systems offered centralized data processing
and helped automate tasks such as manufacturing, distribution and financial
reporting. In the 1980s, the ease-of-use and low cost of personal computers,
combined with the increased availability of powerful application software, led
to rapid growth in the number of computer users throughout organizations.
Computing environments became increasingly varied and included personal
computers and workstations from different vendors, as well as traditional
minicomputers and mainframes. This transition to distributed computing
environments, including client/server architectures, required businesses to
seek methods of improving information processing across varying computer
hardware and software configurations and to find cost effective ways to ensure
that their employees have access to expert technical support.
Companies have found it increasingly difficult to service all of their IT
needs through in-house personnel. This is due, in part, to rapid technological
change that has resulted in information systems that are more complex and
varied requiring specialized technical expertise. In addition, as part of the
trend towards downsizing and improving return on investment in IT, many
companies have decided to outsource portions of their IT services.
Additionally, many management information systems ("MIS") departments lack the
technical management and support, training capabilities and personnel needed
to address the size and complexity of their own IT systems. As a result, in
recent years, businesses have relied increasingly on IT service firms to
develop, support and strengthen their MIS departments, to train their MIS
employees and provide technical support services, including help desks.
The IT services industry has grown significantly, and it is estimated that
industry revenue will reach approximately $170 billion by the year 2000 in the
areas in which the Company offers its services and products. The Company
believes that a number of factors have caused and will continue to cause this
demand to increase, including: corporate efforts to improve operating
efficiencies by reducing costs; the acceleration of technological change; and
the rapid growth of both software applications and end-users. These factors
will require organizations to fully integrate their existing systems and
migrate to enterprise-wide systems. In addition, the Company believes that
this industry growth will further drive demand for technically trained
personnel to develop and operate such systems.
Many businesses have started to outsource IT and support services and are
turning over help desk, call management and other support services to third
parties. The Company believes that demand for the services provided by IT
firms is likely to increase due to the advantages outside consultants bring to
their clients, including an ability to train and supply personnel with the
skill sets required to utilize new and increasingly complex technology more
economically than maintaining the equivalent level of expertise in-house.
A specific challenge facing IT users is making their current systems "Year
2000" compliant. As the year 2000 approaches, businesses and governments are
beginning to recognize that their current computer systems are incapable of
accepting the millennium change and that modification will be necessary when
two-year date fields become "00" following the year 1999. Resolution of
problems relating to the "Year 2000" may require an analysis and adjustment of
millions of lines of affected software code. The systems, solutions and
personnel required to assess these problems and implement the proper changes
are expected to be a significant factor in driving the industry's high rate of
growth through the year 2000. It is estimated that the global cost of
assessing and correcting the "Year 2000" problem is in excess of $300 billion.
THE COMPOSITE SOLUTION
The Company offers its clients a Composite Solution for their IT
requirements. The Composite Solution is based on a modular approach which
allows the Company to utilize its products and services to create customized
solutions for its clients. Products and services provided by the Company range
from the ACS Optima Software bundled with IBM AS/400 hardware and related
support services, to professional services, technical training, full service
on-site and remote help desk support and call management services. The Company
believes that its Composite Solution, which enables the Company to offer its
clients a single source for an integrated IT solution,
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gives the Company a marketing advantage since it provides the Company with
numerous entry points to service a client's IT requirements. The Company
typically establishes its initial relationship with a client by providing one
or a limited number of its products and services. As the relationship
develops, the Company and the client often will identify additional IT
requirements which the Company is able to address with other products and/or
services from its portfolio.
STRATEGY
The Company's objective is to continue its growth and to become a leading
provider of a wide variety of information systems and services and IT
outsourcing support services. The Company's principal strategies for achieving
this objective are as follows:
Strengthen its Position as the Provider of the Composite Solution. The
Company believes that offering the Composite Solution enables it to implement
a leveraged marketing strategy that differentiates it from its competitors.
The Company's highly trained technical staff assesses a client's IT
requirements and recommends a customized Composite Solution comprised of
proprietary and customized products and services. The Company intends to
leverage its initial client relationships to develop multiple entry points
into the client's organization, giving the Company further opportunity to
provide additional services through cross-selling. Additionally, the Composite
Solution allows the Company to meet its clients IT requirements and develop
and expand its products and services to satisfy the changing needs of its
clients.
Expand its Presence in the Apparel Industry. The Company intends to further
penetrate the apparel industry by leveraging its name recognition, substantial
industry expertise and extensive client base. The Company intends to maintain
ACS Optima's position as the leading business system for the apparel industry
by (i) continuing to upgrade and improve the system's features in response to
the changing requirements of its apparel clients and (ii) improving and
enhancing systems consulting, integration and outsourcing support services.
Become A Leading Provider of "Year 2000" Solutions. The Company believes
that over the next five years it will have major opportunities to provide the
solutions to rectify the problems created by the millennium change. The
Company has been designated by IBM as one of six current national "Business
Partners" for IBM's "Year 2000" engagements. As part of an agreement between
IBM and the Company, IBM will utilize the Company and the Company's personnel
to meet certain resource requirements for IBM and IBM clients in connection
with its "Year 2000" engagements. The Company has also entered into agreements
to use and market specialized software tools and continually reviews and
evaluates additional software tools that are designed to address the
challenges facing MIS professionals in creating "Year 2000" compliant systems.
The Company believes that its national, proprietary database, consisting of
technical profiles and resumes of approximately 30,000 professionals and a
personnel search engine, "Skills Finders Plus," enable it to access the
technical resources necessary to implement "Year 2000" solutions.
Leverage Strategic Alliances and Other Business Relationships. The Company
has formed several strategic alliances and other relationships with recognized
leaders in the IT industry.
IBM. The Company intends to leverage its successful historical
relationship with IBM to expand the products and services it currently
provides to IBM and other clients. The Company believes that its
designation by IBM as one of six current national IBM "Business Partners"
for its "Year 2000" engagements will identify the Company as a provider of
"Year 2000" solutions to the Company's existing and future clients. The
Company believes it can use its agreement with IBM designating it as an IBM
National Solution Provider to further enhance its position in the apparel
industry. Additionally, the Company believes that its agreement with IBM
designating it as an IBM Industry Remarketer for its midrange and mainframe
hardware platforms enhances its ability to provide a Composite Solution to
its clients.
AT&T. Pursuant to an agreement with AT&T, the Company currently provides
help desk services to AT&T's clients. The Company intends to introduce to
these clients and others the additional services that comprise the
Company's Composite Solution. In addition, it is the Company's strategy to
establish preferred vendor relationships with AT&T's spin-offs, Lucent
Technologies, Inc. and NCR Corp.
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Others. The Company intends to use its business relationships and
agreements with Borland International, Inc. ("Borland"), Lotus Development
Corp. ("Lotus"), Microsoft Corporation ("Microsoft") and Oracle Corp.
("Oracle") to further develop core competencies in their computer products
and to use them when creating a customized Composite Solution for its
clients. In addition, the Company intends to continue to work with Siemens
Rolm Communications Inc. ("Siemens Rolm Communications"), a call center
switch technology provider, ProAmerica Systems Inc. ("ProAmerica Systems"),
a developer of call center software, and Haldeman-Powell Partners, an
architectural firm, to provide potential clients with one-stop shopping for
all services needed to set up and operate a call center.
Leverage Existing Call Management and Help Desk Infrastructure. In 1995,
the Company opened a state-of-the-art call management/help desk facility at
the Dallas Infomart which will allow it to provide an end-to-end solution to
its clients' call management needs. In addition, in October 1996, the Company
commenced operations at its new help desk facility located in Tampa. The
Company believes that its ability to leverage its call management and help
desk infrastructure across multiple clients will significantly reduce the cost
of processing a call and further enhance the Company's competitiveness.
Further Penetrate AS/400 Market. The Company believes that the AS/400 market
has traditionally been under serviced by other IT companies. The Company has
developed substantial expertise servicing and developing applications for the
AS/400 platform, primarily as a result of its long-term relationship with IBM,
as well as through its development of the ACS Optima Software. The Company
intends to continue to market its IT services primarily to Fortune 2000
companies, especially to users of the AS/400 platform. Management believes
that the Company's experience with the AS/400 enhances its ability to develop
new relationships with potential clients whose systems run on AS/400s or other
midrange platforms.
Expand Geographically. The Company intends to grow both domestically and
internationally. Over the past two years, the Company has made a substantial
investment in developing its sales and marketing infrastructure and has opened
new offices in Chicago, Los Angeles, Atlanta and Dallas. The Company plans to
expand its presence in these major markets to enable it to provide elements of
the Composite Solution to a larger client base. The Company intends to grow
internationally by (i) expanding its relationships with U.S. based clients to
provide products and services to their international divisions, particularly
in Asia and Europe, (ii) establishing direct relationships with companies
overseas, particularly through the marketing of the ACS Optima Software to
apparel companies and (iii) working with certain of its strategic alliance
partners outside the United States to cross-sell or bundle their services.
INFORMATION SYSTEMS AND SERVICES
As part of its information systems and services business, the Company
provides integrated solutions to the apparel, financial, entertainment and
communications industries. As part of its solution to the apparel industry,
the Company markets the ACS Optima Software, which is installed in hundreds of
United States apparel companies as well as apparel companies in Mexico and
Canada. Additionally, the Company offers a wide range of public and private
technical and end user training services.
ACS Optima Products and Services
In order to better respond to changes in fashion trends and to remain
profitable in an increasingly competitive industry, apparel manufacturers are
under increasing pressure to shorten delivery time cycles and increase
efficiency in all areas of their business. The ACS Optima Software package is
a comprehensive, integrated business information system, specifically designed
for the apparel industry. With a graphical-user-interface ("GUI") that
provides "point-and-click" ease of use and an Executive Information System
("EIS") designed for senior management, ACS Optima Software allows apparel
manufacturers and importers to manage all phases of the production process,
from planning and design to manufacturing, inventory control, distribution and
financial reporting. The ACS Optima Software emphasizes "Quick Response" and
is specifically designed to shorten delivery cycles. The Company believes the
ACS Optima Software provides apparel clients with a complete solution that
enhances their competitive position in the marketplace.
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Described below are selected modules of the ACS Optima Core System and
additional modules to the ACS Optima Core System.
<TABLE>
<CAPTION>
ACS OPTIMA CORE SYSTEM DESCRIPTION
---------------------- -----------
<C> <S>
Order Management and Distribution A complete order fulfillment function that
summarizes essential statistics and helps
the apparel industry executive pinpoint
areas that need attention. It provides
instant access to reports that contain an
overview of current gross profit, order
patterns, receivable allowances and
inventory, shipment and manufacturing data.
Import Management/Production A function which facilitates the purchasing
and tracking of imported goods. Working
with estimated costs, the system creates a
purchase order and letter of credit
documentation. It also tracks goods through
the purchasing and production process and
identifies possible delays. Once
merchandise is shipped, Import Management
tracks and provides the delivery status and
anticipated arrival date of the
merchandise.
Raw Material/Module A function which helps estimate the
material and other requirements for
production and initiates a procedure to
ensure that such products are available.
Bill of Material ("BOM")/Fabric
Actual Module A function which establishes requirements
and then compares standard costs to actual.
When goods are produced in multiple
locations, the BOM will identify the most
cost effective assembly method.
Material Requirements Planning A function which determines the earliest
date on which production can begin based on
a raw materials evaluation.
<CAPTION>
ADDITIONAL MODULES
TO THE ACS OPTIMA CORE SYSTEM DESCRIPTION
----------------------------- -----------
<C> <S>
FACTS A/P and G/L An accounts payable and general ledger
package that is integrated into the ACS
Optima Software.
Executive Information System An advanced client/server tool that
summarizes and displays computer-based
information in a concise, meaningful
format, statistically or graphically, for
the apparel industry executive,
specifically in the key business areas of
sales, manufacturing, finance and
management.
EDI/400* Communication tool which allows
manufacturers to receive and send
information directly to their customers.
PKMS* A distribution center management system
that gives the apparel industry executive
complete control over all warehouse
operations, including receiving, stock
locating, picking, verifying, packing,
manifesting and shipping.
Image Info* A function which takes digital pictures of
merchandise and creates and produces custom
catalogs, style libraries and inventory
reports with full color imaging.
Quick Image* A function which displays pictures of a
garment at the touch of a command key.
Pictures are scanned, digitized, indexed
and displayed along with other ACS Optima
screens.
Sales Automation* A lap-top based order system that is used
by field representatives to place orders
and determine inventory availability.
Orders are accurately written, sized,
printed for the customer and transmitted to
the apparel company in minutes.
</TABLE>
--------
* Licensed to the Company.
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As part of a turn-key system provided by the Company, the initial contract
typically includes a combination of hardware, software, systems integration
and maintenance. Upon expiration of the initial contract, most clients
purchase an extended maintenance contract which includes yearly product
upgrades and access to the Company's ACS Optima help desk. Extended
maintenance contracts provide the Company with a steady source of recurring
annual revenue.
The Company has established the "Users Advisory Board," which is comprised
of the Company's 25 largest clients utilizing the ACS Optima Software. At
meetings held twice a year, the Users Advisory Board provides the Company with
valuable input and direction relative to future product enhancement and
development. These meetings, which are led by the Company's clients, allow the
Company to anticipate and develop solutions for its clients prior to actual
need.
Professional Services
Recognizing the changing IT requirements of its clients, the Company
provides a wide range of professional services to a diverse client base
focusing on companies in the financial, entertainment and communications
industries, including Morgan Stanley, Merrill Lynch and EMI Music. The
Company's professional services are delivered on a project basis or, more
often, through staff augmentation.
The Company's professional services staff provides services to support the
full life cycle of computer systems, from strategy and design to development
and implementation and finally to maintenance and support, across a wide range
of platforms, including mainframe, midrange (AS/400), client/server and
personal computers. In addition, the Company's professional services group
provides contract programming, consulting and other computer-related
professional services primarily to large corporate clients. The Company's
technical staff performs a wide variety of tasks to identify, analyze and
solve a client's data processing and computing problems. Generally, these
services are provided on-site to clients with personnel who do not have the
requisite technical skills or to clients with specific projects requiring
additional staffing that do not justify permanent personnel increases. The
scope of the work performed by the Company ranges from specific, minor tasks
of short duration to large, complex tasks that require a large number of
consultants. Furthermore, the Company has extensive experience in providing
network solutions to its existing client base by providing hardware, software
and systems integration services. The Company has developed expertise in
document imaging and voice recognition technology and employs certified Lotus,
Microsoft and Novell engineers. The Company's business relationships with
Borland, Lotus, Microsoft and Oracle enhance the marketability of the
Composite Solution and strengthen the skills of its technical staff.
In order to become a leading provider of "Year 2000" solutions, the Company
has created a "Year 2000" Competency Center to proactively address the issues
that its clients face in resolving these problems. The Competency Center is
comprised of a select group of the Company's technical professionals who
specialize in developing "Year 2000" solutions for organizations and assist
clients in making their current systems "Year 2000" compliant. The Company has
entered into agreements to market and utilize various software tools in order
to provide "Year 2000" solutions to its clients and continually reviews and
evaluates additional software tools that can assist the Company's
professionals in creating "Year 2000" compliant systems for clients. In this
regard, the Company has a use and marketing agreement for an AS/400 specific
product that goes beyond diagnosis and is able to partially correct affected
software. The Company also has a separate agreement with another company which
permits the Company to use and market a suite of tools that are capable of
automatically analyzing and locating code that requires conversion and
determining the overall magnitude of the date conversion task. In addition,
the Company has been designated by IBM as one of six current national
"Business Partners" for its "Year 2000" engagements. As a part of an agreement
between IBM and the Company, IBM will utilize the Company and its personnel to
meet certain resource requirements for IBM and IBM clients in connection with
its "Year 2000" engagements. The agreement with IBM does not permit the
Company to form a similar subcontracting relationship with another "Year 2000"
service provider during its term, although the Company may enter into other
engagements and form other relationships in connection with its "Year 2000"
initiative. To date, the Company has not recognized any revenues in connection
with these agreements. See "Risk Factors--Internal Expansion and Acquisition
Risks."
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Management believes that one of the most critical challenges facing
organizations attempting to make their current systems "Year 2000" compliant
is the hiring and retaining of technical personnel who are able to rewrite the
enormous amounts of computer code in various computer languages. Through its
extensive recruitment efforts of technical personnel, management believes it
is well positioned to supply clients with large numbers of trained personnel
to address their individual "Year 2000" challenges, either on a project or
staff augmentation basis. The Company employs a number of tools to meet its
clients' staffing needs, including dedicated recruiting personnel, a national
proprietary database consisting of technical profiles and resumes of
approximately 30,000 technology professionals, dedicated resources to conduct
Internet research for qualified personnel and in addition, the Company's world
wide web site which includes the "CGS Career Center" which lists and
continually updates available positions with the Company and receives
thousands of "hits" per month.
In addition, the Company maintains a personnel search engine, "Skills Finder
Plus," which includes search capabilities to match potential candidates with
specific project and Company requirements.
Training
The Company provides, through more than 350 course offerings, comprehensive
technical and end user training to its clients' personnel, including
programmers, system administrators, operations personnel and management. In
1996, the Company's instructors provided over 600 computer technology-related
classes. The Company emphasizes courses covering advanced technical skills
focused on a broad range of software applications and IT and help desk
management skills rather than basic introductory skills. Among others, the
Company offers courses in Visual Basic, PowerBuilder, Visual C++ and Sybase.
The Company is a certified training provider for Borland's Delphi and Lotus
Notes.
Management believes that its clients are attracted by the Company's broad
range of course offerings and highly qualified training professionals as well
as its ability to maintain and develop customized courses in leading-edge
technologies. The Company believes that because of rapid technological change
which has resulted in information systems that are more complex, companies are
increasingly relying on third-party providers of IT training.
By offering computer technology-related classes, the Company gains access to
MIS professionals and is able to introduce other components of the Composite
Solution to such professionals.
Although client courses are generally provided on-site at a client's
facilities using the client's hardware and software, the Company also makes
available to clients its New York City training facility. In order to
accommodate clients who may be interested in training only a few of their
employees, the Company also offers public classes which are prescheduled at
selected times at the New York City training facility. These classes are also
available to the general public. In addition, computer users can browse the
Internet for course offerings and make reservations for classes.
IT OUTSOURCING SUPPORT SERVICES
To capitalize on the trend towards outsourcing IT services, the Company
provides on-site and remote help desk services. In addition, the Company
provides services that facilitate the entire call management process,
including generic call receiving, inbound and outbound telemarketing, data
collection and call overflow services. In providing these services, the
Company uses sophisticated tools that enable it to act as the transparent
extension of its clients' technical support infrastructures.
Help Desk
The Company provides on-site and remote help desk services, primarily
through IBM and AT&T, to major companies that have outsourced technical
support for their internal IT systems. The Company's certified technical
specialists provide shrink-wrapped software product support for over 300
products, as well as process
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<PAGE>
engineering which includes systems design and operating system, LAN/WAN and
custom software application support.
The Company has established a strategic alliance with AT&T to be a preferred
provider of help desk support functions to its clients. The Company also
provides help desk services to IBM and IBM clients through facilities located
in Tampa, Chicago, Atlanta and Rochester, MN. The Company provides technical
and product remote support services directly to IBM employees and to IBM
customers 24 hours a day, seven days a week. As part of the ACS Optima
solution, the Company also provides help desk support to approximately 90 ACS
Optima clients from the Company's Atlanta facility. The Company intends to
establish additional vendor relationships, such as those with AT&T and IBM, to
enable it to continue the expansion of its client base and the Company has
opened a new help desk facility in Tampa to meet such expansion. In January
1997, the Company and IBM agreed to extend their agreement under which the
Company provides help desk services to IBM and IBM customers for an additional
three-year term. This agreement provides that help desk services that were
previously billed on a time and material basis will now be billed primarily on
a per call basis.
The help desk facilities operated by the Company employ current technology
in PBX switches, call tracking software, telephone-computer integration,
interactive voice response and relational database management systems that are
integrated into centrally managed LAN/WANs. The Company utilizes sophisticated
call tracking software and systems to provide efficient scheduling of
personnel to accommodate fluctuations in call volume.
The Company's help desk systems capture and download to permanent databases
a variety of information concerning each call for reporting on a daily basis
to clients, including number and duration of calls (which are important for
billing purposes), response time and results of the call. Summary data and
complete databases are made available to the client to enable it to monitor
the level of service provided by the Company, as well as to determine whether
end- users of its products are encountering recurring problems that require
modification.
Call Management
In October 1995, the Company began providing call management services in
order to capitalize on this significant market opportunity and simultaneously
provide additional services to its client base as part of its Composite
Solution. The Company provides call management services directly to its
clients and through a strategic partner. The Company's current call management
clients and strategic partners are described below.
Teleservices Resources ("TSR"), a division of AMR Corp., and the Company
have partnered to provide and operate an extensive call management system for
Ryder Truck Rental, Inc. ("Ryder"). TSR is responsible for providing basic
call management services to Ryder customers, while the Company, from its
facilities in the Dallas Infomart, provides the technical support necessary
for over 5,000 Ryder dealerships to be fully integrated into Ryder's call
management and reservation system. These services include hardware and
software installation and technical support, which allow TSR to efficiently
operate the call management system and to enhance the services provided to the
Ryder dealerships.
In December 1996, the Company entered into an agreement with MCI
Telecommunications Corporation ("MCI") to provide call management services to
certain of MCI's clients. To date, the Company has not recognized any revenues
in connection with this agreement.
The Company also has recently entered into an alliance with telephone
switchmaker Siemens Rolm Communications, a call-center switch technology
provider, ProAmerica Systems and the Dallas architectural firm of Haldeman-
Powell Partners, which specializes in the design of call-center space. This
alliance will allow the Company to provide its clients, as well as its
partners' clients, one-stop shopping for all the services needed to set up and
operate a call center. In 1996, the Company established a state-of-the-art
call management facility at the Dallas Infomart which has the technology to
support over 200 call technicians and process over 4.0 million calls per year
for multiple clients.
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<PAGE>
SALES AND MARKETING
The Company markets its information systems and services and IT outsourcing
support services through the efforts of approximately 30 sales and marketing
representatives operating out of its New York, Los Angeles, Dallas, Atlanta
and Chicago offices. Sales and marketing representatives are highly
experienced in specific areas and are knowledgeable in other areas in which
the Company offers its information systems and services and IT outsourcing
support services. Sales and marketing efforts utilize an overall team-oriented
approach with routine interaction between representatives to effectively
market all of the Company's products and services. As part of their
compensation, sales and marketing representatives are paid commissions on
sales in their area of expertise and additional amounts for introductions that
lead to sales of other products and services that comprise the Composite
Solution. Management believes that being able to offer multiple services
provides the Company with a marketing advantage since it gives the Company
numerous entry points to service a customer's information systems and services
and IT outsourcing support needs.
The Company's sales force utilizes a variety of business development and
marketing techniques, including field sales, referrals, telemarketing, the
Company's on-line newsletter, presentations, exhibitions, trade shows and
meetings with potential clients to market the Composite Solution. The
Company's sales and marketing representatives emphasize the Company's ability
to offer clients a comprehensive and cost-effective solution to their IT
needs.
The Company markets the ACS Optima Software to leading apparel manufacturers
as a comprehensive, integrated business information system specifically
designed for the apparel industry. The Company strategically markets the ACS
Optima Software to apparel companies with revenues of $20 million and higher,
and the Company uses sales of this product as an entree to provide ongoing
support services as well as AS/400 sales and services. The Company markets
professional services to a diverse client base, focusing on companies in the
financial, entertainment and communications industries with a primary focus in
New York and Los Angeles, where a large portion of such industries is located.
The Company's marketing efforts for professional services target both the
decision makers who are ultimately responsible for appropriating funds for a
project and the systems staffs that will be responsible for the project after
implementation. The Company's sales and marketing representatives promote the
Company's relationships with, among others, IBM, AT&T, Borland, Lotus,
Microsoft, Oracle and Siemens Rolm Communications and ProAmerica Systems, and
representatives of such companies sometimes join the Company's sales
representatives in making joint sales calls. In addition, the Company attempts
to use its training services to provide it with insight as to potential
clients who are likely to be in need of other IT products or services offered
by the Company.
RECRUITMENT; HUMAN RESOURCES
The Company's future success will depend, in part, on its ability to hire
and retain adequately trained project managers, resource managers, systems
analysts, business analysts, programming staff and other technical experts who
can fulfill the increasingly sophisticated needs of its clients. The Company's
on-going need for technical expert resources arise from (i) increased demand
for the Company's services, (ii) turnover, which is generally high in the
industry, and (iii) client requests for programmers trained in the newest
software technologies. The recruitment of skilled project managers and other
technical experts is a critical element in the Company's success. The Company
devotes significant resources to meeting its personnel requirements. The
Company employs recruiters based in its New York, Chicago, Atlanta, Tampa and
Los Angeles offices. The Company also maintains a national proprietary
database consisting of technical profiles and resumes of approximately 30,000
technology professionals and uses a personnel search engine, "Skills Finder
Plus." This database includes search capabilities which match potential
candidates with specific project and Company requirements. In addition, the
Company has dedicated resources to conduct Internet research for qualified
personnel. The Company's world wide web site includes the "CGS Career Center,"
which lists and continually updates available positions with the Company.
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At January 31, 1997, the Company had 690 full time employees, comprised of
project and resource managers, systems analysts, business analysts,
programming staff and other technical professionals and approximately 30 sales
and marketing personnel. The Company's professional personnel have a variety
of educational backgrounds, including degrees in computer science, business
administration, education and engineering.
The Company's personnel keep abreast of technological advances and
developments through a combination of on-the-job exposure to relevant
technology, selected training programs, peer review and discussions and
supervision by senior personnel. The Company also keeps abreast of
developments by hiring professionals with expertise in technologies that are
needed or can be utilized by the Company and its clients.
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are
good.
COMPETITION
The industry in which the Company operates is extremely competitive, highly
fragmented and subject to rapid changes. While many companies provide
information systems and services and IT outsourcing support services,
management believes that no one company is dominant. There are numerous and
varied providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, divisions of large hardware and software
companies and niche providers of IT services, many of which compete in only
certain markets. Although the Company believes that the Company's strategic
alliances and other relationships provide it with a competitive advantage, the
Company competes with and faces potential competition from a number of
companies that have significantly greater financial, technical and marketing
resources, greater name recognition and a more established client base than
the Company. In addition, many of the services offered by the Company
historically have been provided, and could in the future be provided, by the
in-house personnel of its clients. The Company believes that its ability to
compete depends, in part, on a number of factors, including the ability of the
Company to hire, retain and motivate a significant number of highly skilled
employees and the development by others of products and services that are
competitive with the Company's products and services. The Company competes
with larger organizations and smaller competitors for highly skilled
professionals to fill full-time and project specific positions.
Management believes that price is not the primary factor in a client's
determination to purchase the ACS Optima Software and related services but
that product functionality and methodology for implementation are the
principal competitive considerations. The Company believes that the principal
competitive factors in its professional services business include the nature
of the services offered, quality of service, responsiveness to customer needs,
business experience and technical expertise.
With respect to its IT outsourcing support services, the Company competes
primarily on the basis of quality of service and price, and the Company could
be adversely affected by the price at which others offer comparable IT
outsourcing support services. Many of the Company's larger clients purchase IT
outsourcing support services primarily from a limited number of preferred
vendors. The Company has experienced and continues to anticipate significant
pricing pressure from these clients in order to remain competitive.
Although the Company believes that it can meet its clients' demands for
information systems and services and IT outsourcing support services, there
can be no assurance that the Company will continue to compete successfully
with its existing competitors or will be able to compete successfully with any
new competitors.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent, in part, upon its proprietary
intellectual property rights. The Company relies on contractual arrangements,
such as trade secret and non-disclosure agreements, and copyright and
trademark law to protect its proprietary intellectual property rights. While
the Company holds registered
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copyrights with respect to certain modules of the ACS Optima Software,
generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to and
distribution of its confidential and proprietary data, there can be no
assurance that the steps taken by the Company in this regard will be adequate
to deter misappropriation of its proprietary information or that the Company
will be able to detect unauthorized use and take appropriate steps to enforce
its intellectual property rights.
The Company's business includes the development of custom software
applications in connection with specific engagements. Ownership of such
software is generally assigned to the client. Although the Company believes
that its products and services do not infringe on the intellectual property
rights of others, there can be no assurance that such a claim will not be
asserted against the Company in the future.
FACILITIES
The Company's headquarters and principal administrative, sales and marketing
operations are located in approximately 21,000 square feet of leased space in
New York City under leases expiring in 2005. The Company occupies an aggregate
of approximately 34,500 square feet of additional space in Los Angeles,
Chicago, Dallas, Tampa and Atlanta under leases expiring at various times
throughout the next three years. In addition, pursuant to contracts with its
clients, the Company currently occupies additional space which is owned or
leased by its clients in Tampa, Rochester, MN, Chicago and Atlanta.
The Company leases three IBM midrange computers from IBM Credit Corp. These
leases are considered operating leases and, therefore, are not capitalized on
the Company's balance sheet. The remainder of the Company's computers and
peripheral equipment are owned or leased and treated as owned for accounting
purposes because the Company may acquire ownership at the end of the lease
agreement upon exercise of a purchase option for a nominal amount.
The Company believes that its facilities and equipment are adequate for its
current needs.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect
on the Company's financial condition or results of operations.
The Company received a letter on January 23, 1997 (the "January 23rd
Letter") from a law firm representing Orbit Industries, Inc., a debtor and
debtor-in-possession (the "Debtor") in a pending case under Chapter 11 of the
United States Bankruptcy Code (the "Chapter 11 Case") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). In connection with the Chapter 11 Case, the Company had (prior to the
receipt of the January 23rd Letter) filed a motion (the "Motion") with the
Bankruptcy Court requesting the payment of certain administrative expense
claims pursuant to the terms of a contract between the Company and the Debtor
relating to system design and integration of ACS Optima Software. The January
23rd Letter attached a draft and unfiled complaint (the "Draft Complaint") for
an action against the Company in the Superior Court of White County, Georgia.
The Draft Complaint alleges breach of contract, breach of warranty, fraud and
unjust enrichment and requests actual damages in the amount of approximately
$600,000 and punitive damages in the amount of $2 million against the Company.
The Company and the Debtor have orally agreed to extend the time in which the
Debtor must respond to the Motion until March 31, 1997. Similarly, the Debtor
has agreed not to file the Draft Complaint at any time prior to March 31,
1997. If the Draft Complaint is filed, the Company intends to vigorously
contest the allegations contained therein, and the Company does not believe
that the outcome of this matter will have a material adverse effect on the
Company's financial condition or results of operations.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following sets forth the names and ages, as of December 31, 1996, of the
Company's directors and executive officers and the positions they hold. Within
90 days following consummation of this offering, the Company will appoint Ira
Z. Kevelson and John J. Murphy as independent directors to the Board of
Directors and within one-year following consummation of this offering, the
Company will appoint one additional independent director to the Board of
Directors. Such independent directors will not be employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip Fried- 48 President, Chief Executive Officer and Director
man..........
Victor Fried- 41 Executive Vice President and Director
man..........
Fred B. 39 Vice President Finance & Administration, Secretary and Director
Schlossberg..
Jay Hakami.... 38 Senior Vice President, Products and Services
Robert B. 60 Vice President, Remote Support Services
Stratton.....
Rhoda Cahan... 53 Vice President, Training
Steven J. 41 Vice President, Call Management
Carter.......
Robert G. Ma- 43 Vice President, Help Desk Services
rino.........
</TABLE>
PHILIP FRIEDMAN has been President, Chief Executive Officer and a director
of the Company since April 1984. In 1995, Mr. Friedman was named New York City
Entrepreneur of the Year in the area of Technology Services by the
Entrepreneur of the Year Institute sponsored by Ernst & Young LLP, Inc.
Magazine and Merrill Lynch. He holds a Bachelor of Science degree in Finance
and Economics from the State University of Uzgorod and a Master's degree in
Electronic Engineering from Lvov Polytechnical Institute, both in the Ukraine.
VICTOR FRIEDMAN has been Executive Vice President and a director of the
Company since October 1994. From 1981 until October 1994, Mr. Friedman was the
President/CEO of Real-Time Technology, Inc., a company which he founded and
which specialized in providing professional services to the financial
community. He holds degrees in Liberal Arts and Education from the State
University of Uzgorod in the Ukraine.
FRED B. SCHLOSSBERG has been Vice President Finance & Administration,
Secretary and a director of the Company since April 1992. From June 1978 to
April 1992, he was employed by BDO Seidman, LLP where his last position was
Senior Audit Manager. Mr. Schlossberg is a Certified Public Accountant in New
York State. He holds a Bachelor of Business Administration in accounting from
Bernard Baruch College where he graduated magna cum laude.
JAY HAKAMI has been Senior Vice President, Products and Services since
November 1996 and was a Vice President, Products and Services from 1991 until
1996. Mr. Hakami began his career with the Company in 1989 as a Manager of
Sales of Products and Services. He holds a Bachelor of Arts degree in Business
Administration from the New York Institute of Technology.
ROBERT B. STRATTON has been Vice President, Remote Support Services since
1995. Mr. Stratton has been employed by the Company since 1991 and from 1992
until 1995 was a General Manager of Remote Support Services. He holds an
Associates Degree in Liberal Arts from Pace University.
RHODA CAHAN has been Vice President, Training since 1995. Ms. Cahan began
her career with the Company in 1991 as a Director of Training. She holds a
Bachelor of Arts degree in Mathematics from Brown University, a Master of
Science degree in Operations Research and Statistics from The Wharton School,
University of Pennsylvania and a APC degree in Computer Applications and
Information Systems from New York University.
34
<PAGE>
STEVEN J. CARTER has been Vice President, Call Management since August 1995.
From December 1983 to August 1995 Mr. Carter was employed by IBM, where his
last position was Executive of the Strategic Business Unit of Call Management
Services.
ROBERT G. MARINO has been Vice President, Help Desk Services since 1994.
From October 1989 to July 1994, Mr. Marino was employed by Comdisco Computing
Services Corp., where his last position was Area Sales Manager. Mr. Marino
holds a Bachelor of Arts degree in Business Administration from Rutgers
University.
IRA Z. KEVELSON has been a member of the firm of Dlugash & Kevelson,
certified public accountants since 1980 and the owner of the law firm of Ira
Z. Kevelson, attorney-at-law since 1975. Mr. Kevelson is a Certified Public
Accountant in New York State and is an attorney admitted to the bar of New
York State. He holds a Bachelor of Science degree in Accounting from Brooklyn
College and a Juris Doctor degree and LLM in Taxation from New York University
School of Law. Mr. Kevelson served as a director from 1983 to 1993 and has
agreed to serve as a director after consummation of this offering.
JOHN J. MURPHY has been a Senior Vice President of Information Technology
for EMI Music Publishing, a division of EMI Music which is a division of
Thorn-EMI, a U.K. company. He holds a Bachelor of Science degree from Boston
University. Mr. Murphy has agreed to serve as a director after consummation of
this offering.
In connection with consummation of this offering, the Board of Directors
will be divided into three classes. The term of the Class I directors, to be
comprised initially of Fred Schlossberg and one of the independent directors,
expires in 1998, the term of the Class II directors, to be comprised initially
of Victor Friedman and one of the independent directors, expires in 1999, and
the term of the Class III directors, to be comprised initially of Philip
Friedman and one of the independent directors, expires in 2000. Directors hold
office until the annual meeting of the stockholders of the Company in the year
in which the term of their class expires and until their successors have been
duly elected and qualified. At each meeting of stockholders of the Company,
the successors to the class of directors whose term expires will be elected
for a three-year term. The next annual meeting of the stockholders of the
Company is expected to be held in 1998.
Philip Friedman and Victor Friedman are brothers.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Upon consummation of this offering, the Board of Directors
will create an Audit Committee that, among other things, will make
recommendations concerning the engagement of independent auditors, review the
results and scope of the annual audit and other services provided by the
Company's independent auditors and will review the adequacy of the Company's
internal accounting controls. The Audit Committee will consist of two of the
independent directors to be appointed after consummation of this offering and
Fred B. Schlossberg.
Compensation Committee. Upon consummation of this offering, the Board of
Directors will create a Compensation Committee that, among other things, will
make recommendations to the full Board of Directors concerning salary and
bonus compensation and benefits for executive officers of the Company and will
administer the Company's 1997 Long-Term Incentive Plan. The Compensation
Committee will consist of two of the independent directors to be appointed
after consummation of this offering and Philip Friedman.
DIRECTOR COMPENSATION
Directors who are employees of the Company will receive no additional
compensation for their services as members of the Board of Directors or as
members of Board committees. Directors who are not employees of the Company
will be paid a quarterly fee of $1,000, as well as additional fees of $500 for
each meeting of the Board or of a Board committee attended by such director.
The Company's directors will be reimbursed for their out-of-pocket expenses
incurred in connection with their service as directors, including travel
expenses.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company during the
last three years to the Company's Chief Executive Officer and to the four most
highly compensated executive officers (collectively, the "Named Executive
Officers"). The Company did not grant any stock options or stock awards to any
of the Named Executive Officers during such years and the dollar value of
perquisite and other personal benefits, if any, received by each of the Named
Executive Officers in each year was less than established reporting
thresholds.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION(S) YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1)
- ------------------------------ ---- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Philip Friedman
President and Chief Executive 1996 520,000 -- 5,000
Officer......................
1995 400,000 830,000 5,000
1994 316,000 2,600,000 5,000
Victor Friedman
Executive Vice President..... 1996 240,000 -- 5,000
1995 200,000 72,000 3,000
1994 50,000(/2/) 75,000 --
Fred B. Schlossberg
Vice President Finance & 1996 150,000 -- 5,000
Administration, Secretary.... 1995 135,000 25,000 5,000
1994 115,000 30,000 4,000
Jay Hakami
Senior Vice President, 1996 295,000 -- 5,000
Products and Services........ 1995 279,000 -- 5,000
1994 193,000 -- 5,000
Robert B. Stratton
Vice President, Remote 1996 251,000 -- 5,000
Support Services............. 1995 220,000 -- 1,000
1994 181,000 -- --
</TABLE>
- --------
(1) Consists of amounts contributed on behalf of such employees to the
Company's 401(k) plan.
(2) Victor Friedman was employed by the Company beginning in October 1994.
The Company currently anticipates that immediately prior to consummation of
this offering it will grant 587,500 options under the 1997 Long-Term Incentive
Plan (the "Plan"), consisting of 537,500 incentive stock options and 50,000
nonqualified stock options, to certain officers, key employees and directors
of the Company, including 50,000 nonqualified stock options to Victor
Friedman, 30,000 incentive stock options to each of Fred B. Schlossberg and
Jay Hakami, 20,000 incentive stock options to Robert B. Stratton and 5,000
incentive stock options to each of Ira Z. Kevelson and John J. Murphy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has never had a Compensation Committee or other committee of the
Board of Directors performing similar functions and all matters concerning
executive compensation have been addressed by the entire Board of Directors.
Decisions concerning compensation of executive officers of the Company were
made by the Company's Board of Directors. The Board of Directors will
establish a Compensation Committee upon the consummation of this offering.
EMPLOYMENT AGREEMENTS
The Company does not have employment contracts with any of its executive
officers or other employees.
36
<PAGE>
1997 LONG-TERM INCENTIVE PLAN
The Plan will be adopted by the Company's Board of Directors and approved by
the Company's stockholders prior to the consummation of this offering. The
Company will reserve an amount of Common Stock equal to 10 percent of the
shares of Common Stock outstanding upon consummation of this offering for
issuance and/or use as the basis for stock appreciation rights or other units
of stock-based incentive compensation under the Plan. Unless sooner terminated
by the Board of Directors, the Plan will terminate on the date which is 10
years from the date of its adoption.
Upon consummation of this offering, the Plan will be administered by the
Compensation Committee of the Board of Directors. The Committee will have the
authority and discretion, subject to the provisions of the Plan, to select
persons to whom options and other awards under the Plan will be granted, to
designate the number of shares to be covered by awards, to specify the type of
consideration to be paid to the Company and to establish all of the terms and
conditions of each award.
The Plan will provide for the grant of stock options and other awards to
officers and other key employees of the Company and to its directors. Options
granted under the Plan may be incentive stock options or nonqualified stock
options. The exercise price for an incentive stock option may not be less than
the fair market value of the Company's Common Stock on the date of grant and
such options may not be exercisable by the employee (except in the event of
death or disability or certain changes in control of the Company) prior to the
completion of at least one year of employment subsequent to the grant of the
award. Options granted under the Plan shall vest on certain changes in control
of the Company (as defined in the Plan) unless the Compensation Committee
otherwise determines prior to such change in control, and in such case, the
participant will receive cash equal to the value of the option in lieu of
exercise thereof. Nonqualified stock options shall have such terms as the
Compensation Committee shall determine and that shall not be inconsistent with
the Plan. Stock options granted under the Plan may not be transferred other
than by will or the laws of descent and distribution or, in the case of
nonqualified stock options, by gift.
All awards under the Plan may be subject to substantial employment
requirements and/or performance measurements and goals. The Compensation
Committee shall establish, with respect to each performance-based award, the
length of the applicable performance period (which shall be at least two
years), performance objectives (which shall be based on revenues, operating
income, net income, return on equity or a variation or combination of the
foregoing and may vary from participant to participant) and the range of
dollar values or number of shares of Common Stock (which shall be subject to
maximum limitations) that may be earned by the participant.
The Company currently anticipates that immediately prior to consummation of
this offering it will grant 587,500 options under the Plan, consisting of
537,500 incentive stock options and 50,000 nonqualified stock options, to
certain officers, key employees and directors of the Company at the initial
public offering price.
401(k) SAVINGS PLAN
The Company has adopted a 401(k) savings plan (the "401(k) Plan"). All
employees of the Company are eligible to participate in the 401(k) Plan. Under
the 401(k) Plan, eligible employees are permitted to defer up to 10% of their
compensation, subject to certain limitations. Currently, the Company matches a
discretionary amount between 0% and 50% of an employee's contribution, subject
to a maximum contribution equal to 3% of such employee's annual compensation.
Salary deferral contributions are fully vested. Matching contributions are
fully vested after seven years of service; partial vesting begins after three
years of service. Participants or their beneficiaries are entitled to payment
of benefits (i) upon retirement at age 65 or early retirement at age 55, (ii)
upon death or disability or (iii) upon termination of employment, if the
participant elects to receive a distribution of his account balance prior to
one of the events listed in (i) or (ii) above. In addition, withdrawals are
available upon the participant attaining age 59.5, or for reasons of financial
hardship if certain conditions are met.
37
<PAGE>
CERTAIN TRANSACTIONS
In October 1994, the Company acquired substantially all of the assets and
assumed certain liabilities of Real-Time, a computer consulting firm which was
owned by Victor Friedman. The purchase price of $252,478 was paid by the
issuance of shares of Common Stock to Victor Friedman.
Philip Friedman has loaned the Company in the aggregate approximately $2.5
million. This loan is payable on demand and bears interest at 10.0%. The loan
will be repaid with a portion of the net proceeds of this offering. See "Use of
Proceeds." In addition, Philip Friedman has guaranteed certain of the Company's
obligations under the Company's revolving credit facility and term loan. These
guarantees will terminate upon consummation of this offering.
Upon consummation of this offering, the Company plans to distribute to its
stockholders of record immediately prior to the consummation of this offering
the cumulative amount of its undistributed taxable earnings for the entire
period that it was an S corporation. As of December 31, 1996, the cumulative
balance of such undistributed taxable earnings was approximately $4.8 million.
The difference between the undistributed taxable earnings of $4.8 million and
retained earnings of approximately $3.2 million at December 31, 1996 is
principally the result of differences between income tax bases and financial
reporting. In addition, the Company's stockholders immediately prior to the
consummation of this offering will be entitled to receive from the Company, in
the event of certain adjustments to the Company's federal taxable income, the
amount of federal, state and local income taxes, including penalties and
interest, incurred by them as a result of such adjustment. See "The Company."
Pursuant to a Registration Rights Agreement to be entered into immediately
prior to the consummation of this offering, among the Company, Philip Friedman
and Victor Friedman (the "Registration Rights Agreement"), the Company will, at
the request of either Philip Friedman or Victor Friedman (the "Rights
Holders"), prepare and file, and use its best efforts to make effective,
registration statements under the Securities Act for resales of Common Stock,
including underwritten offerings. In addition, pursuant to the Registration
Rights Agreement, if the Company proposes to register its securities under the
Securities Act, then the Rights Holders have a right (subject to quantity
limitations determined by underwriters if the offering involves an
underwriting) to request that the Company register such Rights Holders' Common
Stock. All fees and expenses incurred in connection with any such registration
will be borne by the Company, except for all underwriting discounts and
commissions relating to Common Stock sold by the Rights Holders in any such
offering, which will be borne by such Rights Holders. The Company has agreed to
indemnify the Rights Holders against certain liabilities in connection with any
registration effected pursuant to the Registration Rights Agreement, including
liabilities under the Securities Act.
The Company has agreed to indemnify each of the Selling Stockholders for any
liability arising out of their obligations to indemnify, or contribute to
losses incurred by, the Underwriters pursuant to the Underwriting Agreement to
be entered into among the Company, the Selling Stockholders and the
Underwriters in connection with this offering to the fullest extent permitted
by law.
Mr. Kevelson, who will be appointed to the Board of Directors following
consummation of this offering, has, from time to time, provided legal services
to the Company.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, regarding the beneficial
ownership of the Common Stock, prior to and after giving effect to this
offering, by (i) the directors and four most highly compensated executive
officers of the Company, (ii) each person known by the Company to own
beneficially more than five percent of the outstanding shares of Common Stock,
(iii) all executive officers and directors as a group and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(2)
---------------------- -----------------------
NUMBER OF
SHARES
NAME AND ADDRESS OF BEING
BENEFICIAL OWNER(3) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ----------- ------------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Philip Friedman......... 8,820,780 90.0% 444,000 8,376,780 66.0%
Victor Friedman......... 979,220 10.0% 196,000 783,220 6.2%
Fred B. Schlossberg..... 0 -- 0 0 --
Jay Hakami.............. 0 -- 0 0 --
Robert B. Stratton...... 0 -- 0 0 --
All executive officers
and directors as a
group (8 Persons)...... 9,800,000 100.0% 640,000 9,160,000 72.1%
</TABLE>
- --------
* Less than 1%
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Excludes options to purchase shares of Common Stock which the Company
anticipates will be granted under the Plan to certain officers, key
employees and directors immediately prior to consummation of this offering
and shares of Common Stock that may be purchased in connection with this
offering. See "Management--Executive Compensation" and "Underwriting."
(3) Unless otherwise indicated, the business address of each director and
executive officer is c/o Computer Generated Solutions, Inc., 1675
Broadway, New York, New York 10019.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the Company's authorized capital stock will consist of
25,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, the
terms and provisions of which may be designated by the Board of Directors in
the future. The following summary of the Company's capital stock is qualified
in its entirety by reference to the Company's Certificate of Incorporation and
By-Laws, each of which is filed as an exhibit to the registration statement of
which this Prospectus is a part.
COMMON STOCK
Following this offering, 12,700,000 shares of Common Stock will be issued
and outstanding. See "Capitalization." Each holder of Common Stock is entitled
to one vote for each share held of record on each matter submitted to a vote
of the Company's stockholders. The Company's Principal Stockholders are
entitled to certain rights with respect to registration under the Securities
Act of shares held by them. See "Certain Transactions."
All of the outstanding shares of Common Stock are, and all of the shares of
Common Stock sold in this offering will be, when issued and paid for, fully
paid and nonassessable. In the event of the liquidation or dissolution of the
Company, following any required distribution to the holders of outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
share pro rata in any balance of the corporate assets available for
distribution to them. The Company may pay dividends if, when and as declared
by the Board of Directors from funds legally available therefor. Subject to
the preferential rights of the holders of any class of Preferred Stock,
holders of shares of Common Stock are entitled to receive such dividends as
may be declared by the Company's Board of Directors out of funds legally
available for such purpose. See "Dividend Policy."
Holders of Common Stock have no preemptive rights.
PREFERRED STOCK
Following this offering, no shares of Preferred Stock will be issued and
outstanding. Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the
provisions of the Company's Certificate of Incorporation and limitations
prescribed by law, the Board of Directors is expressly authorized to adopt
resolutions to issue the shares, to fix the number of shares and to change the
number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights, sinking fund provisions, redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of Preferred Stock, in each case without any further action or
vote by the stockholders. The Company has no current plans to issue any shares
of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. In addition, the issuance of shares of Preferred Stock pursuant to
the Board of Directors' authority described above may adversely affect the
rights of the holders of Common Stock. For example, Preferred Stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. The issuance of shares of
Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND DELAWARE
LAW
Certain provisions of the Company's Certificate of Incorporation and By-
Laws, as well as certain provisions of Delaware law, may have an anti-takeover
effect or may delay, defer or prevent a tender offer or takeover
40
<PAGE>
attempt that a stockholder might consider in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares of Common Stock held by a stockholder. These provisions are in
addition to the anti-takeover effect of the substantial ownership and voting
power of the Principal Stockholders of the Company. In addition, the
Certificate of Incorporation and By-Laws contain certain provisions that may
reduce the likelihood of a change in management or voting control of the
Company without the consent of the Board of Directors.
Delaware Anti-Takeover Law. Section 203 of the Delaware General Corporation
Law, as amended ("Section 203"), provides that, subject to certain exceptions
specified therein, a Delaware corporation shall not engage in any business
combination, including any merger or consolidation with, or any transaction
which results in the acquisition of additional shares of the corporation by,
an "interested stockholder" for a three-year period following the time at
which the stockholder became an "interested stockholder" unless (i) prior to
such time, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder," (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time that the transaction
commenced (excluding certain shares) or (iii) at or subsequent to such time,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include any person that (i) is the owner of 15% or more of the
outstanding voting stock of the corporation, (ii) is an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately prior to
the date on which it is sought to be determined whether such person is an
"interested stockholder" or (iii) is an affiliate or associate of any person
of the type identified in clause (ii) above. Section 203 defines the term
"business combination" to encompass a wide variety of transactions with or
caused by an "interested stockholder", including mergers, asset sales and
other transactions in which the "interested stockholder" receives or could
receive a benefit on other than a pro rata basis with other stockholders.
The provisions of Section 203, coupled with the Board of Directors authority
to issue Preferred Stock without further stockholder action and the fact that,
after giving effect to this offering, 72.1% of the outstanding shares of
Common Stock will be held by the Principal Stockholders, could delay or
frustrate the removal of incumbent directors or a change in control of the
Company. The provisions also could discourage, impede or prevent a merger,
tender offer or proxy contest, even if such event would be favorable to the
interests of stockholders. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation, may elect not to be governed by
Section 203, which election would be effective twelve months after such
adoption. Such a change in the Certificate of Incorporation could not be made
without the affirmative vote of shares held by Philip Friedman. Neither the
Certificate of Incorporation nor the By-Laws exclude the Company from the
restrictions imposed by Section 203. These restrictions will not apply to
stockholders who were interested stockholders prior to the date of this
offering.
Classified Board of Directors. The Certificate of Incorporation provides for
the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. Each class will consist, as nearly as practical,
of one-third of the Board of Directors constituting the entire Board of
Directors. As a result, approximately one-third of the Board of Directors will
be elected each year. Holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote with respect to election of
directors may remove directors only for cause. Vacancies on the Board of
Directors may be filled only by the remaining directors and not by the
stockholders.
Stockholder Meetings. The Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of the Company
may be effected only at an annual or special meeting of stockholders and
prohibits stockholder action by written consent in lieu of a meeting. The By-
Laws provide that
41
<PAGE>
special meetings of stockholders may be called only by the president of the
Company and must be called by such officer at the request in writing of a
majority of the Board of Directors. Stockholders are not permitted to call a
special meeting of stockholders, to require that the president call such a
special meeting or to require that the Board of Directors request the calling
of a special meeting of stockholders.
Advance Notice Provisions. The By-Laws establish an advance notice procedure
for stockholders to make nominations of candidates for elections as directors,
or to bring other business before an annual meeting of stockholders of the
Company. The By-Laws provide that only persons who are nominated by, or at the
direction of, the president of the Company or by a stockholder who has given
timely written notice to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors
of the Company. The By-Laws also provide that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the president of the Company, the Board of Directors or by a
stockholder who has given timely written notice to the Secretary of the
Company of such stockholder's intention to bring such business before such
meeting. Generally, for notice of stockholder nominations to be made at an
annual meeting to be timely under the By-Laws, such notice must be received by
the Company not less than 70 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or, in the case of a
special meeting at which directors are to be elected, not earlier than the
90th day before such meeting and not later than the later of (x) the 70th day
prior to such meeting and (y) the 10th day after public announcement of the
date of such meeting is first made). Under the By-Laws, a stockholder's notice
must also contain certain information specified in the By-Laws.
Amendment of Certificate of Incorporation. The stockholders of the Company
may not amend or repeal any of the provisions summarized above under
"Classified Board of Directors," "Stockholder Meetings" or "Advance Notice
Provisions" except upon the affirmative vote of holders of not less than 75%
of the outstanding shares of capital stock of the Company entitled to vote
thereon.
Exculpation and Indemnification. The Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. The Commission
has taken the position that the foregoing provisions will have no effect on
claims arising under federal securities laws.
The Certificate of Incorporation provides that the Company will indemnify
its directors and officers to the fullest extent permissible under Delaware
law. These indemnification provisions require the Company to indemnify such
persons against certain liabilities and expenses to which they may become
subject by reason of their service as a director or officer of the Company.
The provisions also set forth certain procedures, including the advancement of
expenses, that apply in the event of a claim for indemnification.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market after the
restrictions described below lapse could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise
equity capital in the future.
Upon completion of this offering, the Company will have outstanding
12,700,000 shares of Common Stock. See "Capitalization." Of these shares, the
3,540,000 shares (4,071,000 shares if the Underwriters' over-allotment option
is exercised in full) of Common Stock sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by "affiliates" (as defined in the Securities Act) of the Company.
The remaining 9,160,000 (8,629,000 shares if the Underwriters' over-allotment
option is exercised in full) shares are "restricted securities" within the
meaning of Rule 144 adopted under the Securities Act (the "Restricted
Shares"). The Restricted Shares generally may not be sold unless they are
registered under the Securities Act or are sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144.
The Company and the Principal Stockholders have agreed not to offer, sell,
contract to sell, pledge or grant any option to purchase or otherwise dispose
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Oppenheimer & Co., Inc., which
consent may not be unreasonably withheld, except, without such prior written
consent, the Company and the Principal Stockholders may sell shares of Common
Stock pursuant to this offering, and the Company may grant options, restricted
stock, stock appreciation rights or other units of stock-based incentive
compensation under the 1997 Long-Term Incentive Plan. See "Underwriting."
Following the Lock-up Period, any shares owned prior to this offering will not
be eligible for sale in the public market without registration unless such
sales meet the conditions and restrictions of Rule 144 as described below.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned shares for a period of at least two years (as computed
under Rule 144) is entitled to sell, within any three-month period, a number
of shares that does not exceed the greater of (i) 1% of the then-outstanding
shares of Common Stock or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks immediately preceding the date on which
the notice of such sale on Form 144 is filed with the Commission. Sales under
Rule 144 are also subject to certain provisions relating to notice and manner
of sale and the availability of current public information about the Company.
In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of the Company at any time during the 90 days immediately
preceding a sale, and who has beneficially owned the shares for at least three
years (as computed under Rule 144), would be entitled to sell such shares
under Rule 144(k) without regard to the volume limitation, manner of sale,
public information or notice provisions of Rule 144. The foregoing summary of
Rule 144 is not intended to be a complete description thereof. In addition,
the Commission has proposed reducing the two-year and three-year periods
referred to above to one and two years, respectively.
Except for the options to purchase 587,500 shares of Common Stock that the
Company currently anticipates granting under the Plan, prior to this offering,
no Common Stock was subject to outstanding options or warrants to purchase, or
securities convertible into, Common Stock. As soon as practicable following
the consummation of this offering, the Company intends to file a registration
statement under the Securities Act to register the shares of Common Stock
available for issuance upon exercise of options granted pursuant to the 1997
Long Term Incentive Plan. Shares issued upon exercise of options granted
pursuant to the 1997 Long-Term Incentive Plan after the effective date of such
registration statement will be available for sale in the open market, subject
to the Lock-up Period and, for affiliates of the Company, subject to the
conditions and restrictions of Rule 144. In addition, the Company has granted
certain registration rights to Philip Friedman and Victor Friedman. See
"Certain Transactions."
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Selling Stockholders and
Oppenheimer & Co., Inc. and Furman Selz LLC, as Representatives (the
"Representatives") of the Underwriters of this offering, the Company and the
Selling Stockholders have agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase from the Company and the
Selling Stockholders, the number of shares of Common Stock set forth opposite
their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Oppenheimer & Co., Inc. ........................................
Furman Selz LLC.................................................
---------
Total ........................................................ 3,540,000
=========
</TABLE>
The Underwriters propose to offer the Common Stock directly to the public at
the public offering price set forth on the cover page of this Prospectus, and
at such price less a concession not in excess of $ per share of Common
Stock to certain securities dealers, of which a concession not in excess of
$ per share of Common Stock may be reallowed to certain other securities
dealers. After this offering, the offering price and other selling terms may
be changed by the Underwriters.
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Company has granted an option to the Underwriters exercisable within 30
days after the date of this Prospectus, to purchase from the Company up to an
aggregate of 531,000 additional shares of Common Stock, to cover over-
allotments, if any, at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. If the Underwriters
exercise their over-allotment option to purchase any of the additional 531,000
shares of Common Stock, each of the Underwriters has severally agreed, subject
to certain conditions, to purchase approximately the same percentage as the
number of shares of Common Stock to be purchased by each of them bears to the
3,540,000 shares of Common Stock offered hereby. The Company will be
obligated, pursuant to the over-allotment option, to sell Common Stock to the
Underwriters to the extent such over-allotment option is exercised.
The Company and the Principal Stockholders have agreed not to offer, sell,
contract to sell, pledge or grant any option to purchase or otherwise dispose
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Oppenheimer & Co., Inc., which
consent may not be unreasonably withheld, except, without such prior written
consent, the Company and the Principal Stockholders may sell shares of Common
Stock pursuant to this offering, and the Company may grant options, restricted
stock, stock appreciation rights or other units of stock-based incentive
compensation under the 1997 Long-Term Incentive Plan.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to certain payments that the Underwriters
may be required to make in respect thereof.
44
<PAGE>
The Representatives do not intend to confirm sales of the Common Stock to
any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. 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 initial price to the public for the shares of Common Stock offered hereby
will be determined by negotiation among the Company and the Representatives.
Among the factors to be considered in determining the initial price to the
public are: (i) the history of and the prospects for the industry in which the
Company competes; (ii) the ability of the Company's management; (iii) the past
and present operations of the Company; (iv) the historical results of
operations of the Company; (v) the prospects for future earnings and business
potential of the Company; (vi) the general condition of the securities markets
at the time of this offering; (vii) the recent market prices of securities of
generally comparable companies; (viii) the market capitalizations and stages
of development of other companies which the Company and the Representatives
believe to be comparable to the company; and (ix) other factors deemed to be
relevant.
At the Company's request, the Underwriters have reserved up to 175,000
shares of Common Stock for sale at the initial public offering price to the
Company's employees and other persons having business relationships with the
Company. The number of shares of Common Stock available for sale to other
members of the public will be reduced to the extent that these persons
purchase such reserved shares. Any reserved shares not purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Common Stock offered hereby will be passed upon for the Company and the
Selling Stockholders by Chadbourne & Parke LLP, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The financial statements (including Schedule 16(b), which is included in the
Registration Statement of which this Prospectus forms a part) of the Company
at December 31, 1995 and 1996 and the years ended December 31, 1995 and 1996,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, and for the year ended December 31,
1994, by BDO Seidman, LLP, independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
CHANGE OF AUDITORS
In November 1995, the Company, with the approval of the Board of Directors,
dismissed BDO Seidman, LLP as its independent auditors. During the period
between January 1, 1993 and the date on which BDO Seidman, LLP was dismissed,
there was no (i) disagreement between the Company and BDO Seidman, LLP on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of BDO Seidman, LLP, would have caused BDO Seidman, LLP to make
reference to the subject matter of such disagreement in connection with its
report on the Company's financial statements or (ii) adverse opinion or a
disclaimer of opinion, or qualification or modification as to uncertainty,
audit scope or accounting principles in connection with its report on the
Company's financial statements. The Company engaged Ernst & Young LLP as its
new independent auditors in November 1995.
45
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act (the "Registration Statement") with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
thereto. The statements contained in this Prospectus as to the contents of any
document filed as an exhibit are of necessity brief descriptions thereof and
are not necessarily complete; each such statement is qualified in its entirety
by reference to such document. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the office of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Commission's Regional Offices at Seven World Trade Center, 13th Fl.,
New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621-2511, and copies may be obtained at
prescribed rates from the public reference section of the Commission,
Washington, D.C. 20549. Such reports and other information can be reviewed
through the Commission's Electronic Data Gathering Analysis and Retrieval
System, which is publicly available through the Commission's web site
(http://www.sec.gov).
46
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors.......................................... F-2
Balance Sheets as of December 31, 1995 and 1996.......................... F-4
Statements of Operations for the years ended December 31, 1994, 1995 and
1996.................................................................... F-5
Statements of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996........................................................... F-6
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996.................................................................... F-7
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Computer Generated Solutions, Inc.
We have audited the accompanying balance sheets of Computer Generated
Solutions, Inc. (the "Company") as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Computer Generated
Solutions, Inc. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 30, 1997, except for
paragraph 8 of Note 12, as to
which the date is February 28,
1997
F-2
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
Computer Generated Solutions, Inc.
New York, New York
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Computer Generated Solutions, Inc. (the "Company")
for the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Computer
Generated Solutions, Inc. for the year ended December 31, 1994 in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 21, 1995, except for paragraph 8 of
Note 12, as to which the date is
February 28, 1997
F-3
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
(UNAUDITED)
(NOTE 12)
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................... $ 264 $ 57 $ 57
Accounts receivable, net of allowances of $60 in
1995 and $100 in 1996.......................... 9,177 10,691 10,691
Deferred income taxes........................... -- -- 45
Prepaid expenses and other current assets....... 122 180 180
------- ------- -------
Total current assets........................... 9,563 10,928 10,973
Fixed assets, net................................ 1,259 1,897 1,897
Cost in excess of fair value of assets purchased,
net of accumulated amortization of $533 in 1995
and $853 in 1996................................ 426 106 106
Deferred income taxes............................ -- -- 250
Deferred registration fees....................... -- 230 230
Other assets..................................... 405 615 615
------- ------- -------
Total assets................................... $11,653 $13,776 $14,071
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable--bank.............................. $ 3,200 $ 2,050 $ 2,050
Note payable--stockholder....................... 323 323 --
Accounts payable and accrued expenses........... 1,995 3,173 3,173
Current portion of long-term debt............... 472 133 133
Current portion of obligations under capital
leases......................................... 93 164 164
Deferred maintenance............................ 542 422 422
Accrued payroll................................. 817 1,373 1,373
Sales tax payable............................... 178 267 267
Due to stockholders............................. -- -- 7,269
------- ------- -------
Total current liabilities...................... 7,620 7,905 14,851
Long-term debt................................... 133 -- --
Obligations under capital leases................. 346 471 471
Subordinated debt--stockholder................... 2,146 2,146 --
Commitments
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, no shares
authorized in 1995 and 1996; pro forma 1996,
1,000,000 shares authorized, no shares issued
and outstanding................................ -- -- --
Common stock, $.001 par value;
Voting--25,000,000 shares authorized,
13,004,246 shares issued and 9,800,000 shares
outstanding in 1995 and 9,800,000 shares
issued and outstanding in 1996................ 13 10 10
Additional paid-in capital...................... 216 77 77
Retained earnings (deficit)..................... 1,321 3,167 (1,338)
------- ------- -------
1,550 3,254 (1,251)
Less 3,204,246 shares held in treasury, at
cost........................................... (142) -- --
------- ------- -------
Total stockholders' equity..................... 1,408 3,254 (1,251)
------- ------- -------
Total liabilities and stockholders' equity.... $11,653 $13,776 $14,071
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Revenues:
Services, software license and maintenance
fees........................................... $ 19,962 $ 31,704 $ 47,846
Hardware........................................ 4,748 4,243 9,641
-------- -------- --------
Total revenues................................ 24,710 35,947 57,487
Direct costs:
Services, software license and maintenance
fees........................................... 12,988 22,970 35,734
Hardware........................................ 3,882 3,007 8,123
-------- -------- --------
Total direct costs............................ 16,870 25,977 43,857
-------- -------- --------
Gross profit...................................... 7,840 9,970 13,630
Selling, general and administrative expenses...... 4,725 6,690 9,995
Compensation amounts to S corporation stockhold-
ers.............................................. 3,041 1,502 760
Amortization of cost in excess of fair value of
assets purchased................................. 213 320 320
-------- -------- --------
7,979 8,512 11,075
-------- -------- --------
Operating income (loss)........................... (139) 1,458 2,555
Interest expense.................................. 77 473 540
-------- -------- --------
Income (loss) before income taxes................. (216) 985 2,015
Income taxes...................................... 60 33 169
-------- -------- --------
Net income (loss)................................. $ (276) $ 952 $ 1,846
======== ======== ========
PRO FORMA (UNAUDITED) (NOTE 12)
Historical income before income taxes............. $ 2,015
Pro forma provision for income taxes.............. $ 829
--------
Pro forma net income.............................. $ 1,186
========
Pro forma net income per share.................... $ .12
========
Pro forma weighted average number of shares outstanding 10,241,708
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER PAID-IN RETAINED TREASURY
OF SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------ ---------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993.................... 8,821 $ 9 $ 11 $ 645 $(185) $ 480
Net loss................ (276) -- (276)
Reissued treasury
stock.................. 4,183 4 205 -- 43 252
------ ---- ---- ------ ----- ------
Balance at December 31,
1994.................... 13,004 13 216 369 (142) 456
Net income.............. 952 -- 952
------ ---- ---- ------ ----- ------
Balance at December 31,
1995.................... 13,004 13 216 1,321 (142) 1,408
Net income.............. 1,846 -- 1,846
Retirement of treasury
stock.................. (3,204) (3) (139) -- 142 --
------ ---- ---- ------ ----- ------
Balance at December 31,
1996.................... 9,800 $ 10 $ 77 $3,167 -- $3,254
====== ==== ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................... $ (276) $ 952 $ 1,846
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation and amortization............. 288 530 704
Bad debt expense.......................... 54 110 302
Write-off of leasehold improvements....... 42 -- --
Changes in operating assets and
liabilities (net of effects in 1994 from
purchase of ACS Software Products Group
and Real-Time Technology Inc.):
Accounts receivable...................... (1,260) (3,835) (1,816)
Prepaid expenses and other current
assets.................................. (62) 4 (58)
Other assets............................. (173) 23 (210)
Accounts payable and accrued expenses.... (3,333) 702 1,178
Deferred maintenance..................... 115 67 (120)
Accrued payroll.......................... 313 114 556
Sales taxes payable...................... (360) 33 89
------- -------- -------
Net cash provided by (used in) operating
activities................................ (4,652) (1,300) 2,471
------- -------- -------
INVESTING ACTIVITIES:
Purchase of net assets of ACS Software
Products Group............................ (800) -- --
Capital expenditures....................... (74) (579) (683)
------- -------- -------
Net cash used in investing activities...... (874) (579) (683)
------- -------- -------
FINANCING ACTIVITIES:
Proceeds from term loan.................... 800 -- --
Repayment of term loan..................... (133) (267) (267)
Repayment of acquisition debt.............. -- (205) (205)
Deferred registration fees................. -- -- (230)
Proceeds (repayment) from note payable--
bank, net................................. 1,400 1,800 (1,150)
Proceeds of note payable and subordinated
debt--stockholder, net.................... 1,244 291 --
Principal payments under capitalized lease
obligations............................... -- (82) (143)
Repayments of loans payable--other......... (190) -- --
------- -------- -------
Net cash provided by (used in) financing
activities................................ 3,121 1,537 (1,995)
------- -------- -------
Decrease in cash and cash equivalents...... (2,405) (342) (207)
Cash and cash equivalents, beginning of
year...................................... 3,011 606 264
------- -------- -------
Cash and cash equivalents, end of year..... $ 606 $ 264 $ 57
======= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Description of Business
Computer Generated Solutions, Inc. (the "Company" or "CGS") provides a
composite solution to the information processing needs of its clients through
a wide range of information technology and outsourcing support services. Using
a custom designed approach to satisfy each customer's particular need, the
Company provides a complete range of solutions, including its proprietary ACS
Optima software for the apparel industry, professional services ranging from
strategic consulting to system integration, technical training classes and
full service on-site and remote help desk and call management support
services. The Company's customers are in various industries located throughout
the United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. At December 31, 1996,
the Company has substantially all its cash in two financial institutions.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Accounts receivable are
generally due within 60 days from the date of service. Credit losses have
historically been consistent with management's expectations.
Fixed Assets
Fixed assets are stated at cost and depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting and by accelerated methods for income tax purposes. Amortization on
leasehold improvements is computed by the straight-line method over the
shorter of the estimated useful lives of the assets or the term of the lease.
Reclassifications
Certain items in the December 31, 1994 and 1995 financial statements have
been reclassified to conform to the December 31, 1996 presentation.
Deferred Rent
Deferred rent represents payments made at the beginning of the lease term
for office space which is being amortized over the life of the respective
lease.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Software License and Service Fees
The Company recognizes revenue from sales of software licenses upon delivery
of the software product to the customer because future obligations associated
with such revenue are insignificant and collection is probable.
Revenue from software installation, modifications and training services are
recognized on a percentage-of-completion method with progress-to-completion
measured based upon labor costs incurred or achievement of contract
milestones.
Services and Maintenance
Fees related to professional services are recognized as revenue as time and
material costs are incurred.
Maintenance fees are recognized as revenues ratably over the term of the
maintenance contract.
Hardware and Other
Computer hardware revenues are recognized when the units are shipped.
Revenue recognition of completed units is sometimes delayed pending testing
and installation of software. In such instances, hardware revenues are
recognized when the customer has accepted the completed unit and authorizes
the related billing.
Compensation Amounts to S Corporation Stockholders
For the years 1994 and 1995, compensation amounts to S corporation
stockholders consisted of annual salaries and discretionary year-end bonuses
which were charged to expense. The bonuses are determined and paid at year-
end. For the year ended December 31, 1996, the Company has recorded
compensation amounts to S corporation stockholders to reflect the aggregate
base salaries in effect during 1996.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Notes payable - bank: The carrying amounts of the Company's borrowings under
its credit and term loan agreement approximates their fair values.
Notes payable - stockholder: The carrying amounts of the Company's
borrowings under its subordinated debt agreements approximates their fair
values.
Long-term debt: The carrying amounts of the Company's borrowings under its
long-term debt arrangements approximates their fair values.
Research and Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes costs incurred to develop new software
products upon determination that technological feasibility has been
established for the product, whereas costs incurred prior to the establishment
of technological feasibility are charged to expense. All research and software
development costs incurred to date have been expensed by the Company and are
included in direct costs. Research and software development costs amounted to
$423,000, $740,000 and $892,000 for the years ended December 31, 1994, 1995
and 1996, respectively.
F-9
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123. "Accounting for Stock-
Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years
beginning after December 15, 1995 and prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS 123 requires compensation expense to be recorded (i) using the new
fair value method or (ii) using existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure of
what net income and earnings per share would have been had the Company adopted
the new fair value method. It is the Company's intention to present such
information in accordance with APB 25 as described in (ii) above.
2. ACQUISITIONS
ACS Software Products Group
Effective May 5, 1994, the Company acquired substantially all of the assets
and assumed certain liabilities of ACS Software Products Group ("ACS"), an
apparel manufacturing and distribution software product company, for $1.2
million. The acquisition has been accounted for as a purchase and the assets of
ACS have been recorded at their fair value at the date of acquisition. The
excess of the total acquisition cost over the fair value of net assets acquired
of $959,000 is being amortized on a straight-line basis over three years. ACS'
results of operations have been included in the statements of operations since
the date of acquisition. The purchase price consisted of $800,000 in cash and a
promissory note in the principal amount of $410,000 (see Note 6). The note
bears interest at 6.75% and provides for the payment of principal in two equal
installments of $205,000 together with accrued interest. The Company paid the
last installment on the note during 1996.
Real-Time Technology Inc.
Effective October 1, 1994, the Company acquired substantially all of the
assets and assumed certain liabilities of Real-Time Technology Inc. ("RTT"), a
computer consulting firm, for $252,000 (approximating the fair value of net
asset acquired, which approximated book value). Funding was provided through
the issuance of shares of CGS treasury stock with treasury stock credited for
$43,000 and the balance of $209,000 credited to additional paid-in capital. The
acquisition has been accounted for as a purchase and the assets of RTT have
been recorded at their fair value at the date of acquisition which approximated
cost. RTT's results of operations have been included in the statements of
operations since the date of acquisition.
The table below sets forth the pro forma (unaudited) results of operations
for the year ended December 31, 1994 assuming consummation of the ACS and RTT
acquisitions as of January 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Total revenues ................................ $29,387
Net loss....................................... (715)
Pro forma net loss per share (see Note 12)..... 0.07
</TABLE>
F-10
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
ESTIMATED
1995 1996 USEFUL LIVES
------ ------ -------------
<S> <C> <C> <C>
(IN
THOUSANDS)
Furniture and fixtures........................... $ 308 $ 516 10 years
Leasehold improvements........................... 261 310 Life of lease
Computer equipment and software.................. 1,282 2,047 4-5 years
------ ------
1,851 2,873
Less accumulated depreciation and amortization... 592 976
------ ------
$1,259 $1,897
====== ======
</TABLE>
Furniture and fixtures, leasehold improvements, computer equipment and
software include assets resulting from capitalized lease obligations totaling
$521,000 and $860,000 at December 31, 1995 and 1996, respectively (see Note 7).
The accumulated depreciation attributable to assets under capital leases is
$52,000 and $190,000 at December 31, 1995 and 1996, respectively.
4. NOTE PAYABLE - BANK
In July 1996, the Company amended its revolving credit and term loan
agreement with a bank. The agreement provides for a $7.0 million revolving line
of credit expiring in May 1997. Outstanding borrowings bear interest at the
bank's prime rate (8.25% at December 31, 1996).
Borrowings on the revolving line of credit, which are based on eligible
accounts receivable, and the term loan are collateralized by a security
interest in substantially all accounts receivable, fixed assets and general
intangibles and an assignment of key man insurance on the life of one of the
stockholders in the amount of $500,000. In addition, one of the stockholders
has guaranteed the obligation. Outstanding amounts, ($2,050,000 at December 31,
1996), under the revolving line of credit are also supported by a 10%
compensating balance arrangement.
Subordinated debt - stockholder represents funds advanced to the Company by
its principal stockholder. Effective January 1, 1995, the subordinated debt
bears interest at 10% per annum and is payable on demand. In connection with
the revolving line of credit, subordinated debt - stockholder is subordinated
to the bank.
5. NOTE PAYABLE - STOCKHOLDER
Note payable - stockholder, which is payable on demand, represents advances
made to the Company by its principal stockholder, bearing interest at 10% per
annum.
F-11
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Note payable--bank (a)...................................... $ 400 $ 133
Note payable (acquisition debt) (Note 2).................... 205 --
------- -------
Total long-term debt........................................ 605 133
Less current maturities..................................... 472 133
------- -------
$ 133 $ --
======= =======
</TABLE>
- --------
(a) Note payable to a bank consists of a term loan of $800,000 which is payable
in 36 equal monthly installments of $22,000 with interest at 1.25% per annum
above the bank's prime rate (8.25% at December 31, 1996). The term loan
contains financial covenants relating to minimum tangible net worth, working
capital and a maximum debt-to-equity ratio. In addition, one of the
stockholders has guaranteed the obligation.
7. CAPITAL LEASES
The Company has entered into capital lease agreements for computer and
telephone equipment, furniture and fixtures and leasehold improvements. The
agreements provide for monthly payments of approximately $19,000 through
October 2001, which include interest at rates ranging from 10% to 10.35%.
The following is a schedule of future minimum lease payments under capital
leases, together with the present value of the net minimum lease payments:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------
(IN THOUSANDS)
<S> <C>
1997............................................................. $ 224
1998............................................................. 224
1999............................................................. 217
2000............................................................. 79
2001............................................................. 33
-----
Total minimum lease payments..................................... 777
Less amount representing interest................................ 142
-----
Present value of net minimum lease payments...................... $ 635
=====
</TABLE>
F-12
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS
Leases
Total rent expense on real estate charged to operations for the years ended
December 31, 1994, 1995 and 1996 aggregated $321,000, $421,000 and $877,000,
respectively.
The minimum annual rental commitments under noncancellable operating leases
as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------
(IN THOUSANDS)
<S> <C>
1997............................................................. $ 1,122
1998............................................................. 966
1999............................................................. 968
2000............................................................. 886
2001............................................................. 840
Thereafter....................................................... 2,594
-------
Total............................................................ $ 7,376
=======
</TABLE>
9. STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period:
Income taxes............................... $ 47 $ 61 $ 16
Interest................................... 79 488 540
Noncash investing and financing activities:
Notes payable on purchase of net assets of
ACS (Note 2).............................. 410 -- --
Treasury stock issued on purchase of net
assets of RTT (Note 2).................... 252 -- --
</TABLE>
The Company entered into capitalized leases for approximately $521,000 in
1995 and $339,000 in 1996.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan in which all eligible employees can contribute
a portion of their compensation up to the maximum amount allowable pursuant to
the Internal Revenue Code. The Company contributes an amount equal to 50% of
each employee's contribution limited to 3% of an eligible employee's
compensation. The Company contributed to the plan $102,000, $181,000 and
$240,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
11. MAJOR CUSTOMER
One customer, with several contracts in various divisions, accounted for
21%, 33% and 35% of total revenues for the years ended December 31, 1994, 1995
and 1996, respectively. The Company was advised by this customer that,
effective January 1, 1997, certain services previously provided by the Company
would no longer be provided to this customer. The Company recognized revenues
of approximately $8.7 million for providing these services to this customer in
1996, representing approximately 15% of the Company's revenues. As of December
31, 1994, 1995 and 1996, 19%, 35% and 30%, respectively, of accounts
receivable was due from this customer.
12. PRO FORMA INFORMATION AND EVENTS CONCURRENT WITH THE IPO (UNAUDITED)
PRO FORMA ADJUSTMENTS: STATEMENTS OF OPERATIONS
The Company intends to enter into an underwriting agreement for an initial
public offering ("IPO") of its common stock. If the IPO is successful, the
Company will no longer be treated as an S corporation and,
F-13
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
accordingly, will be subjected to federal and additional state income taxes.
The unaudited pro forma adjustments on the statement of operations reflect an
adjustment to record a provision for income taxes on income as if the Company
had not been an S corporation.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share for the year ended December 31, 1996 has been
computed by dividing pro forma net income by the weighted average number of
common shares outstanding after giving effect to the stock split and the
number of shares that would be sold by the Company to fund the distribution of
S corporation taxable earnings to existing stockholders. The number of shares
used in this pro forma computation is 10,241,708. There were no common stock
equivalents such as options, warrants, etc., outstanding during any of the
periods presented.
PRO FORMA BALANCE SHEET
Subsequent to December 31, 1996, the Company intends to declare an S
corporation distribution to its then existing stockholders representing all of
its previously earned and undistributed S corporation taxable earnings through
December 31, 1996. If the IPO is successful, the Company expects that the net
proceeds from the IPO will be used to pay this S corporation distribution and
repay indebtedness owed to a stockholder under a promissory note and a
subordinated debt agreement. The pro forma balance sheet at December 31, 1996
gives effect to these items. Amount due to stockholders on the December 31,
1996 pro forma balance sheet consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
S corporation distributions............. $4,800
Subordinated debt--stockholder.......... 2,146
Note payable--stockholder............... 323
------
$7,269
======
</TABLE>
The pro forma balance sheet at December 31, 1996 also gives effect to a
deferred tax asset in the amount of $295,000 (see Note 13).
The estimated distribution of $4.8 million in the pro forma presentation
represents undistributed taxable S corporation earnings through December 31,
1996. The difference between the undistributed earnings of $4.8 million and
retained earnings of approximately $3.2 million at December 31, 1996 is
principally the result of differences between income tax bases and financial
reporting. In addition, the Company plans to distribute to its existing
stockholders an amount equal to the taxable earnings of the Company from
January 1, 1997 to the day prior to the S termination date.
LONG-TERM INCENTIVE PLAN
Immediately prior to the consummation of the IPO, the Company's Board of
Directors will adopt the 1997 Long-Term Incentive Plan (the "Plan"). The
Company will reserve an amount of common stock equal to 10% (1,270,000 shares)
of the outstanding shares of common stock outstanding upon consummation of the
IPO for issuance and/or use as the basis for stock appreciation rights or
other units of stock-based incentive compensation under the Plan. Unless
sooner terminated by the Board of Directors, the Plan will terminate on the
date which is 10 years from the date of its adoption. It is anticipated that
the Company will grant 587,500 options under the
F-14
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plan, consisting of 537,500 incentive stock options and 50,000 nonqualified
stock options, immediately prior to consummation of the IPO to certain
officers, key employees and directors of the Company.
Under the terms of the Plan, the exercise price for an incentive stock
option may not be less than the fair market value of the Company's common
stock on the date of grant and such options may not be exercisable by the
employee, except in the event of death or disability or certain changes in
control of the Company, prior to the completion of at least one year of
employment subsequent to the grant of the award. Options granted under the
Plan shall vest on certain changes in control of the Company, as described in
the Plan, unless the Company's compensation committee otherwise determines
prior to such change in control, and in such case, the participant will
receive cash equal to the value of the options in lieu of exercise thereof.
Nonqualified stock options shall have such terms as the compensation committee
shall determine and that shall not be inconsistent with the Plan.
STOCK SPLIT
Effective February 28, 1997, the Board of Directors of the Company approved
an increase in the number of authorized shares of Common Stock to 25,000,000
and authorized a stock split pursuant to which each share of common stock,
$.01 par value per share, will be exchanged for 1,300.42 shares of Common
Stock, par value of $.001 per share. The foregoing stock split has been
reflected retroactively in the accompanying financial statements.
13. INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed
as an S corporation pursuant to the Internal Revenue Code and certain state
tax laws. As such, the Company has not been subject to federal and certain
state income taxes and the stockholders have included the corporation's
taxable income or loss in their individual income tax returns. Income taxes in
1994, 1995 and 1996 primarily represent New York City corporate income taxes.
Deferred income taxes resulting from temporary differences are considered
immaterial and, therefore, are not provided for at December 31, 1994, 1995 and
1996.
The provision for pro forma income taxes (see Note 12) on pro forma income
differs from the amounts computed by applying the applicable federal statutory
rates due to the following:
<TABLE>
<CAPTION>
% OF PRO FORMA
PROFIT BEFORE
INCOME TAXES
--------------
YEAR ENDED
DECEMBER 31,
1996
--------------
<S> <C>
Federal statutory rate...................................... 34.0%
State and local taxes, net of federal tax benefit........... 7.3
Nondeductible expenses...................................... 3.4
Utilization of tax credit................................... (3.6)
----
41.1%
====
</TABLE>
If the IPO is successful, the Company will no longer be an S corporation.
Upon the change in status of the Company, under FASB Statement No. 109
"Accounting for Income Taxes", there will be a deferred income tax asset which
is principally due to book amortization in excess of tax amortization related
to goodwill and the timing of the deduction for certain payments to
stockholders. Had the change in status occurred on December 31, 1996, the
deferred tax asset that would have to be recognized would be approximately
$295,000.
F-15
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Premiums receivable (a)............................... $ 328 $ 365
Security deposits..................................... 77 120
Deferred rent......................................... -- 130
------ ------
$ 405 $ 615
====== ======
</TABLE>
- --------
(a) Amount represents premiums paid on a split-dollar life insurance policy on
the principal stockholder.
15. TREASURY STOCK
As of December 31, 1996, the Company retired and canceled the treasury stock
outstanding. Such cancellation has been given effect to in the accompanying
financial statements as of December 31, 1996.
16. CONTINGENT LIABILITIES
There are certain claims and pending actions against the Company arising in
the ordinary course of its business. Certain of these claims and actions seek
damages in significant amounts. The amount of liability, if any, with respect
to these claims and actions at December 31, 1996 is not presently determinable.
However, in the opinion of management, these claims are without merit and the
ultimate liability, if any, will not have a material adverse effect on the
Company's results of operations or financial position.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK
REFERRED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION TO SUCH PERSON IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH
OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 6
The Company ............................................................. 11
Use of Proceeds ......................................................... 12
Dividend Policy ......................................................... 12
Capitalization .......................................................... 13
Dilution ................................................................ 14
Selected Financial Data ................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 16
Business ................................................................ 23
Management .............................................................. 34
Certain Transactions .................................................... 38
Principal and Selling Stockholders ...................................... 39
Description of Capital Stock ............................................ 40
Shares Eligible for Future Sale ......................................... 43
Underwriting ............................................................ 44
Legal Matters ........................................................... 45
Experts ................................................................. 45
Change of Auditors....................................................... 45
Additional Information .................................................. 46
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,540,000 SHARES
[LOGO] COMPUTER GENERATED SOLUTIONS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
FURMAN SELZ
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Following are the estimated expenses, other than the underwriting discounts
and commissions, to be incurred in connection with this offering of the Common
Stock registered under this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 17,479.36
NASD filing fee............................................... 5,792.30
NASDAQ listing fee............................................ 44,250.00
Blue sky qualification fees and expenses...................... 30,000.00
Printing and engraving expenses............................... 120,000.00
Legal fees and expenses....................................... 320,000.00
Accounting fees and expenses.................................. 300,000.00
Transfer Agent and Registrar fees and expenses................ 5,000.00
Miscellaneous................................................. 7,478.34
-----------
Total....................................................... $850,000.00
===========
</TABLE>
All of the above figures, except the Securities and Exchange Commission
registration fee, NASD filing fee and the NASDAQ listing fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables
a corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchase or redemptions) or (iv) for any transactions from
which a director derived an improper personal benefit.
Reference also is made to Section 145 of the DGCL, which provides that a
corporation may indemnify any persons, including officers and directors, who
are parties to, or who are threatened to be made parties to, any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person was an
officer, director, employee or agent of such corporation or is or was serving
at the request of such corporation as director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such officer, director, employee or agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interest and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
that such officer or director actually and reasonably incurred.
Article Seven of the Certificate of Incorporation of the Company (filed as
Exhibit 3.1) provides that except under certain circumstances as described
above and as set forth in Section 102(b)(7) of the DGCL, directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach
II-1
<PAGE>
of fiduciary duties as directors for indemnification of the officers and
directors of the Company to the full extent permitted by applicable law. The
Underwriting Agreement, Exhibit 1.1 to this Registration Statement, provides
for indemnification by the Underwriters of the Company and its directors and
certain officers, and by the Company and the Selling Stockholders of the
Underwriters, for certain liability arising under the Securities Act of 1933,
as amended the ("Securities Act"). The Company has agreed to indemnify each of
the Selling Stockholders for any liability arising out of their obligations to
indemnify, or contribute to losses incurred by, the Underwriters pursuant to
the Underwriting Agreement to be entered into by the Company, the Selling
Stockholders and the Underwriters in connection with this offering to the
fullest extent permitted by law.
The Company intends to enter into a director and officer insurance policy
that will provide for reimbursement or payments for losses arising from claims
against covered directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of all securities of the Company sold within the
past three years, which were not registered under the Securities Act.
In October 1994, the Company acquired substantially all of the assets and
assumed certain liabilities of Real-Time Technology, Inc. ("Real-Time"), a
computer consulting firm which was owned by Victor Friedman, the Company's
Executive Vice President. The purchase price of $252,478 was paid by the
issuance of shares of Company common stock to Real Time which were then
transferred to Victor Friedman in a simultaneous transaction.
The above described issuance of securities was made in reliance upon Section
4(2) of the Securities Act as a transaction not involving any public offering.
The Company has reason to believe that the foregoing purchaser was familiar
with or had access to information concerning the operations and financial
conditions of the Company, and such individual acquired the securities for
investment and not with a view to the distribution thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated April 26, 1994, between ACS Software
Products Group and Computer Generated Solutions, Inc.**
2.2 Plan and Agreement of Reorganization, dated August 26, 1994, between
Computer Generated Solutions, Inc. and Real-Time Technology, Inc.**
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.
3.2 Form of Bylaws of the Company, as amended.
4.1 Specimen certificate for the shares of Common Stock.
4.2 Registration Rights Agreement.
4.3 1997 Long-Term Incentive Plan.
5.1 Opinion of Chadbourne & Parke LLP, counsel to the Company.
10.1 Service Agreement, dated October 4, 1995, between International
Business Machines Corporation and Computer Generated Solutions, Inc.*
10.2 Master Agreement for Professional Services, dated June 26, 1995,
between AT&T Corp. and Computer Generated Solutions, Inc.**
10.3 Outsourcing Agreement, dated as of March 30, 1996, between Teleservice
Resources, Inc. and Computer Generated Solutions, Inc.**
10.4 Agreement, dated September 15, 1995, between Borland International,
Inc. and Computer Generated Solutions, Inc.**
10.5 Agreement, dated November 9, 1995, between Borland International, Inc.
and Computer Generated Solutions, Inc.**
10.6 Authorized Education Center Agreement, dated May 23, 1995, between
Lotus Development Corporation and Computer Generated Solutions, Inc.**
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 1996 Business Partner Agreement, dated June 1, 1996, between
International Business Machines Corporation and Computer Generated
Solutions, Inc.**
10.8 Revolving Credit Facility, dated July 1, 1996, as amended, between
Computer Generated Solutions, Inc. and Bank Leumi Trust Company of
New York.**
10.9 Term Loan, dated June 29, 1994, as amended, between Computer Generated
Solutions, Inc. and Bank Leumi Trust Company of New York.
10.10 S Termination Agreement.
10.11 Indemnification Agreement.
10.12 Agreement for Consulting Services, dated November 7, 1996, between
International Business Machines Corporation and Computer Generated
Solutions, Inc.**
11.1 Statement regarding Computation of Per Share Earnings.**
16.1 Letter from BDO Seidman, LLP regarding change in certifying
accountants.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Chadbourne & Parke LLP (included in Exhibit 5.1).
23.4 Consent of Ira Z. Kevelson.**
23.5 Consent of John J. Murphy.**
24.1 Powers of Attorney (included in signature page hereto).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
* Amended from previous filing.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULE:
II--Valuation and Qualifying Accounts
All other schedules are omitted either because they are not applicable or
are not material, or the information presented therein is contained in the
Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement
certificates in such denomination and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was
declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON MARCH 3, 1997.
COMPUTER GENERATED SOLUTIONS, INC.
/s/ Philip Friedman
By: _________________________________
NAME: PHILIP FRIEDMAN
TITLE: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
AND BY PHILIP FRIEDMAN AS ATTORNEY-IN-FACT FOR THE SPECIFIC PERSONS IN THE
CAPACITIES WITH COMPUTER GENERATED SOLUTIONS, INC. ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Philip Friedman President and Chief
- ------------------------------------- Executive Officer March 3, 1997
PHILIP FRIEDMAN (Principal
Executive Officer),
Director
* Executive Vice
- ------------------------------------- President, Director March 3, 1997
VICTOR FRIEDMAN
* Vice President
- ------------------------------------- Finance & March 3, 1997
FRED B. SCHLOSSBERG Administration and
Secretary
(Principal
Financial and
Accounting
Officer), Director
/s/ Philip Friedman
*By:_________________________________
PHILIP FRIEDMAN ATTORNEY-IN-FACT
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Computer Generated Solutions, Inc.
We have audited the financial statements of Computer Generated Solutions,
Inc. as of December 31, 1996 and 1995, and for the years then ended, and have
issued our report thereon dated January 30, 1997 (except for paragraph 8 of
Note 12, as to which the date is February 28, 1997) (included elsewhere in
this Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the periods stated above.
Ernst & Young LLP
New York, New York
January 30, 1997
S-1
<PAGE>
COMPUTER GENERATED SOLUTIONS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------
ADDITIONS BALANCE
BALANCE CHARGED AT
AT BEGINNING TO COSTS AND (A) END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowances deducted from assets
to
which they apply:
Allowance for doubtful accounts.. $ 5 $ 54 $(49) $10
YEAR ENDED DECEMBER 31, 1995
Allowances deducted from assets
to
which they apply:
Allowance for doubtful
accounts...................... 10 110 (60) 60
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from assets
to
which they apply:
Allowance for doubtful
accounts...................... 60 302 (262) 100
</TABLE>
- --------
(a) Uncollectible receivables written off.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated April 26, 1994, between ACS
Software Products Group and Computer Generated Solutions,
Inc.**
2.2 Plan and Agreement of Reorganization, dated August 26, 1994,
between Computer Generated Solutions, Inc. and Real-Time
Technology, Inc.**
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.
3.2 Form of Bylaws of the Company, as amended.
4.1 Specimen certificate for the shares of Common Stock.
4.2 Registration Rights Agreement.
4.3 1997 Long-Term Incentive Plan.
5.1 Opinion of Chadbourne & Parke LLP, counsel to the Company.
10.1 Service Agreement, dated October 4, 1995, between International
Business Machines Corporation and Computer Generated Solutions,
Inc.*
10.2 Master Agreement for Professional Services, dated June 26, 1995,
between AT&T Corp. and Computer Generated Solutions, Inc.**
10.3 Outsourcing Agreement, dated as of March 30, 1996, between
Teleservice Resources, Inc. and Computer Generated Solutions,
Inc.**
10.4 Agreement, dated as of September 15, 1995, between Borland
International, Inc. and Computer Generated Solutions, Inc.**
10.5 Agreement, dated November 9, 1995, between Borland
International, Inc. and Computer Generated Solutions, Inc.**
10.6 Authorized Education Center Agreement, dated May 23, 1995,
between Lotus Development Corporation and Computer Generated
Solutions, Inc.**
10.7 1996 Business Partner Agreement, dated June 1, 1996, between
International Business Machines Corporation and Computer
Generated Solutions, Inc.**
10.8 Revolving Credit Facility, dated July 1, 1996, as amended,
between Computer Generated Solutions, Inc. and Bank Leumi Trust
Company of New York.**
10.9 Term Loan, dated June 29, 1994, as amended, between Computer
Generated Solution, Inc. and Bank Leumi Trust Company of New
York.
10.10 S Termination Agreement.
10.11 Indemnification Agreement.
10.12 Agreement for Consulting Services, dated November 7, 1996,
between International Business Machines Corporation and
Computer Generated Solutions, Inc.**
11.1 Statement regarding Computation of Per Share Earnings.**
16.1 Letter from BDO Seidman, LLP regarding change in certifying
accountants.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Chadbourne & Parke LLP (included in Exhibit 5.1).
23.4 Consent of Ira Z. Kevelson.**
23.5 Consent of John J. Murphy.**
24.1 Powers of Attorney (included in signature page hereto).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
* Amended from previous filing.
** Previously filed.
<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
4,071,000 Shares
COMPUTER GENERATED SOLUTIONS, INC.
Common Stock
(Par Value $0.001 per share)
[ ], 1997
OPPENHEIMER & CO., INC.
FURMAN SELZ LLC
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentleman:
Computer Generated Solutions, Inc., a Delaware corporation (the "Company"),
-------
proposes to issue and sell, and the persons named in Schedule II hereto (the
"Selling Stockholders") propose to sell, to the several Underwriters listed in
- ---------------------
Schedule I hereto (the "Underwriters"), for whom you are acting as
------------
representatives (the "Representatives"), an aggregate of 3,540,000 shares of
---------------
Common Stock, par value $0.001 per share, of the Company (the "Common Stock"),
------------
of which 2,900,000 shares are to be issued and sold by the Company and an
aggregate of 640,000 shares are to be sold by the Selling Stockholders
(collectively, the "Underwritten Shares"). In addition, for the sole purpose of
-------------------
covering over-allotments in connection with the sale of the Underwritten Shares,
the Company proposes to issue and sell to the Underwriters, at the option of the
Underwriters, up to an additional 531,000 shares of Common Stock (the "Option
------
Shares"). The Underwritten Shares and the Option Shares are herein referred to
- ------
as the "Shares."
------
<PAGE>
- 2 -
On or prior to the Closing Date (as defined), the Company will declare and
pay dividends (collectively, the "Dividends") to its stockholders of record
---------
immediately prior to the offering of the Shares in the cumulative amount of its
undistributed earnings for the entire period that it was an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"). The
----
Company will terminate its S corporation status (the "S Termination") effective
-------------
as of the day before the Closing Date (the "S Termination Date"). The Company
------------------
will enter into an S Corporation Termination Agreement to be dated as of the S
Termination Date by and among the Company, Philip Friedman and Victor Friedman
(the "Tax Agreement").
-------------
On or prior to the Closing Date, the Company will (i) adopt an amended and
restated certificate of incorporation (the "Amended Certificate of
----------------------
Incorporation") and by-laws (the "Amended By-Laws") and (ii) declare and effect
- ------------- ---------------
a 1,300.42 for 1 stock split of its existing common stock (the "Stock Split").
-----------
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
----------
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
--------------
statement on Form S-1 (File No. 333-09297), including a prospectus, relating to
the Shares. The registration statement as amended at the time when it shall
become effective, or, if post-effective amendments are filed with respect
thereto, as amended by such post-effective amendments at the time of their
effectiveness, including in each case information (if any) deemed to be part of
the registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act, is referred to in this Agreement as the "Registration
------------
Statement"; the prospectus constituting a part of the Registration Statement in
- ---------
the form first used to confirm sales of Shares is hereinafter
referred to as the "Prospectus."
----------
1. On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
2,900,000 Underwritten Shares, and each Selling Stockholder, severally and not
jointly, agrees to sell the respective number of Underwritten Shares set forth
opposite such Selling Stockholder's name on Schedule II hereto, to the several
Underwriters, and each Underwriter, on the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from each of the Company and the
Selling Stockholders that number of Underwritten Shares to be
<PAGE>
- 3 -
sold by the Company and each such Selling Stockholder which bears the same ratio
to the aggregate number of Underwritten Shares being purchased from the Company
and the Selling Stockholders by the several Underwriters as the number of
Underwritten Shares set forth opposite the name of such Underwriter on Schedule
I hereto (or such number increased as set forth in Section 10 hereof) bears to
the aggregate number of Underwritten Shares being purchased from the Company and
the Selling Stockholders by the several Underwriters subject, however, to such
adjustments to eliminate fractional shares as the Representatives in their sole
judgment shall make, at a purchase price of $[ ] per share (the "Purchase
--------
Price").
- -----
In addition, the Company agrees to issue and sell the Option Shares to the
several Underwriters as hereinafter provided, and the Underwriters, on the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Company up to an aggregate of 531,000 Option Shares at the
Purchase Price, for the sole purpose of covering over-allotments (if any) in the
sale of Underwritten Shares by the several Underwriters.
If any Option Shares are to be purchased, the number of Option Shares to be
purchased by each Underwriter shall be the number of Option Shares which bears
the same ratio to the aggregate number of Option Shares being purchased as the
number of Underwritten Shares set forth opposite the name of such Underwriter on
Schedule I hereto (or such number increased as set forth in Section 10 hereof)
bears to the aggregate number of Underwritten Shares being purchased from the
Company and the Selling Stockholders by the several Underwriters, subject,
however, to such adjustments to eliminate any fractional Shares as the
Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of the Prospectus, by written notice from the Representatives to the
Company. Such notice shall set forth the aggregate number of Option Shares as
to which the option is being exercised and the date and time when such Option
Shares are to be delivered and paid for, which may be the same date and time as
the Closing Date (as hereinafter defined) but shall not be earlier than the
Closing Date nor later than the tenth full Business Day (as hereinafter defined)
after the date of such notice (unless such time and date are postponed in
accordance with the provisions of Section 10 hereof). Any
<PAGE>
- 4 -
such notice shall be given at least two Business Days prior to the date and time
of delivery specified therein.
Pursuant to powers of attorney granted by each Selling Stockholder, Philip
Friedman will act as the representative of the Selling Stockholders. The
foregoing representative (the "Representative of the Selling Stockholders") is
------------------------------------------
authorized, on behalf of each Selling Stockholder, to execute any documents
necessary or desirable in connection with the sale of the Underwritten Shares to
be sold hereunder by each Selling Stockholder, to make delivery of the
certificates of such Underwritten Shares, to receive the proceeds of the sale of
such Underwritten Shares, to give receipts for such proceeds, to pay therefrom
the expenses, if any, to be borne by each Selling Stockholder in connection with
the sale and public offering of the Underwritten Shares, to distribute such
proceeds to the Selling Stockholders, to receive notices on behalf of each
Selling Stockholder and to take such other action as may be necessary or
desirable in connection with the transactions contemplated by this Agreement.
2. The Company and the Selling Stockholders understand that the
Underwriters intend (a) to make a public offering of the Shares as soon as the
Representatives deem advisable after the Registration Statement and this
Agreement have become effective as in the judgment of the Representatives is
advisable and (b) initially to offer the Shares upon the terms set forth in the
Prospectus.
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the account specified by the Company, in the case of the
Underwritten Shares or the Option Shares to be sold by the Company, and to the
account specified by the Representative of the Selling Stockholders, in the case
of the Underwritten Shares to be sold by the Selling Stockholders, to the
Representatives no later than noon on the Business Day prior to the Closing
Date, in the case of the Underwritten Shares, or, in the case of the Option
Shares, on the date and time specified by the Representatives in the written
notice of the Underwriters' election to purchase such Option Shares. The time
and date of such payment for the Underwritten Shares are referred to herein as
the "Closing Date" and the time and date for such payment for the Option Shares,
------------
if other than the Closing Date, are herein referred to as the "Additional
----------
Closing Date". As used herein, the term "Business Day" means any day other than
- ------------ ------------
a day on which banks are permitted or required to be closed in New York City.
<PAGE>
- 5 -
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company or the Selling
Stockholders, as the case may be. The certificates for the Shares will be made
available for inspection and packaging by the Representatives at the office of
Oppenheimer & Co., Inc. set forth above not later than 1:00 P.M., New York City
time, on the Business Day prior to the Closing Date or the Additional Closing
Date, as the case may be.
4A. The Company represents and warrants to each of the Underwriters that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement, as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the Securities Act, complied when so filed in all material respects with
the Securities Act;
(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission; and the Registration Statement and the Prospectus (as amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and as of the date of filing
thereof did not, and did not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as of
the date of the Prospectus and any amendment or supplement thereto, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented at the
Closing Date and the Additional Closing Date, as the case may be, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
<PAGE>
- 6 -
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation and warranty shall not apply
--------
to statements or omissions in the Registration Statement or the Prospectus
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter
expressly for use therein;
(c) the financial statements, and the related notes thereto, included
in the Registration Statement and the Prospectus present fairly in all
material respects (i) the financial position of the Company as of the dates
indicated and (ii) the results of its operations and changes in its cash
flows for the periods specified; such financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout and the supporting schedules
included in the Registration Statement present fairly in all material
respects the information required to be stated therein; the pro forma
financial information (including the notes thereto) included in the
Registration Statement and Prospectus (i) presents fairly in all material
respects the information shown therein, (ii) was prepared in accordance
with the applicable requirements of Regulation S-X promulgated under the
Exchange Act, (iii) was prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and (iv) was
properly computed on the bases described therein; in the opinion of the
Company, the assumptions used in the preparation of any such pro forma
financial information (including, without limitation, the notes thereto)
were fair and reasonable and the adjustments used therein were appropriate
to give effect to the transactions or circumstances referred to therein;
and no pro forma financial statements or other pro forma financial
information is required to be included in the Registration Statement and
the Prospectus other than those included therein;
(d) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in
the capital stock (other than by reason of the Stock Split or Amended
Certificate of Incorporation) or any material change in the long-term debt
of the Company, or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, business, prospects, management, financial position,
stockholders' equity or
<PAGE>
- 7 -
results of operations of the Company, and the Company has not entered into
any transaction or agreement (whether or not in the ordinary course of
business) material to the Company otherwise than as set forth or
contemplated in the Prospectus;
(e) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be so qualified
or in good standing would not have a material adverse effect on the general
affairs, business, prospects, management, financial position, stockholders'
equity or results of operations of the Company (a "Material Adverse
----------------
Effect");
------
(f) the Company has no subsidiaries;
(g) this Agreement has been duly authorized, executed and delivered by
the Company;
(h) as of the Closing Date (after giving effect to the adoption of the
Amended Certificate of Incorporation and the Stock Split), the Company will
have the authorized capital stock as set forth in the Prospectus and such
authorized capital stock will conform as to legal matters to the
description thereof set forth in the Prospectus, and all of the outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, are fully-paid and non-assessable and are not subject to
any pre-emptive or similar rights; and, except as described in or expressly
contemplated by the Prospectus, there are no outstanding rights (including,
without limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company, or any contract, commitment,
agreement, understanding or arrangement of any kind relating to the
issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such rights, warrants or options; the Shares
to be sold by the Selling Stockholders hereunder conform to the description
thereof in the Prospectus;
<PAGE>
- 8 -
(i) the Shares to be issued and sold by the Company hereunder have been
duly authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be duly
issued and will be fully paid and non-assessable and will conform to the
descriptions thereof in the Prospectus; and the issuance of the Shares is
not subject to any preemptive or similar rights;
(j) the Company is not in violation of its Certificate of
Incorporation or By-Laws nor, as of the Closing Date, will it be in
violation of its Amended Certificate of Incorporation or Amended By-Laws,
and is not, nor with the giving of notice or lapse of time or both would it
be, in violation of or in default in the performance or observance of any
obligation, agreement, covenant or condition under any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the
Company is a party or by which it or any of its property is bound or of any
permit, order, decree, judgment, statute, rule or regulation applicable to
the Company, except for violations and defaults which individually and in
the aggregate could not reasonably be expected to have a Material Adverse
Effect; (i) the issue and sale of the Shares, (ii) the execution of this
Agreement and the performance by the Company of its obligations hereunder,
(iii) the consummation of the transactions contemplated herein, (iv) the
declaration and payment of the Dividends, (v) the S Termination, (vi) the
execution of the Tax Agreement and the performance by the parties thereto
of their respective obligations thereunder and the consummation of the
transactions contemplated therein, (vi) the adoption of the Amended
Certificate of Incorporation and the Amended By-Laws and (vii) the
declaration and consummation of the Stock Split will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the property or assets of the
Company is subject, nor will any such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Company or the Amended Certificate of Incorporation or the Amended By-Laws
or any applicable law or statute or any order, decree, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties, except for conflicts, breaches, defaults
and violations which individually and in
<PAGE>
- 9 -
the aggregate could not reasonably be expected to have a Material Adverse
Effect; and no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for (i) the issue, sale and delivery of the
Shares, (ii) the consummation by the Company of the transactions
contemplated by this Agreement, (iii) the declaration and payment of the
Dividends, (iv) the S Termination, (v) the consummation of the transactions
contemplated by the Tax Agreement by the parties thereto, (vi) the adoption
of the Amended Certificate of Incorporated and By-Laws or (vii) the
declaration or consummation of the Stock Split, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained and are in full force and effect under
the Securities Act, as may be required under the state securities or Blue
Sky Laws contemplated by Section 5(f) in connection with the purchase and
distribution of the Shares by the Underwriters or which individually or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect;
(k) other than as set forth in the Prospectus, there are no legal or
governmental investigations, actions, suits or proceedings pending against
or affecting the Company or any of its properties or to which the Company
is or may be a party or of which any property of the Company is or may be
the subject which could reasonably be expected to have a Material Adverse
Effect and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others; and there are no statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required;
(l) the Company has good and marketable title in fee simple to all
items of real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company; and any real property and buildings held under
lease by the Company are held by them under valid, existing and enforceable
leases with such exceptions as are not material and do not materially
<PAGE>
- 10 -
interfere with the use made or proposed to be made of such property and
buildings by the Company;
(m) no relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required
by the Securities Act to be described in the Registration Statement or the
Prospectus which is not so described;
(n) no person has the right to require the Company to register any
securities for offering and sale under the Securities Act by reason of the
filing of the Registration Statement with the Commission or the issue and
sale of the Shares;
(o) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
----------------------
(p) the Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida) relating to doing
business with the Government of Cuba or with any person or affiliate
located in Cuba;
(q) Ernst & Young LLP, who have certified certain financial statements
of the Company, are independent public accountants as required by the
Securities Act; BDO Seidman LLP, who have certified certain financial
statements of the Company, are independent public accountants as required
by the Securities Act;
(r) the Company has filed all federal, state, local and foreign tax
returns which have been required to be filed and have paid all taxes shown
thereon and all assessments received by it to the extent that such taxes
have become due and are not being contested in good faith; and, except as
disclosed in the Registration Statement and the Prospectus, there is no tax
deficiency which has been asserted or threatened against the Company; the
Company and its stockholders have maintained a valid election to be an S
corporation under Subchapter S of the Code from the Company's inception
through the S Termination Date;
(s) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that
<PAGE>
- 11 -
might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Common Stock;
(t) the Company owns, possesses or has obtained all licenses, permits,
certificates, consents, orders, approvals and other authorizations from,
and has made all declarations and filings with, all federal, state, local
and other governmental authorities (including foreign regulatory agencies),
all self-regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as conducted as of the
date hereof, except where the failure to so own, possess or obtain or make
such licenses, permits, certificates, consents, orders, approvals, other
authorizations, declarations or filings could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, and
the Company has not received notice of any proceeding relating to
revocation or modification of any such license, permit, certificate,
consent, order, approval or other authorization, except as described in the
Registration Statement and the Prospectus or as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect;
and the Company is in compliance with all laws and regulations relating to
the conduct of its business, except where the failure to so be in
compliance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect;
(u) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with, or slowdowns, strikes or work stoppages by,
the employees of the Company which could reasonably be expected to have a
Material Adverse Effect;
(v) the Tax Agreement has been duly authorized by the Company and, as
of the S Termination Date, will have been duly executed and delivered by
each of the parties thereto, and is enforceable against each of the parties
thereto in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency, moratorium or other similar laws
providing for the protection of creditors' rights generally and general
principles of equity;
(w) except as disclosed in the Prospectus, each employee benefit plan,
within the meaning of Section 3(3) of
<PAGE>
- 12 -
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
-----
that is maintained, administered or contributed to by the Company or any of
its affiliates for employees or former employees of the Company and its
affiliates has been maintained in compliance with its terms and the
requirements of any applicable statutes, orders, rules and regulations,
including, but not limited to, ERISA and the Code, except where the failure
to so maintain in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect; except as
disclosed in the Prospectus, no prohibited transaction within the meaning
of Section 406 of ERISA or Section 4975 of the Code which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect has occurred with respect to any such plan, excluding transactions
effected pursuant to a statutory or administrative exemption; except as
disclosed in the Prospectus, for each such plan which is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA, no
"accumulated funding deficiency" as defined in Section 412 of the Code
which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect has been incurred, whether or not waived,
and the fair market value of the assets of each such plan (excluding for
these purposes accrued but unpaid contributions) exceeded the present value
of all benefits accrued under such plan determined using reasonable
actuarial assumptions (except for any deficiency which could not reasonably
be expected to have a Material Adverse Effect);
(x) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(y) except for compensation to be paid to the Underwriters under this
Agreement, the Company does not know of any outstanding claims for
services, either in the nature of a finder's fee or origination fee, with
respect to any of the transactions contemplated hereby;
(z) the Company owns or possesses the patents, patent rights,
licenses, inventions, trademarks, service marks, trade names, copyrights
and know-how, including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures
(collectively, the "Intellectual Property"), reasonably
---------------------
<PAGE>
- 13 -
necessary to carry on the business conducted by it, except to the extent
that the failure to own or possess such Intellectual Property would not
have a Material Adverse Effect and, except as described in the Registration
Statement and the Prospectus, the Company has no knowledge of infringement
of or conflict with asserted rights of others with respect to any
Intellectual Property, except for notices the content of which if accurate
would not have a Material Adverse Effect;
(aa) the declaration and payment of the Dividends have been duly
authorized by all requisite corporate action by the Company; and the
declaration and payment of the Dividends will comply with the General
Corporation Law of the State of Delaware.
4B. Each Selling Stockholder, severally and not jointly, represents
and warrants to each Underwriter that:
(a) such Selling Stockholder now is, and at the Closing Date will be,
the lawful owner of the number of Underwritten Shares to be sold by such
Selling Stockholder pursuant to this Agreement and has and, at the time of
delivery thereof, will have valid and marketable title to such Underwritten
Shares, and, upon delivery of and payment for such Underwritten Shares, the
Underwriters will acquire valid and marketable title to such Underwritten
Shares free and clear of any claim, lien, encumbrance, security interest,
restriction on transfer or other defect in title other than by reason of
the Custody Agreement or arising under federal or state securities laws;
(b) such Selling Stockholder has, and at the Closing Date will have,
full legal right, power and capacity, and any approval required by law or
otherwise (other than those imposed by the Securities Act and the
securities or blue sky laws of certain jurisdictions), to sell, assign,
transfer and deliver such Underwritten Shares in the manner provided in
this Agreement; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and the fulfillment of
the terms hereof will not conflict with or result in the breach of any of
the terms, provisions or conditions of, or constitute a default under, any
note, indenture, mortgage, deed or declaration of trust, agreement, will or
other instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound, or any existing law, order, rule,
regulation, writ, injunction, judgment or decree of any
<PAGE>
- 14 -
government, governmental instrumentality, agency or body, arbitration
tribunal, or court, domestic or foreign, having jurisdiction over such
Selling Stockholder or such Selling Stockholder's property;
(c) this Agreement and the custody agreement among the Company, as
custodian, and such Selling Stockholder have been duly executed and
delivered by such Selling Stockholder (each, a "Custody Agreement");
-----------------
(d) when the Registration Statement becomes effective and at all times
subsequent thereto through the latest of the Closing Date, Additional
Closing Date or the termination of the offering of the Shares, such parts
of the Registration Statement and Prospectus, and any supplements or
amendments thereto, as relate to such Selling Stockholder will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(e) such Selling Stockholder has duly and irrevocably authorized the
Representative of the Selling Stockholders, on behalf of such Selling
Stockholder, to execute and deliver this Agreement and any other document
necessary or desirable in connection with the transactions contemplated
hereby and to deliver the Underwritten Shares to be sold by such Selling
Stockholder and receive payment therefor pursuant hereto; and
(f) the Registration Statement and the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) as of the date of filing thereof did not, and did not
and will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the date of the Prospectus
and any amendment or supplement thereto, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented at the Closing Date and the
Additional Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit 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; provided
--------
that this representation and warranty shall not apply to statements or
omissions in the
<PAGE>
- 15 -
Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by such Underwriter expressly for use therein.
4C. The Representatives represent and agree that (i) they have not
offered or sold and, prior to the expiry of the period of six months from the
Closing Date, will not offer or sell, any Shares to persons in the United
Kingdom except persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public within the meaning of the
Public Offers of Securities Regulations 1995, (ii) they have complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by them in relation to the Common Stock in, from or
otherwise involving the United Kingdom and (iii) they have only issued or passed
on, and will only issue and pass on, in the United Kingdom any document received
by them in connection with the offering of the Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisement) (Exemptions) Order 1995 or is a person to whom such
document may otherwise lawfully be issued or passed on.
5. The Company covenants and agrees with the several Underwriters as
follows:
(a) to use its best efforts to cause the Registration Statement to
become effective (if the Registration Statement shall not have been
declared effective prior to the execution hereof) at the earliest possible
time and, if applicable, to file the Prospectus with the Commission within
the time periods specified by Rule 424(b) and Rule 430A under the
Securities Act and to furnish copies of the Prospectus to the Underwriters
in New York City prior to 2:00 p.m., New York City time, on the Business
Day next succeeding the date of this Agreement in the quantities as the
Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
three signed copies of the Registration Statement (as originally filed) and
each amendment thereto, in each case including exhibits, and to each other
Underwriter a conformed copy of the Registration Statement (as originally
filed) and each amendment thereto, in each case without exhibits, and,
during the period mentioned in
<PAGE>
- 16 -
paragraph (e) below, to each of the Underwriters and to dealers effecting
transactions in the Common Stock as many copies of the Prospectus
(including all amendments and supplements thereto) as the Underwriters and
such dealers may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the Representatives
a copy of the proposed amendment or supplement for review and not to file
any such proposed amendment or supplement to which the Representatives
reasonably object;
(d) to advise the Representatives promptly after learning, and to
confirm such advice in writing, (i) when the Registration Statement shall
have become or becomes effective, (ii) when any amendment to the
Registration Statement shall have become effective, (iii) when any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Representatives with copies thereof, (iv) of any request by
the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) within the period referenced in paragraph (e) below, of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus or the
initiation or threatening of any proceeding for that purpose or the
occurrence of any event as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, and (vi) of the receipt by the Company of any
notification with respect to any suspension of the qualification of the
Shares for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and to use its reasonable
best efforts to prevent the issuance of any such stop order, or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any order suspending any such qualification of the
Shares, or notification of any such order and, if issued, to obtain as soon
as reasonably possible the withdrawal thereof;
<PAGE>
- 17 -
(e) if, during such period of time after the first date of the public
offering of the Shares as, in the reasonable opinion of counsel for the
Company or the Underwriters, a prospectus relating to the Shares is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish, at the
expense of the Company, to the Underwriters and to the dealers (whose names
and addresses the Representatives will furnish to the Company) to which
Shares may have been sold by the Underwriters and to any other dealers upon
written request, such amendments or supplements to the Prospectus as may be
necessary so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply in all material respects with federal securities
laws and the securities or Blue Sky laws contemplated by Section 5(f);
(f) to use its best efforts to register or qualify the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
as the Representatives shall reasonably request and to continue such
registration or qualification in effect so long as reasonably required for
distribution of the Shares; provided that the Company shall not be required
--------
to file a general consent to service of process in any jurisdiction or
submit itself to taxation in any jurisdiction where it is not so subject;
(g) to make generally available to its security holders and to the
Underwriters as soon as practicable an earnings statement covering a period
of at least twelve months beginning with the first fiscal quarter of the
Company occurring after the effective date of the Registration Statement,
which shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Commission promulgated thereunder;
(h) for a period of five years after the Closing Date, to furnish to
the Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Shares, and copies of any
reports filed with
<PAGE>
- 18 -
the Commission, the National Association of Securities Dealers, Inc. (the
"NASD") or any national securities exchange;
-----
(i) The Company shall not offer, sell, contract to sell, pledge or
grant any option to purchase or otherwise dispose of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock, or file a registration statement with the Commission with respect to
such securities, for a period of 180 days after the date of the Prospectus
without the prior written consent of Oppenheimer & Co., Inc., which consent
may not be unreasonably withheld; provided that, without such prior written
--------
consent, the Company may grant options, restricted stock, stock
appreciation rights or other units of stock-based incentive compensation
under its director and employee stock option plan described in the
Prospectus and register such options, restricted stock, stock appreciation
rights or other units of stock-based incentive compensation and the shares
of Common Stock, if any, underlying them under the Securities Act;
(j) to file with the Commission reports on Form SR as may be required
by Rule 463 under the Securities Act;
(k) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its and the Selling
Stockholders' obligations hereunder, including without limiting the
generality of the foregoing, all costs and expenses (i) incident to the
preparation, issuance, execution and delivery of the Shares, (ii) incident
to the preparation, printing, and filing under the Securities Act of the
Registration Statement, the Prospectus and any preliminary prospectuses
(including in each case all exhibits, amendments and supplements thereto),
(iii) incurred in connection with the registration or qualification of the
Shares under the laws of such jurisdictions as the Representatives may
designate pursuant to Section 5(f) (including reasonable fees of counsel
for the Underwriters and their disbursements related to such registration
or qualification), (iv) in connection with the qualification for quotation
of the Shares on the Nasdaq National Market, (v) related to any filing
with, and review by, the NASD, (vi) in connection with the printing
(including word processing and duplication costs) and delivery of this
Agreement, all other agreements relating to
<PAGE>
- 19 -
underwriting and syndication arrangements, the Blue Sky Survey and the
furnishing to the Underwriters and dealers of copies of the Registration
Statement and the Prospectus, including mailing and shipping, as herein
provided, (vii) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors, (viii) the cost of
preparing stock certificates and (ix) the cost and charges of any transfer
agent and any registrar;
(l) to cause the Common Stock to be qualified for quotation on the
Nasdaq National Market; and
(m) to use the net proceeds of the offering as set forth in the
Registration Statement and the Prospectus under the caption "Use of
Proceeds."
6. The several obligations of the Underwriters hereunder to purchase
the Shares on the Closing Date or the Additional Closing Date, as the case may
be, are subject to the performance by each of the Company and the Selling
Stockholders in all material respects of their respective obligations hereunder
and to the following additional conditions:
(a) the Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed under the Securities Act,
such post-effective amendment shall have become effective) not later than
5:00 P.M., New York City time, on the date hereof; and no stop order
suspending the effectiveness of the Registration Statement shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act and in accordance with Section 5(a) hereof; and all requests
for additional information by the Commission shall have been complied with
to the reasonable satisfaction of the Representatives;
(b) the representations and warranties of the Company and the Selling
Stockholders contained herein and in the Custody Agreement shall be true
and correct in all material respects on and as of the Closing Date or the
Additional Closing Date, as the case may be, as if made on and as of the
Closing Date or the Additional Closing Date, as the case may be, and each
of the Company and the Selling Stockholders shall have complied in all
material respects with all
<PAGE>
- 20 -
agreements and all conditions on their respective parts to be performed or
satisfied hereunder and under the Custody Agreement at or prior to the
Closing Date or the Additional Closing Date, as the case may be;
(c) since the respective dates as of which information is given in the
Prospectus, there shall not have been any change in the capital stock of
the Company (other than by reason of the Stock Split and the adoption of
the Amended Certificate of Incorporation) or any material change in the
long-term debt of the Company or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company
otherwise than as set forth or contemplated in the Prospectus, the effect
of which in the judgment of the Representatives makes it impracticable to
proceed with the public offering or the delivery of the Shares on the
Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and the Company
shall not have sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus;
(d) the Representatives shall have received on and as of the Closing
Date or the Additional Closing Date, as the case may be, a certificate of
each of (i) the chief executive officer of the Company and an executive
officer of the Company with specific knowledge about the Company's
financial matters and (ii) the Representative of the Selling Stockholders,
in each case satisfactory to the Representatives, to the effect set forth
in subsections (a) through (c) (with respect to the respective
representations, warranties, agreements and conditions of the Company or
the Selling Stockholders, as the case may be) of this Section;
(e) Chadbourne & Parke LLP, counsel for the Company and the Selling
Stockholders, shall have furnished to the Representatives their written
opinion, addressed to the Underwriters and dated the Closing Date or the
Additional Closing Date, as the case may be, in form satisfactory to the
Representatives and their counsel, to the effect that:
<PAGE>
- 21 -
(i) the Company is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with power and
authority to own its properties and conduct its business as described
in the Prospectus; the Amended Certificate of Incorporation and
Amended By-Laws have been duly authorized and adopted by the Company,
are in full force and effect and are substantially in the forms
included as exhibits to the Registration Statement; the Stock Split
has been duly authorized by all requisite corporate action by the
Company and has been consummated in accordance with the General
Corporation Law of the State of Delaware;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of the jurisdictions listed on a schedule attached to
such opinion, which jurisdictions the Company shall have certified to
such counsel are the only jurisdictions in which the Company owns or
leases properties, or conducts any business;
(iii) the Company has no subsidiaries;
(iv) such counsel does not know of any (x) pending or
threatened action, suit or proceeding before any court or governmental
authority or body involving the Company or (y) statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or Prospectus or, with respect to any such
contracts or other documents, to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when delivered to and paid for the
Underwriters in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable and, to such counsel's
knowledge, the issuance of such Shares is not subject to any
preemptive rights;
(vii) the statements in the Prospectus under "Description of
Capital Stock" and "Shares Eligible for Future Sale," and in the
Registration Statement in
<PAGE>
- 22 -
Items 14 and 15, insofar as such statements constitute a summary of
the terms of the Common Stock, the "blank check" preferred stock,
legal matters, documents or proceedings referred to therein, fairly
present in all material respects the information required by the
Securities Act with respect to such terms, legal matters, documents or
proceedings;
(viii) (a) the issue and sale of the Shares being delivered
on the Closing Date or the Additional Closing Date, as the case may
be, (b) the execution of this Agreement and the performance by the
Company of its obligations hereunder, (c) the consummation of the
transactions contemplated herein, (d) the declaration and payment of
the Dividends, (e) the S Termination, (f) the execution and delivery
of the Tax Agreement and the performance by the parties thereto of
their respective obligations thereunder and the consummation of the
transactions contemplated therein, (g) the adoption of the Amended
Certificate of Incorporation and Amended By-Laws and (h) the
declaration and consummation of the Stock Split will not conflict with
or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument which is filed as an
exhibit to the Registration Statement, nor will any such action result
in any violation of the provisions of the Amended Certificate of
Incorporation or the Amended By-Laws of the Company or any applicable
law or statute or any order, decree, rule or regulation of any court
or governmental agency or body known by such counsel to have
jurisdiction over the Company or any of its properties;
(ix) to such counsel's knowledge, no consent, approval,
authorization, order, license, registration or qualification of or
with any court or governmental agency or body is required for (a) the
issue and sale of the Shares, (b) the consummation of the other
transactions contemplated by this Agreement, (c) the declaration and
payment of the Dividends, (d) the S Termination, (e) the consummation
of the transactions contemplated by the Tax Agreement, (f) the
adoption of the Amended Certificate of Incorporation and Amended By-
Laws or (g) the declaration or consummation of the Stock Split, except
such consents, approvals, authorizations, orders, licenses,
registrations or
<PAGE>
- 23 -
qualifications as have been obtained under the Securities Act and as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters,
the rules of the NASD or any domestic relations or similar laws;
(x) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company"
or entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(xi) the Registration Statement has been declared effective
under the Securities Act and, to such counsel's knowledge, no stop
order or proceedings with respect thereto are pending or threatened
under the Securities Act;
(xii) this Agreement and the Custody Agreement of the
applicable Selling Stockholder has been duly executed and delivered by
or on behalf of each of the Selling Stockholders;
(xiii) to such counsel's knowledge, each Selling Stockholder
has full legal right and power, and has obtained any authorization or
approval required by law (other than those imposed by the Securities
Act and the securities or Blue Sky laws of certain jurisdictions or
any domestic relations or similar law), to sell, assign, transfer and
deliver the Underwritten Shares to be sold by such Selling Stockholder
in the manner provided in this Agreement and the Custody Agreement of
such Selling Stockholder;
(xiv) upon delivery of the Underwritten Shares to be sold by
the Selling Stockholders hereunder and payment of the purchase price
therefor as herein contemplated, each of the Underwriters will receive
good and marketable title to its ratable share of the Underwritten
Shares purchased by it from each of such Selling Stockholders, free
and clear of any pledge, lien, security interest, encumbrance, claim
or equity, assuming the Underwriters acquire the Underwritten Shares
without notice of any adverse claim as such term is used in Section 8-
302 of the Uniform Commercial Code in effect in the State of New York;
<PAGE>
- 24 -
(xv) the Representative of the Selling Stockholders has been
duly authorized by Victor Friedman to execute and deliver on his
behalf this Agreement and any other document necessary or desirable in
connection with the transactions contemplated hereby and to deliver
the Shares to be sold by Victor Friedman and receive payment therefor
pursuant hereto;
(xvi) the declaration and payment of the Dividends have been
duly authorized by all requisite corporate action by the Company; and
the declaration and payment of the Dividends will comply with the
General Corporation Law of the State of Delaware; and
(xvii) the Tax Agreement has been duly authorized by the
Company and has been duly executed and delivered by each of the
parties thereto, and is enforceable against each of the parties
thereto in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, moratorium or other
similar laws now or hereafter in effect providing for the protection
of creditors' rights generally and general principles of equity and
except that rights to indemnity and contribution may be limited by
public policy;
in addition, such counsel shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads such
counsel to believe that (i) the Registration Statement (other than the
financial statements and schedules and other financial and statistical data
included therein, as to which such counsel need make no statement nor
opinion), when it became effective, contained or, as of the date such
opinion is delivered, 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 (ii) the
Prospectus (other than the financial statements and schedules and other
financial and statistical data included therein, as to which such counsel
need make no statement nor opinion) as of its date contained or, as of the
date such opinion is delivered, contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
<PAGE>
- 25 -
in rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States,
the State of New York and General Corporation Law of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel
reasonably acceptable to the Underwriters' counsel familiar with the
applicable laws; and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company,
certificates of the Selling Stockholders and the Representative of the
Selling Stockholders and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company. The opinion of such
counsel shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and, in such counsel's opinion, the
Underwriters and they are justified in relying thereon;
the opinion of Chadbourne & Parke LLP described above shall be
rendered to the Underwriters at the request of the Company and the Selling
Stockholders and shall so state therein;
(f) on the effective date of the Registration Statement (the
"Effective Date") and the effective date of the most recently filed post-
---------------
effective amendment, if any, to the Registration Statement and also on the
Closing Date or the Additional Closing Date, as the case may be, each of
Ernst & Young LLP and BDO Seidman LLP shall have furnished to the
Underwriters letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to the Representatives, containing
statements and information of the type customarily included in accountants'
"comfort letters" to underwriters with respect to certain financial
information relating to the Company contained in the Registration
Statement and the Prospectus;
(g) the Representatives shall have received on the Closing Date an
opinion of Cahill Gordon & Reindel, counsel for the Underwriters, with
respect to the validity of the Shares, the Registration Statement, the
Prospectus and other related matters as the Representatives may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
<PAGE>
- 26 -
(h) the Shares shall have been qualified for quotation on the Nasdaq
National Market, subject to official notice of issuance;
(i) on or prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to the Representatives such further
certificates and documents as the Representatives shall reasonably request.
The several obligations of the Underwriters to purchase Option Shares
are, only as so far as they relate to the Company, subject to the conditions set
forth in paragraphs (a)-(i) above on and as of the Additional Closing Date
(references therein to the Closing Date shall be deemed references to the
Additional Closing Date for this purpose), except that the certificates called
for by paragraph (d), the opinions called for by paragraphs (e) and (g) and the
letters called for by paragraph (f) shall be dated as of, and delivered on, the
Additional Closing Date.
7. Each of the Company and each Selling Stockholder agree, jointly
and severally, to indemnify and hold harmless each Underwriter, its officers and
directors, and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
------------
against any and all losses, claims, damages and liabilities (including, without
limitation, the legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter, through the Representatives, expressly for use therein; provided,
--------
however, that the indemnity agreement contained in this paragraph with respect
- -------
to any preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Shares which are the subject thereof (or to the benefit
of any person controlling such Underwriter) if at or prior to the
<PAGE>
- 27 -
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
preliminary prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented), unless the failure is the result of noncompliance by
the Company with paragraph (b) of Section 5 hereof. Notwithstanding the
provisions of this Section 7, each Selling Stockholder shall not be liable under
this Section 7, or under any other provision of this Agreement, for any amount
in excess of the net proceeds received from the sale of Shares by such Selling
Stockholder.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act and the Selling
Stockholders to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to each Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company in writing by
such Underwriter through the Representatives expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto or
any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
------------------
notify the person or persons against whom such indemnity may be sought (each an
"Indemnifying Person") in writing, and such Indemnifying Person, upon request
-------------------
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) such Indemnifying Person and
such Indemnified Person shall have mutually agreed to the contrary, (ii) such
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to such Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include an Indemnifying
Person and an Indemnified Person and
<PAGE>
- 28 -
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that an
Indemnifying Person shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed as
they are incurred. Any such separate firm for the Underwriters and such control
persons of Underwriters shall be designated in writing by Oppenheimer & Co.,
Inc.; any such separate firm for the Company, its directors, its officers who
sign the Registration Statement and such control persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, such Indemnifying Person agrees to indemnify each Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the preceding sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for fees and expenses incurred by counsel as contemplated by the third
sentence of this paragraph, such Indemnifying Person agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person
shall not have reimbursed the Indemnified Person in accordance with such request
prior to the date of such settlement. No Indemnifying Person shall, without
the prior written consent of the Indemnified Person, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified Person
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders in the aggregate,
on the one hand, and the
<PAGE>
- 29 -
Underwriters, 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 the Company and
the Selling Stockholders in the aggregate, on the one hand, and the
Underwriters, 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. The relative benefits received by the
Company and the Selling Stockholders in the aggregate, on the one hand, and the
Underwriters, on the other hand, shall be deemed to be in the same respective
proportions as the net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Stockholders in the aggregate and the
total underwriting discounts received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Company and the Selling
Stockholders in the aggregate, on the one hand, and the Underwriters, on the
other hand, 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 Stockholders or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
Each of the Company, the Selling Stockholders and the Underwriters
agrees that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Company and the
--- ----
Selling Stockholders, on the one hand, and the Underwriters, on the other hand,
were each treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
Indemnified Person as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such Indemnified Person in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7, (i) in
no event shall an Underwriter be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such
<PAGE>
- 30 -
untrue or alleged untrue statement or omission or alleged omission and (ii) in
no event shall a Selling Stockholder be required to contribute any amount in
excess of the amount by which the net proceeds received by it through the sale
of its Shares to the Underwriters exceeds the amount of any damages that such
Selling Stockholder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of shares of Common Stock constituting Underwritten Shares set
forth opposite their names in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company and the Selling
Stockholders as set forth in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person who controls the Company or any Selling Stockholder and (iii)
acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement or the
obligations of the several Underwriters with respect to the Shares may be
terminated in the absolute discretion of the Representatives, by notice given to
the Company and the Representative of the Selling Stockholders, if after the
execution and delivery of this Agreement and prior to the Closing Date (or, in
the case of the Option Shares, prior to the Additional Closing Date) (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market, (ii) trading of any securities of or guaranteed by the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by Federal or New York State authorities or (iv) there
shall have occurred an outbreak of hostilities or an
<PAGE>
- 31 -
escalation of hostilities or any change in financial markets or any calamity or
crisis that, in the judgment of the Representatives, is material and adverse and
which, in the judgment of the Representatives, makes it impracticable to market
the Shares being delivered on the Closing Date or the Additional Closing Date,
as the case may be, on the terms and in the manner contemplated in the
Prospectus.
9. If this Agreement shall be terminated by the Representatives
because of any failure or refusal on the part of the Company or any Selling
Stockholder to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company or any Selling Stockholder shall be
unable to perform its respective obligations under this Agreement or any
condition of the Underwriters obligations can not be fulfilled, the Company
agrees to reimburse the Underwriters or such Underwriters who have so terminated
this Agreement with respect to themselves, severally, for all out-of-pocket
expenses (including the fees and expenses of their counsel) reasonably incurred
by the Underwriters in connection with this Agreement or the offering
contemplated hereunder.
10. This Agreement shall become effective upon the later of (a)
execution and delivery hereof by the parties hereto and (b) the effectiveness of
the Registration Statement (or, if applicable, any post-effective amendment).
If, on the Closing Date or the Additional Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase the
Shares which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
number of Shares to be purchased on such date, the other Underwriters shall be
obligated severally, in the proportions that the numbers of Underwritten Shares
set forth opposite their respective names in Schedule I hereto bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
nondefaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
--------
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 10 by an
amount in excess of one-ninth of the number of Shares which such Underwriter is
obligated to purchase on such date hereunder without the written consent of such
Underwriter. If, on the Closing Date or the Additional Closing Date, as the
<PAGE>
- 32 -
case may be, any Underwriter or Underwriters shall fail or refuse to purchase
Shares which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares to be purchased on such date,
and arrangements satisfactory to the Representatives, the Company and the
Selling Stockholders (in the case of the Underwritten Shares only) for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or any Selling Stockholder. In any such
case, either the Representatives or the Company shall have the right to postpone
the Closing Date (or, in the case of the Option Shares, the Additional Closing
Date), but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
11. Any action by the Representatives hereunder may be taken by the
Representatives jointly or by Oppenheimer & Co., Inc. alone on behalf of the
Representatives, and any such action taken by Oppenheimer & Co., Inc. alone
shall be binding upon the Representatives. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be given to the Representatives, c/o Oppenheimer & Co., Inc.,
Oppenheimer Tower, World Financial Center, New York, New York 10281 (facsimile
(212) 667-5851), Attention: Syndicate Department. Notices to the Company shall
be given to it at 1675 Broadway, New York, New York 10019, Attention: Alan
Kaplan, Esq. Notices to the Selling Stockholders shall be given to the
Representative of the Selling Stockholders c/o the Company at its address as set
forth above, Attention: President.
12. This Agreement shall inure to the benefit of and be binding upon
the Underwriters, the Company and the Selling Stockholders and any controlling
person referred to herein and their respective successors, heirs and legal
representatives. Nothing expressed or mentioned in this Agreement is intended
or shall be construed to give any other person, firm or corporation, any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No
<PAGE>
- 33 -
purchaser of Shares from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
13. This Agreement may be signed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflicts
of laws provisions thereof.
<PAGE>
- 34 -
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
COMPUTER GENERATED SOLUTIONS, INC.
By:
-------------------------------------
Name:
Title:
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE II HERETO
By:
-------------------------------------
Name:
Title: Attorney-in-Fact
Accepted: [ ], 1997
OPPENHEIMER & CO., INC.
FURMAN SELZ LLC
Each acting severally on behalf of
itself and as a Representative
of the several Underwriters
named in Schedule I hereto.
By: OPPENHEIMER & CO., INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
- 35 -
SCHEDULE I
Number of Shares of
Common Stock
Constituting
Underwritten Shares
Underwriter To Be Purchased
- ----------- ----------------------
Oppenheimer & Co., Inc............
Furman Selz LLC...................
Total............... _________
=========
<PAGE>
- 36 -
SCHEDULE II
SELLING STOCKHOLDERS
Number of
Shares of
Common
Name Stock
- ---- ---------
Philip Friedman................................ 444,000
Victor Friedman................................ 196,000
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
COMPUTER GENERATED SOLUTIONS, INC.
Computer Generated Solutions, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
FIRST. (a) The present name of the corporation is Computer Generated
Solutions, Inc.
(b) The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was March
27, 1984 under the name Computer Generated Solutions, Inc.
SECOND. This Restated Certificate of Incorporation has been duly adopted
pursuant to and in accordance with Sections 228 and 245 of the General
Corporation Law of the State of Delaware (the "General Corporation Law"), and
restates and amends the provisions of the existing Certificate of
Incorporation of Computer Generated Solutions, Inc.
THIRD. The Certificate of Incorporation of Computer Generated Solutions,
Inc. is hereby amended and restated so as to read in its entirety as follows:
ARTICLE ONE
NAME
The name of the corporation is COMPUTER GENERATED SOLUTIONS, INC. (the
"Corporation").
ARTICLE TWO
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle
19801 and the name of the registered agent at such address is Prentice-Hall
Corporation System, Inc.
<PAGE>
ARTICLE THREE
PURPOSES
The nature of the business or purposes of the Corporation is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law, and by such statement all lawful acts and activities
shall be within the purposes of the Corporation, except for express limitations,
if any.
ARTICLE FOUR
CAPITAL STRUCTURE
Section 4.1 The total number of shares of stock which the Corporation
shall have authority to issue is 26,000,000 shares of all classes of stock,
consisting of 25,000,000 shares of Common Stock, par value $.001 per share, and
1,000,000 shares of Preferred Stock, par value $.001 per share.
Section 4.2 Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, of each such series, including but without limiting the generality of
the foregoing, the following:
(a) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number
(except where otherwise provided by the Board of Directors in the
resolution establishing such series) may be increased or decreased
(but not below the number of shares of such series then outstanding)
from time to time by like action of the Board of Directors;
2
<PAGE>
(b) The rights in respect of dividends, if any, of such series
of Preferred Stock, the extent of the preference or relation, if any,
of such dividends to the dividends payable on any other class or
classes or on any other series of the same or other class or classes
of capital stock of the Corporation and whether such dividends shall
be cumulative or noncumulative;
(c) The right, if any, of the holders of such series of
Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the
same or any other class or classes of capital stock of the
Corporation, and the terms and conditions of such conversion or
exchange;
(d) Whether or not shares of such series of Preferred Stock
shall be subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions on
which, shares of such series of Preferred Stock may be redeemed;
(e) The rights, if any, of the holders of such series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation or in the event of any
merger or consolidation of or sale of assets by the Corporation;
(f) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such series of
Preferred Stock;
(g) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter,
which may be less than, equal to or greater than one vote per share,
and which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with the
holders of any other series of Preferred Stock or all series of
Preferred Stock as a class, to elect one or more directors of the
Corporation generally or under such specific circumstances and on
such conditions, as shall be provided in the resolution or
resolutions of the Board of Directors adopted pursuant hereto,
including, without limitation, in the event there shall have been a
default in the payment of dividends on or redemption of any one or
more series of Preferred Stock; and
3
<PAGE>
(h) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications,
limitations and restrictions thereof, as the Board of Directors shall
determine.
ARTICLE FIVE
DIRECTORS
Section 5.1 The Board of Directors shall be determined and the number
may be changed in such manner as provided in the by-laws of the Corporation.
Section 5.2 The Board of Directors shall be divided into three classes,
each class to consist, as nearly as practical, of one-third of the Board of
Directors constituting the entire Board of Directors, with the term of office of
one class expiring each year. At the annual meeting of stockholders, directors
of the first class shall be elected to hold office for a term expiring at the
next succeeding annual meeting, directors of the second class shall be elected
to hold office for a term expiring at the second succeeding annual meeting and
directors of the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Directors hold office until the annual
meeting of the stockholders of the Corporation in the year in which the term of
their class expires and until their successors have been duly elected and
qualified. At each succeeding meeting of the stockholders, the successors to the
class whose term expires shall be elected for a three-year term. Any vacancies
in the Board of Directors for any reason, and any directorships resulting from
any increase in the number of directors, may be filled only by the Board of
Directors and not by the stockholders, acting by a majority of the directors
then in office, although less than a quorum, and any directors so chosen shall
hold office until the next election of the class for which such directors shall
have been chosen and until their successors have been duly elected and
qualified. Notwithstanding the foregoing, and except as otherwise--required by
law, whenever the holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one or more directors of
the Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of stockholders. Subject to
the foregoing, at each annual meeting of stockholders the successors to the
class of directors whose term shall then expire shall be elected
4
<PAGE>
to hold office for a term expiring at the third succeeding annual meeting.
Section 5.3 Any director may be removed solely for cause by the
affirmative vote of the holders of record of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote with respect to the
election of directors.
Section 5.4 Unless and except to the extent that the by-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
ARTICLE SIX
LIMITATION ON LIABILITY
A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law as the same exists or
may hereafter be amended. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of the
Corporation hereunder in respect of any act or omission occurring prior to the
time of such amendment, modification or repeal.
ARTICLE SEVEN
INDEMNIFICATION
Section 7.1 No director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that the foregoing clause shall
not apply to any liability of a director to the extent provided by applicable
law (i) for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. Neither the amendment nor repeal
of this ARTICLE SEVEN, nor the adoption of any provision of this Restated
Certificate
5
<PAGE>
of Incorporation inconsistent with this ARTICLE SEVEN, shall be effective with
respect to any cause of action, suit, claim or other matter that, but for this
ARTICLE SEVEN, would accrue or arise prior to such amendment, repeal or adoption
of an inconsistent provision.
Section 7.2 The Corporation shall indemnify each officer, director,
employee or agent of the Corporation (and his or her heirs, successors and
administrators) to the fullest extent permitted by law, subject to any
limitations set forth in the By-Laws.
Section 7.3 The Corporation shall pay the expenses (including
attorneys' fees) of any person referred to in Section 7.1 of ARTICLE SEVEN
incurred in defending any proceeding in advance of its final disposition;
provided, however, that the advancement of expenses incurred by a director or
- -------- -------
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this ARTICLE SEVEN or otherwise.
Section 7.4 If a claim for indemnification or advancement of expenses
under this ARTICLE SEVEN is not paid in full within sixty (60) days after a
written claim therefore has been received by the Corporation (except in the case
of a claim for advancement of expenses, in which case the applicable period
shall be twenty (20) days), the claimant may file suit to recover the unpaid
amount of such claim. If successful in whole in such an action, the claimant
shall be entitled to be paid the expense of prosecuting such claim; if
successful in part in such an action, the claimant shall be entitled to be paid
the expense of prosecuting each successfully resolved claim, issue or matter. In
any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or advancement of
expenses under applicable law.
Section 7.5 The rights conferred on any person by this ARTICLE SEVEN
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of this Restated Certificate of
Incorporation, provision of the by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
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Section 7.6 The Corporation's obligation, if any, to indemnify any
person who was or is serving at its request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, enterprise or
nonprofit entity shall be reduced by any amount such person would be entitled to
retain as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 7.7 Any repeal or modification of the foregoing provisions of
this ARTICLE SEVEN shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE EIGHT
AMENDMENT OF CERTIFICATE
Except for ARTICLE FIVE, ARTICLE SIX, ARTICLE SEVEN and this ARTICLE
EIGHT, each of which shall not be amended, altered, changed or repealed without
the affirmative vote of the holders of at least seventy-five percent (75%) of
the outstanding shares of the capital stock of the Corporation entitled to vote
thereon, from time to time and at any time, any provision contained in this
Restated Certificate of Incorporation may be amended, altered, changed or
repealed by the Corporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this ARTICLE EIGHT.
ARTICLE NINE
AMENDMENT OF BY-LAWS
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors of the Corporation is expressly
authorized to make, alter and repeal the by-laws of the Corporation.
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ARTICLE TEN
STOCKHOLDER ACTION
Any action required or permitted to be taken by any stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
stockholders and may not be effected by any consent in writing by such
stockholders. Except as otherwise required by law, special meetings of
stockholders of the Corporation may be called only the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate
of Incorporation to be executed by Fred B. Schlossberg, the Secretary of the
Corporation, this day of , 1997.
----- --------------------
-------------------------
Fred B. Schlossberg
Secretary
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Exhibit 3.2
Computer Generated Solutions, Inc.
BY-LAWS
-------
ARTICLE ONE
STOCKHOLDERS
SECTION 1.1. Annual Meeting. An annual meeting of stockholders for
---------------
the election of directors and for the transaction of such other business as may
properly be presented at the meeting, notice of which was given in the notice of
meeting, shall be held on such date and at such time as may from time to time be
designated by resolution duly adopted by the Board of Directors, at such place
(within or without the State of Delaware) as the Board of Directors, the
Chairman of the Board, the Executive Committee, if any, or the President may
fix.
SECTION 1.2. Special Meetings. A special meeting of stockholders may
-----------------
be called for any proper purpose, notice of which was given in the notice of
meeting, at any time only by the President of the Corporation and shall be
called by the President upon receipt of a written request of a majority of the
Board of Directors to do so specifying the matter or matters, appropriate for
action at such a meeting, that are proposed to be presented at the meeting. Any
such meeting shall be held on such date, at such time and at such place, within
or without the State of Delaware, as shall be determined by the person calling
such meeting and as shall be stated in the notice of such meeting. Stockholders
are not permitted to call a special meeting of stockholders, to require that the
President call such a special meeting or to require that the Board of Directors
request the calling of a special meeting of stockholders.
SECTION 1.3. Notice of Meeting. For each meeting of stockholders
------------------
written notice shall be given stating the place, date and hour and, in the case
of a special meeting, the purpose or purposes for which the meeting is called
and, if other than the place where the meeting is to be held, the place within
the city in which the meeting is to be held where the list of stockholders
required by Section 1.10 is to be open for examination at least 10 days prior to
the meeting. Except as otherwise provided by Delaware law, the written notice
of any meeting shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
<PAGE>
SECTION 1.4. Quorum. Except as otherwise required by law or in the
-------
Certificate of Incorporation, the holders of record of a majority of the shares
of stock entitled to be voted present in person or represented by proxy at a
meeting shall constitute a quorum for the transaction of business at the
meeting, but, in the absence of a quorum, the holders of record present in
person or represented by proxy at such meeting may vote to adjourn the meeting
from time to time until a quorum is obtained.
SECTION 1.5. Presiding Officer and Secretary at Meetings. Each
--------------------------------------------
meeting of stockholders shall be presided over by the Chairman of the Board or,
in his absence, by the President or, if neither is present, by the person
designated in writing by the Chairman of the Board or, if no such person is
present, then by a person designated by the Board of Directors; if no such
person is present, then the stockholders at the meeting present in person or
represented by proxy shall by plurality vote elect a person to act as chairman
of the meeting. The Secretary, or in his absence an Assistant Secretary, shall
act as secretary of the meeting, or, if no such officer is present, a secretary
of the meeting shall be designated by the chairman of the meeting.
SECTION 1.6. Voting. Except as otherwise provided in the By-Laws or
-------
in the Certificate of Incorporation, and subject to the provisions of Section
1.11:
(a) each stockholder of record shall be entitled at every
meeting of stockholders to one vote for each share standing in his name on
the books of the Corporation;
(b) directors shall be elected by a plurality vote;
(c) each matter, other than election of directors, properly
presented to any meeting, shall be decided by a majority of the votes cast
on the matter; and
(d) election of directors and the vote on any other matter
presented to a meeting shall be by written ballot only if so ordered by the
chairman of the meeting or if so requested by any stockholder at the
meeting present in person or represented by proxy entitled to vote in such
election or on such matter, as the case may be.
SECTION 1.7. Proxies. Each stockholder entitled to vote at a meeting
--------
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may
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authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
SECTION 1.8. Adjourned Meetings. A meeting of stockholders may be
-------------------
adjourned to another time or place as provided in Sections 1.4 or 1.6(c).
Unless the Board of Directors fixes a new record date, stockholders of record
for an adjourned meeting shall be as originally determined for the meeting from
which the adjournment was taken. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. At the adjourned meeting, provided a
quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
SECTION 1.9. Consent of Stockholders in Lieu of Meeting. No
-------------------------------------------
stockholder action by written consent in lieu of a meeting is permitted.
SECTION 1.10. List of Stockholders Entitled to Vote. A complete list
--------------------------------------
of the stockholders entitled to vote at every meeting of stockholders, arranged
in alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be prepared and
shall be open to the examination of any stockholder for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. Such list shall be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 1.11. Fixing of Record Date. The Board of Directors, by
----------------------
resolution, may fix a date for determining the stockholders of record, which
record date shall not be earlier than the date of such resolution. The record
date shall be determined as follows:
(a) The record date for stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof shall not be
more than 60 nor less than 10 days before the date of the meeting. If no
such record date is fixed by the Board of Directors, the record date shall
be the close of business on the day immediately preceding the day on which
notice is given,
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or, if notice is waived, at the close of business on the day immediately
preceding the day on which the meeting is held. The record date shall apply
to any adjournment of the meeting unless the Board of Directors fixes a new
record date for the adjourned meeting.
(b) The record date for determining the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any
other lawful action, shall be not more than 60 days prior to such action.
If no such record date is fixed by the Board of Directors, the record date
for determining stockholders for any such purpose shall be the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
SECTION 1.12. Business at Annual Meetings. In addition to the
----------------------------
election of directors, other proper business may be transacted at the annual
meeting of stockholders, provided that such business is properly brought before
such meeting. To be properly brought before an annual meeting, business must be
(a) brought by or at the direction of the President of the Corporation or the
Board of Directors, or (b) brought before the meeting by a stockholder pursuant
to written notice thereof, in accordance with Section 1.13, and received by the
Secretary not fewer than seventy nor more than ninety days prior to the first
anniversary of the previous year's annual meeting. Any such stockholder notice
shall set forth (i) the name and address of the stockholder proposing such
business; (ii) a representation that the stockholder is entitled to vote at such
meeting and a statement of the number of shares of the Corporation which are
beneficially owned by the stockholder; (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to propose
such business; and (iv) as to each matter the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting, the
language of the business matter (if appropriate), and any material interest of
the stockholder in such business. No business shall be conducted at any annual
facts warrant, the Board of Directors, or the chairman of an annual meeting of
stockholders, shall determine and declare (a) that a proposal does not
constitute proper business to be transacted at the meeting or (b) that business
was not properly brought before the meeting in accordance with the provisions of
this Section 1.12 and, if, in either case, it is so determined, any such
business shall not be transacted. The procedures set forth in this Section 1.12
for business to be
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properly brought before an annual meeting by a stockholder are in addition to,
and not in lieu of, the requirements set forth in Rule 14a-8 under Section 14 of
the Securities Exchange Act of 1934, or any successor provision.
SECTION 1.13. Notice to Corporation. Any written notice required to
----------------------
be delivered by a stockholder to the Corporation pursuant to Section 1.12 or
Section 2.14 must be given, either by personal delivery or by registered or
certified mail, postage prepaid, to the Secretary at the Corporation's principal
executive offices in the City of New York, State of New York.
ARTICLE TWO
DIRECTORS
SECTION 2.1. General Powers. The business and affairs of the
---------------
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 2.2. Number; Term of Office. The number of directors that
-----------------------
shall constitute the whole Board of Directors shall be determined by action of
the Board of Directors taken by the affirmative vote of a majority of the whole
Board of Directors. The directors shall be divided into three classes, each of
which shall be composed as nearly as possible of one-third of the directors.
Each director shall serve for the term to which the director was elected, and
until a successor shall have been elected and qualified or until the director's
prior death, resignation or removal. At each annual election, directors shall
be chosen for a full three-year term to succeed those whose terms expire.
SECTION 2.3. Resignation. Any director of the Corporation may resign
-----------
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time is specified, upon receipt thereof by the Board of
Directors or one of the above-named officers. Unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
When one or more directors shall resign from the Board of Directors effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
By-Laws in the filling of other vacancies.
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SECTION 2.4. Removal. Any one or more directors may be removed only
--------
for cause by the holders of a majority of the outstanding shares of capital
stock of the Corporation entitled to vote at an election of directors.
SECTION 2.5. Vacancies; Newly Created Directorships. Vacancies and
---------------------------------------
newly created directorships resulting from any increase in the authorized number
of directors may be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by the sole remaining director, and the
directors so chosen shall hold office, subject to Sections 2.3 and 2.4, until
the next annual meeting of stockholders and until their respective successors
are elected and qualified.
SECTION 2.6. Regular and Annual Meetings; Notice. Regular meetings
------------------------------------
of the Board of Directors shall be held at such time and at such place (within
or without the State of Delaware) as the Board of Directors may from time to
time prescribe. No notice need be given of any regular meeting, and a notice,
if given, need not specify the purposes thereof. A meeting of the Board of
Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
SECTION 2.7. Special Meetings; Notice. A special meeting of the
-------------------------
Board of Directors may be called at any time by the Board of Directors, the
Chairman of the Board, the Executive Committee, if any, the President or any
person acting in the place of the President and shall be called by any one of
them or by the Secretary upon receipt of a written request to do so specifying
the matter or matters, appropriate for action at such a meeting, proposed to be
presented at the meeting and signed by at least two directors. Any such meeting
shall be held at such time and at such place (within or without the State of
Delaware) as shall be determined by the body or person calling such meeting.
Notice of such meeting stating the time and place thereof shall be given (a) by
deposit of the notice in the United States mail, first class, postage prepaid,
at least seven days before the day fixed for the meeting, addressed to each
director at his address as it appears on the Corporation's records or at such
other address as the director may have furnished the Corporation for that
purpose, or (b) by delivery of the notice similarly addressed for dispatch by
telex, telecopy, telegraph, cable or radio or by delivery of the notice by
telephone or in person, in each case at least 24 hours before the time fixed for
the meeting.
SECTION 2.8. Presiding Officer and Secretary at Meetings. Each
--------------------------------------------
meeting of the Board of Directors shall be presided over by the Chairman of the
Board, or in his absence
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by the President, if a director, or if neither is present, by such member of the
Board of Directors as shall be chosen by a majority of the directors present.
The Secretary, or in his absence an Assistant Secretary, shall act as secretary
of the meeting, or if no such officer is present, a secretary of the meeting
shall be designated by the person presiding over the meeting.
SECTION 2.9. Quorum; Voting. A majority of the whole Board of
---------------
Directors shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. Except as otherwise required
by law, the Certificate of Incorporation or the By-Laws, the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
SECTION 2.10. Meeting by Telephone. Members of the Board of
---------------------
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.11. Action Without Meeting. Any action required or
-----------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or of such committee.
SECTION 2.12. Executive and Other Committees. The Board of Directors
-------------------------------
may, by resolution passed by a majority of the whole Board of Directors,
designate an Executive Committee or one or more other committees, each such
committee to consist of one or more directors as the Board of Directors may from
time to time determine. Any such committee, to the extent provided in such
resolution or resolutions, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have such power or authority in reference to amending the
Certificate of Incorporation (except for such amendments as by law are expressly
permitted to be made by committees of the Board of Directors), adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or
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substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. The Board of Directors may designate one or more directors as alternate
members of any committee who, in the absence or disqualification of a member or
members of a committee at a meeting, may replace such absent or disqualified
member or members at such meeting. In the absence of such a designation, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Each such committee other than the
Executive Committee shall have such name as may be determined from time to time
by the Board of Directors.
SECTION 2.13. Compensation. Each director who is a salaried officer
-------------
or employee of the Corporation shall not receive any salary for his services as
a member of the Board of Directors or of any committee, but the Board of
Directors may authorize the payment of a specified fee for attendance at each
meeting of the Board of Directors or of a committee; and each such director
shall be reimbursed for his expenses in attending such meetings. Each other
director shall receive a salary for acting as a member of the Board of Directors
and as a member of any committee, or a fixed sum for attendance at meetings of
the Board of Directors and such committee, as may from time to time be
determined by the Board of Directors and shall be reimbursed for his expenses in
attending any meeting of the Board of Directors or of such committee. However,
any director who serves the Corporation in any capacity other than as a member
of the Board of Directors or a committee may receive compensation therefor.
SECTION 2.14. Nomination. Only persons who are nominated in
-----------
accordance with the following procedures shall be eligible for election as
directors. Nominations for the election of directors may be made (a) by or at
the direction of the President of the Corporation, or (b) by any stockholder of
record entitled to vote for the election of directors at such meeting; provided,
however, that a stockholder may nominate persons for election as directors only
if written notice (in accordance with Section 1.13) of such stockholder's
intention to make such nominations is received by the Secretary not later than
(i) with respect to an election to be held at an annual meeting of the
stockholders, not fewer than seventy days nor more than ninety days prior to the
first anniversary of the previous year's annual meeting and (ii)
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with respect to an election to be held at a special meeting of the stockholders
for the election of directors, not fewer than ninety days prior to such special
meeting nor more than the later of (x) seventy days prior to such special
meeting and (y) ten days after public announcement of the date of such special
meeting is first made. Any such stockholder notice shall set forth (a) the name
and address of the stockholder who intends to make a nomination; (b) a
representation that the stockholder is entitled to vote at such meeting and a
statement of the number of shares of the Corporation which are beneficially
owned by the stockholder; (c) a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) as to each person the stockholder proposes to
nominate for election or re-election as a director, the name and address of such
person and such other information regarding such nominee as would be required in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had such nominee been nominated by the Board of Directors,
and a description of any arrangements or understandings, between the stockholder
and such nominee and any other persons (including their names), pursuant to
which the nomination is to be made; and (e) the consent of each such nominee to
serve as a director if elected. If the facts warrant, the Board of Directors, or
the chairman of a stockholders meeting at which directors are to be elected,
shall determine and declare that a nomination was not made in accordance with
the foregoing procedure and, if it is so determined, the defective nomination
shall be disregarded. The right of stockholders to make nominations pursuant to
the foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. [The procedures set forth in this Section 2.14 for nomination
for the election of directors by stockholders are in addition to, and not in
lieu or limitation of, (a) any procedures now in effect or hereafter adopted by
or at the direction of the Board of Directors or any committee thereof and (b)
the requirements set forth in Rule 14A-11 under Section 14 of the Securities
Exchange Act of 1934, or any successor provision.]
ARTICLE THREE
OFFICERS
SECTION 3.1. Election; Qualification. The officers of the
------------------------
Corporation shall have such titles and duties as are set forth in a resolution
adopted by the Board of Directors. The Board of Directors may elect such
officers as it may from time to time determine. Two or more offices may be held
by the same person.
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SECTION 3.2. Term of Office. Each officer shall hold office from the
---------------
time of his election and qualification until the expiration of the term for
which he is elected and until the time his successor is elected and qualified,
unless sooner he shall die or resign or shall be removed pursuant to Section
3.4.
SECTION 3.3. Resignation. Any officer of the Corporation may resign
------------
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers. Unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. Any officer of the Corporation may be removed
--------
at any time, with or without cause, by the vote of a majority of the whole Board
of Directors.
SECTION 3.5. Vacancies. Any vacancy, however caused, in any office
----------
of the Corporation may be filled by the Board of Directors.
SECTION 3.6. Compensation. The compensation of each officer shall be
-------------
such as the Board of Directors may from time to time determine.
ARTICLE FOUR
CAPITAL STOCK
SECTION 4.1. Stock Certificates. The interest of each holder of
-------------------
stock of the Corporation shall be evidenced by a certificate or certificates in
such form as the Board of Directors may from time to time prescribe, provided
the Board of Directors may by resolution provide that some or all of any or all
classes or series of its stock shall be uncertificated shares. Notwithstanding
the adoption of such a resolution by the Board of Directors, every holder of
uncertificated shares, upon request, shall be entitled to receive from the
Corporation a certificate representing the number of shares registered in such
stockholder's name on the books of the Corporation. Each stock certificate and
certificate representing previously uncertificated shares shall be signed by or
in the name of the Corporation by the Chairman of the Board or the President or
a Vice President and by the Secretary or an Assistant Secretary. Any or all of
the signatures appearing on any such certificate or certificates may be a
facsimile. If any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon
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any such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
SECTION 4.2. Transfer of Stock. Shares of stock of the Corporation
------------------
shall be transferable on the books of the Corporation by the holder of record
thereof or by his attorney, pursuant to applicable law and such rules and
regulations as the Board of Directors shall from time to time prescribe. Any
shares represented by a certificate shall be transferable only upon surrender of
the certificate with an assignment endorsed thereon or attached thereto duly
executed and with such proof of authenticity of signatures as the Corporation
may reasonably require.
SECTION 4.3. Holders of Record. Prior to due presentment for
------------------
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4.4. Lost, Destroyed, Mutilated or Stolen Certificates. The
--------------------------------------------------
Corporation shall issue a new certificate of stock or uncertificated shares to
replace a certificate theretofore issued by it alleged to have been lost,
destroyed, mutilated or stolen, if the owner or his legal representative (i)
submits a written request for the replacement of the certificate, together with
the mutilated certificate or such evidence as the Board of Directors may deem
satisfactory of the loss, destruction or theft of the certificate, and such
request is received by the Corporation before the Corporation has notice that
the certificate has been acquired by a bona fide purchaser, (ii) files with the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, destruction,
mutilation or theft of any such certificate or the issuance of any such new
certificate and (iii) satisfies such other terms and conditions as the Board of
Directors may from time to time prescribe.
ARTICLE FIVE
MISCELLANEOUS
SECTION 5.1. Waiver of Notice. Whenever notice is required to be
-----------------
given by the Certificate of Incorporation, the By-Laws or any provision of the
Delaware General Corporation Law, a written waiver thereof, signed by the person
entitled
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to notice, whether before or after the time required for such notice, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 5.2. Fiscal Year. The fiscal year of the Corporation shall
------------
start on January 1, in each year.
SECTION 5.3. Corporate Seal. The corporate seal shall be in such
---------------
form as the Board of Directors may from time to time prescribe, and the same may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
ARTICLE SIX
AMENDMENT OF BY-LAWS
SECTION 6.1. Amendment. The By-Laws may be adopted, amended or
----------
repealed by the Board of Directors by a majority vote of the whole Board of
Directors.
12
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
[ CGS ] [LOGO] [ ]
Incorporated under See reverse for
the laws of the certain
State of Delaware definitions
COMPUTER GENERATED SOLUTIONS, INC.
CUSIP 20513Q 10 0
- -------------------------------------------------------------------------------
This Certifies That
is the owner of
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE
PAR VALUE OF $0.001 PER SHARE OF
===================== COMPUTER GENERATED SOLUTIONS, INC. ======================
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. A statement of the rights of the holders of the
shares of the capital stock of the Corporation will be furnished by the
Corporation to any stockholder upon written request and without charge. This
Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Corporation.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: COMPUTER GENERATED SOLUTIONS, INC.
CORPORATE SEAL
/s/ FRED SCHLOSSBERG /s/
1984
SECRETARY DELAWARE PRESIDENT
Countersigned: TRANSFER AGENT
THE BANK OF NEW YORK AND REGISTRAR
(NEW YORK)
By:
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be conceived as though they were written out in full
according to the applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-_______CUSTODIAN________
(Cust) (Minor)
TEN ENT- as tenants by the entireties
under Uniform Gifts to Minors
JT ENT- as joint tenants with
right of survivorship and Act_______________________________
not as tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
Attorney to
- --------------------------------------------------------------
transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,
----------------------
<TABLE>
<CAPTION>
<S> <C>
X
------------------------------------------------------------------------------------------
X
------------------------------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
BY
- -----------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR institution (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March , 1997, among
--
COMPUTER GENERATED SOLUTIONS, INC., a Delaware corporation (the "Company"), and
Philip Friedman and Victor Friedman (Philip Friedman and Victor Friedman
together being the "Stockholders").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purpose, among others, of establishing registration rights for
the Holders (as hereinafter defined).
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
"Blackout Period" shall mean any Section 6(a) Period and any Section
---------------
6(b) Period.
"Effective Period" shall mean a period commencing on the date of this
----------------
Agreement and ending on the first date as of which all Registrable Securities
cease to be Registrable Securities.
"IPO" has the meaning specified in Section 3(a).
---
"Holders" shall mean each Stockholder and each Permitted Assignee that
-------
becomes a holder of Registrable Securities, provided that if such Person is not
a Stockholder, such Permitted Assignee has agreed in writing to become a Holder
hereunder and to be bound by the terms and conditions of this Agreement.
"Permitted Assignee" shall mean (w) Philip Friedman and Victor
------------------
Friedman and any of their descendants; (x) a spouse or surviving spouse (even if
remarried) of any individual named or described in (w) above; (y) any estate,
trust, guardianship, custodianship, curatorship or other fiduciary arrangement
for the primary benefit of any one or
<PAGE>
more of the individuals named or described in (w) or (x) above; and (z) any
corporation, partnership, limited liability company or other business
organization controlled by and substantially all of the interests in which are
owned, directly or indirectly, by any one or more of the individuals and
entities named or described in (w), (x), and (y) above.
"Prospectus" shall mean the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments and supplements, including post-effective amendments and
supplements and all material incorporated by reference in such prospectus.
"Registrable Securities" shall mean any and all shares of common stock
----------------------
of the Company (the "Common Shares") which are, on or after the date hereof,
held by any of the Stockholders or issuable to any of the Stockholders upon the
conversion or exercise of any warrant, right or other security or which are, on
or after the date hereof, issued as a dividend or other distribution with
respect to, in exchange for or in replacement of, any Common Shares or other
securities of the Company. Common Shares shall not cease to be Registrable
Securities because of their transfer to a Permitted Assignee.
"Registration Statement" means any registration statement (including a
----------------------
Shelf Registration) of the Company referred to in Section 3 or 4, including any
Prospectus, amendments and supplements to any such registration statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in any such registration statement.
"SEC" means the Securities and Exchange Commission.
---
"Section 6(a) Period" has the meaning specified in Section 6(a).
-------------------
"Section 6(b) Period" has the meaning specified in Section 6(b).
-------------------
"Securities Act" means the Securities Act of 1933, as amended,
--------------
including the rules and regulations promulgated thereunder.
2
<PAGE>
"Shelf Registration" means a "shelf" registration statement on an
------------------
appropriate form pursuant to Rule 415 under the Securities Act (or any successor
rule that may be adopted by the SEC).
"underwritten registration or underwritten offering" shall mean an
--------------------------------------------------
offering in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled to
------------------------------------
the benefits of this Agreement are the Registrable Securities. For the purposes
of this Agreement, as to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities only when and to the extent
that (i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act and such Registrable Securities have
been disposed of pursuant to such effective Registration Statement, (ii) such
Registrable Securities are distributed to the public pursuant to and in
accordance with Rule 144 (or any similar provision then in force) under the
Securities Act, (iii) such Registrable Securities have been otherwise
transferred to a party that is not a Permitted Assignee or (iv) such Registrable
Securities have ceased to be outstanding.
3. Piggy-Back Registration Rights. (a) If, at any time after the
------------------------------
effective date of an initial public offering of Common Shares pursuant to a
registration statement filed under the Securities Act (an "IPO"), the Company
proposes to register any securities under the Securities Act in connection with
any offering of its securities, whether or not for its own account, the Company
shall (i) give written notice at least fifteen business days prior to the filing
thereof to each Holder of Registrable Securities, specifying the approximate
date on which the Company proposes to file such Registration Statement and the
intended method of distribution in connection therewith, and advising such
Holder of such Holder's right to have any or all of the Registrable Securities
then held by such Holder included among the securities to be covered thereby and
(ii) at the written request of any such Holder given to the Company at least two
business days prior to the proposed filing date, include among the securities
covered by such Registration Statement the number of Registrable Securities that
such Holder shall have requested be so included. Subject to reduction in
accordance with paragraph (b) of
3
<PAGE>
this Section 3, the Company shall cause the Registration Statement to include
the Registrable Securities requested to be included in the Registration
Statement.
(b) If the lead managing underwriter of an underwritten offering made
pursuant to this Section 3(a) shall advise the Company in writing (with a copy
to the Holders of Registrable Securities participating in such offering) that,
in its opinion, the number of Registrable Securities requested to be included in
such registration exceeds the number which can be sold in such offering within a
price range acceptable to the Company, the Company will reduce the Registrable
Securities to be included in such offering to the number which the Company is so
advised can be sold in such offering within such price range. Any such
reduction shall be on a pro rata basis based on the total number of Registrable
Securities to be included in such Registration Statement by the Company and
stockholders of the Company, including Holders of Registable Securities.
(c) Nothing in this Section 3 shall create any liability on the part
of the Company to the Holders of Registrable Securities if the Company for any
reason should decide not to file a Registration Statement proposed to be filed
under Section 3(a) or to withdraw such Registration Statement subsequent to its
filing, regardless of any action whatsoever that a Holder may have taken,
whether as a result of the issuance by the Company of any notice hereunder or
otherwise.
(d) A request by Holders to include Registrable Securities in a
proposed offering pursuant to Section 3(a) shall not be deemed to be a request
for a demand registration pursuant to Section 4.
4. Demand Registration Rights. (a) Upon the written request of a
--------------------------
Holder or Holders of Registrable Securities that the Company effect the
registration with the SEC, under and in accordance with the provisions of the
Securities Act, of all or part of such Holder's or Holders' Registrable
Securities and specifying the aggregate number of shares of Registrable
Securities requested to be so registered, the Company will promptly give written
notice of such requested registration to all other Holders of Registrable
Securities. Within 15 days after receipt of the Company's notice each such
other Holder shall notify the Company in writing as to whether such Holder
wishes to have any or all of its Registrable Securities included in such
4
<PAGE>
requested registration. Thereupon, the Company shall use its best efforts to
file a Registration Statement as expeditiously as practicable (the terms of any
underwritten offering or other distribution to be determined by the Holders of a
majority of the Registrable Securities so requested to be registered). The
Holders shall have unlimited rights to make demand registrations; provided,
however, that the Company shall not be required to take any action pursuant to
this Section 4:
(i) if the Company has effected a registration pursuant to this
Section 4 within the 90-day period next preceding such request;
(ii) if the Company shall at the time have effective a Shelf
Registration pursuant to which the Holder or Holders that requested
registration could effect the disposition of such Registrable Securities
pursuant to an underwritten offering or such other method of distribution
requested by such Holder or Holders; or
(iii) during the pendency of any Blackout Period;
and provided, further, that the Company shall be permitted to satisfy
-------- -------
its obligations under this Section 4(a) by amending (to the extent permitted by
applicable law) any Shelf Registration previously filed by the Company under the
Securities Act so that such Shelf Registration (as amended) shall permit the
disposition (in accordance with the intended methods of disposition specified as
aforesaid) of all of the Registrable Securities for which a demand for
registration has been made under this Section 4(a).
(b) The Company will not include any securities that are not
Registrable Securities in any Registration Statement (including a Shelf
Registration referred to in the second proviso of Section 4(a)) filed pursuant
to a demand made under this Section 4 without the prior written consent of the
Holders of a majority in number of the Registrable Securities covered by such
Registration Statement (including a Shelf Registration referred to in the second
proviso of Section 4(a)).
(c) If the lead managing underwriter of an underwritten offering made
pursuant to this Section 4 shall advise the Company in writing (with a copy to
the Holders of Registrable Securities participating in such offering) that,
5
<PAGE>
in its opinion, the number of Registrable Securities requested to be included in
such registration exceeds the number which can be sold in such offering within a
price range acceptable to the Holders of a majority in number of the Registrable
Securities requested to be included in such offering, the Company will reduce
the Registrable Securities requested to be included in such offering to the
number which the Company is so advised can be sold in such offering within such
price range. Any such reduction shall be on a pro rata basis based on the total
number of Registrable Securities to be included in such Registration Statement
by each Holder.
5. Selection of Underwriters. In connection with any offering
-------------------------
pursuant to a Registration Statement filed pursuant to a demand made in
accordance with Section 4, the Company shall have the right to select a managing
underwriter or underwriters to administer the offering, so long as such managing
underwriter or underwriters shall be reasonably satisfactory to Holders of a
majority in number of the Registrable Securities to be included in such
offering; provided, however, that such Holders shall have the right to select
one co-managing underwriter, so long as such co-managing underwriter shall be
reasonably satisfactory to the Company. The managing underwriter or
underwriters selected by the Company shall be deemed reasonably satisfactory to
Holders of a majority in number of the Registrable Securities to be included in
such offering unless such Holders send a written notice of objection to the
Company within 10 days of receipt of notice from the Company of the appointment
of a managing underwriter or underwriters and the co-managing underwriter
selected by such Holders shall be deemed to be reasonably satisfactory to the
Company unless the Company sends a written notice of objection to such Holders
within 10 days of receipt of notice from such Holders of the appointment of a
co-managing underwriter.
6. Blackout Periods. (a) If the Company determines in good faith
----------------
that the registration and distribution of Registrable Securities (or the use of
the Registration Statement or related Prospectus) would interfere with any
pending financing, acquisition, corporate reorganization or any other corporate
development involving the Company or any of its subsidiaries (or would require
premature disclosure thereof) and promptly gives the Holders of Registrable
Securities written notice of such determination, the Company shall be entitled
to postpone the
6
<PAGE>
filing of the Registration Statement, any amendment thereto or any Prospectus
supplement otherwise required to be prepared and filed by the Company pursuant
to Section 3 or 4 and/or elect that the Registration Statement (including any
Prospectus contained therein) not be used for a reasonable period of time, but
not to exceed 90 days (a "Section 6(a) Period"). Any such written notice shall
contain a general statement of the reasons for such postponement or restriction
on use and an estimate of the anticipated delay. The Company shall promptly
notify each Holder of the expiration or earlier termination of a Section 6(a)
Period.
(b) If (i) during the Effective Period, the Company shall file a
registration statement (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan on Form S-8 or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act) with
respect to any Common Shares and (ii) with reasonable written prior notice, (A)
the Company (in the case of a non-underwritten offering pursuant to such
registration statement) advises the Holders in writing that a sale or
distribution of Registrable Securities would adversely affect such offering or
(B) the managing underwriter or underwriter (in the case of an underwritten
offering) advise the Company in writing (in which case the Company shall notify
the Holders), that a sale or distribution of Registrable Securities would
adversely impact such offering, then each Holder shall refrain from effecting
any sale or distribution of Registrable Securities (other than any Registrable
Securities included in any Registration Statement), including sales pursuant to
Rule 144 under the Securities Act, during the 10-day period prior to, and during
the 180-day period beginning on, the effective date of such registration
statement (a "Section 6(b) Period"); provided that this Section 6(b) shall not
--------
restrict the offer or sale of any Registrable Securities which have already been
registered pursuant to a Registration Statement or otherwise relieve the Company
of its obligations pursuant to Sections 3 and 4.
(c) The period for which a Registration Statement shall be kept
effective pursuant to Section 7(b) shall be extended by a number of days equal
to the number of days of any Blackout Period occurring during such period. The
beginning of any Blackout Period shall be at least 120 days after the end of any
prior Blackout Period. Notwithstanding
7
<PAGE>
anything to the contrary contained herein, the aggregate number of days included
in all Blackout Periods during any consecutive 18 months during the Effective
Period shall not exceed 180 days.
(d) During the five day period prior to, and during the 90 day period
commencing on, the effective date of a registration statement filed by the
Company on behalf of Holders in connection with an underwritten offering
pursuant to Section 4(a), the Company hereby agrees not to effect (except
pursuant to employee benefit plans or to the extent permitted by Holders of a
majority of outstanding Registrable Securities) any public sale or distribution
of Common Shares.
7. Registration Procedures. If and whenever the Company is required
-----------------------
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
shall, as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities on any form for which the Company
then qualifies or that counsel for the Company shall deem appropriate, and
which form shall be available for the sale of the Registrable Securities in
accordance with the intended methods of distribution thereof proposed by
the Holders of Registrable Securities to be included in such Registration
Statement, and use its best efforts to cause such Registration Statement to
become and remain effective in accordance with the provisions hereof;
(b) prepare and file with the SEC amendments and post-effective
amendments to such Registration Statement as may be necessary to maintain
the effectiveness of such registration and to otherwise comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement until the earlier of (x)
the date which is 180 days after the effective date of such registration
statement and (y) such time as all Registrable Securities covered by such
Registration Statement have ceased to be Registrable Securities (it being
understood that the Company at its option may determine to maintain such
effectiveness for a longer period, whether pursuant to a Shelf Registration
or otherwise), and cause the related Prospectus to be
8
<PAGE>
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act for such period
of time as a Prospectus is required to be delivered; provided, however,
-------- -------
that a reasonable time before filing a Registration Statement or
Prospectus, or any amendments or supplements thereto (other than reports
required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Securities, the managing underwriter
and their respective counsel for review and comment, copies of all
documents proposed to be filed and shall not file any such documents (other
than as aforesaid) to which any of them reasonably object prior to the
filing thereof;
(c) furnish to each Holder of such Registrable Securities and to any
underwriter in connection with an underwritten offer such number of
conformed copies of such Registration Statement and of each amendment and
post-effective amendment thereto (in each case including all exhibits) and
such number of copies of any Prospectus or Prospectus supplement and such
other documents as such Holder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities by such
Holder or underwriter (the Company hereby consents to the use (subject to
the limitations set forth in the last paragraph of this Section 7) of the
Prospectus or any amendment or supplement thereto in connection with such
disposition);
(d) use its best efforts to register or qualify such Registrable
Securities covered by such Registration Statement under such other
securities or "blue sky" laws of such jurisdictions as each Holder of such
Registrable Securities shall reasonably request, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this Section 7(d), it would not be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(e) notify each Holder of any such Registrable Securities covered by
such Registration Statement, at any time when a Prospectus relating thereto
is required to be delivered under the Securities Act of the
9
<PAGE>
Company's becoming aware that the Prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and at the request of any such Holder, prepare
and furnish to such Holder a reasonable number of copies of an amendment or
supplement to such Registration Statement or related Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(f) notify each such Holder of Registrable Securities covered by such
Registration Statement at any time:
(i) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective;
(ii) of any request by the SEC for amendments or supplements
to the Registration Statement or the Prospectus or for other
additional information;
(iii) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or any order
preventing the use of a related Prospectus, or the initiation (or any
overt threats) of any proceedings for such purposes;
(iv) of the receipt by the Company of any notification of the
suspension of the qualification of any of the Registrable Securities
for sale in any jurisdiction or the initiation (or overt threats) of
any proceeding for that purpose; and
(v) if at any time the representations and warranties of the
Company contemplated by
10
<PAGE>
paragraph (i)(i) below cease to be true and correct in all material
respects;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders an earnings statement that shall satisfy the provisions of Section
11(a) of the Securities Act, provided that the Company shall be deemed to
have complied with this paragraph if it has complied with Rule 158 of the
Securities Act;
(h) use its best efforts to cause all such Registrable Securities to
be listed on any securities exchange or automated quotation system on which
the class of Registrable Securities being registered is then listed, if
such Registrable Securities are not already so listed and if such listing
is then permitted under the rules of such exchange or market, as the case
may be, and to provide a transfer agent and registrar for such Registrable
Securities covered by such Registration Statement no later than the
effective date of such Registration Statement;
(i) enter into agreements (including an underwriting agreement in the
form customarily entered into by the Company in a comparable underwritten
offering) and take all other appropriate and all commercially reasonable
actions in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by the Company to
underwriters in comparable underwritten offerings;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions shall be reasonably satisfactory
(in form, scope and substance) to the managing underwriters, if any,
and the Holders of a majority in number of the Registrable Securities
being sold) addressed to all such Holders of Registrable Securities
included in such Registration Statement and the underwriters
11
<PAGE>
covering the matters customarily covered in opinions requested in
comparable underwritten offerings by the Company;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the selling Holders of Registrable Securities and the underwriters, if
any, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters by independent
accountants in connection with comparable underwritten offerings on
such date or dates as may be reasonably requested by the managing
underwriter;
(iv) provide the indemnification in accordance with the
provisions and procedures of Section 10 hereof to all parties to be
indemnified pursuant to such Section; and
(v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in number of the
Registrable Securities being sold and the managing underwriters, if
any, to evidence compliance with clause (f) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company;
(j) cooperate with the Holders of Registrable Securities covered by
such Registration Statement and the managing underwriter or underwriters to
facilitate, to the extent reasonable under the circumstances, the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing the securities to be sold under such Registration
Statement, and enable such securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if
any, or such Holders may request and/or in a form eligible for deposit with
the Depository Trust Company;
(k) make available for inspection by any Holder included in such
Registration Statement, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or
other agent retained by any such Holder
12
<PAGE>
or underwriter (collectively, the "Inspectors"), reasonable access to
appropriate officers of the Company and the Company's subsidiaries to ask
questions and to obtain information reasonably requested by such Inspector
and all financial and other records and other information, pertinent
corporate documents and properties of any of the Company and its
subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility; provided, however, that the Records that the Company
-------- -------
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any
Inspector unless such Inspector signs a confidentiality agreement
reasonably satisfactory to the Company or either (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission of a
material fact in such Registration Statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction; provided, further, that any decision regarding the
disclosure of information pursuant to subclause (i) shall be made only
after consultation with counsel for the applicable Inspectors; and
provided, further, that each Holder agrees that it will, promptly after
learning that disclosure of such Records is sought in a court having
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of
such Records; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order suspending or
preventing the use of any related Prospectus or suspending the
qualification of any Registrable Securities included in the Registration
Statement for sale in any jurisdiction, the Company will use all
commercially reasonable efforts promptly to obtain its withdrawal.
The Company may require each Holder as to which any registration is
being effected to furnish the Company with such information regarding such
Holder and pertinent to the disclosure requirements relating to the registration
and the distribution of such securities as the Company may from time to time
reasonably request in writing.
13
<PAGE>
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 7(e) or Section
7(f)(iii) or (iv), such Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the Prospectus or Registration Statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 7(e) or, in
the case of any such notice of an event of the kind described in Section
7(f)(iii) or (iv), until it is advised (the "Advice") in writing by the Company
that the use of the applicable Prospectus can be resumed, and, in any such case,
if so directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 7(b) shall be extended by
the number of days during the period from the date of the giving of such notice
pursuant to Section 7(e) or Section (f), as the case may be, through the date
when each Holder of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 7(e) or the Advice, as the case may be.
8. Registration Expenses. With respect to a Demand Registration or
---------------------
Piggy-Back Registration, the Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations made pursuant to Sections 3 or 4 as
the case may be, including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the Holders (it being understood that only fees and
disbursements of one counsel to all Holders of Registrable Securities shall be
paid and borne by the Company), but excluding underwriting discounts and
commissions relating to Registrable Securities.
9. Rule 144. The Company agrees that it shall timely file the
--------
reports required to be filed by it under the Securities Act or the Exchange Act
(including, without limitation, the reports under sections 13 and 15(d) of the
Exchange Act referred to in paragraph (c)(l) of Rule 144 under the Securities
Act), and shall take such further actions as any Holder may reasonably request,
all to the
14
<PAGE>
extent required to enable Holders to sell Registrable Securities, from time to
time, pursuant to the resale limitations of (a) Rule 144 under the Securities
Act, as such rule may be hereafter amended, or (b) any similar rules or
regulations hereafter adopted by the SEC. Upon the written request of any
Holder, the Company shall deliver to such Holder a written statement verifying
that it has complied with such requirements.
10. Indemnification; Contribution. (a) Indemnification by the
-----------------------------
Company. The Company agrees to indemnify and hold harmless each Holder of
Registrable Securities included in any Registration Statement, its trustees,
officers and directors and each Person who controls such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act),
and any agent or investment adviser thereof against all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees and expenses)
incurred by such party pursuant to any actual or threatened action, suit,
proceeding or investigation arising out of or based upon (i) any untrue or
alleged untrue statement of material fact contained in any Registration
Statement, any Prospectus or preliminary Prospectus, or any amendment or
supplement to any of the foregoing or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of a Prospectus or a preliminary Prospectus,
in light of the circumstances then existing) not misleading, except in each case
insofar as the same arise out of or are based upon, any such untrue statement or
omission made in reliance on and in conformity with information with respect to
such Holder furnished in writing to the Company by such Holder or its counsel
expressly for use therein. In connection with an underwritten offering, the
Company will indemnify the underwriters thereof, their officers, directors and
agents and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Holders.
Notwithstanding the foregoing provisions of this Section 10(a), the Company will
not be liable to any Holder, any Person who participates as an underwriter in
the offering or sale of Registrable Securities or any other Person, if any, who
controls such Holder or underwriter (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), under the indemnity agreement
in this Section 10(a) for any such
15
<PAGE>
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense that arises out of such Holder's or other Person's failure to send or
deliver a copy of a final Prospectus to the Person asserting an untrue statement
or alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of the Registrable Securities to such Person if
such statement or omission was corrected in such final Prospectus and the
Company has previously furnished copies thereof to such Holder and underwriter
in accordance with this Agreement.
(b) Indemnification by Holders of Registrable Securities. In
----------------------------------------------------
connection with the any registration of Registrable Securities pursuant to this
Agreement, each Holder of Registrable Securities included in such registration
shall furnish to the Company and any underwriter in writing such information,
including the name, address and the amount of Registrable Securities held by
such Holder, as the Company or any underwriter reasonably requests for use in
the Registration Statement relating to such registration or the related
Prospectus and agrees to indemnify and hold harmless the Company, all other
Holders and any underwriter, each such party's officers and directors and each
Person who controls each such party (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and any agent or investment
adviser thereof against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses) incurred by each such party
pursuant to any actual or threatened action, suit, proceeding or investigation
arising out of or based upon (i) any untrue or alleged untrue statement of
material fact contained in any Registration Statement, any Prospectus or
preliminary Prospectus, or any amendment or supplement to any of the foregoing
or (ii) any omission or alleged omission to state therein a material tact
required to be stated therein or necessary to make the statements therein (in
the case of a Prospectus or a preliminary Prospectus, in light of the
circumstances then existing) not misleading, but only to the extent that any
such untrue statement or omission is made in reliance on and in conformity with
information with respect to such Holder furnished in writing to the Company or
any underwriter by such Holder or its counsel specifically for inclusion
therein.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the
16
<PAGE>
receipt by such indemnified party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which such indemnified party may claim indemnification or contribution
pursuant to this Section 10 (provided that failure to give such notification
shall not affect the obligations of the indemnifying party pursuant to this
Section 10 except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure). In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under these indemnification provisions for any
legal expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. Notwithstanding the foregoing, if (i)
the indemnifying party shall not have employed counsel reasonably satisfactory
to such indemnified party to take charge of the defense of such action within a
reasonable time after notice of commencement of such action, or (ii) the actual
or potential defendants in, or targets of, any such action include both the
indemnifying party and such indemnified party and such indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the indemnifying party
which, if the indemnifying party and such indemnified party were to be
represented by the same counsel, could result in a conflict of interest for such
counsel or materially prejudice the prosecution of the defenses available to
such indemnified party, then such indemnified party shall have the right to
employ separate counsel, in which case the fees and expenses of one counsel or
firm of counsel (plus one local counsel or firm of counsel) selected by a
majority in interest of the indemnified parties shall be borne by the
indemnifying party and the fees and expenses of all other counsel retained by
the indemnified parties shall be paid by the indemnified parties. No indemnified
party shall consent to entry of any
17
<PAGE>
judgment or enter into any settlement without the consent (which consent, in the
case of an action, suit, claim or proceeding shall not be unreasonably withheld)
of each indemnifying party.
(d) Contribution. If the indemnification from the indemnifying party
------------
provided for in this Section 10 is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such losses, claims, damages, liabilities and expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 10(c), any legal and other fees and
expenses reasonably incurred by such indemnified party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10(d), no underwriter shall be
required to
18
<PAGE>
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and no Holder shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of such Holder were offered to the public exceeds the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 10, the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in Section 10(a) or (b), as the case may be, without regard to
the relative fault of such indemnifying parties or indemnified party or any
other equitable consideration provided for in this Section 10(d).
(e) The provisions of this Section 10 shall be in addition to any
liability which any party may have to any other party and shall survive any
termination of this Agreement. The indemnification provided by this Section 10
shall remain in full force and effect irrespective of any investigation made by
or on behalf of an indemnified party, so long as such indemnified party does not
act in a fraudulent, reckless or grossly negligent manner.
11. Participation in Underwritten Offerings. No Holder may
---------------------------------------
participate in any underwritten offering hereunder unless such Holder (a) in the
case of a registration pursuant to Section 3, agrees to sell such Holder's
securities on the basis provided in any underwriting arrangements approved by
the Company in its reasonable discretion and (b) completes and executes all
questionnaires, powers of attorney, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
12. Miscellaneous. (a) Remedies. Each Holder, in addition to being
------------- --------
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
(b) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
19
<PAGE>
unless the Company has obtained the written consent of Holders of at least a
majority in number of the Registrable Securities then outstanding.
(c) Notices. Notices, requests, permissions, waivers, and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective Persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by hand,
deposited in the United States mail (registered or certified, return receipt
requested), properly addressed and postage prepaid, or delivered by telecopy:
If to a Stockholder, to:
Philip Friedman
33 Vanderbilt Drive
Livingston, New Jersey 07039
Telephone: (201) 716-0067
Victor Friedman
8 Jan Lane
Woodbury, New York 11797
Telephone: (516) 921-0055
If to the Company, to:
COMPUTER GENERATED SOLUTIONS, INC.
1675 Broadway
New York, New York 10019
Telephone: (212) 408-3800
Telecopy: (212) 977-7474
Attention: General Counsel
(d) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties; provided, however, that any successor to a Holder shall have agreed in
writing to become a Holder under this Agreement and to be bound by the terms and
conditions hereof.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
20
<PAGE>
(f) Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(h) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all remaining provisions contained
herein shall not be in any way impaired thereby, it being intended that all of
the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
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<PAGE>
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression and a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter hereof.
There are no restrictions, promises, warranties or undertakings with respect to
the subject matter hereof, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPUTER GENERATED SOLUTIONS, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Philip Friedman
-------------------------------------
Victor Friedman
22
<PAGE>
EXHIBIT 4.3
COMPUTER GENERATED SOLUTIONS, INC.
1997 LONG-TERM INCENTIVE PLAN
1. Purpose of Plan
The purpose of this 1997 Long-Term Incentive Plan (the "Plan") is to
aid Computer Generated Solutions, Inc. and its Subsidiaries (the "Company") in
securing and retaining Key Employees of outstanding ability by making it
possible to offer them increased incentives, which may include a proprietary
interest in the Company, to join or continue in the service of the Company and
to increase their efforts for its welfare.
2. Definitions
As used in the Plan, the following words shall have the following
meanings:
(a) "CGS" means Computer Generated Solutions, Inc.;
(b) "Award" means an award or grant made to a Participant pursuant to
the Plan, including, without limitation, an award or grant of an Option,
Right, Restricted Stock, Performance Award or Other Stock-Based Award, or any
combination of the foregoing;
(c) "Award Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable
to an Award;
(d) "Board of Directors" means the Board of Directors of CGS;
(e) "Committee" means the Compensation Committee of the Board of
Directors;
(f) "Common Stock" means common stock of CGS;
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(h) "Incentive Stock Option" means a stock option to purchase shares
of Common Stock which is intended to qualify as an incentive stock option as
defined in Section 422(b) of the Internal Revenue Code;
<PAGE>
(i) "Key Employee" means any person, including an officer or director,
in the regular full-time employment of the Company who, in the opinion of the
Committee, is or is expected to be primarily responsible for the management,
growth or protection of some part or all of the business of the Company;
(j) "Limited Right" means a right to receive cash in lieu of the
exercise of an Option or Right as set forth in Section 12(b);
(k) "Nonqualified Stock Option" means a stock option to purchase
shares of Common Stock which is intended not to qualify as an incentive stock
option as defined in Section 422 of the Internal Revenue Code;
(l) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option;
(m) "Other Stock-Based Award" means an Award pursuant to Section 8;
(n) "Participant" means a person to whom one or more Awards have been
granted that have not all been forfeited or terminated under the Plan;
(o) "Performance Period" means the period specified with respect to a
Performance Award during which specified performance criteria are to be
measured;
(p) "Performance Award" means an Award granted pursuant to Section 7;
(q) "Restricted Stock" means shares of Common Stock granted pursuant
to Section 6 or as part of a Performance Award or an Other Stock-Based Award;
(r) "Right" means a stock appreciation right to elect to receive
shares of Common Stock with a fair market value, at the time of any exercise
of such stock appreciation right, equal to the amount by which the fair market
value of all shares (or where issued pursuant to Section 5, the shares subject
to the Option (or part thereof)) in respect of which such stock appreciation
right was granted exceeds the exercise price of said Option (or part thereof)
or in the Committee's discretion to receive from CGS, in lieu of such shares,
the fair market value in cash, or to receive a combination of such shares and
cash, as provided in Section 5; and
2
<PAGE>
(s) "Subsidiary" means any corporation other than CGS in an unbroken
chain of corporations beginning with CGS where each of the corporations other
than the last corporation in the unbroken chain owns 50% or more of the voting
stock in one of the other corporations in such chain.
3. Administration of Plan
The Plan shall be administered by the Committee, whose members shall
be appointed by the Board of Directors and consist of at least two members of
the Board of Directors. Members of the Committee shall qualify to administer
the Plan for purposes of Rule 16b-3 (and any other applicable rule) promulgated
under Section 16(b) of the Exchange Act. The Committee may adopt its own rules
of procedure, and the action of a majority of the Committee, taken at a meeting,
or taken without a meeting by unanimous written consent of the members of the
Committee, shall constitute action by the Committee. The Committee shall have
the power and authority to administer, construe and interpret the Plan, to make
rules for carrying it out and to make changes in such rules.
4. Awards
The Committee (or prior to the formation of the Committee, the Board
of Directors) may from time to time make such Awards under the Plan to such Key
Employees and in such form and having such terms, conditions and limitations as
the Committee may determine. Awards may be granted singly, in combination or in
tandem. The terms, conditions and limitations of each Award under the Plan
shall be set forth in an Award Agreement, in a form approved by the Committee,
consistent, however, with the terms of the Plan.
5. Awards of Options and Rights
(a) The terms and conditions with respect to each Award of Options
under the Plan shall be consistent with the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
express provisions of the Plan, as the Committee shall deem desirable:
(i) The Option price per share shall be determined by the Committee at
the time of grant, but in no event shall the exercise price of an Incentive
Stock Option be less than 100 percent of the fair
3
<PAGE>
market value of the shares at the time the Option is granted.
(ii) The Option shall be exercisable at such time or times and subject
to such terms and conditions (including vesting and forfeiture provisions)
as shall be determined by the Committee at the date of grant, but in no
event shall an Option be exercisable prior to the Participant named therein
having remained in the employ of the Company for at least one year after
the date of the grant of the Option; provided, however, that the one-year
employment requirement shall not be applicable in the event of the death or
disability of the Participant within such year or as otherwise provided in
Section 12(b). The Option may contain performance goals and measurements
consistent with the provisions in Section 7, and the provisions with
respect to any Option need not be the same as the provisions with respect
to any other Option. The Option shall be exercisable in whole or in part
from time to time during the period beginning at the completion of the
required employment time stated in the Option and ending at the expiration
of ten years from the date of grant of the Option, unless an earlier
expiration date shall be stated in the Option or the Option shall cease to
be exercisable pursuant to Section 5(a)(iv) or because of the exercise of
the Limited Right pertaining thereto as provided in Section 12(b). To the
extent that the aggregate fair market value of shares with respect to which
Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year exceeds $100,000, such Options shall
be treated as Nonqualified Stock Options. The foregoing shall be applied
by taking Options into account in the order in which they were granted.
For purposes of the foregoing, the fair market value of any share shall be
determined at the time of the grant of the Option. In the event the
foregoing results in a portion of an Incentive Stock Option exceeding the
$100,000 limitation, only such excess shall be treated as a Nonqualified
Stock Option.
(iii) Payment in full of the Option price shall be made upon exercise
of each Option and may be made in cash, by the delivery of shares of Common
Stock with a fair market value equal to the Option price, provided that any
such shares acquired by the Participant pursuant to the exercise of an
Incentive Stock Option shall have been held by the Participant for a period
of
4
<PAGE>
at least one year, or by a combination of cash and such shares that have
been held by the Participant for a period of at least one year whose fair
market value together with such cash shall equal the Option price. The
Committee may also permit Participants, either on a selective or aggregate
basis, simultaneously to exercise Options and sell the shares of Common
Stock thereby acquired pursuant to a brokerage or similar arrangement,
approved in advance by the Committee, and use the proceeds from such sale
as payment of the purchase price of such shares.
(iv) If a Participant's employment with the Company terminates other
than by reason of the Participant's death, disability or retirement under a
retirement plan of the Company, the Participant's Option shall terminate
and cease to be exercisable except as otherwise provided in Section 12(b).
If a Participant's employment with the Company terminates by reason of
death, disability or retirement under a retirement plan of the Company, the
Participant's Option shall continue to be exercisable until the expiration
date stated in the Option, provided that a Nonqualified Stock Option may be
exercised within one year from the date of death even if later than such
expiration date. In the case of a Participant whose principal employer is
a Subsidiary, then such Participant's employment shall be deemed to be
terminated for purposes of this Section 5 as of the date on which such
principal employer ceases to be a Subsidiary.
(v) Each Option shall contain a Limited Right to receive cash in lieu
of shares under the circumstances set forth in Section 12(b).
(b) The Committee, at the time of grant of an Option or at any time
prior to the expiration of its term, may also grant, subject to the terms and
conditions of the Plan, Rights in respect of all or part of such Option to the
Participant who has been granted the Option, provided that at such time the
Participant is a Key Employee.
(c) The holder of an Option or Right who decides to exercise the
Option or Right in whole or in part shall give notice to the Secretary of CGS of
such exercise in writing on a form approved by the Committee. A notice
exercising a Right shall also specify the extent, if any, to which the
Participant elects to receive cash, and shall be
5
<PAGE>
subject to the determination by the Committee as provided in Section 5(f). Any
exercise shall be effective as of the date specified in the notice of exercise,
but not earlier than the date the notice of exercise, together with, in the case
of exercise of an Option, payment in full of the Option price, is actually
received and in the hands of the Secretary of CGS.
(d) To the extent an Option is exercised in whole or in part, any
Right granted in respect of such Option (or part thereof) shall terminate and
cease to be exercisable. To the extent a Right is exercised in whole or in
part, the Option (or part thereof) in respect of which such Right was granted
shall terminate and cease to be exercisable.
(e) Subject to Sections 5(b), a Right granted with an accompanying
Option shall be exercisable only during the period in which the Option (or part
thereof) in respect of which such Right was granted is exercisable.
(f) The Committee shall have sole discretion to determine the form in
which payment will be made following exercise of a Right. All or any part of
the obligation arising out of an exercise of a Right may be settled
(i) by payment in shares of Common Stock with a fair market value
equal to the cash that would otherwise be paid,
(ii) by payment in cash, or
(iii) by payment in a combination of such shares and cash.
(g) To the extent that any Right that shall have become exercisable
shall not have been exercised or canceled or, by reason of any termination of
employment, shall have become non-exercisable, it shall be deemed to have been
exercised automatically, without any notice of exercise, on the last day on
which its related Option is exercisable, provided that any conditions or
limitations on its exercise (other than (i) notice of exercise and (ii) exercise
or election to exercise during the period prescribed in Section 5(e)) are
satisfied and the Right shall then have value. Such exercise shall be deemed to
specify that, subject to determination by the Committee as provided in Section
5(f), the holder elects to receive cash and that such exercise of a Right shall
be effective as of the time of the exercise.
6
<PAGE>
6. Awards of Restricted Stock
The terms and conditions with respect to each Award of Restricted
Stock under the Plan shall be consistent with the following:
(a) The provisions of Awards of Restricted Stock need not be the same
with respect to each Participant. Each Award of Restricted Stock shall be
subject to forfeiture as set forth in the Plan and may be otherwise subject to
forfeiture as set forth in the provisions of such Award.
(b) Each Participant receiving an Award of Restricted Stock shall be
issued a certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of such Participant and shall bear
an appropriate legend referring to the terms, conditions and restrictions
applicable to such Award. The Committee may require that the certificates
evidencing such shares be held in custody by CGS until the restrictions thereon
shall have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
(c) Shares of Restricted Stock shall be subject to the restrictions
set forth in this Section 6(c).
(i) Subject to the provisions of the Plan and the applicable Award
Agreement, during the period established by the Committee commencing on the
date of such Award (the "Restriction Period"), the Participant shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber such
shares of Restricted Stock. Within these limits, the Committee may provide
for the lapse of such restrictions in installments and may accelerate or
waive any or all of such restrictions, in whole or in part, based on
service, performance and such other factors or criteria as the Committee
may determine.
(ii) Subject to Section 10(e) and except as provided in this Section
6(c), the Participant shall have, with respect to shares of Restricted
Stock issued to such Participant under the Plan, all of the rights of a
holder of Common Stock of CGS, including the right to vote the shares and
the right to receive any cash dividends. Unless otherwise determined by
the Committee, cash dividends shall be automatically
7
<PAGE>
reinvested in additional shares of Common Stock which shall be treated as
Restricted Stock under this Section 6 and dividends payable in Common Stock
shall be treated as additional shares of Restricted Stock subject to the
same restrictions and other terms and conditions that apply to the shares
with respect to which such dividends are issued.
(iii) Except to the extent otherwise provided in this Section 6(c), in
Section 12(c) or 12(d) or in the applicable Award Agreement, upon
termination of a Participant's employment with the Company for any reason
during the Restriction Period, all shares still subject to restriction
shall be forfeited by the Participant. Except to the extent otherwise
provided in the applicable Award Agreement, if the Participant's employment
shall terminate and cease by reason of disability, retirement under a
retirement plan of the Company or death, the Restriction Period with
respect to any shares of Restricted Stock then held shall expire as of the
date of such disability, retirement or death.
(iv) Upon expiration of the Restriction Period with respect to any
shares of the Restricted Stock without a prior forfeiture thereof, the
holder of such shares shall have the right to receive in exchange for the
certificates representing such shares unlegended certificates for such
shares.
7. Performance Awards
The terms and conditions with respect to each Performance Award under
the Plan shall be consistent with the following:
(a) Performance Awards may be paid in cash, shares of Common Stock
(which may, but need not, be shares of Restricted Stock pursuant to Section 6),
Rights or any combination thereof. The Committee shall determine the nature,
length and starting date of the Performance Period for each Performance Award
which shall be at least two years (subject to Sections 12(c) and 12(d)) and
shall determine the performance objectives to be used in valuing Performance
Awards and determining the extent to which such Performance Awards have been
earned. Performance objectives may vary from Participant to Participant and
between groups of Participants and shall be based upon revenues, operating
income, operating company contribution, cash flow, income
8
<PAGE>
before income taxes, net income, earnings per share, return on equity or assets
or total return to stockholders, whether applicable to the Company or any
relevant Subsidiary or business unit, or any combination thereof, as the
Committee may deem appropriate. Performance Periods may overlap and Participants
may participate simultaneously with respect to Performance Awards that are
subject to different Performance Periods and different performance factors and
criteria. The terms of Performance Awards need not be the same with respect to
each Participant. The Committee shall determine for each Performance Award
subject to such Performance Period the range of dollar values or number of
shares of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 6), or combination thereof, to be received by the
Participant at the end of the Performance Period if and to the extent that the
relevant measures of performance for such Performance Awards are met. The
factors must include a minimum performance standard below which no payment will
be made and a maximum performance level above which no increased payment will be
made. Such dollar values or number of shares may be fixed or may vary in
accordance with such performance or other criteria as may be determined by the
Committee.
(b) The Committee may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the inclusion or exclusion of the impact of
extraordinary or unusual items, events or circumstances, provided that no
adjustment shall be made which would result in an increase in the compensation
of any Participant whose compensation is subject to the limitation on
deductibility under Section 162(m) of the Internal Revenue Code, as amended, or
any successor provision, for the applicable year. The Committee also may adjust
the performance goals and measurements applicable to Performance Awards and
thereby reduce the amount to be received by any Participant pursuant to such
Awards if and to the extent that the Committee deems it appropriate, provided
that no such reduction shall be made on or after the date of a Change in Control
(as defined in Section 12(b)(iii)).
(c) Except as otherwise provided in the applicable Award Agreement, if
during a Performance Period a Participant's employment with the Company
terminates by reason of the Participant's death, disability or retirement under
a retirement plan of the Company, such Participant
9
<PAGE>
shall be entitled to a payment with respect to each outstanding Performance
Award at the end of the applicable Performance Period (i) based, to the extent
relevant under the terms of the Award, upon the Participant's performance for
the portion of such Performance Period ending on the date of termination and
(ii) prorated for the portion of the Performance Period during which the
Participant was employed by the Company, all as determined by the Committee. The
Committee may provide for an earlier payment in settlement of such Performance
Award discounted at a reasonable interest rate and otherwise in such amount and
under such terms and conditions as the Committee deems appropriate. Except as
otherwise provided in Section 12(c) or 12(d) or in the applicable Award
Agreement, if during a Performance Period a Participant's employment with the
Company terminates other than by reason of the Participant's death, disability
or retirement under a retirement plan of the Company, then such Participant
shall not be entitled to any payment with respect to the Performance Awards
relating to such Performance Period, unless the Committee shall otherwise
determine.
(d) The earned portion of a Performance Award may be paid currently or
on a deferred basis with such interest or earnings equivalent as may be
determined by the Committee. Payment shall be made in the form of cash or whole
shares of Common Stock, either in a single payment or in annual installments,
all as the Committee shall determine.
(e) If a Participant engages in detrimental activity (as hereinafter
defined) at any time (whether before or after termination of employment), any
Performance Award that has not been paid to such Participant (or is not payable
as provided in Section 12(c) or 12(d)) prior to the date such activity has been
determined by the Committee to constitute detrimental activity shall be
forfeited and shall never become payable. For purposes of this Section 7(e),
"detrimental activity" shall mean willful, reckless or grossly negligent
activity that is determined by the Committee, on a case-by-case basis, to be
detrimental to or destructive of the business or property of CGS or any
Subsidiary. Any such determination of the Committee shall be conclusive and
binding for all purposes of the Plan. Notwithstanding the foregoing, no
Performance Award shall be forfeited or become not payable by virtue of this
Section 7(e) on or after the date of a Change in Control (as defined in Section
12(b)(iii)).
10
<PAGE>
8. Other Stock-Based Awards
The Committee may grant other Awards under the Plan pursuant to which
shares of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 6) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. The Committee may also grant stock appreciation rights without
the grant of an accompanying Option, which Rights shall permit the Participants
to receive, at the time of any exercise of such Rights, cash equal to the amount
by which the fair market value of all shares of Common Stock in respect to which
the Right was granted exceeds the exercise price thereof. Such Other Stock-
Based Awards may be granted alone, in addition to or in tandem with any Award of
any type granted under the Plan and must be consistent with the purposes of the
Plan.
9. Dividend Equivalents
Any Awards (other than Awards of Options or Rights) under the Plan
may, in the discretion of the Committee, earn dividend equivalents. In respect
of any such Award which is outstanding on a dividend record date for Common
Stock the Participant may be credited with an amount equal to the cash or stock
dividends or other distributions that would have been paid on the shares of
Common Stock covered by such Award had such covered shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents, including
the timing, form of payment and payment contingencies of such dividend
equivalents, as it deems are appropriate or necessary.
10. Limitations and Conditions
(a) The total number of shares of Common Stock that may be made
subject to Awards under the Plan is 1,270,000 shares. Such total number of
shares may consist, in whole or in part, of unissued shares or reacquired
shares. Not more than 250,000 shares of Common Stock may be made subject to
Awards under the Plan to any individual Participant, which limitation shall be
applied in a manner consistent with the requirements of Section 162(m) of the
Internal Revenue Code, as amended. The foregoing numbers of shares are based on
the capitalization of CGS immediately
11
<PAGE>
following a proposed 1300.2 to one Stock Split in connection with a contemplated
initial public offering (the "Stock Split") and may be increased or decreased by
the events set forth in Section 12(a). In the event that the Company makes an
acquisition or is a party to a merger or consolidation and CGS assumes the
options or other awards consistent with the purpose of this Plan of the company
acquired, merged or consolidated which are administered pursuant to this Plan,
shares of Common Stock subject to the assumed options or other awards shall not
count as part of the total number of shares of Common Stock that may be made
subject to Awards under this Plan.
(b) Any shares that have been made subject to an Award that cease to
be subject to the Award (other than by reason of exercise or payment of the
Award to the extent it is settled in shares) shall again be available for award
and shall not be considered as having been theretofore made subject to award.
Any shares subject to option under an Option (or part thereof) that is canceled
upon exercise of a Right when settled wholly or partially in shares shall to the
extent of such settlement in shares be treated as if the Option itself were
exercised and such shares received in settlement of the Right shall no longer be
available for grant.
(c) No Awards shall be made under the Plan after February 28, 2007,
but the terms of Awards granted on or before the expiration thereof may extend
beyond such expiration. At the time an Award is granted or amended or the terms
or conditions of an Award are changed, the Committee may provide for limitations
or conditions on such Award.
(d) No Award or portion thereof shall be transferable by the
Participant unless permitted in the applicable Award Agreement. A Right shall
never be transferred except to the transferee of the related Option.
(e) No person who receives an Award under the Plan which includes
shares of Common Stock or the right to acquire shares of Common Stock (which may
include shares of Restricted Stock pursuant to Section 6) shall have any rights
of a stockholder (i) as to shares under option until, after proper exercise of
the Option, such shares have been recorded on CGS's official stockholder records
as having been issued or transferred, (ii) as to shares to be delivered
following exercise of a Right until, after proper exercise of the Right and
determination by the Committee to
12
<PAGE>
make payment therefor in shares, such shares shall have been recorded on CGS's
official stockholder records as having been issued or transferred, or (iii) as
to shares included in Awards of Restricted Stock, Performance Awards or Other
Stock-Based Awards, until such shares shall have been recorded on CGS's official
stockholder records as having been issued or transferred.
(f) CGS shall not be obligated to deliver any shares until they have
been listed (or authorized for listing upon official notice of issuance) upon
the Nasdaq National Market or each stock exchange upon which outstanding shares
of such class at the time are listed nor until there has been compliance with
such laws or regulations as CGS may deem applicable. CGS shall use its best
efforts to effect such listing and compliance. No fractional shares shall be
delivered.
(g) Nothing contained herein shall affect the right of the Company to
terminate any Participant's employment at any time or for any reason.
11. Transfers and Leaves of Absence
For purposes of the Plan: (a) a transfer of a Participant's employment
without an intervening period from CGS to a Subsidiary or vice versa, or from
one Subsidiary to another, shall not be deemed a termination of employment, and
(b) a Key Employee who is granted in writing a leave of absence shall be deemed
to have remained in the employ of the Company during such leave of absence.
12. Stock Adjustments, Change in Control and Divestitures
(a) In the event of any merger, consolidation, stock or other non-cash
dividend, extraordinary cash dividend, split-up, spin-off, combination or
exchange of shares, reorganization or recapitalization or change in
capitalization, or any other similar corporate event, other than the stock
split, the Committee may make such adjustments in (i) the aggregate number of
shares subject to the Plan and the number of shares that may be made subject to
Awards to any individual Participant as set forth in Section 10(a), (ii) the
number and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option, (iii) the number and kind of Rights granted or that may
be granted under the
13
<PAGE>
Plan, (iv) the number and kind of shares of outstanding Restricted Stock, (v)
the number and kind of shares of Common Stock covered by a Performance Award or
Other Stock-Based Award and (vi) the number of outstanding dividend equivalents,
as the Committee shall deem appropriate in the circumstances. The determination
by the Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding.
(b) (i) In the event of a Change in Control (as defined in Section
12(b)(iii)), then unless the Committee otherwise determines at any time prior to
such Change in Control, each Option or Right held by a Participant that is not
then exercisable shall become immediately exercisable and shall remain
exercisable as provided in Section 5 notwithstanding anything to the contrary in
the first sentence of Section 5(a)(ii) or in Section 5(b). In addition, unless
the Committee otherwise determines at the time of grant or at any time
thereafter but prior to such Change in Control, each Limited Right in respect of
an Option or Right then exercisable by a Participant that is outstanding at the
time of such Change in Control shall be deemed to be automatically exercised as
of the date of such Change in Control or as of such other date during the 60-day
period beginning on the date of such Change in Control as the Committee may
determine prior to such Change in Control. In the event that the Limited Right
is not automatically exercised, the Participant may during the 60-day period
beginning on the date of the Change in Control (such 60-day period being herein
referred to as the "Limited Right Exercise Period"), in lieu of exercising such
Option or Right in whole or in part, exercise the Limited Right (or part
thereof) pertaining to such Option. Such Participant, whether the exercise is
pursuant to his election or automatic pursuant to the terms hereof, shall be
entitled to receive in cash an amount determined by multiplying the number of
shares subject to such Option (or part thereof) by the amount by which the
exercise price of each share is exceeded by (A) if such Option is an Incentive
Stock Option, the fair market value of such shares at the date of exercise or
(B) if such Option is a Nonqualified Stock Option, the greater of (x) the
highest purchase price per share paid for the shares of the Company beneficially
acquired in the transaction or series of transactions resulting in the Change in
Control by the person or persons deemed to have acquired control pursuant to the
Change in Control and (y) the highest fair market value of shares of Common
Stock during the Limited Right Exercise Period prior to the time of exercise. A
Limited Right shall be exercised in whole or
14
<PAGE>
in part by giving written notice of such exercise on a form approved by the
Committee to the Secretary of CGS, except that no such written notice shall be
required in the event such Limited Right is automatically exercised pursuant to
the terms hereof. The exercise shall be effective as of the date specified in
the notice of exercise, but not earlier than the date the notice of exercise is
actually received and in the hands of the Secretary of CGS. In the event the
last day of a Limited Right Exercise Period shall fall on a day that is not a
business day, then the last day thereof shall be deemed to be the next following
business day. To the extent an Option or a Right pertaining thereto is exercised
in whole or in part, the Limited Right in respect of such Option shall terminate
and cease to be exercisable. To the extent a Limited Right is exercised in whole
or in part, the Option (or part thereof) to which such Limited Right pertains
and the Right (or part thereof) pertaining to such Option (or part thereof)
shall terminate and cease to be exercisable.
(ii) Notwithstanding anything to the contrary in the first sentence of
Section 5(a)(ii) or in 5(a)(iv) or 5(b), the provisions of this Section
12(b)(ii) will be applicable in the event of a termination of a
Participant's employment on or after a Change in Control and prior to the
expiration of the Limited Right Exercise Period applicable thereto. No
Option, Right or Limited Right held by a Participant shall terminate or
cease to be exercisable as a result of his termination of employment on or
after a Change in Control and prior to the expiration of the Limited Right
Exercise Period applicable thereto, but shall be exercisable throughout the
Limited Right Exercise Period applicable thereto; provided, however, that
in no event shall any Option or Right be exercisable after ten years from
its date of grant (except in the event of death as provided in Section
5(a)(iv)).
(iii) A "Change in Control" shall be deemed to have occurred if (A)
any person (as that term is used in Sections 13(d) and 14(d) of the
Exchange Act, as in effect on February 28, 1997) is or becomes the
beneficial owner (as that term is used in Section 13(d) of the Exchange
Act, and the rules and regulations promulgated thereunder, as in effect on
February 28, 1997) of stock of the Company entitled to cast more than the
greater of (x) 20% or (y) the largest percentage owned by any other person
of the votes at the time entitled to be cast generally for the election
15
<PAGE>
of directors, (B) more than 50% of the members of the Board of Directors
shall not be Continuing Directors (which term, as used herein, means the
directors of CGS (x) who are members of the Board of Directors on February
28, 1997 or (y) who subsequently became directors of CGS and who were
elected or designated to be candidates for election as nominees of the
Board of Directors, or whose election or nomination for election by CGS's
stockholders was otherwise approved, by a vote of a majority of the
Continuing Directors then on the Board of Directors), (C) CGS shall be
merged or consolidated with, or, in any transaction or series of
transactions, substantially all of the business or assets of CGS shall be
sold or otherwise acquired by, another corporation or entity and, as a
result thereof, either (1) the stockholders of CGS immediately prior
thereto shall not directly or indirectly have at least 50% or more of the
combined voting power of the surviving, resulting or transferee corporation
or entity immediately thereafter or (2) any person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on February 28,
1997) is or becomes the beneficial owner (as that term is used in Section
13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder, as in effect on February 28, 1997) of more than the greater of
(x) 20% or (y) the largest percentage owned by any other person of combined
voting power of the surviving, resulting or transferee corporation or
entity, or (D) any change in control of CGS shall have occurred of a nature
that would be required to be reported in response to Item 1(a) of Form 8-K
promulgated under the Exchange Act as in effect on February 28, 1997,
regardless of whether CGS is at the time of such change in control subject
to the reporting requirement thereof. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have occurred if an acquisition of
stock that would otherwise constitute a Change in Control pursuant to
clause (A) or (D) of the preceding sentence is made by the Company, by any
corporation in a merger or consolidation that does not constitute a Change
in Control pursuant to clause (C) of the preceding sentence or by any
employee benefit plan (or related trust) sponsored or maintained by the
Company.
(c) Notwithstanding any other provision of the Plan, in the event that
a Participant's employment is terminated on or after a Change in Control (as
defined in Section 12(b)(iii)) (x) by the Company or (y) by the
16
<PAGE>
Participant because the Participant in good faith believes that as a result of
such Change in Control he is unable effectively to discharge his duties or the
duties of the position he occupied immediately prior to such Change in Control
or because of a diminution in his aggregate compensation or in his aggregate
benefits below that in effect immediately prior to such Change in Control:
(i) with respect to shares of Restricted Stock then outstanding, the
Restriction Period with respect to such shares shall be deemed satisfied as
of the date such Participant's employment is so terminated, but only as to
that portion of such shares as is equivalent to the portion of the
Restriction Period applicable thereto that has been satisfied as of such
date without regard to this Section 12(c)(i); as of such date, the portion
of such shares as to which the Restriction Period is deemed satisfied
pursuant to this Section 12(c)(i) shall become nonforfeitable and all other
of such shares shall be forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and shall
be paid out on the date such Participant's employment is so terminated (A)
as if all Performance Periods or other conditions or restrictions
applicable thereto had been completed or satisfied, the maximum performance
or other objectives with respect thereto had been attained and all Awards
granted with respect thereto had been fully earned, but (B) prorated for
the portion of any relevant Performance Period or other period ending on
the date such Participant's employment is so terminated, unless prior to
the Change in Control the Committee otherwise so provides.
(d) In the case of a Participant whose principal employer is a
Subsidiary, then such Participant's employment shall be deemed to be terminated
for purposes of Sections 6 through 9 as of the date on which such principal
employer ceases to be a Subsidiary (the "Divestiture Date") and, except to the
extent otherwise determined by the Committee and set forth in the applicable
Award Agreement:
(i) with respect to shares of Restricted Stock held by such
Participant, the Restriction Period shall be deemed satisfied as of the
Divestiture Date, but only as to that portion of such shares as is
equivalent
17
<PAGE>
to the portion of the Restriction Period applicable thereto that has been
satisfied as of the Divestiture Date without regard to this Section
12(d)(i); as of the Divestiture Date, the portion of such shares as to
which the Restriction Period is deemed satisfied pursuant to this Section
12(d)(i) shall become nonforfeitable and all other of such shares shall be
forfeited; and
(ii) with respect to Performance Awards and Other Stock-Based Awards,
including shares of Common Stock covered thereby, all such Performance
Awards and Other Stock-Based Awards shall become nonforfeitable and shall
be paid out on the Divestiture Date (A) as if all Performance Periods or
other conditions or restrictions applicable thereto had been completed or
satisfied, the maximum performance or other objectives with respect thereto
had been attained and all Awards granted with respect thereto had been
fully earned, but (B) prorated for the portion of the relevant Performance
Period or other period ending on the Divestiture Date, all as determined by
the Committee.
In the event of a termination of the Plan, then each Participant's employment
shall be deemed to be terminated for purposes of Sections 6 through 9 as of the
date of such termination of the Plan and, except to the extent otherwise
determined by the Committee and set forth in the applicable Award Agreement, the
foregoing provisions of clauses (i) and (ii) of this Section 12(d) shall apply
to such Participant's shares of Restricted Stock, Performance Awards and Other
Stock-Based Awards with the same effect as if the date of such termination of
the Plan were a Divestiture Date.
13. Amendment and Termination
(a) The Board of Directors shall have the power to amend the Plan,
including the power to change the amount of the aggregate fair market value of
the shares subject to Incentive Stock Options first exercisable in any calendar
year under Section 5 to the extent provided in Section 422, or any successor
provision, of the Internal Revenue Code. It shall not, however, except as
otherwise provided in the Plan, increase the maximum number of shares authorized
for the Plan, nor change the class of eligible employees to other than Key
Employees, nor reduce the basis upon which the minimum Option price is
determined, nor extend the period within which Awards under the Plan may be
granted, nor provide for an Option that is exercisable more than ten
18
<PAGE>
years from the date it is granted except in the event of death. It shall have no
power to change the terms of any Award theretofore granted under the Plan so as
to impair the rights of a Participant without the consent of the Participant
whose rights would be affected by such change except to the extent, if any,
provided in the Plan or in the Award.
(b) The Board of Directors may suspend or terminate the Plan at any
time. No such suspension or termination shall affect Options, Rights or Limited
Rights then in effect.
14. Withholding Taxes
The Company shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of CGS to deliver shares upon the exercise of an Option or Right,
upon payment of a Performance Award, upon delivery of Restricted Stock or upon
exercise, settlement or payment of any Other Stock-Based Award that the
Participant pay to the Company such amount as may be requested by the Company
for the purpose of satisfying any liability for such withholding taxes. Any
Award Agreement may provide that the Participant may elect, in accordance with
any conditions set forth in such Award Agreement, to pay any withholding taxes
in shares of Common Stock.
15. Effective Date
The Plan shall be effective on and as of March __, 1997.
19
<PAGE>
EXHIBIT 5.1
Computer Generated Solutions, Inc.
1675 Broadway
New York, New York 10019
Re: Computer Generated Solutions, Inc.
Initial Public Offering of Common Stock
----------------------------------------
Ladies And Gentlemen:
We have acted as special counsel to Computer Generated Solutions, Inc., a
company organized under the laws of the State of Delaware (the "Company"), in
-------
connection with the issuance and sale by the Company of up to 3,431,000 shares
of Common Stock, par value $0.001 per share (the "Shares"), of the Company
------
(which includes up to 531,000 Shares that may be purchased by the underwriters
solely for the purpose of covering over-allotments) (the "Company Shares") and
as special counsel to Philip Friedman and Victor Friedman (the "Selling
-------
Stockholders"), in connection with the sale by the Selling Stockholders of
- ------------
640,000 Shares (the "Selling Stockholder Shares"), all of the foregoing upon
the terms and conditions of a public offering described in a Registration
Statement on Form S-1 filed with the Securities and Exchange Commission (the
"Registration Statement"). Capitalized terms used herein but not defined
herein shall have the meanings set forth in the Registration Statement. We
have examined originals, or copies certified to our satisfaction, of such
records, agreements, documents and other instruments and such certificates or
comparable documents of public officials and of officers and representatives of
the Company and the Selling Stockholders, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth. In addition, we have relied as to matters of
fact upon certificates of officers of the Company and of the Selling
Stockholders.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
<PAGE>
-2-
March 3, 1997
We are members of the Bar of the State of New York and we do not express
any opinion herein concerning any law other than the law of the State of New
York, the Federal law of the United States and the General Corporation Law of
the State of Delaware.
Based upon the foregoing, we are of the opinion that (i) the Company
Shares will be validly issued, fully paid and nonassessable Shares when issued
and sold by the Company and paid for by the Underwriters, all in the manner
contemplated in the Registration Statement, and (ii) the Selling Stockholder
Shares will be validly issued, fully paid and nonassessable Shares when sold by
the Selling Stockholders and paid for by the Underwriters, all in the manner
contemplated in the Registration Statement.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference of our firm under the caption
"Legal Matters" in the Prospectus filed as a part thereof.
Very truly yours,
Chadbourne & Parke LLP
<PAGE>
EXHIBIT 10.1
Service Agreement Between
International Business Machines Corporation
and
Computer Generated Solutions, Inc.
October 04, 1995
Contact: Nancy Hiatt [ARTWORK] 303-924-5396
IBM Integrated Procurement Solutions
6300 Diagonal Highway
P.O. Box 1900
Boulder, Colorado 80301-9191
Department: PRB1
Building: 001H
Service Agreement Number 2165
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
1.0 SERVICE AGREEMENT............................... 1
1.1 Statement of Work............................... 1
1.2 Definitions..................................... 1
1.3 Subcontracting.................................. 2
1.4 Delegations and Assignments..................... 2
1.5 Payment and Records............................. 2
1.6 Confidential Information........................ 3
1.7 Information Asset Security Requirements 3
1.8 IBM Furnished Materials......................... 4
1.9 Rights In Data.................................. 4
1.10 Invention Rights............................... 5
1.11 Contractor's Employees......................... 5
1.12 IBM Regulations & Policies..................... 6
1.13 Former IBM Employees.......................... 7
1.14 Insurance...................................... 7
1.14.1 General Requirements......................... 7
1.14.2 Minimum Limits of Coverage................... 7
1.15 Contractor Safety on Premise................... 7
1.16 Indemnification................................ 8
1.17 Environment................................... 9
1.18 Compliance with Laws........................... 9
1.19 Trademark ..................................... 10
1.20 Monthly Report................................. 10
1.21 Electronic Data Interchange/Electronic
Funds Transfer...................................... 10
1.22 Utilization of Minority Owned Businesses........ 11
1.23 Taxes.......................................... 11
1.24 Gifts and Gratuities........................... 11
1.25 Representations And Warranties................. 11
1.26 Quality And Acceptance ........................ 12
1.27 Cost Reduction................................. 13
1.28 General Provisions............................. 13
1.29 Notices........................................ 14
1.30 Modifications.................................. 14
1.31 Authority...................................... 14
1.32 Rate Schedule.................................. 14
1.33 Delivery Schedule ............................. 14
1.34 Term.......................................... 14
1.35 Termination and Cancellation.................. 14
1.36 Entire Agreement............................... 15
1.37 Order of Precedence............................ 15
2.0 SIGNATURES ..................................... 17
3.0 ATTACHMENT A: STATEMENT OF WORK................ 19
3.1 Project Description............................. 19
3.2 Manpower........................................ 19
3.3 Work Schedules.................................. 20
3.4 Skill Requirements.............................. 20
3.5 Job Descriptions................................ 21
3.6 Training....................................... 25
3.7 Transitional Training........................... 25
3.8 Measurements.................................... 25
3.9 Acceptance Criteria............................. 26
3.10 IBM Responsibilities........................... 26
3.11 Contractor Responsibilities.................... 27
3.12 Rate Schedule.................................. 27
3.13 Glossary of Terms............................. 29
4.0 TRAVEL EXPENSE GUIDELINES....................... 31
4.1.1 Expense Account Details..................... 31
4.1.2 Receipts.................................... 31
4.1.3 Transportation.............................. 31
4.1.4 Lodging and Meals .......................... 31
4.1.5 Personal Expenses........................... 32
</TABLE>
<PAGE>
1.0 SERVICE AGREEMENT
This is a service agreement numbered 2165, made by and between International
Business Machines Corporation (IBM), a corporation of the state of New York,
having an office at 6300 Diagonal Highway, Boulder, Colorado 80301-9191,
(hereinafter referred to as IBM), and Computer Generated Solutions, Inc., a
corporation of the state of Delaware, having an office at 1675 Broadway, 31st
Floor, New York, NY 10019 (hereinafter referred to as Contractor).
1.1 STATEMENT OF WORK
Contractor shall provide IBM with call center and associated services as
specified in the Statement of Work attachment(s) and in purchase orders issued
by IBM and accepted by the Contractor.
The Statement of Work shall be more fully described in the alphabetical
attachments beginning with "A," appended to and made part of this Agreement.
All Deliverables shall be performed in accordance with the terms and conditions
of this Agreement and with the terms and conditions on the front and back of
purchase orders issued from time to time by IBM and accepted by Contractor. Such
purchase orders shall constitute the only authorization for Contractor to take
any action or to expend any money for services hereunder. IBM will pay only the
amount specified in purchase orders for such work. Contractor's services may
include collaboration with and assistance to IBM personnel or others retained by
IBM. In the event of any conflict between the terms and conditions of this
Agreement and those of purchase orders issued hereunder, the terms and
conditions of this Agreement shall prevail.
IBM shall appoint a coordinator for each purchase order issued by IBM under this
Agreement. This coordinator shall be responsible for maintaining technical
liaison with Contractor's on-site supervisor and for determining for IBM the
adequacy, acceptability, and fitness of the services performed by Contractor
under such purchase orders.
When work is done on IBM's premises, Contractor shall at all times provide on
such IBM premises supervisory personnel acceptable to IBM to supervise
Contractor's employees. Contractor shall notify IBM of the name of the
supervisor responsible for the work. The supervisor shall have authority to act
as agent for Contractor in Contractor's absence.
1.2 DEFINITIONS
1. "Deliverables" means all the items, material, or services prepared or
performed for or submitted to IBM under this Agreement.
2. "Confidential Information" means oral or written information which relates to
the past, present, or future research, development, or business activities of
IBM or its direct or indirect subsidiaries whether or not identified as IBM
Confidential Information, including the names, addresses, phone numbers, and
requirements of IBM's contractors, customers, and prospective customers. The
contents of any reports prepared by Contractor hereunder shall be treated as
Confidential Information.
No obligation of confidentiality applies to any information that the
Contractor: (a) already possesses without obligation of confidentiality; (b)
develops independently; or (c) rightfully receives without obligation of
confidentiality from a third party. No obligation of confidentiality applies
to information that is, or becomes, publicly available without breach of this
Agreement.
3. "Invention" means any idea, design, concept, technique, invention, discovery,
or improvement, whether or not patentable, made solely or jointly by
Contractor or Contractor's employees with one or more employees of IBM during
the term of this Agreement and in the performance of services hereunder,
provided that either the conception or first actual reduction to practice
occurs during the term of this Agreement and in the performance of services
hereunder.
4. "Preexisting Materials" means any materials included in the Deliverables
necessary for effective utilization thereof but which were developed outside
the scope of work encompassed by this Agreement.
<PAGE>
5. The term "Subsidiary" means a corporation, company, or other entity more than
fifty percent (50%) of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are; or which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture, or unincorporated association, but more
than fifty percent (50%) of whose ownership interest (representing the right
to make the decisions for such corporation, company, or other entity) is; now
or hereafter, owned or controlled, directly or indirectly, by a party hereto,
but such corporation, company, or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
6. "Subcontractor On Premise" (SCOP) is defined as employees of another company
specializing in selling services and providing personnel for short term
projects. SCOPs typically are integrated with the IBM work force, possess
skills similar to IBM employees, receive technical direction from IBM
management and personnel management from their parent company, and are
subcontracted for time and workload.
7. "Vendors On Premise" (VOP) is defined as employees of another company who
have been selected by that company to accomplish a defined scope of work. The
work performed will normally require at least four or more contractor
personnel for an initial period of at least six months. Work direction and
technical information required shall be provided by the contractor
supervisor. The contractor supervisor shall be responsible to provide
supervision and control over the work of the contractor's personnel. Office
space provided by IBM shall minimize casual commingling between IBM
employees and the contractor personnel.
1.3 SUBCONTRACTING
Contractor shall not subcontract the work to be performed under this Agreement
without IBM's consent in writing, but Contractor may purchase goods it normally
purchases to perform the work.
1.4 DELEGATIONS AND ASSIGNMENTS
Contractor shall not delegate any duties under this Agreement without IBM's
prior written consent. Contractor shall inform IBM prior to any assignments of
rights to moneys due or to become due under this Agreement.
1.5 PAYMENT AND RECORDS
1. IBM will pay Contractor for services under this Agreement in accordance with
the Statement of Work and as specified on the purchase orders issued
hereunder by IBM.
2. Invoices are to be sent to IBM Corporation, National Accounts Payable
Services, P.O. Box 9001, Endicott, NY 13761-9001. The purchase order number
and the terms of payment shall be stated on the invoices.
3. The date used for calculation of terms of payment shall be the date IBM
receives an acceptable invoice.
4. Contractor shall maintain complete and accurate accounting records in a form
according to sound accounting practices to substantiate Contractor's charges.
Such records shall include payroll records, job cards, attendance cards, and
job summaries. Contractor shall retain such records for one (1) year from the
date of final payment hereunder.
5. IBM shall have access to such records for purposes of audit during normal
business hours during the term of this Agreement and during the respective
periods in which Contractor is required to maintain such records as herein
provided.
6. No overtime or premium rate will be paid without the prior approval of the
IBM Purchasing Contract Administrator/Buyer.
<PAGE>
- --------------------------------------------------
1.6 CONFIDENTIAL INFORMATION
Contractor and its employees will have access to IBM Confidential Information
and the following terms shall govern all disclosures of Confidential Information
to Contractor and its employees regardless of whether such Confidential
Information is removed from IBM's premises.
1. Contractor shall hold all Confidential Information in confidence for IBM and
shall not use Confidential Information or disclose it by publication or
otherwise to any other person during the term of this Agreement and for a
period of two (2) years thereafter other than those persons whose services
Contractor requires and who have a need to know such Confidential
Information for purposes of carrying out the terms of this Agreement and
who agree in writing to be bound by and to comply with the provisions of
this Section.
2. Upon termination or expiration of this Agreement, Contractor shall return to
IBM all written or descriptive matter including but not limited to
drawings, blueprints, descriptions, or other papers, documents, tapes, or
any other media which contain any Confidential Information. In the event of
a loss at any time of any item containing Confidential Information,
Contractor shall promptly notify IBM in writing.
3. Contractor shall not make any copies of any writings, documents, or other
media containing Confidential Information provided by IBM. If copies of
such writings, documents, or other media are necessary for performing
services under this Agreement, they will be provided by IBM upon
Contractor's written request.
4. Contractor shall secure all writings, documents, and other media containing
Confidential Information in locked files at all times when not in use to
prevent its loss or unauthorized disclosure and segregate Confidential
Information at all times from the material of others. IBM agrees to pay
all reasonable costs incurred in accomplishing the foregoing. All such
costs must be agreed to in writing by IBM prior to any expenditure by
Contractor.
5. Contractor will not disclose any information Contractor's company deems
Confidential or proprietary without an IBM Agreement for Exchange of
Confidential Information (AECI) that both parties have signed.
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1.7 INFORMATION ASSET SECURITY REQUIREMENTS
IBM information asset equipment utilized by the Contractor is intended for the
exclusive use of supporting IBM business requirements as defined in this
Agreement.
The Contractor will adhere to the following requirements for the purpose of
protecting IBM information assets:
1. Computing installations and support facilities are to be administered as
areas of restricted physical access when information classified IBM
Confidential or higher is stored on-line.
2. Access to IBM's information assets are to be restricted to authorized
individuals only. The Contractor must communicate the names and telephone
number of those authorized individuals to IBM. The Contractor will maintain
a list of users, including the name and IBM user ID.
3. Access passwords to IBM networks and IBM application systems are considered
IBM Confidential data.
4. Access passwords to IBM networks and IBM application systems will be issued
by IBM to the Contractor. An access password must not be used by any
individual other than the individual to whom the access password was issued.
5. The Contractor shall notify IBM when Contractor personnel changes result in
a required discontinuance of access to IBM networks or application systems.
6. The Contractor shall immediately notify IBM of any suspected compromise of
IBM password confidentiality.
7. The Contractor shall ensure that IBM equipment is connected only to IBM via
an authorized IBM network or other approved connection.
8. The Contractor shall ensure that IBM terminals in use are attended while in
use to protect against unauthorized access.
9. The Contractor shall notify IBM when invoking a backup telecommunications
link via dial-up over a public telecommunications
<PAGE>
network. Use of dial-up telecommunications over a public network is
restricted to those instances when direct line link is unavailable or when
IBM specifically instructs the Contractor to use dial up telecommunications.
10. Screen access is controlled by IBM. If access is achieved by the Contractor
that is not related to this Agreement, the Contractor will advise IBM
immediately.
- --------------------------------------------------
1.8 IBM FURNISHED MATERIALS
Unless otherwise agreed in writing, Contractor will supply all materials,
equipment, tools, and facilities required to perform this Agreement. All
materials, equipment, and tools furnished to Contractor by IBM or
specifically paid for by IBM ("Materials"), and any replacement thereof, or any
materials affixed or attached thereto, shall be and remain the property of,
with the right of possession in, IBM. Contractor shall use the Materials
only in performing work for IBM and not otherwise. Contractor shall, at its
expense, maintain all Materials in good condition and repair, replacing any
such Materials if necessary. While in Contractor's custody or control, all
Materials shall be kept and insured by the Contractor at its expense against
loss and/or damage in an amount equal to their replacement cost and shall be
subject to removal at IBM's written request, in which event Contractor at
its expense shall prepare such Materials for shipment and shall deliver them to
IBM in the same condition as originally received by Contractor. Contractor
shall promptly notify IBM of the location of any Materials not located at
Contractor's address as specified in this Agreement. Contractor shall maintain
accountability and property control records of all Materials in accordance
uith sound commercial practice. IBM reserves the right to review such records
and to take its own inventory as often as IBM deems necessary. Contractor
agrees to count and provide written confirmation of receipts from IBM of any
IBM furnished Materials. Upon completion or termination of this Agreement,
Contractor shall obtain from IBM shipping instructions or other authorization
instructions prior to returning any Materials to IBM.
- --------------------------------------------------
1.9 RIGHTS IN DATA
1. All of the "Deliverables" except preexisting materials shall belong
exclusively to IBM and shall be deemed to be works made for hire.
2. To the extent that any of the Deliverables may not, by operation of law,
be works made for hire, Contractor hereby assigns to IBM the ownership
of all rights in such part of the Deliverables and IBM shall have the
right to obtain and to hold in its own name copyrights, registrations, and
whatever protection which may be available in the Deliverables. Contractor
agrees to give IBM or its designees all assistance reasonably required to
perfect such rights.
3. To the extent that any preexisting materials of Contractor are contained
in the Deliverables, Contractor hereby grants to IBM an irrevocable,
non-exclusive, worldwide, royalty-free license to: use, execute,
reproduce, display, perform, distribute (internally or externally) copies
of, and prepare derivative works based upon such preexisting materials
and derivative works thereof; and, authorize others to do any, some, or
all of the foregoing. Contractor shall obtain IBM's prior written
approval before incorporating any of Contractor's preexisting materials in
the Deliverables.
4. Should Contractor and IBM mutually agree that there is a requirement to
include in the Deliverables the materials of a third party, Contractor
agrees to obtain all necessary rights and or licenses from such third
party at Contractor's expense. The terms and conditions of such rights and
licenses are subject to IBM's approval and must, at a minimum, enable IBM
to l) use, execute, reproduce, display, perform, distribute (internally and
externally) copies of, and prepare derivative works based upon, such
materials of a third party and derivative works thereof; 2) authorize
others to do any, some or all of the foregoing. Upon IBM's request,
Contractor shall deliver to IBM a complete copy of every agreement, license,
or other arrangement from which Contractor derives authority to grant IBM
rights and licenses granted under this Agreement. Contractor shall obtain
IBM's prior written approval before incorporating the materials of a third
party in the Deliverables.
<PAGE>
5. No license or right is granted to Contractor either expressly or by
implication, estoppel, or otherwise to publish, reproduce, prepare
derivative works of, distribute copies of, publicly display or perform any
of the Deliverables except preexisting materials of Contractor, either
during or after the term of this Agreement.
6. The Contractor shall satisfactorily complete and return to IBM, when
required, a Vendor Certificate of Originality, as specified in Exhibit 1 of
this Agreement. This pertains to all programming software work at the
completion of such software work or earlier if so requested by IBM. The
acceptance of the properly completed certificate is a condition of final
payment by IBM for the finished material.
- --------------------------------------------------
1.10 INVENTION RIGHTS
1. Contractor shall promptly make a complete written disclosure to IBM of
each Invention, specifically pointing out the features or concepts which
Contractor believes to be new or different.
2. Contractor hereby assigns to IBM, its successors, and assigns, any
Invention together with the right to seek protection by obtaining patent
rights therein, and to claim all rights of priority thereunder, and the
same shall become and remain IBM's property whether or not such protection
is sought.
3. Contractor shall, upon IBM's request and at IBM's expense, cause patent
applications to be filed on any Invention, through solicitors designated by
IBM and forthwith assign all such applications to IBM, its successors and
assigns. Contractor shall give IBM and its solicitors all reasonable
assistance in connection with the preparation and prosecution of any such
patent applications and shall cause to be executed all such assignments and
other instruments and documents as IBM may consider necessary or appropriate
to carry out the intent of this Section.
4. To the extent that IBM has the right to do so, IBM hereby grants to
Contractor an irrevocable, nonexclusive, nontransferable, and fully paid-up
license throughout the world under any Inventions assigned to IBM pursuant
to this Section and under any patents throughout the world issuing thereon
including reissues, extensions, divisions, and continuations thereof;
provided, however, that such license is not applicable to any Inventions,
patent applications, or patents related to appearance designs.
5. Nothing contained in this Agreement shall be deemed to grant either directly
or by implication, estoppel, or otherwise, any license under any patents or
patent applications arising out of any other inventions of either party.
- --------------------------------------------------
1.11 CONTRACTOR'S EMPLOYEES
1. Contractor shall have an appropriate agreement with each of its employees or
others whose services Contractor may secure to perform hereunder,
sufficient to enable it to comply with all of the terms of this Agreement
including this section.
2. Contractor agrees to take appropriate preventive steps before the assignment
of any of its employees to perform work under this Agreement that it
reasonably believes will ensure that its employees and its subcontractors'
employees at any level will not engage in inappropriate conduct while on
IBM premises. Inappropriate conduct shall include but is not limited to:
being under the influence of or affected by alcohol, illegal drugs, or
controlled substances; the manufacture, use, distribution, sale/or
possession of alcohol, illegal drugs, or any other controlled substance
except for approved medical purposes; the possession of a weapon of any
sort; or harassment, threats/or violent behavior. Violation of this
provision may result in termination of this Agreement and any other remedy
available to IBM at law or in equity.
3. Contractor agrees to distribute the following notice concerning sexual
harassment to any of its employees who are assigned to work on IBM premises:
"IBM is committed to providing a work environment free from sexual
harassment. Sexual harassment is unwelcome sexual conduct which has the
purpose or effect of unreasonably interfering with an individual's work
performance or which creates an offensive or hostile work environment.
If you believe that you have been the victim of sexual harassment while
working on IBM premises, you are
<PAGE>
encouraged to report such incidents directly to your employer and
directly to IBM by calling IBM Corporate Security at 8/251-4885 or
(914) 765-4885 between 8:30 a.m. and 5:00 p.m. Eastern time. If you are
calling long distance from outside IBM, you may call this number
collect. All complaints to IBM of such conduct will be investigated
promptly and dealt with appropriately."
4. IBM shall have access to the documentation necessary to verify compliance
with Contractor's commitment in this entire section.
5. IBM may, at its sole discretion, request that Contractor remove any specified
employees of Contractor from IBM's premises and that they not be reassigned
to any IBM premises under this Agreement. No reason is required of IBM for
such request. Contractor hereby agrees to take action immediately to remove
such specified employees and to ensure that such reassignment does not occur.
6. Personnel supplied by Contractor shall be deemed employees of Contractor and
shall not for any purpose be considered employees or agents of IBM.
Contractor assumes full responsibility for the actions of such personnel
while performing services pursuant to any purchase order issued hereunder
and shall be solely responsible for their supervision, daily direction and
control, payment of salary (including withholding of income taxes and social
security), worker's compensation, disability benefits, and the like.
7. Except as specified in attachment A: Statement of Work, Section 3.6, all
training of Contractor's employees shall be conducted by the Contractor. In
the event that IBM conducts such training of Contractor's employees,
Contractor shall reimburse IBM for such training at a price not less than the
Training Specialist bill rate specified in Section 3.12.
8. Contractor shall not conduct non-production meetings, hold perspective
employee interviews, or terminate employees on IBM premises.
9. In the event of cancellation, termination or expiration of this Agreement,
Contractor shall not prohibit its employees assigned to work under this
Agreement from seeking immediate employment with IBM or another third party
employer. The management and teamleader positions are excluded from this
provision.
- --------------------------------------------------
1.12 IBM REGULATIONS & POLICIES
Contractor personnel are not eligible to use or to participate in the following:
IBM Credit Union
IBM Club recreational or social activities
Voluntary education programs
IBM Suggestion Program
Any IBM awards program
Cashier
Contractor personnel shall not make personal use of:
IBM tools, test equipment, etc.
IBM bulletin boards
Telephones
Copiers
Internal computing systems
Contractor personnel shall:
Wear badges at all times and comply with all IBM security procedures
Not remove any IBM property nor take any work off IBM premises
Comply with Confidential Information Section of this Agreement
While working at IBM, contractor personnel shall observe the following rules:
No liquor or drug abuse
No fighting, horseplay, etc.
No dishonesty
No firearms, knives, or other weapons
No foul language
No gambling
No promiscuous conduct
No solicitation
No ethnic or racial or sexual jokes or slurs
No sexual harassment
No threats
No misuse of IBM assets including copiers, systems, or facsimiles
<PAGE>
- --------------------------------------------------------------------------------
1.13 Former IBM Employees
1. Contractor shall inform IBM Purchasing when Contractor plans to assign a
former IBM employee to perform work under this Agreement whether or not on
IBM premises. IBM reserves the right to approve or to disapprove the
assignment.
2. Nothing contained in this Agreement shall be construed as granting to
Contractor or any employee of Contractor rights under any IBM employee
benefit plan.
- --------------------------------------------------------------------------------
1.14 Insurance
1.14.1 General Requirements
Supplier shall, at its own expense, provide and keep in full force and effect
during the term of the Agreement at least the following kinds and minimum
amounts of insurance covering its services in the state(s) in which the work is
to be performed.
1. Worker's Compensation Insurance and Employer's Liability Insurance.
2. Commercial General Liability Insurance including personal and advertising
injury with the following extensions of coverage:
2.1. "Premises Operations"
2.2. "Products and Completed Operations" for two years following expiration
or termination of the Agreement.+
2.3. "Contractual Liability" for the liability assumed by Supplier under the
Section entitled "Indemnification"
General Liability Insurance requirements for sole proprietors operating as
IBM suppliers will be satisfied by procuring a Business Owners Policy with a
$1,000,000 limit of liability.
3. Comprehensive Automobile Liability Insurance for personal injury and property
damage for owned and non-owned, and hired vehicles used by Supplier while
performing service in connection with the Agreement.
4. Supplier shall provide IBM with a Certificate of Insurance upon request
evidencing the insurance specified in this Section.
5. Insurance coverage must include the following requirements:
5.1. IBM named as Certificate holder.
5.2. Minimum of 30 days notice of any changes or cancellations to policy
5.3. IBM named as an additional insured under 2 and 3 above.
+Note: Products and Completed Operations Coverage not required of suppliers
who are not at all involved in the manufacturing or sales process related to
products (i.e.: consultants, maintenance).
1.14.2 Minimum Limits of Coverage
COVERAGE MINIMUM LIMITS
- --------------------------------------------------------------------------------
Worker's Compensation ... Statutory requirements of the state of which the
work is to be done.
Employer's Liability ... Not less than $100,000
Commercial General Liability++
A. Bodily Injury ... $1,000,000 each occurrence
B. Property Damage ... $1,000,000 each occurrence
$1,000,000 combined single limit acceptable for A&B.
++Includes Premises Operations, Products and
Completed Operations, and Contractual Liability.
Comprehensive Automobile Liability
(owned, non-owned and hired)
A. Bodily Injury ... $250,000 each person
... $500,000 each occurrence
B. Property Damage ... $200,000 each occurrence
- --------------------------------------------------------------------------------
1.15 Contractor Safety on Premise
1. At their own expense, Contractor or its Subcontractors of any tier entering
IBM's premises shall comply with the Occupational Safety and Health Act of
1970, as amended, and all regulations and standards.
2. Contractor shall notify IBM promptly in writing if a charge of non-compliance
with the Occupational Safety and Health Act of 1970, as amended, has been
filed against the Contractor
<PAGE>
in connection with any services being performed hereunder on IBM owned or
leased premises.
3. For Contractor's projected to work 500 hours or more at an IBM location
providing construction or manufacturing type services, Contractor must
provide evidence of a satisfactory safety program to IBM consisting of the
following elements and performance standards at IBM's request:
. Contractor's OSHA Accident/Illness Frequency Rate number, no greater than
industry average for SIC code (annually).
. Contractor's SIC Code.
. Contractor's OSHA 200 Log (copy) if contract extends beyond one year.
. Contractor's OSHA Lost Workday Frequency Rate (Preferably below 1.5).
. Contractor's Workers Compensation Experience Modification Rate (EMR) (Rate
no greater than 1.0, without evidence of Contractor's progress toward this
level).
. Contractor's Safety Officer responsible for administering Safety and Health
programs.
. Copy of Contractor's Safety Program that addresses all aspects of the work
to be performed for IBM such as Protective Equipment, HAZCOM, Lockout
Tagout, Electrical Safety Work Practices, Confined Space, Accident
Reporting, and General Office Safety.
. Copy of Contractor's training programs for those tasks requiring specific
safety related training.
4. General Contractors must ensure that any subcontractors they bring on IBM
premises must also meet the above criteria.
5. IBM shall monitor and evaluate Contractor's performance under this section.
Any non-compliance may result in termination of this Agreement. Past and
present performance under this section will be considered in the awarding of
future business.
- --------------------------------------------------------------------------------
1.16 Indemnification
Contractor will at its expense, indemnify, defend and save IBM harmless against
any claims (including costs of litigation and attorneys' fees, loss, damage,
penalty, fine, or expense whatsoever) resulting from:
1. a breach or alleged breach of Contractor's warranties or representations
under this Agreement;
2. Contractor's failure to comply with any governmental law, statute, ordinance,
administrative order, rule, or regulation;
3. Contractor's or Subcontractor's failure to comply with the Occupational
Safety and Health Act of 1970, as amended, and all regulations and standards;
4. for personal injury or death to persons and damage to property (including
IBM's property) arising out of or in connection with or resulting from
operations under this Agreement to the extent that such injuries, deaths, or
damage are caused by the Contractor or any of its Subcontractors or by anyone
directly or indirectly employed by any of them;
5. any alleged or actual infringement by any Deliverable, or any preexisting or
third party materials from which any Deliverables are prepared, of a patent,
copyright, trademark, trade secret, or other intellectual property right,
privacy or similar right of any third party, in any country in the world.
Contractor shall notify IBM if Contractor is or becomes aware of any right of,
or protection accorded to, a third party as set forth above that might affect
Contractor's ability to provide goods under this Agreement or limit IBM's
freedom to use or sell such goods anywhere in the world. IBM shall provide
notice to Contractor of any such proceeding or claim of which it becomes aware.
IBM may actively participate in any such proceedings at its own expense.
Contractor shall have no liability for required compliance by Contractor with
written specifications furnished by IBM if such infringement cannot be avoided
by the Contractor in complying with such specifications.
<PAGE>
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1.17 Environment
1. Contractor certifies that it is currently in compliance and that it shall
comply with all federal, state, and local laws, rules, orders, and
regulations relating to the protection of the environment and related
matters. Contractor acknowledges that any chemical, material, or waste that
may be used or generated in its processes is solely its responsibility to
properly handle, use, store, treat, and dispose of in accordance with the
applicable environmental laws and regulations.
2. Contractor agrees to provide IBM promptly, upon request, with any and all
relevant information concerning its compliance with applicable environmental
laws and regulations, including copies of required permits, EPA ID Numbers,
waste manifest documents, and other appropriate federal, state, and local
authority required documentation. Contractor also agrees, upon reasonable
notice and during normal office hours, to permit IBM to inspect its premises
and to audit its relevant records for the purpose of determining Contractor's
compliance with all applicable environmental laws and regulations.
3. In the event that IBM specifications require the Contractor to use materials
or chemicals that are not commonly used by the Contractor, before commencing
work on the process, Contractor will represent in writing to IBM that it has
the necessary expertise to use, control, and dispose of any such materials or
wastes generated in the process, if any, in accordance with all appropriate
and applicable environmental laws and regulations.
- --------------------------------------------------------------------------------
1.18 Compliance with Laws
1. General
Contractor shall, at its own expense, comply with all governmental laws and
regulations relating to its duties, obligations, and performance under this
Agreement, including without limitation, Executive Order 11246 (as amended)
of the President of the United States on Equal Employment Opportunity and the
Rules and Regulations issued pursuant thereto, all environmental laws,
ordinances, codes, rules, regulations, license and permit provisions,
guidelines and directives, the Immigration Reform and Control Act of 1986,
the Foreign Corrupt Practices Act, and the import and export laws and
regulations of the United States Customs Services, the United States
Department of Commerce and Department of State, and shall procure all
licenses and pay all fees and other charges required thereby.
Contractor shall notify IBM promptly, in writing, if a charge of non-
compliance with the Occupational Safety and Health Act of 1970 has been filed
against the Contractor in connection with services being performed hereunder
on IBM owned or leased premises.
2. Leased Employees and Management Services Organization
Contractor shall provide IBM any information about Contractor's personnel
that IBM is required by law to obtain, including information on "leased
employees" and "management services organization" as these terms are used in
Secs. 414(m), (n) and (o) of the Internal Revenue Code.
3. Former DOD Employees
Contractor warrants that no individual who is a former officer or employee of
the Department of Defense (DOD) who: left DOD service on or after April 16,
1987; and served in a civilian position for which the rate of pay is equal to
or greater than the minimum rate of pay for GS-13; or served in the Armed
Forces in a pay grade of 04 or higher; shall be employed or compensated for
services rendered under this Agreement within two (2) years after leaving
service in DOD without the specific written approval of IBM. If Contractor
requests such approval, Contractor agrees to provide IBM with any information
needed to comply with 10 USC 2397 (b) and (c).
4. DTC ITAR
Contractor warrants that it is not the subject of an indictment or conviction
of the criminal statutes enumerated in 22 CFR Part 120.24, or is ineligible
to contract with, or to receive a license or other approval to import defense
articles or defense services from, or to receive an export license or other
approval from any agency of the U.S. Government. Contractor must notify IBM
immediately if it becomes the subject of an indictment or conviction of the
criminal statutes enumerated in 22 CFR Part 120.24.
<PAGE>
5. Contractor agrees that neither Contractor nor any of its agents or employees
will export or re-export any information of IBM or any process, product, or
service that is produced as a result of the use of such information to any
country specified in such Export Regulations as a prohibited destination
without first obtaining U.S. Government approval by application through IBM.
Upon request, IBM will advise Contractor of the countries then specified in
such regulations as prohibited destinations.
6. Boycotts
Contractor shall comply with Part 769 of the U.S. Export Regulations
concerning Restrictive Trade Practices or Boycotts.
Contractor may not alter or add any statements to IBM documentation
including, but not limited to IBM commercial invoices, IBM manifests,
carrier air waybills, ocean bills of lading, certificates of origin,
insurance certificates, consul documentation, or any other documentation.
Contractor may not provide any information whether positive or negative
concerning IBM's past, present, or future business:
6.1. With or in a boycotted country;
6.2. With any business concern organized under the laws of a boycotted
country;
6.3. With any national or resident of a boycotted country; or
6.4. With "Black List" organizations or persons.
Contractor will advise IBM of all boycott related requests that Contractor
receives in connection with any IBM shipment, including but not limited to
requests Contractor is required to report to the U.S. Department of Commerce
in accordance with U.S. regulations.
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1.19 Trademark
Nothing in this Agreement grants either party any rights to use the other
party's trademarks or trade names, directly or indirectly, in connection with
any product, service, promotion, or publication without the prior written
approval of the trademark owner.
- --------------------------------------------------------------------------------
1.20 Monthly Report
Contractor with employees working on IBM premises shall submit a monthly report
due by the fifth (5th) of each month listing the employee names, IBM purchase
order numbers, and the rates of each of the Contractor's employees for the
previous month. This report shall be submitted to the procurement administrator
of this Agreement.
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1.21 Electronic Data Interchange / Electronic Funds Transfer
When business documents are transmitted electronically the following terms and
conditions apply:
1. Transmission - Each party may electronically transmit and receive documents
through the assistance of a network in accordance with mutually agreed upon
standards. Each party shall be responsible for all network charges. If both
parties use the IBM Information Network, the sender will be responsible for
the transmission costs.
2. Receipt - A document is received when it arrives at the receiving party's
mailbox. Upon receipt of any document, the receiving party shall promptly
send an acceptance which will conclusively establish receipt and content of a
document. If any document is received in an unintelligible or garbled form,
the receiving party shall promptly notify the originating party (if
identifiable from the received document) in a reasonable manner. In the
absence of such a notice, the originating party's records of the contents of
such document shall prevail.
3. Signature and Enforceability - Each party shall adopt as its signature an
electronic identification consisting of symbols or codes (User ID) that shall
be affixed to or contained in each document. Each party will maintain
security procedures to prevent unauthorized use or disclosure of its User ID.
Any document containing, or to which there is affixed, a User ID shall be
considered: (a) a "writing" or "in writing"; (b) to have been "signed"; (c)
an "original" when printed from electronic files or records established and
maintained in the normal course of business; and (d) "admissible" to the same
extent and under
<PAGE>
the same conditions as other business records originated and maintained in
documentary form.
4. Confidential Information - The parties agree that all information
transmitted shall comply with the Confidential Information Section of this
Agreement.
5. Electronic Funds Transfer - By completing this Section, Contractor
authorizes IBM to initiate electronic credit entries to the account listed
below. Contractor agrees that such transactions will be governed by the
National Automated Clearing House Association rules. This authority is to
remain in effect until IBM has received written notification of termination
in such time and such manner as to afford IBM a reasonable opportunity to act
on it.
------------------------------------------------------------
Financial Institution:
------------------------------------------------------------
City, State
------------------------------------------------------------
Account Number: (max 17)
------------------------------------------------------------
Bank Routing/Transit Code: (max 9)
6. Limitation of Remedies - Neither party shall be liable to the other for
any special, incidental, exemplary, or consequential damages arising from or
as a result of: (l) any delay, omission, or error in the electronic
transmission or receipt of any documents; or (2) any delay, omission, or
error of an electronic credit entry by IBM even if the other party has been
advised of the possibility of such damages. In addition, neither party shall
be liable for any damages claimed by the other party based on any third party
claim. In no event will either party be liable for any damages caused by the
other party's failure to maintain security procedures to prevent the
unauthorized use or disclosure of its User ID.
- --------------------------------------------------------------------------------
1.22 Utilization of Minority Owned Businesses
l. In support of the services and products being provided herein, Contractor
shall, when subcontract/purchasing opportunities exist, attempt to utilize
minority owned suppliers to fulfill requirements of this contract.
2. Upon IBM request, Contractor shall provide reports to include the name and
address of the minority owned suppliers utilized, description of services or
products provided, dollar value of services or products, and a summary of
efforts to utilize minority owned businesses.
3. A minority-owned business is defined as 51% or more owned and controlled by
members of the following minority groups: Black Americans, Hispanic
Americans, American Indians, native Hawaiians, Asian-Indian Americans, Asian-
Pacific Americans, American Eskimos or Aleuts. The minority-owned supplier
must certify their status.
- --------------------------------------------------------------------------------
1.23 Taxes
1. Contractor is responsible for all federal and state payroll taxes such as
social security and unemployment taxes.
2. Contractor agrees to pay any taxes imposed by law related to the service
provided hereunder unless otherwise agreed to in writing by IBM.
- --------------------------------------------------------------------------------
1.24 Gifts and Gratuities
Contractor shall not make or offer a gratuity or gift of any kind to IBM
employees or their families that could be viewed as relating to an actual or
potential business relationship with IBM. Gifts include entertainment, personal
services, favors, discounts, and other preferential treatment of any kind. IBM
will interpret any such action as an improper attempt to influence IBM employees
which will jeopardize IBM's relationship with the Contractor.
- --------------------------------------------------------------------------------
1.25 Representations And Warranties
l. Contractor represents and warrants the originality of the Deliverables and
that no portion of the Deliverables or their use or distribution violates or
is protected by any copyright or other rights of any third party except as
provided in the fourth paragraph of the "Rights In Data" section of this
Agreement.
2. Contractor represents and warrants that it is under no obligation or
restriction nor will it assume any such obligation or restriction which would
in any way interfere or be inconsistent
<PAGE>
with or present a conflict of interest concerning the services to be
furnished by Contractor under this Agreement.
3. Contractor represents and warrants that all Deliverables shall be free of any
computer code, programming instruction, or set of instructions that are
intentionally constructed with the ability to damage, interfere with, or
otherwise adversely affect computer programs, data files, or hardware.
4. In providing services under this Agreement, Contractor understands that IBM
does not wish to receive from Contractor any information which may be
considered confidential or proprietary to Contractor or to any third party.
Contractor represents and warrants that any information disclosed by
Contractor to IBM is not confidential or proprietary to Contractor or to any
third party.
5. Contractor represents and warrants that all Deliverables shall be free from
defects in design, materials, and workmanship for a period of one year
unless longer warranties are required in the Statement of Work in which case
the longer periods of time shall prevail.
6. Contractor represents and warrants that Contractor maintains comprehensive
general and vehicular liability insurance for claims for damages because of
bodily injury or death and property damage caused by or arising out of acts
or omissions of its employees.
Contractor further represents and warrants that Contractor maintains
sufficient contractual liability insurance to cover the liabilities assumed
by Contractor under this Agreement. In no event shall any insurance be
cancelled, be allowed to lapse or be materially modified without prior
written notice to IBM.
7. Contractor represents and warrants that in all dealings leading to the
execution of this Agreement, Contractor has been represented solely by its
own bona fide employees or agents and that it has not paid or agreed to pay
any other person any commission, percentage, brokerage, or contingent fee.
Contractor also warrants that it has not made and will not make any gifts,
loans, or grant other consideration to any employee of IBM, directly or
indirectly, in connection with this Agreement or otherwise. The falsity or
breach of either such warranty shall constitute a default under this
Agreement.
8. Contractor represents and warrants that the price of the products or
services purchased under this Agreement does not exceed the price charged by
Contractor to any other customer purchasing the same products or services in
like or smaller quantities, and under similar conditions of purchase.
9. Contractor represents and warrants that Contractor will not in any way,
directly or indirectly, at any time during the term of this Agreement or any
renewal thereof, or within two (2) years after its termination or expiration,
solicit, divert, take away, or attempt to solicit, divert or take away from
IBM any customers or prospective customers of IBM who were served by
Contractor during the term of this Agreement, or whose names and/or
addresses became known to Contractor in any manner during the term of this
Agreement. Contractor also represents and warrants that it will not, during
the term of this Agreement or within two (2) years thereafter, attempt or
seek to cause any of the customers of IBM to refrain from patronizing IBM and
will not assist any other persons to do so.
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1.26 Quality And Acceptance
1. Contractor shall establish a quality improvement plan that demonstrates
continuous quality improvement on the products and or services provided to
IBM. Contractor must conform to the Malcolm Baldrige National Quality Award
criteria, the ISO 9000 Standards, or an equivalent documented quality
improvement process. IBM may audit Contractor's quality improvement plan for
conformance to this requirement.
2. Contractor shall notify IBM in writing at the earliest possible time of any
factor, event, or anticipated event that may affect Contractor's ability to
meet the requirements of any Statement of Work, including changes in the
assignment of key employees, strikes, or unavailability of critical
resources. The issuance of such notice shall not excuse the Contractor from
any default of performance obligation.
3. IBM shall have the right to conduct progress reviews at Contractor's place of
business to verify that Contractor's performance is in accordance with the
standards, specifications,
<PAGE>
and other requirements of the Statement of Work. Contractor shall take all
actions necessary to correct any deficiencies identified by IBM during such
reviews. Contractor's failure to correct such identified deficiencies or to
obtain IBM's agreement on a plan to correct such deficiencies within ten (10)
work days after receipt of such notice and to diligently proceed in
accordance with such plan shall be grounds for termination of the Statement
of Work by IBM in accordance with the Termination Section of this Agreement.
4. IBM shall have the right to evaluate and to test each Deliverable in
accordance with the completion and acceptance criteria specified in the
Statement of Work. IBM shall provide Contractor with written notification of
its acceptance or rejection of the Deliverable. In the case of rejection or
partial or conditional acceptance, such notification shall state the reasons
for IBM's determination. Contractor shall correct any deficiencies preventing
final acceptance at no additional charge to IBM and obtain IBM's agreement on
a plan to correct such deficiencies within ten (10) work days after receipt
of such notification. Contractor's failure to correct such deficiencies or to
obtain IBM's agreement on such a plan and to proceed diligently in accordance
with such plan shall be grounds for termination by IBM of the Statement of
Work in accordance with the Termination Section of this Agreement.
- --------------------------------------------------------------------------------
1.27 Cost Reduction
Contractor shall implement methods of improved productivity designed to
facilitate cost reductions resulting in price reductions to IBM of at least 3%
annually during the term of the Agreement. In the event that market conditions
permit Contractor to reduce its costs further, Contractor shall provide
additional cost reductions to IBM. In the event that market conditions beyond
Contractor's control offset some or all of the agreed upon annual price
reductions, Contractor shall notify IBM in writing, detailing the market
conditions. If IBM agrees that such market conditions exist, IBM and Contractor
shall negotiate in good faith to reach a mutually agreeable price reduction.
- --------------------------------------------------------------------------------
1.28 General Provisions
1. The rights and obligations of Sections titled Payment and Records,
Confidential Information, Rights in Data, Invention Rights, Compliance with
Laws, IBM Trademarks, and Warranties shall survive and continue after any
expiration or termination of this Agreement and shall bind the parties and
their legal representatives, successors, heirs, and assigns.
2. This Agreement does not imply any commitment to purchase products or
services by either party.
3. IBM may at any time have others provide like or similar services provided by
the Contractor as specified in the Statement of Work or purchase orders or
may elect to accomplish like or similar work itself.
4. Contractor shall not disclose the existence of this Agreement or any of its
terms and conditions or the fact that Contractor has furnished or contracted
to furnish IBM services under this Agreement without the prior written
consent of IBM.
5. Neither party shall be responsible for failure to fulfill its obligations
under this Agreement due to fire, flood, war or other such cause beyond its
control and without its fault or negligence (excluding labor disputes)
provided it promptly notifies the other party.
6. The laws of the State of New York govern this Agreement.
7. Both parties agree to waive their right to a trial by jury in any dispute
arising out of this Agreement.
8. No delay or failure by either party to act in the event of a breach or
default hereunder shall be construed as a waiver of that or any subsequent
breach or default of any provision of this Agreement.
9. The prevailing party in any legal action hereunder shall be entitled to
reimbursement by the other party of its expenses including, without
limitation, reasonable attorney's fees.
10. Any terms of this Agreement which by their nature extend beyond their
expiration or termination shall remain in effect until fulfilled and shall
bind the parties and their legal representatives, successors, heirs, and
assigns.
<PAGE>
11. The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
- --------------------------------------------------------------------------------
1.29 Notices
Unless otherwise provided in this Agreement, all notices required or permitted
hereunder shall be in writing and shall be given by personal service or sent by
registered, certified or express mail, reputable overnight courier service or
facsimile with receipt confirmed:
International Business
Machines Corporation
P.O. Box 1900
Dept. PRB1 / Bld. 001H
Boulder, CO 80301-9191
Attention: Nancy Hiatt
- --------------------------------------------------------------------------------
1.30 Modifications
Except as specifically provided herein, this Agreement may not be amended or
modified except by a formal amendment signed by both parties.
- --------------------------------------------------------------------------------
1.31 Authority
Wherever the word "IBM" appears in this Agreement with respect to authorization
for such items as Subcontracting; Delegations; Modifications; Termination and
Cancellation, the word is deemed to mean and only mean IBM's Purchasing
Department. No other person or department of IBM so authorized to act. Claims by
Contractor for adjustments, increases, and increments to price or for added
costs resulting from the foregoing items will not be allowed unless the said
authorization shall have been duly granted in writing prior to implementation by
IBM's Purchasing Department.
- --------------------------------------------------------------------------------
1.32 Rate Schedule
The rates for all Deliverables and associated services committed by IBM under
this Agreement shall be as specified in the Statement of Work and on the
purchase orders issued by IBM and accepted by the Contractor.
- --------------------------------------------------------------------------------
1.33 Delivery Schedule
Deliverables shall be completed and delivered in accordance with the Statement
of Work and purchase orders issued hereunder.
Time is of the essence in Contractor's furnishing Deliverables to IBM.
Contractor shall apply best efforts in providing Deliverables to IBM. If
Contractor fails to provide the Deliverables on time, IBM may purchase elsewhere
and may, unless Contractor's delay was due to unforeseeable causes beyond its
control and without its fault or negligence, charge Contractor with all losses
incurred.
- --------------------------------------------------------------------------------
1.34 Term
This Agreement dated October 04, 1995 shall become effective the date both
parties have signed this Agreement and shall expire on October 31, 1997.
- --------------------------------------------------------------------------------
1.35 Termination and Cancellation
1. Either party may terminate this Agreement for convenience upon sixty (60)
days prior written notice to the other party.
2. Either party may terminate this Agreement in the event of a material breach
of this Agreement by the other party provided the party in breach is given
written notice and fails to cure such breach within thirty (30) days.
Contractor shall, upon receipt of notice to terminate, stop all work being
performed and cancel subcontracts associated therewith. Any outstanding
purchase orders shall terminate upon termination of this Agreement. IBM's
sole liability for termination of each purchase order outstanding as of the
date of termination shall be to pay at rates specified in the purchase
orders for satisfactory work performed under the purchase orders as of the
date of termination and for expenses or other direct charges incurred by
Contractor from which Contractor cannot decommit itself. Any such amount
shall not exceed the amount specified for the work in such terminated
purchase orders.
<PAGE>
3. Purchase orders issued by IBM under this Agreement and accepted by Contractor
may be cancelled by IBM, in each case without further liability thereunder,
as follows:
Purchase orders, or portions thereof, covering services of Contractor's
personnel to be performed on or off IBM premises, may be cancelled on twenty-
four (24) hours written notice.
Purchase orders issued under a Government contract may be cancelled at any
time upon written notice.
In the event of cancellation, termination, or expiration of any purchase
order issued hereunder, all work in process thereunder in Contractor's
possession shall be forwarded to IBM, and IBM shall make payment at the
specified rates for satisfactory services performed to the effective date of
cancellation, termination, or expiration of such purchase order.
- --------------------------------------------------------------------------------
1.36 Entire Agreement
The foregoing terms and conditions, together with the referenced Attachments,
are the complete and exclusive expression of the agreement between the parties,
superseding any prior agreements, written or oral, relating to the subject
matter of this Agreement notwithstanding anything contained in any document
issued by Contractor.
- --------------------------------------------------------------------------------
1.37 Order of Precedence
In the event of any inconsistency or conflict in the provisions of these
documents, the order of precedence shall be:
1. The foregoing terms and conditions;
2. Attachments referenced herein.
3. Purchase orders
4. Purchase order attachments
<PAGE>
- --------------
2.0 Signatures
In witness whereof, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives.
International Business Computer Generated Solutions, Inc.
Machines Corporation
By: /s/ Philip Friedman
---------------------------
/s/ G. H. Tamura 10/5/95
Title: President
---------------------------
G. H. Tamura Date: 10/6/95
Location Procurement Manager ---------------------------
<PAGE>
- -----------------------------------
3.0 Attachment A: Statement of Work
- --------------------------------------------------------------------------------
3.1 Project Description
When an IBM customer requires assistance, they place a request call through the
Call Management Centers (CMCs). That call is taken by a Customer Service
Representative (CSR) employee and entered into the appropriate system for
assignment. These calls are taken for a variety of customers on a variety of
customized applications.
The Contractor Customer Service Representative (CSR) works directly with IBM's
customers, IBM's Customer Service Engineers (CE) and IBM's internal support
organizations. It is expected that the CSR will be courteous and professional at
all times. They must be able to communicate clearly and effectively by phone
while being complete, accurate and timely in gathering required information. In
addition, they must provide navigational and informational services to customers
who require additional service or information within the IBM support network.
They are expected to search various databases, make appropriate updates, and
maintain those databases within a specified criteria. In addition, each CSR is
expected to adhere to the quality processes currently in place which measures
timeliness, accuracy, and professionalism. See Section 3.9 for acceptance
criteria.
It is the goal of the CSR team to become a single point of value for each call
received. That value may include, but is not limited to, information sharing,
information gathering, product entitlement and call navigation. We anticipate
the role of this function will continue to expand as more business opportunities
are identified. It is vital that the Contractor be flexible in meeting the
requirements of these future opportunities.
Contractor agrees that, by October 30, 1995, Contractor shall have hired at
least 90% of the supplemental employees currently employed by IBM in each of
the Atlanta and Dallas Call Management Centers for the positions listed in
Section 3.2 of this Statement of Work. The failure of Contractor to comply with
this paragraph shall permit IBM to immediately cancel this Agreement at
IBM's sole discretion and with no liability on the part of IBM.
- --------------------------------------------------------------------------------
3.2 Manpower
The estimated number of personnel required to perform each task is listed below,
however, the number of personnel may change with the written concurrence of the
IBM Coordinator and Contractor Supervisor. Job descriptions are provided in
Section 3.5.
<PAGE>
<TABLE>
<CAPTION>
Table 1. Estimated Headcount
JOB DESCRIPTION ATLANTA DALLAS
<S> <C> <C>
Customer Service Representative **** ****
SESA Coordinator ****
Senior Customer Service Representative **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operational Support Manager **** ****
</TABLE>
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3.3 Work Schedules
The following identifies the work schedules:
. The CMC's operate 24 hours per day, 7 days per week
. Holiday work will be required
. Overtime may be required
- --------------------------------------------------------------------------------
3.4 Skill Requirements
The following list outlines the general skills required to perform all job
descriptions listed in this section:
. Very good verbal communication skills which are clear, understandable and
precise
. Be professional and courteous at all times
. Above average typing skills
. Good listening skills
. Above average reading comprehension skills
. Learn and follow procedures
. Strong customer service skills and temperament which includes diffusing
upset customers.
. Administrative and organizational skills
. Multiplexing skills
. Knowledge of OS/2
. Freelance skills for graphics person
. Computer navigation skills
. Telephone handling skills
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
- --------------------------------------------------------------------------------
3.5 Job Descriptions
The following job descriptions serve only as guide as to the types of
responsibilities within each job category. They are subject to change
at any time by the IBM Coordinator.
1. Customer Service Representative (CSR)
Position Concept: As the initial customer contact for IBM service, the CSR's
professional communications and ultimate decision making responsibility
directly impact IBM customers' degree of service delivery satisfaction.
Effective communication of service offerings and efficient execution of the
call process facilitates the request for service. The CSR must extract
pertinent call information from the customer to ensure the service request is
handled timely and properly. Service delivery concerns are proactively
communicated to appropriate escalation levels. CSRs utilize the NSS system
to record information and assign calls to the appropriate service
representative or organization. They must remain knowledgeable of new service
offerings and call procedures. In addition, the CSR may be required to
research customer entitlement, navigate informational requests, take
Hardware/Software service calls, and/or track Finders M/A information.
Responsibilities
. Receive customer request for Hardware and Software service. Be thoroughly
knowledgeable of current service offerings, billable information, and
entitlement process. Question customer to obtain product service and
entitlement options to properly assign provider of service and determine
urgency of request. Take personal ownership of each call received and
aggressively seek to improve customer satisfaction.
. Utilize resource materials in directing customer inquiries that are not
service related. Inform appropriate contact of information changes. Be
thoroughly knowledgeable of resource materials and give assistance when
required. Escalate unresolved inquiries to resolution.
. Navigate informational and procedural calls as required.
. Be thoroughly knowledgeable and assist with backup procedures when
required.
. Maintain a working knowledge of special operating procedures used to
interface with internal organizations relating to critical customers.
. Be thoroughly knowledgeable of special operating procedures to interface
with external providers of service (Customized Operational Service, Multi
Vendor Support (MVS), etc.). Ensure special operating procedures are
understood and adhered to.
. Recognize customer complaints that need to be escalated. Demonstrate
quality communication skills and exhibit high level of professionalism and
extreme sensitivity to customer satisfaction. Follow appropriate
procedures and use good judgement in reporting complaints.
. Identify any National Service Support (NSS), Computer Aided Dispatch
(CAD) or OASIS discrepancies or omissions (i.e. prescreens, alias) and
notify appropriate resource.
. Use courtesy, tact and discretion in all communications with customers,
vendors and IBM personnel. Exhibit a high level of professionalism and
utilize good judgement to inform manager of potential problems.
. Maintain knowledge and operation of all CSR equipment. Utilize basic
problem determination and follow reporting procedures.
. Follow internal IBM phone guidelines pertaining to professionalism, hold
and knowledge.
. Perform entitlement on service contracts when required.
. Input Finders requests when notified by the field.
2. SESA Coordinator
<PAGE>
Position Concept: Is responsible for making follow-up survey calls to
customers concerning their satisfaction with a specific process. The
coordinator will extract all pertinent information through a database provided
and complete a preset number of surveys per day. That preset number is
described in Section 3.8, Measurements.
Responsibilities
. Obtains pertinent information from required databases.
. Makes outgoing calls to customer contacts provided by IBM internal
databases
. Demonstrates courtesy, tact and discretion in communications, so as to
present a favorable company image
. Input customer comments and survey results so that they match the opinions
of the customer
. Make internal phone audits and record results as required
. Escalate customer complaints using established processes
3. Senior Customer Service Representative
Position Concept: Provide leadership to CSRs and be focal person for
operational questions. Maintain expert knowledge of customer service duties
and review/monitor to ensure procedures are followed. Aggressively monitor
NSS in order to recognize and handle potential service delivery concerns.
Take a pro-active role in identifying and resolving customer satisfaction
inhibitors. Implement a strategy with other seniors and team leaders to
maintain balanced workload for customer hold times. Offer first level of
escalation to CSRs for customer complaint situations. Evaluate training.
Maintain expert knowledge of all CSR responsibilities. Prepare regular and
special reports for IBM. Maintain expert knowledge of backup system
procedures. Perform CSR duties as required.
Responsibilities
. Become an expert resource for CSRs and assist in interpreting current
service offerings, billable information and entitlement process.
Administer training as required. Enhance customer satisfaction through
personal ownership of identified problems and aggressively seek
resolution. Escalate when appropriate.
. Monitor/review receive call activity and pro-actively identify potential
customer situations.
. Become an expert in call management criteria, measurement objectives, and
special programs. Identify problems when objectives will not be met and
make recommendations to the management team.
. Maintain an expert knowledge of resource materials utilized to direct
customers' inquiries that are not service related. Act as a resource and
focal escalation point for unresolved inquiries and updating resource
materials. Responsible for timely follow-up and extreme responsiveness to
customer inquiries.
. Maintain expert knowledge of system backup procedures and initiate when
required. Ensure each CSR has backup and that current backup materials are
readily available. Resolve CSR difficulty in obtaining system backup and
escalate if necessary.
. Maintain expert knowledge in and ensure that special operating procedures
are followed to interface with external providers of service. Provide CSR
training and assistance when necessary.
. Review, maintain, and ensure an accurate database using branch office
input. Ensure database integrity and update procedures are followed.
Responsible to coordinate database activity. Recommend solutions to
database problems and implement.
. Handle customer complaints effectively and recognize need for escalation.
Follow appropriate procedures and exercise good judgement in escalation
and resolving complaints. Maintain records.
<PAGE>
. Demonstrate courtesy, tact, and discretion in all communications with
customers, vendors, and IBM personnel. Exhibit a high level of
professionalism at all times. Utilize good judgement informing management
of potential problems. Set example and give guidance to CSCs as required.
. Provide work direction and support to CSRs for the implementation of
special programs and for the short-term solution of temporary workload
imbalances. Maintain CSR lunch schedules and track vacation. Ensure CSR
coverage.
4. Training Specialist
Position Concept: Provides training of suppliers personnel.
Responsibilities
. Provide training and assistance as required. Update training materials and
conduct training seminars for CSR when needed. Evaluate training and make
recommendations to management and assist with training difficulties.
. Maintain thorough knowledge of and be able to operate all CSR workstations
and ACD agent equipment. Follow correct problem determination and
reporting procedures. Utilize good judgement when following the correct
escalation procedures.
5. Team Leader
Position Concept: Serves as a "functional" leader in an environment where
employee to management ratios make it difficult to prioritize and balance
workload and maintain a high level of operational efficiency.
Responsibilities
. Operates complex office systems to prepare correspondence, foils, and
documents.
. With minimal management assistance, coordinate flow and prioritize "team"
workload.
. Balances workload; ensuring coverage and a high level of operational
efficiency.
. Drives team quality measurements.
. Monitors services support activity and exposures.
. Develops and implements internal customer satisfaction plans and
programs.
. Ensures team self-assessment audits are conducted and based on outcomes
recommends corrective action plan to management.
. Coordinates meetings, training and other workload inhibitors.
. Maintains a high level of systems expertise for required business area.
. Assumes additional responsibilities as required.
6. Receptionist
Position concept - Answers the "must answer" line in the Call
Management Center while controlling entry to the branch office and
receiving visitors.
Responsibilities
. Greets, ascertains pertinent information, and registers visitors. Helps
identify, locate and contact persons to be visited. Gives internal
and external directions. Ensures that no one is detained in the
reception area beyond a reasonable length of time.
. Answers the "must answer" line in the Call Management Center. Pages person
to be contacted when appropriate or navigates the call to the requested
function. Ensures callers are greeted professionally, given the proper
information and not left on hold longer than the IBM standard.
. Collects and distributes mail from/to the CMC personnel.
<PAGE>
. Ensures only authorized persons are permitted into the facility and
ensures escorts are provided when necessary. Reports security concerns to
appropriate Contractor/IBM management.
. Handles special situations such as outside solicitations, providing
information about employees, etc., in accordance with company policies and
practices.
. Demonstrate courtesy, tact and discretion in communications, so as to
present a favorable company and site image.
. As required, initiates and maintains appropriate files and reports.
. Perform other administrative tasks such as typing, filing, scheduling
conference rooms, conference rooms, ordering supplies, updating the
organizational chart and updating calendars.
. Back-up branch secretary when required.
. Work requests will be received from IBM personnel.
. Perform other duties as assigned.
7. Graphics Coordinator
Position Concept: Is responsible for creating and updating quality process
and presentation charts on a timely basis. Primarily uses Lotus Freelance as
the software on a PS/2 type machine. Will operate equipment associated
with producing high-quality charts such as printers and plotters.
Responsibilities
. Operates basic graphics equipment and programs.
. Tracks due dates on process charts.
. Updates and distributes process charts monthly.
. Provides assistance for other presentation charts.
. Performs other duties, as assigned.
. Maintains softcopies of all charts created.
. Ensures equipment used is maintained and usable.
. Work requests will be received from IBM personnel.
8. Operational Support Manager (OSM)
Position Concept: Is the first line manager responsible for resource
planning and operational support in the CMC.
Responsibilities
. Interprets IBM's policies, practices and procedures for territory.
. Maintains effective performance planning, counseling, evaluation and
development programs to properly evaluate employee performance and to
enhance career growth.
. Analyze performance of functions within areas of responsibility. Makes
recommendations for operational enhancements and implements action as
appropriate.
. Works closely with IBM as an interface to ensure high levels of
performance, productivity and customer satisfaction.
. Determines manpower requirements and develops plans for area of
responsibility.
. Analyzes financial performance and recommends a course of action to IBM.
Maintains control of direct expense involved with operation of assigned
area.
<PAGE>
. Organizes and conducts frequent department meetings. Makes presentations
on areas of responsibility in branch meetings.
. Responsible for records retention management and compliance and
security for all pertinent documents.
. Assumes additional responsibilities as required.
- --------------------------------------------------------------------------------
3.6 Training
1. Initial process training for contract initiation will be provided by IBM.
Any new product training deemed necessary by IBM will be provided by IBM.
The Contractor's training specialist will then assume responsibility for on-
going training and orientation of new and replacement personnel at the
training rate.
2. Contractor shall have sufficient personnel trained to ensure that quality of
service is met throughout the term of this Agreement. IBM shall pay for this
training only if conducted during the employee's first thirty (30) days of
work under this Agreement and at the Customer Service Trainee rate
specified in Section 3.12. This payment shall not exceed a percentage of the
total productive time billed. This percentage shall be determined by IBM
and the Contractor after the initial training of personnel under this
Agreement.
- --------------------------------------------------------------------------------
3.7 Transitional Training
In the event of cancellation or at the expiration of this Agreement, Contractor
agrees to provide a minimum of fifteen (15) days transitional training to a
supplier to be specified by IBM if other than Contractor. Said training shall
be conducted by an adequate number of Contractor employees to ensure continuity
of service at a competent level of performance. IBM shall pay for such training
at the rates specified in the Statement of Work for the job descriptions of the
employees providing such training. Contractor shall ensure that it continues to
meet all performance and quality requirements specified in the Statement of Work
throughout such training period.
- --------------------------------------------------------------------------------
3.8 Measurements
Specific measurements will be developed by the supplier and IBM to
gauge performance and quality requirements. Overall areas measured will
include but are not limited to:
. Qualification of staff
. Adherence to CMC training modules provided to Contractor as may be
modified/updated from time to time by IBM
. Customer satisfaction
. Quality control
- Call Hold time less than 10 seconds on average
- SESA calls greater than 99.7%
- Accuracy in taking calls greater than 99.0%
- Under 2% abandonment rate
- Minimal CMCALERTS and Customer Situation Information System (CSIS)
incidents (actual formula to be determined)
<PAGE>
- Average 32 complete SESA surveys per day per headcount
- Failure to meet any of the measurements identified in this Section, as
modified, shall be deemed material breach of this Agreement. However,
Contractor shall have one hundred and twenty (120) days from the date
hereof to meet those measurements that are currently not being met by the
CMC's before this provision will take effect with respect to
measurements.
- --------------------------------------------------------------------------------
3.9 Acceptance Criteria
Initial acceptance will depend on evaluation of the vendor's ability to meet the
scope defined in this document. Key criteria that will be reviewed includes but
not limited to:
. Cost
. Quality
. Management
- --------------------------------------------------------------------------------
3.10 IBM Responsibilities
IBM is responsible for the following:
. Existing CMC Processes and Procedures
. IBM Site Safety, Security and personnel conduct policies
. Hardware/Software/Tools as described below (IBM Business use only)
. Office facilities in Dallas and Atlanta Call Management Centers
. Personal shared workstation and required software
. Phone, headset, and phone system
. Access to required systems/tools
- NSS
- OASIS
- RETAIN
- VM
- HONE
- IS
- AUTOQUALITY if used
- P&Q REVIEW if used
- PRMS
- CSIS
. Access to any additional required equipment
. Badge access to assigned location
Note: The Contractor shall follow the practices, procedures and priorities of
IBM in the use of IBM equipment, systems, and tools.
<PAGE>
- --------------------------------------------------------------------------------
3.11 Contractor Responsibilities
The Contractor is responsible for the following:
. Answer customer requests in a timely, professional, and accurate manner
. Monitor quality using the Autoquality System or an equivalent system.
. Perform entitlement on service requests
. Ensure operating processes and procedures are accurately followed
. Assist in updating these processes and procedures as required
. Update customer database records
. Ensure skill requirements are met, maintained and updated
. Provide effective management of personnel and workload
. Train any additional personnel required after initial training
. Support and adhere to ISO9000 registration when complete and all other CMC
quality programs (Contractor personnel will talk to ISO9000 auditors
when asked)
. Evaluate work performance and increase or decrease to allow for efficiencies
or increased workload at IBM's approval
. Contractor shall supply for IBM's review and approval, transition and
implementation plans to meet targets
. Contractor management is expected to have regular status meetings
and provide written reports regularly
. Adhere to IBM Site Safety, Security and personnel conduct policies
. Define process which manages new requirements from IBM
. Monthly Quality updates and action plans
- --------------------------------------------------------------------------------
3.12 Rate Schedule
<PAGE>
Table 2. Rate Schedule - Atlanta
<TABLE>
<CAPTION>
Job Description $/HR $/HR
Pay Rate Bill Rate
<S> <C> <C>
Customer Service Rep. **** ****
SESA Coordinator **** ****
Customer Service Trainee* **** ****
Senior Customer Service Rep. **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operations Support Manager **** ****
</TABLE>
Table 3. Rate Schedule - Dallas
<TABLE>
<CAPTION>
Job Description $/HR $/HR
Pay Rate Bill Rate
<S> <C> <C>
Customer Service Rep. **** ****
SESA Coord. **** ****
Customer Service Trainee* **** ****
Senior Customer Service Rep. **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operations Support Manager **** ****
</TABLE>
. Notes
-- *CSR Trainee rate is based upon a **** reduction from the regular
rate. This rate shall apply for the first thirty days of employment.
-- IBM shall pay overtime at a rate of **** of the regular pay rate.
-- Pay rate plus **** percent uplift equals the bill
rate.
-- It is IBM's intent to reimburse for "productive" hours worked. Contractor
should plan on invoicing IBM for actual hours worked at the call center
location. Vacation/sick and other time away from the job should be absorbed
in overhead.
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
-- Contractor will submit invoices bi-weekly (occurring every two (2)
weeks).
-- IBM shall pay shift premium at a rate of **** for 2nd shift and a rate of
**** for 3rd shift. 2nd Shift rates will be paid to employees with start
times between 12:00PM and 10:00PM and 3rd shift rates will be paid to
employees with start times between 10:00PM and 4:00AM. There will be no
weekend premiums paid.
-- IBM shall pay Holiday pay at a rate of **** of the regular pay. Those
holidays include the nationally recognized days associated with New Years,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
The above rates shall be fixed for the first twelve (12) month period and may be
revised annually on the anniversary of the effective date of this Agreement.
Any rate increases shall not exceed **** percent over the rates for the
preceding twelve (12) month period.
- --------------------------------------------------------------------------------
3.13 Glossary of Terms
AUTOQUALITY System used in recording live customer calls for monitoring
purposes
CMC (Call Management Center)- The two Centers located
in Dallas and Atlanta
CMCALERT Vehicle our internal customers use to communicate problems to
the CMC.
CSIS (Customer Situation Information System) - Customer
complaint system
ENTITLEMENT The process of ensuring customers are entitled to receive
warranty or maintenance service from IBM.
FASTTRAK Vehicle the CMC uses to communicate problems to the field.
FINDERS Maintenance program in which field representatives
call the CMC when they find a machine does not have a maintenance
agreement.
HONE (Hands-On Network Environment) - Repository of
IBM marketing information.
IS (Information Systems) Systems that store pertinent
customer account information such as inventories.
ISO9000 ISO standards which identify the requirements for
an effective quality management system.
QRT (Quality Response Time) - The measurement of hold
times within the CMC
NSS (National Service System) - System used to receive
and assign service calls
OASIS (Order and Service Information System ) System used to
Attachment A: Statement of Work 29
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
Service Agreement Number 2165
receive assign customer calls.
P&Q REVIEW System used to track results in the monitoring process
RECEIVE CALL The process of receiving a request from a customer.
RETAIN (Remote Technical Assistance Network) - IBM's
world-wide database storing customer problem records.
TRAILER CALL The process used to measure external customer's
satisfaction with the way their call was handled.
VM (Virtual Machine) - IBM mainframe operating system.
<PAGE>
- -----------------------------
4.0 Travel Expense Guidelines
IBM shall reimburse you in accordance with the following guidelines for
reasonable & actual travel and living expenses authorized in advance by IBM in
writing and incurred solely in connection with services furnished under this
Agreement. Your employees should exercise reasonable cost effectiveness when
incurring these expenses.
4.1.1 Expense Account Details
1. Expense accounts are to be submitted to you by your employees immediately
upon return from a business trip. Actual daily expenses must be reported to
you under the applicable expense category. All reimbursable expenses for a
given period are to be included on one expense account.
2. When reporting expenses, the following information is required:
A. dates of departure and return for each trip;
B. travel departure point and destination,
C. name of the IBM employee who authorized the trip;
D. business reason for the travel;
E. people met and business conducted;
F. a statement that no reimbursement is due whenever expenses are not
claimed for any workday your employee is on travel status; and
G. explanation of out-of-the-ordinary amounts claimed; e.g., name(s) of
individual(s) attending a luncheon if they have not paid for their own
portion and claimed it individually.
4.1.2 Receipts
1. An itemized receipt (copy acceptable with original retained by you) must
substantiate lodging costs, airline travel, rental car and all other
expenditures of twenty-five dollars ($25.00) or more. The receipt must show
the amount, date, place and nature of the expense. The receipts must be
attached to, and submitted with, the expense account. Reimbursement for
airline travel requires a copy of the actual airline passenger coupon
receipt.
2. Reimbursement for car rental requires a copy of the actual car rental
agreement.
4.1.3 Transportation
1. Only the most economical airline accommodations, e.g., economy, coach,
tourist, excursion, discount and shuttle flights are to be used. Other
airline accommodations, e.g., first and business class air fare WILL NOT be
reimbursed unless specifically approved by IBM in advance. Travel should be
planned to take advantage of any possible discount fares. Air travel will be
reimbursed only for that portion thereof which is directly related to the
services being performed under this Agreement.
2. Rail or bus travel will be reimbursed for regular coach class. Such travel is
not to exceed one day. Any additional days actually used in making the trip
will be considered nonreimbursable, personal business.
3. Ground transportation will be reimbursed for taxi, bus or car rental. Actual
tolls and parking fees incurred will be reimbursed.
4. Use of personal automobiles to fulfill approved travel obligations under this
Agreement (not applicable to normal commutation) shall be reimbursed at
the rate of twenty-seven-and-a-half ($.275) cents per mile, for the most
direct, practical route to the business destination. Your employees have the
responsibility to maintain a "Weekly Mileage Log" which will be submitted as
an attachment to your invoice. If more than one person travels in the same
automobile, only your employee responsible for the automobile will be
reimbursed.
5. IBM will not reimburse you for normal commutation expenses.
4.1.4 Lodging and Meals
1. IBM will reimburse reasonable and actual lodging and meal expenses incurred
while traveling on approved business. Commercial type accommodations and
rates are to be requested at all times.
2. When guaranteed reservations have been made and plans change, the
reservation should be
Travel Expense Guidelines 31
<PAGE>
Service Agreement Number 2165
canceled in time to avoid being charged for the room.
3. Room expense, including tax, is to be entered on the expense account by day,
and the hotel bill is to be attached to the expense account. Charges on the
hotel bill for other than lodging are to be entered by day under their proper
classifications.
4. IBM will reimburse reasonable and actual meal expense. When possible each
individual is to pay for his/her own meal.
5. Should an occasion arise where one person pays for more than his/her own
meal, the name(s) of the person(s) are to be written on the expense account
and the explanation noted as to the business reason for the expense.
Alcoholic beverage expenses are not reimbursable.
4.1.5 Personal Expenses
1. IBM will not reimburse personal expenses. If expenses of a personal nature,
including hotel shop purchases, laundry, valet, non-business telephone
calls, movie charges, health club use, alcoholic beverages, sundry items, are
charged against the room, the amount so charged is to be deducted from the
invoice presented to IBM.
2. Business telephone calls made in IBM's behalf by your employees while
traveling on approved IBM business will be reimbursed. If your employees
are at an IBM location, business calls should be made at that location,
utilizing IBM tie-lines and WATS lines, when possible. When your
employees charge business calls to their home telephone numbers or personal
telephone credit cards, the detailed telephone company bill is to be attached
to the expense account if the aggregate total is twenty-five dollars
($25.00) or more.
3. IBM will reimburse reasonable and actual gratuities disbursed for business
purposes by your employees while traveling on approved IBM business.
<PAGE>
Amendment to Service Agreement Between
International Business Machines Corporation
and
Computer Generated Solutions, Inc.
February 06, 1996
Contact: Nancy Hiatt @ 303-924-5396
IBM Integrated Procurement Solutions
6300 Diagonal Highway
P. O. Box 1900
Boulder, Colorado 80301-9191
Department: PRB1
Building: 001H
Service Agreement Number 2165
<PAGE>
Service Agreement Number 2165
- --------------------------------------------------------------------------------
Amendment # 01
This document shall constitute a formal amendment to Service Agreement Number
2165 dated October 04, 1995.
Section 3.0 Statement of Work
Amend Sections 3.5 "Job Descriptions" and 3.12 "Rate Schedule" to read per the
enclosed revised Statement of Work.
Except as hereby amended, all other terms and conditions of this Agreement shall
remain in full force and effect as written.
If you agree with the above modifications, this document shall constitute an
Amendment to Agreement Number 2139. Please indicate your agreement by signing
both copies of this document and returning one copy to IBM Corp., 6300 Diagonal
Hwy., Boulder, CO 80301, Attention Nancy Hiatt, Dept. PRB1, Bld. 001H.
In witness whereof, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
International Business Computer Generated Solutions, Inc.
Machines Corporation
By:
-----------------------
/s/ G. H. Tamura 2/6/96 Title:
-----------------------
G. H. Tamura Date:
Location Procurement Manager -----------------------
<PAGE>
Service Agreement Number 2165
- -----------------------------------
3.0 Attachment A: Statement of Work
- --------------------------------------------------------------------------------
3.1 Project Description
When an IBM customer requires assistance, they place a request call through
the Call Management Centers (CMCs). That call is taken by a Customer Service
Representative (CSR) employee and entered into the appropriate system for
assignment. These calls are taken for a variety of customers on a variety of
customized applications.
The Contractor Customer Service Representative (CSR) works directly with IBM's
customers, IBM's Customer Service Engineers (CE) and IBM's internal support
organizations. It is expected that the CSR will be courteous and professional
at all times. They must be able to communicate clearly and effectively by phone
while being complete, accurate and timely in gathering required information. In
addition, they must provide navigational and informational services to
customers who require additional service or information within the IBM support
network. They are expected to search various databases, make appropriate
updates, and maintain those databases within a specified criteria. In addition,
each CSR is expected to adhere to the quality processes currently in place which
measure timeliness, accuracy, and professionalism. See Section 3.9 for
acceptance criteria.
It is the goal of the CSR team to become a single point of value for each call
received. That value may include, but is not limited to, information sharing,
information gathering, product entitlement and call navigation. We anticipate
the role of this function will continue to expand as more business opportunities
are identified. It is vital that the Contractor be flexible in meeting the
requirements of these future opportunities.
Contractor agrees that, by October 30, 1995, Contractor shall have hired at
least 90% of the supplemental employees currently employed by IBM in each of
the Atlanta and Dallas Call Management Centers for the positions listed in
Section 3.2 of this Statement of Work. The failure of Contractor to comply
with this paragraph shall permit IBM to immediately cancel this Agreement
at IBM's sole discretion and with no liability on the part of IBM.
- --------------------------------------------------------------------------------
3.2 Manpower
The estimated number of personnel required to perform each task is listed below,
however, the number of personnel may change with the written concurrence of the
IBM Coordinator and Contractor Supervisor. Job descriptions are provided in
Section 3.5.
<PAGE>
Service Agreement Number 2165
Table 1. Estimated Headcount
<TABLE>
<CAPTION>
Job Description Atlanta Dallas
<S> <C> <C>
Customer Service Representative **** ****
SESA Coordinator ****
Senior Customer Service Representative **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operational Support Manager **** ****
</TABLE>
- --------------------------------------------------------------------------------
3.3 Work Schedules
The following identifies the work schedules:
. The CMC's operate 24 hours per day, 7 days per week
. Holiday work will be required
. Overtime may be required
- --------------------------------------------------------------------------------
3.4 Skill Requirements
The following list outlines the general skills required to perform all job
descriptions listed in this section:
. Very good verbal communication skills which are clear, understandable and
precise
. Be professional and courteous at all times
. Above average typing skills
. Good listening skills
. Above average reading comprehension skills
. Learn and follow procedures
. Strong customer service skills and temperament which includes diffusing
upset customers.
. Administrative and organizational skills
. Multiplexing skills
. Knowledge of OS/2
. Freelance skills for graphics person
. Computer navigation skills
. Telephone handling skills
20 Amendment #01
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
Service Agreement Number 2165
- --------------------------------------------------------------------------------
3.5 Job Descriptions
The following job descriptions serve only as guide as to the types of
responsibilities within each job category. They are subject to change at any
time by the IBM Coordinator.
1. Customer Service Representative (CSR)
Position Concept: As the initial customer contact for IBM service, the CSR's
professional communications and ultimate decision making responsibility
directly impact IBM customers' degree of service delivery satisfaction.
Effective communication of service offerings and efficient execution of the
call process facilitates the request for service. The CSR must extract
pertinent call information from the customer to ensure the service request is
handled timely and properly. Service delivery concerns are proactively
communicated to appropriate escalation levels. CSRs utilize the applicable
system to record information and assign calls to the appropriate service
representative or organization. They must remain knowledgeable of new service
offerings and call procedures. In addition, the CSR may be required to
research customer entitlement, navigate informational requests, take
Hardware/Software service calls, and all other service offerings.
Responsibilities
. Receive customer request for service. Be thoroughly knowledgeable of current
service offerings, billable information, and entitlement process. Question
customer to obtain product service and entitlement options to properly assign
provider of service and determine urgency of request. Take personal ownership
of each call received and aggressively seek to improve customer satisfaction.
. Utilize resource materials in directing customer inquiries that are not
service related. Inform appropriate contact of information changes. Be
thoroughly knowledgeable of resource materials and give assistance when
required. Escalate unresolved inquiries.
. Navigate informational and procedural calls as required.
. Be thoroughly knowledgeable and assist with backup procedures when
required.
. Maintain a working knowledge of special operating procedures relating to
critical customers.
. Be thoroughly knowledgeable of special operating procedures to interface with
external providers of service (Customized Operational Service, Multi Vendor
Support (MVS), etc.). Ensure special operating procedures are understood and
adhered to.
. Recognize customer complaints that need to be escalated. Demonstrate quality
communication skills and exhibit high level of professionalism and extreme
sensitivity to customer satisfaction. Follow appropriate procedures and use
good judgement in reporting complaints.
. Identify any data base discrepancies or omissions (i.e., prescreens, alias)
and notify appropriate resource (i.e., NSS, CAD, OASIS, RETAIN).
. Use courtesy, tact and discretion in all communications with customers,
vendors and IBM personnel. Utilize good judgment to inform manager of
potential problems.
. Maintain knowledge and operation of all CSR equipment. Utilize basic
problem determination and follow reporting procedures
. Follow internal IBM telephone etiquette guidelines.
. Perform entitlement on service contracts when required.
. Input Finders requests when notified by the field.
2. Commercialization Coordinator
Position Concept: As the initial customer contact for Call Management
Services, the CSR's professional communications and ultimate decision making
responsibility directly impact IBM's customers' degree of
Attachment A: Statement of Work 21
<PAGE>
Service Agreement Number 2165
service delivery satisfaction. Effective communication of service offerings
and efficient execution of the call process facilitate the request for
service. The CSR must extract pertinent call information from the customer to
ensure the service request is handled timely and properly. Service delivery
concerns are proactively communicated to appropriate escalation levels. CSRs
utilize the applicable system to record information and assign calls to the
appropriate service representative or organization. They must remain
knowledgeable of new service offerings and call procedures.
Responsibilities
. Receive customer request for service. Be thoroughly knowledgeable of current
service offerings, billable information, and entitlement process. Question
customer to obtain product service and determine urgency of request. Take
personal ownership of each call received and aggressively seek to improve
customer satisfaction.
. Utilize resource materials in directing customer inquires that are not
service related. Inform appropriate contact of information changes. Be
thoroughly knowledgeable of resource materials and give assistance when
required. Escalate unresolved inquires.
. Navigate informational and procedural calls as required.
. Be thoroughly knowledgeable and assist with backup procedures when required.
. Maintain a working knowledge of special operating procedures relating to
critical customers.
. Recognize customer complaints that need to be escalated. Demonstrate quality
communications skills and exhibit high level of professionalism and extreme
sensitivity to customer satisfaction. Follow appropriate procedures and use
good judgment in reporting complaints.
. Identify any data base discrepancies or omissions (i.e., prescreens, alias)
and notify appropriate resource (i.e., EUS, RETAIN, CLARIFY, MAAS).
. Monitor on a daily basis group activity and ensure the efficient utilization
of personnel.
. Ensure that activity is centered on the handling of incoming service request
during periods of greatest need as indicated by ACD information.
. Provide training to trainees, associates and less experienced CSRs.
. Support management in the implementation and operation of existing and new
procedures.
. Prepare special reports at management direction.
. Make recommendations to enhance operations.
. Use courtesy, tact and discretion in all communications with customers,
vendors and IBM personnel. Utilize good judgment to inform manager of
potential problems.
. Maintain knowledge and operation of all CSR equipment. Utilize basic problem
determination and follow reporting procedures.
. Follow internal IBM telephone etiquette guidelines.
3. SESA Coordinator
Position Concept: Is responsible for making follow-up survey calls to
customers concerning their satisfaction with a specific process. The
coordinator will extract all pertinent information through a database
provided and complete a preset number of surveys per day. That preset number
is described in Section 3.8, Measurements.
Responsibilities
. Obtains pertinent information from required databases.
. Makes outgoing calls to customer contacts provided by IBM internal databases
22 Amendment #01
<PAGE>
Service Agreement Number 2165
. Demonstrates courtesy, tact and discretion in communications, so as to
present a favorable company image
. Input customer comments and survey results so that they match the opinions
of the customer
. Make internal phone audits and record results as required
. Escalate customer complaints using established processes
4. Finders Customer Service Coordinator
Position Concept: To provide maintenance and inventory assistance to
Technology Service Support (TSS), Customer Service Representatives (CSR), and
Availability Service Customer Engineers (CE). The coordinator will research
inventory databases and communicate billing information to CEs, TSSs, and
CSRs. Coordinators will maintain a close relationship with all Customer
Support Offices (CSO). Accuracy and professionalism are vital to the success
of the Finders program. The Finders coordinator will ensure proper inventory
corrections and maintenance updates occur in a timely and effective manner.
Coordinators will escalate all CSR, CE, and field manager concerns to the
appropriate senior, team leader, or manager.
Responsibilities
. Receive CSR and CE requests to research and correct customer inventory and
maintenance discrepancies.
. Search databases, i.e., ISI, SPIF, HONE, VM, and NSS for contact and
billing information.
. Process Finders requests for inventory discrepancies and updates, and
forward to appropriate maintenance processing departments.
. Notify CE and CSR when request is complete.
. Using BILLMAPS and CETRACK, track and ensure all Finders logs are updated
and closed in a timely and accurate manner.
. Provide status of logs to CSR, CE, or field manager upon request.
. Escalate to appropriate CSR when log closure objectives are not met.
. Provide assistance with:
-- M/A Rates
-- Billing Rates
-- Billable Activity (B/A) Codes
-- Hourly Service Document and Hourly Service Invoice information.
. Handle incoming Call Entitlement Team (CET) calls and warm transfer when
needed.
. Maintain knowledge of all databases and processes used in Finders.
. Navigate informational and procedural call as required.
. Use courtesy, tact, and discretion in all communications with customers,
vendors, and IBM personnel. Exhibit a high level of professionalism and
use good judgment to inform manager of potential problems.
5. Senior Customer Service Representative
Position Concept: Provide leadership to CSRs and be focal person for
operational questions. Maintain expert knowledge of customer service duties
and review/monitor to ensure procedures are followed. Aggressively monitor
NSS in order to recognize and handle potential service delivery concerns.
Take a pro-active role in identifying and resolving customer satisfaction
inhibitors. Implement a strategy with other seniors and team leaders to
maintain balanced workload for customer hold times. Offer first level
Attachment A: Statement of Work 23
<PAGE>
Service Agreement Number 2165
of escalation to CSRs for customer complaint situations. Evaluate training.
Maintain expert knowledge of all CSR responsibilities. Prepare regular and
special reports for IBM. Maintain expert knowledge of backup system
procedures. Perform CSR duties as required.
Responsibilities
. Become an expert resource for CSRs and assist in interpreting current
service offerings, billable information and entitlement process. Administer
training as required. Enhance customer satisfaction through personal
ownership of identified problems and aggressively seek resolution. Escalate
when appropriate.
. Monitor/review receive call activity and pro-actively identify potential
customer situations.
. Become an expert in call management criteria, measurement objectives, and
special programs. Identify problems when objectives will not be met and
make recommendations to the management team.
. Maintain an expert knowledge of resource materials utilized to direct
customers' inquiries that are not service related. Act as a resource and
focal escalation point for unresolved inquiries and updating resource
materials. Responsible for timely follow-up and extreme responsiveness to
customer inquiries.
. Maintain expert knowledge of system backup procedures and initiate when
required. Ensure each CSR has backup and that current backup materials are
readily available. Resolve CSR difficulty in obtaining system backup and
escalate if necessary.
. Maintain expert knowledge in and ensure that special operating procedures
are followed to interface with external providers of service. Provide CSR
training and assistance when necessary.
. Review, maintain, and ensure an accurate database using branch office
input. Ensure database integrity and update procedures are followed.
Responsible to coordinate database activity. Recommend solutions to
database problems and implement.
. Handle customer complaints effectively and recognize need for escalation.
Follow appropriate procedures and exercise good judgement in escalation and
resolving complaints. Maintain records.
. Demonstrate courtesy, tact, and discretion in all communications with
customers, vendors, and IBM personnel. Exhibit a high level of
professionalism at all times. Utilize good judgement informing management
of potential problems. Set example and give guidance to CSCs as required.
. Provide work direction and support to CSRs for the implementation of
special programs and for the short-term solution of temporary workload
imbalances. Maintain CSR lunch schedules and track vacation. Ensure CSR
coverage.
6. Training Specialist
Position Concept: Provides training of suppliers personnel.
Responsibilities
. Provide training and assistance as required. Update training materials and
conduct training seminars for CSR when needed. Evaluate training and make
recommendations to management and assist with training difficulties.
. Maintain thorough knowledge of and be able to operate all CSR workstations
and ACD agent equipment. Follow correct problem determination and
reporting procedures. Utilize good judgement when following the correct
escalation procedures.
7. Team Leader
Position Concept: Serves as a "functional" leader in an environment where
employee to management ratios make it difficult to prioritize and balance
workload and maintain a high level of operational efficiency.
Responsibilities
24 Amendment #01
<PAGE>
Service Agreement Number 2165
. Operates complex office systems to prepare correspondence, foils, and
documents.
. With minimal management assistance, coordinate flow and prioritize "team"
workload.
. Balances workload; ensuring coverage and a high level of operational
efficiency.
. Drives team quality measurements.
. Monitors services support activity and exposures.
. Develops and implements internal customer satisfaction plans and programs.
. Ensures team self-assessment audits are conducted and based on outcomes
recommends corrective action plan to management.
. Coordinates meetings, training and other workload inhibitors.
. Maintains a high level of systems expertise for required business area.
. Assumes additional responsibilities as required.
8. Receptionist
Position concept - Answers the "must answer" line in the Call Management
Center while controlling entry to the branch office and receiving visitors.
Responsibilities
. Greets, ascertains pertinent information, and registers visitors. Helps
identify, locate and contact persons to be visited. Gives internal and
external directions. Ensures that no one is detained in the reception area
beyond a reasonable length of time.
. Answers the "must answer" line in the Call Management Center. Pages person
to be contacted when appropriate or navigates the call to the requested
function. Ensures callers are greeted professionally, given the proper
information and not left on hold longer than the IBM standard.
. Collects and distributes mail from/to the CMC personnel.
. Ensures only authorized persons are permitted into the facility and
ensures escorts are provided when necessary. Reports security concerns to
appropriate Contractor/IBM management.
. Handles special situations such as outside solicitations, providing
information about employees, etc., in accordance with company policies and
practices.
. Demonstrate courtesy, tact and discretion in communications, so as to
present a favorable company and site image.
. As required, initiates and maintains appropriate files and reports.
. Perform other administrative tasks such as typing, filing, scheduling
conference rooms, conference rooms, ordering supplies, updating the
organizational chart and updating calendars.
. Back-up branch secretary when required.
. Work requests will be received from IBM personnel
. Perform other duties as assigned.
9. Graphics Coordinator
Position Concept: Is responsible for creating and updating quality process
and presentation charts on a timely basis. Primarily uses Lotus Freelance as
the software on a PS/2 type machine. Will operate equipment associated with
producing high-quality charts such as printers and plotters.
Responsibilities
. Operates basic graphics equipment and programs.
Attachment A: Statement of Work 25
<PAGE>
Service Agreement Number 2165
. Tracks due dates on process charts.
. Updates and distributes process charts monthly.
. Provides assistance for other presentation charts.
. Performs other duties, as assigned.
. Maintains softcopies of all charts created.
. Ensures equipment used is maintained and usable.
. Work requests will be received from IBM personnel
10. Operational Support Manager (OSM)
Position Concept: Is the first line manager responsible for resource
planning and operational support in the CMC.
Responsibilities
. Interprets IBM's policies, practices and procedures for territory.
. Maintains effective performance planning, counseling, evaluation and
development programs to properly evaluate employee performance and to enhance
career growth.
. Analyze performance of functions within areas of responsibility. Makes
recommendations for operational enhancements and implements action as
appropriate.
. Works closely with IBM as an interface to ensure high levels of performance,
productivity and customer satisfaction.
. Determines manpower requirements and develops plans for area of
responsibility.
. Analyzes financial performance and recommends a course of action to IBM.
Maintains control of direct expense involved with operation of assigned area.
. Organizes and conducts frequent department meetings. Makes presentations on
areas of responsibility in branch meetings.
. Responsible for records retention management and compliance and security for
all pertinent documents.
. Assumes additional responsibilities as required.
- --------------------------------------------------------------------------------
3.6 Training
1. Initial process training for contract initiation will be provided by IBM. Any
new product training deemed necessary by IBM will be provided by IBM. The
Contractor's training specialist will then assume responsibility for on-going
training and orientation of new and replacement personnel at the training
rate.
2. Contractor shall have sufficient personnel trained to ensure that quality of
service is met throughout the term of this Agreement. IBM shall pay for this
training only if conducted during the employee's first thirty (30) days of
work under this Agreement and at the Customer Service Trainee rate specified
in Section 3.12. This payment shall not exceed a percentage of the total
productive time billed. This percentage shall be determined by IBM and the
Contractor after the initial training of personnel under this Agreement.
26 Amendment #01
<PAGE>
Service Agreement Number 2165
- --------------------------------------------------------------------------------
3.7 Transitional Training
In the event of cancellation or at the expiration of this Agreement, Contractor
agrees to provide a minimum of fifteen (15) days transitional training to a
supplier to be specified by IBM if other than Contractor. Said training shall be
conducted by an adequate number of Contractor employees to ensure continuity of
service at a competent level of performance. IBM shall pay for such training at
the rates specified in the Statement of Work for the job descriptions of the
employees providing such training. Contractor shall ensure that it continues to
meet all performance and quality requirements specified in the Statement of
Work throughout such training period.
- --------------------------------------------------------------------------------
3.8 Measurements
Specific measurements will be developed by the supplier and IBM to gauge
performance and quality requirements. Overall areas measured will included but
are not limited to:
. Qualification of staff
. Adherence to CMC training modules provided to Contractor as may be
modified/updated from time to time by IBM
. Customer satisfaction
. Quality control
-- Call Hold time less than 10 seconds on average
-- SESA calls greater than 99.7%
-- Accuracy in taking calls greater than 99.0%
-- Under 2% abandonment rate
-- Minimal CMCALERTS and Customer Situation Information System (CSIS)
incidents (actual formula to be determined)
-- Average 32 complete SESA surveys per day per headcount
-- Failure to meet any of the measurements identified in this Section, as
modified, shall be deemed material breach of this Agreement. However,
Contractor shall have one hundred and twenty (120) days from the date
hereof to meet those measurements that are currently not being met by the
CMC's before this provision will take effect with respect to measurements.
- --------------------------------------------------------------------------------
3.9 Acceptance Criteria
Initial acceptance will depend on evaluation of the vendor's ability to meet
the scope defined in this document. Key criteria that will be reviewed includes
but not limited to:
. Cost
. Quality
. Management
Attachment A: Statement of Work 27
<PAGE>
Service Agreement Number 2165
- --------------------------------------------------------------------------------
3.10 IBM Responsibilities
IBM is responsible for the following:
. Existing CMC Processes and Procedures
. IBM Site Safety, Security and personnel conduct policies
. Hardware/Software/Tools as described below (IBM Business use only)
. Office facilities in Dallas and Atlanta Call Management Centers
. Personal shared workstation and required software
. Phone, headset, and phone system
. Access to required systems/tools
-- NSS
-- OASIS
-- RETAIN
-- VM
-- HONE
-- IS
-- AUTOQUALITY if used
-- P&Q REVIEW if used
-- PRMS
-- CSIS
. Access to any additional required equipment
. Badge access to assigned location
Note: The Contractor shall follow the practices, procedures and priorities of
IBM in the use of IBM equipment, systems, and tools.
- --------------------------------------------------------------------------------
3.11 Contractor Responsibilities
The Contractor is responsible for the following:
. Answer customer requests in a timely, professional, and accurate manner
. Monitor quality using the Autoquality System or an equivalent system.
. Perform entitlement on service requests
. Ensure operating processes and procedures are accurately followed
. Assist in updating these processes and procedures as required
. Update customer database records
. Ensure skill requirements are met, maintained and updated
. Provide effective management of personnel and workload
. Train any additional personnel required after initial training
. Support and adhere to ISO9000 registration when complete and all other CMC
quality programs (Contractor personnel will talk to ISO9000 auditors when
asked)
28 Amendment #01
<PAGE>
Service Agreement Number 2165
. Evaluate work performance and increase or decrease to allow for efficiencies
or increased workload at IBM's approval
. Contractor shall supply for IBM's review and approval, transition and
implementation plans to meet targets
. Contractor management is expected to have regular status meetings and provide
written reports regularly
. Adhere to IBM Site Safety, Security and personnel conduct policies
. Define process which manages new requirements from IBM
. Monthly Quality updates and action plans
- --------------------------------------------------------------------------------
3.12 RATE SCHEDULE
- --------------------------------------------------------------------------------
Table 2. Rate Schedule - Atlanta
- --------------------------------------------------------------------------------
JOB DESCRIPTION $/HR $/HR
PAY RATE BILL RATE
- --------------------------------------------------------------------------------
Customer Service Rep. **** ****
Commercialization **** ****
Customer Service Trainee* **** ****
Finders **** ****
Senior Customer Service Rep. **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operations Support Manager **** ****
- --------------------------------------------------------------------------------
Attachment A: Statement of Work 29
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
SERVICE AGREEMENT NUMBER 2165
- --------------------------------------------------------------------------------
Table 3. Rate Schedule - Dallas
- --------------------------------------------------------------------------------
JOB DESCRIPTION $/HR $/HR
PAY RATE BILL RATE
- --------------------------------------------------------------------------------
Customer Service Rep. **** ****
SESA Coord. **** ****
Customer Service Trainee* **** ****
Finders **** ****
Senior Customer Service Rep. **** ****
Training Specialist **** ****
Team Leader **** ****
Receptionist **** ****
Graphics Coordinator **** ****
Operations Support Manager **** ****
- --------------------------------------------------------------------------------
. Notes
- -- *CSR Trainee rate is based upon a **** reduction from the regular
rate. This rate shall apply for the first thirty days of employment.
- -- IBM shall pay overtime at a rate of **** of the regular pay rate.
- -- Pay rate plus **** percent uplift equals the bill rate.
- -- It is IBM's intent to reimburse for "productive" hours worked. Contractor
should plan on invoicing IBM for actual hours worked at the call center
location. Vacation/sick and other time away from the job should be absorbed
in overhead.
- -- Contractor will submit invoices bi-monthly (occurring twice a month).
- -- IBM shall pay shift premium at a rate of **** for 2nd shift and a rate of
**** for 3rd shift. 2nd Shift rates will be paid to employees with start
times between 12:00PM and 10:00 PM and 3rd shift rates will be paid to
employees with start times between 10:00PM and 4:00AM. There will be no
weekend premiums paid.
- -- IBM shall pay Holiday pay at a rate of **** of the regular pay. Those
holidays include the nationally recognized days associated with New Years,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
- -- Overtime will be reimbursed at a maximum of **** of Total Regular number of
hours authorized per billing cycle.
- -- No other overtime or premium rate will be paid without the prior approval of
the IBM Contract Manager.
The above rates shall be fixed for the first twelve (12) month period and may be
revised annually on the anniversary of the effective date of this Agreement. Any
rate increases shall not exceed **** over the rates for the preceding twelve
(12) month period.
30 Amendment #01
**** Confidential treatment is being requested for these portions of this
agreement.
<PAGE>
Service Agreement Number 2165
- --------------------------------------------------------------------------------
3.13 Glossary of Terms
AUTOQUALITY System used in recording live customer calls for monitoring purposes
CMC (Call Management Center)- The two Centers located in Dallas and Atlanta
CMCALERT Vehicle our internal customers use to communicate problems to the CMC.
CSIS (Customer Situation Information System) - Customer complaint system
ENTITLEMENT The process of ensuring customers are entitled to receive
warranty or maintenance service from IBM.
FASTTRAK Vehicle the CMC uses to communicate problems to the field
FINDERS Maintenance program in which field representatives call the CMC when
they find a machine does not have a maintenance agreement.
HONE (Hands-On Network Environment) - Repository of IBM marketing information.
IS (Information Systems) Systems that store pertinent customer account
information such as inventories.
ISO9000 ISO standards which identify the requirements for an effective
quality management system.
QRT (Quality Response Time) - The measurement of hold times within the CMC
NSS (National Service System) - System used to receive and assign service
calls
OASIS (Order and Service Information System) System used to receive assign
customer calls.
P&Q REVIEW System used to track results in the monitoring process
RECEIVE CALL The process of receiving a request from a customer.
RETAIN (Remote Technical Assistance Network) - IBM's world-wide database
storing customer problem records.
TRAILER CALL The process used to measure external customer's satisfaction
with the way their call was handled.
VM (Virtual Machine) - IBM mainframe operating system.
Attachment A: Statement of Work 31
<PAGE>
Service Agreement Number 2165
32 Amendment #01
<PAGE>
Amendment to Service Agreement Between
International Business Machines Corporation
and
Computer Generated Solutions, Inc.
April 02, 1996
Contact: Nancy Hiatt Tel. 303-924-5396
IBM Integrated Procurement Solutions
6300 Diagonal Highway
P.O. Box 1900
Boulder, Colorado 80301-9191
Department: PRB1
Building: 001H
Service Agreement Number 2165
<PAGE>
- --------------------------------------------------------------------------------
Amendment # 02
This document shall constitute a formal amendment to Service Agreement Number
2165 dated October 04, 1995.
Add Attachment B Statement of Work
Add Attachment B as an additional Statement of Work per the enclosed document to
be performed under this Service Agreement.
Except as hereby amended, all other terms and conditions of this Agreement shall
remain in full force and effect as written.
If you agree with the above modifications, this document shall constitute an
Amendment to Agreement Number 2165. Please indicate your agreement by signing
both copies of this document and returning one copy to IBM Corp., 6300 Diagonal
Hwy., Boulder, CO 80301, Attention: Nancy Hiatt, Dept. PRB1, Bld. 001H.
In Witness whereof the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives.
International Business Computer Generated Solutions, Inc.
Machines Corporation
By: /s/
--------------------------
/s/ G. H. Tamura 4/2/96 Title: President
--------------------------
G. H. Tamura Date: 4/11/96
Location Procurement Manager --------------------------
1
<PAGE>
Attachment B Statement of Work
March 11, 1996
Contact: Nancy Hiatt Tel. 303-924-5396
IBM Integrated Procurement Solutions
6300 Diagonal Highway
P.O. Box 1900
Boulder, Colorado 80301-9191
Department: PRB1
Building: 001H
Service Agreement Number 2165
<PAGE>
- --------
Contents
1.0 Term ..................................... 1
1.1 Project Description ...................... 1
1.2 Responsibilities As An IBM Subcontractor.. 1
1.3 Coordinators/Supervisors ................. 1
1.4 Work Schedules ........................... 2
1.5 IBM Workstation Support Locations ........ 2
1.5.1 "C" Programmer Support Group,
Atlanta ................................. 2
1.5.2 Advanced Workstation Support Center,
Chicago.................................. 2
1.5.3 Desktop Support Center, Atlanta ..... 3
1.5.4 Network Support Center, Atlanta ..... 3
1.5.5 EUS Center, Tampa ................... 5
1.6 IBM Large Computing Support Location...... 5
1.6.1 MVS Support Group, Atlanta .......... 5
1.7 Graphics Coordinator ..................... 5
1.8 Training ................................. 6
1.9 Transitional Training .................... 6
1.10 Measurements ............................ 6
1.10.1 Basic Understanding ................ 7
1.10.2 Minimum Customer Satisfaction Level. 7
1.10.3 Quality Measurements/Reporting ..... 7
1.11 Acceptance Criteria...................... 7
1.12 IBM Responsibilities..................... 7
1.13 CGS Responsibilities..................... 8
1.14 Rate Schedule............................ 9
1.15 Glossary of Terms........................ 12
Contents ii
<PAGE>
- --------------------------------------------------------------------------------
1.0 Term
The term of this Statement of Work dated March 11, 1996 is effective from
January 1, 1996 through December 31, 1996.
- --------------------------------------------------------------------------------
1.1 Project Description
Helpdesk Services (HDS) is an IBM Workstation Support services capability, which
provides helpdesk support for many hardware and software products, both IBM and
non-IBM (specifics by location follow). CGS employees must be able to provide
support for all of these environments.
The number of CGS employees performing tasks may change with the concurrence of
both parties. This number can fluctuate based on the number of customers being
supported and the cost of support from CGS as compared to alternate sources. CGS
will periodically be asked to supply additional employees (either full time or
part time) to meet these needs. When requesting additional CGS employees IBM
will identify specific product skills which the CGS employees must possess
before being assigned to work in IBM.
- --------------------------------------------------------------------------------
1.2 Responsibilities As An IBM Subcontractor
CGS employees shall be responsible for:
. Answering requests for service received via telephone from customers and
providing the required information/resolution of customer issues. The requests
will involve questions and/or problems related to the use, configuration, or
installation of the supported products. The questions must be answered in a
complete, accurate, and timely fashion.
. Demonstrating sufficient technical knowledge of the supported products listed
to provide problem determination for the customer and usage assistance to
customers, and to obtain information as needed from the product vendor.
. Demonstrating tact, sound business judgement, and good communication skills
when dealing with customers, with IBM employees, and with product
vendors.
. Demonstrating effective telephone communication skills.
. Provide efficient use and successful completion of customer requests using the
call management system to handle call activity and to record symptom/fix
information.
. Utilizing call handling/routing processes and procedures established between
IBM and CGS.
. Training of CGS employees on additional products to assist IBM when workload
peaks occur or when other responsibilities listed above are not being pursued.
. Recognizing when a customer situation warrants the intervention of an IBM
manager and reporting the situation immediately.
. Maintaining an acceptable business appearance and conduct.
. Providing technical representatives capable of delivering prompt, quality
solutions as described in the "IBM Helpdesk Services Locations" section.
- --------------------------------------------------------------------------------
1.3 Coordinators/Supervisors
IBM and CGS shall appoint Site Coordinators. Each party shall inform the other
of the name(s) of the coordinators appointed at the date of contract execution.
CGS shall appoint a Site Coordinator, who shall supervise and direct the work of
CGS employees and shall handle all personnel issues. This supervisor will
interface with the IBM Site Coordinator(s) and will be the focal point for all
on-site CGS interaction. This CGS Site Coordinator will be provided at no
additional charge.
The CGS Site Coordinator is expected to attend regularly scheduled technical
meetings and reviews.
The CGS Site Coordinator is expected to review CGS employee contributions on a
regular basis to ensure CGS employees are achieving the quality/productivity
goals as described later in the "Quality Assurance" section. The CGS Site
Coordinator will receive reports on a regular basis, detailing call activity for
all CGS employees.
The CGS Site Coordinator is expected to actively assist the IBM Site
Coordinator in improving overall HDS services.
1
<PAGE>
- --------------------------------------------------------------------------------
1.4 Work Schedules
The IBM Support Centers provide customer assistance 24 hours per day, 7 days
per week. CGS must be able to fulfill all shift requirements.
Exact work hours will be determined by the IBM Site Coordinator in conjunction
with CGS. CGS will be asked to supply part time employees to work 3-5 hours
during "peak" workload times. Job descriptions are provided in Section 1.13.
Since IBM Support Centers operate on a 24 hours per day, 7 days per week
schedule, employees, including some number of CGS employees, will be required to
work on IBM designated Holidays.
- --------------------------------------------------------------------------------
1.5 IBM Workstation Support Locations
The following are the current IBM locations where CGS employees are required to
provide telephone assistance to remotely diagnose customer problems/questions
and communicate a correct response:
1.5.1 "C" Programmer Support
Group, Atlanta
"C" Programmer
Design, develop and test programming tools written with "C". Requires strong "C"
level programming skills. Prepare high level component designs from general
requirement statements and provide component design documentation. Requires
minimal supervision and is capable of designing drivers to test integrated
modules.
Senior "C" Programmer - same as above, plus:
. Provide technical direction a group of "C" programmers
. Provide informal and/or formal training in areas of expertise
. Provide debugging, PD and system assistance to application developers
. Provide consulting and programming services on operating systems software and
other areas of expertise, including database internals and system utilities
1.5.2 Advanced Workstation Support
Center, Chicago
CGS employees will have all necessary skills, knowledge and expertise to provide
support on:
. RISC/6000 Hardware Problem Determination Provide prompt, quality support for
hardware and usage problems related to the RISC/6000 operating environment.
Responders require one to two years experience on the RISC/6000 hardware
platform, support experience, strong interpersonal skills, attention to
detail, demonstrated call leadership, ability to follow center procedures,
team player, and potential to qualify as an AIX/UNIX support rep.
. MULTIVENDOR SUPPORT - Provide remote hardware and software support for UNIX
platforms. Responders require two to three years experience as a UNIX
Administrator, knowledge of SUN, HIP, and SCO, ability to apply
administrative knowledge in a variety of environments, attention to detail,
strong interpersonal skills.
. RISC/6000 CUSTOMER CALL SCREENING - Provide hardware and software RISC/6000
and AIX call screening and problem resolution. Responders require two to three
years with the RISC/AIX platform as an administrator or equivalent experience.
Strong communication skills, attention to detail, ability to follow center
procedures, customer orientation, sensitive to escalation process, and a team
player.
. PNID/PARTS NUMBER SERVICE - Provide remote parts number identification
services to IBM customers. Responders require strong organizational and
communication skills, operational knowledge of a PC, be a team player and
customer focused.
2
<PAGE>
1.5.3 Desktop Support Center, Atlanta
Desktop Support Representative
CGS employees will have all necessary skills, knowledge and expertise including
A + Certification to:
provide assistance on and have a good working knowledge of PC, PS/2 Point of
Sale terminals, and/or associated workstation equipment.
Senior Desktop Support Representative - same as above, plus:
. Provide strong computer skills specific to the product supported
. Provide strong problem determination skills
. Capable of training and assisting Desktop representatives
. Provide excellent customer service techniques
. Possess excellent oral and written communications skills
Desktop Support Center Team Leader - This position is limited to one (l) team
leader per twenty-five (25) employees within the Desktop Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time as
describe in the position above, plus:
. Schedule assigned resources to workload and alert IBM when available skills
and/or resources will not satisfy a known engagement
. Provide overall work direction to a team of technical resources sufficient to
satisfy assigned service level objectives
. Identify and respond to critical changes within assigned mission (technical,
distribution of workload, etc.) with action plans for IBM review and
implementation
. Demonstrate ability to serve as escalation point for all critical customer
calls
System Installation Technician Position Concept: Travel to various customer
locations to install computer systems and disconnect existing equipment.
Responsibilities
. Travel to customer locations based on a provided schedule
. Unpack hardware systems and install according to procedures. Back up data from
existing system. Load data to new system. Diagnose any system problem
discovered during process. Disconnect existing system. Pack specified items
for return.
. Accurately complete online electronic form with the required information for
the new system and the disconnected system.
. Perform customer training on the new system.
. Communicate any problems/discrepancies to Project Manager(s).
. Utilize good judgement when handling any unusual situations.
. Submit accurate labor and expense data on a timely basis.
1.5.4 Network Support Center,
Atlanta
The Network Support Center is comprised of four groups; LAN SERVICES Support,
IDNX, LAN/WAN Connectivity, and Wireless/Cellular Helpdesk. The LAN Services
environment is separated into three (3) skill requirements: l. Remote LAN
Monitoring & Administration; 2. LAN Software - level II to perform Network
Operating System (NOS) single product certification required and must be
assigned workload in one of the following: Netware, Microsoft NT, Banyan, OS/2
Lanserver, etc.; and 3. LAN Software - Level II multiple NOS product
certification and assigned workload. A Team Leader may be named and is limited
to one (l) per twenty-five (25) employees within the Network Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time. Other
duties are described in the job description.
1.5.4.1 LAN SERVICES SUPPORT
CGS employees will have all necessary skills, knowledge and expertise to:
. Provide remote support to IBM internal Lan installations in a LAN
Administration support role. Must be able to troubleshoot over the phone all
hardware/software problems associated with IBM Lanserver and OS/2 related
3
<PAGE>
problems. Requires in-depth knowledge of IBM Lanserver and OS/2.
. Provide remote telephone support to customer's to isolate LAN failures to the
failing component. Interface with other IBM resources on LAN related issues
and OEM vendor conference calls as a technical resource for the customer.
. Provide direct dial in support for servers, includes monitoring critical
resources, error and event logs, tuning, down loading software code, backing
up critical files and operating system configurations, adding/ deleting users,
resetting passwords, creating print servers, etc.
. Products Supported:
- - Servers: file, print, gateway, domain, MAU's, LAM's, CAU'S connectivity, token
ring and ETHERNET topologies, LAN operating systems (OS/2 LANServer, NOVELL,
etc.), IBM and OEM LAN adapter cards.
. Environments supported:
- - Hardware, software, configuration, tuning, multi-vendor product connectivity.
. Certifications:
- - Novell CNE, Banyan, Windows NT, OS/2 Operating system, Netware, LAN
Network Manager, etc. Environment will require assigned workload in
either single product or multiple product certified skills.
- - Billing Rates:
- - Bill Rates are based on each of the three (3) skill groups and on length of
time in skill group based on entry, 3 months, and 6 months. CGS employees
currently in these skill groups as of March 8, 1996 will remain at
their present bill rate. A listing is to be provided to IPS with the employees
name and bill rate as of March 8. All subsequent CGS employees will be at
the rates listed in the Rate Schedule of this document.
1.5.4.2 IDNX SUPPORT CENTER
CGS employees will provide direct support to IBM end users customers, and other
IBM organizations, on workstations and remotely diagnosing event and error logs,
to resolve hardware problems with voice and data equipment, working with TELCO
and other equipment supplier vendors identified by IBM. Requires an in-depth
knowledge of multiplexors, data communications devices, and switches.
. Products supported:
- IDNX
- ADNX
- STM
. Environment Supported:
- Wide area high bandwidth, PBX/CBX, Channel banks, echo cancellors, T-l/T-3,
LWX Lan adapter, voice, data, video, image, frame relay, all speeds of data
transmission.
1.5.4.3 LAN/WAN CONNECTIVITY
SUPPORT CENTER
CGS will isolate all network failures to a failing component, invoke and
coordinate IBM resources, as required, participate in OEM vendor and TELCO
conference calls as a technical resource for the customer. Interface with
product and software engineering on defects and quality issues.
. Products Supported:
- - All IBM communication type products (modems, controllers, adapters, CPU's,
etc.), over 200 in number. OEM communication type products.
. Environment Supported:
- - Hardware, software, configuration, TELCO carriers, OEM vendors.
1.5.4.4 WIRELESS/CELLULAR
HELPDESK
Wireless/Cellular Helpdesk Representative
CGS employees will provide support to IBM end user customers that have
contracted for cellular helpdesk services. Strong technical knowledge and/or
experience in the cellular/wireless industry
4
<PAGE>
to accurately and quickly perform problem determination and resolution. Must
have thorough knowledge of a11 PC Laptops (IMB and OEM). Must be "Modem
literate" pertaining to all types, capabilities, and standards, compression and
error protocols, and completed range of asynchronous terminology. Familiar with
CDPD for purpose of installation assistance, trouble-shooting, including some
knowledge of TCP/IP concepts and protocols.
Senior Wireless/Cellular Helpdesk Representative - same as above, plus:
. In-depth knowledge of all laptops, modems, cellular protocols
. Able to train and assist Cellular/wireless helpdesk representative
. In-depth knowledge of TCP/IP protocols and networks
. Be escalation point for difficult technical problems
1.5.4.5 NETWORK TEAM LEADER
Network Support Center Team Leader -This position is limited to one (l) team
leader per twenty-five (25) employees within the Network Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time as
described in the position above plus:
. Schedule assigned resources to workload and alert IBM when available skills
and/or resources will not satisfy a known engagement
. Provide overall work direction to a team of technical resources sufficient to
satisfy assigned service level objectives
. Identify and respond to critical changes within assigned mission (technical,
distribution of workload, etc.) with action plans for IBMS review and
implementation
. Demonstrate ability to serve as escalation point for all critical customer
calls
1.5.5 EUS Center, Tampa
End User Support (EUS) supports over 250 IBM and non-IBM and commercially
available, cross industry, PC software applications and PC hardware products:
this includes DOS, OS/2, and Apple Macintosh operating systems.
EUS also provides support on custom software/hardware. A custom product is an
application developed by an IBM end user or its vendor to meet unique needs.
CGS employees must have the capability to learn and support products that IBM
is or may be supporting and have the ability to learn new custom products which
IBM may elect to support in the future.
Certifications include Microsoft Certified Professional, OS/2 Certified
Engineer/Instructor, Microsoft Windows 95 Certification, Certified Novell
Engineer. Additional acceptable certifications require prior written approval of
both IBM Procurement and the IBM Site Coordinator.
- --------------------------------------------------------------------------------
1.6 IBM Large Computing
Support Location
The following are the current IBM locations where contract employees are
required to provide telephone assistance to remotely diagnose customer
problems/questions and communicate a correct response:
1.6.1 MVS Support Group, Atlanta
Provide remote systems support to MVS customers worldwide. Requires an in-depth
knowledge of MVS internals, sub-systems, and program products.
- --------------------------------------------------------------------------------
1.7 Graphics Coordinator
Position Concept: Is responsible for creating and updating quality process and
presentation charts on a timely basis. Primarily uses Lotus Freelance as the
software on a PS/2 type machine. Will operate equipment associated with
producing high-quality charts such as printers and plotters.
5
<PAGE>
Responsibilities
. Operates basic graphics equipment and programs.
. Tracks due dates on process charts.
. Updates and distributes process charts monthly.
. Provides assistance for other presentation charts.
. Performs other duties, as assigned.
. Maintains soft copies of all charts created.
. Ensures equipment used is maintained and usable.
- --------------------------------------------------------------------------------
1.8 Training
Training provided by CGS to its employees supporting IBM will fall into one of
three categories new employee, continuing. or new support.
"New employee" training is a combination of technical and process education.
CGS is responsible for the "new employee" technical education required for CGS
employees prior to being assigned to IBM. This training must ensure that new CGS
employees have sufficient technical knowledge of the supported products to
provide reliable problem determination and usage assistance to customers, and to
provide an efficient interface with the product vendor.
CGS is responsible for providing IBM with a detailed outline of their "new
employee" technical training plan, and the criteria used to certify completion
of the training plan for each employee. All CGS employees are expected to
complete this certification process prior to being assigned to work supporting
IBM. IBM will not be responsible for any charges associated . with this
training.
CGS employees will be expected to maintain currency on new versions and new
releases of supported products. This training is described as "continuing"
training. Time spent on "continuing" training activities is on-going for uniform
improvement of technical skills.
"New support" training applies to time spent on education required to provide
new or improved support to customers. IBM will provide for "new support"
training for CGS Site Coordinators. This type of training may occasionally
involve certification tests or exams. IBM will pay all costs associated with
the training of site coordinators (unless special provisions are made in
advance). CGS is expected to provide this training, testing and certification
to its employees and to pay for the cost of the certification tests or exams.
When a certified CGS employee leaves, CGS will be responsible to provide an
equivalent skill replacement or be responsible for associated certification
training expense.
IBM will provide "new employee" process education on specific items which are
considered to be unique to IBM. This education will be conducted once for the
CGS Site Coordinator (or their designated representative). Thereafter, the CGS
Site Coordinator is responsible for the "new employee" process education for all
other CGS employees.
The IBM Site Coordinator shall coordinate all IBM activities in support of the
"new employee" process training.
- --------------------------------------------------------------------------------
1.9 Transitional Training
In the event of cancellation or at the expiration of this Agreement, CGS agrees
to provide a minimum of fifteen (15) days transitional training to a supplier
to be specified by IBM if other than CGS. Said training shall be conducted by an
adequate number of CGS employees to ensure continuity of service at a competent
level of performance. IBM shall pay for such training at the rates specified
in the Statement of Work for the job descriptions of the employees providing
such training. CGS shall ensure that it continues to meet all performance and
quality requirements specified in the Statement of Work throughout such training
period.
- --------------------------------------------------------------------------------
1.10 Measurements
CGS shall be responsible for Customer satisfaction survey results for calls
responded to by CGS employees. The surveys will be conducted under IBM's
authorization on a random basis. The sample should include a minimum of 5% to 8%
of IBM end users whose problems have been resolved. Customer satisfaction
results are a key indicator of service and will be shared between IBM and CGS
6
<PAGE>
on a weekly basis. Improvement plans, as required, will be jointly developed
and implemented.
1.10.1 Basic Understanding
CGS will provide employees who can meet or exceed a minimum customer
satisfaction level (see detail below) for all sites where it provides services
to IBM. CGS will track these levels and replace any employees not meeting the
minimum customer satisfaction level within two weeks. If a CGS employee leaves
or is dismissed, CGS will be fully responsible for all regular hourly
reimbursement (equivalent hours at IBM site, not to be greater than 90 days)
associated with training a replacement.
1.10.2 Minimum Customer
Satisfaction Level
CGS employees must maintain an average of 95% minimum customer satisfaction
level based on IBM's customer satisfaction survey. The satisfaction
level is to be measured quarterly using a rolling three month average.
Should any CGS employee not maintain an average of 95% minimum customer
satisfaction level, CGS will notify IBM that the situation will be corrected
within two weeks. CGS will be liable for up to three month's regular hourly
reimbursement to train any necessary replacement(s).
1.10.3 Quality
Measurements/Reporting
IBM will provide the CGS Site Coordinator with reports and/or information
detailing CGS's performance against the quality goals. This information will be
supplied on a weekly and/or monthly basis. The CGS Site Coordinator is expected
to work with the IBM Site Coordinator to ensure attainment of quality goals.
CGS employees will participate and demonstrate commitment to quality improvement
programs such as IBM Business Management Measurements (BMM) and ISO 9000
assessments/certification.
Specific measurements will be developed by IBM and CGS to gauge performance and
quality requirements. Overall areas measured will include but are not limited
to:
. Qualification of staff
- Calls per day per rep
. Adherence to procedures
. Customer satisfaction
. Quality control
- Problem Duration
- Call Response time/Call Abandon Rate
- First Call Resolution
- Minimal Customer Situation Information System (CSIS) incidents
(actual formula to be determined)
- --------------------------------------------------------------------------------
1.11 Acceptance Criteria
Initial acceptance will depend on evaluation of the vendor's ability to meet the
scope defined in this document. Key criteria that will be reviewed includes but
not limited to:
. Cost
. Quality
. Management
- --------------------------------------------------------------------------------
1.12 IBM Responsibilities
IBM is responsible for the following:
. Existing Processes and Procedures
. IBM Site Safety, Security and personnel
conduct policies
. Hardware/Software/Tools as described below (IBM Business use only) IBM
will provide and maintain ownership of IBM PC'S or PS/2'S, printers, as well
as any IBM and OEM software/hardware and all related technical manuals it
deems necessary. Maintenance of the equipment will be performed by IBM.
. Office facilities
. Personal shared workstation and required software
. Phone, headset, and phone system
. Access to required systems/tools
- RETAIN
- KBS
- VM
- EUS ON-LINE
7
<PAGE>
. Access to any additional required equipment
. Badge access to assigned location
Note: The supplier shall follow the practices, procedures and priorities of
IBM in the use of IBM equipment, systems, and tools.
- --------------------------------------------------------------------------------
1.13 CGS Responsibilities
CGS is responsible for the following:
. Answer customer requests in a timely,
professional, and accurate manner
. Monitor call quality using a remote call
monitoring system
. Ensure operating processes and procedures
are accurately followed
. Assist in updating these processes and
procedures as required
. Update customer database records
. Ensure skill requirements are met, maintained
and updated
. Provide effective management of personnel and
workload
. Train any additional personnel required after
initial training
. Support and adhere to ISO 9000 registration
when complete and all other quality programs
(CGS personnel will talk to ISO 9000 auditors
if asked)
. Evaluate work performance and increase or
decrease to allow for efficiencies or increased
workload at IBM's approval
. CGS shall supply for IBM's review and
approval, transition and implementation plans
to meet targets
. CGS management is expected to have regularly
scheduled status meetings and provide written
reports to the IBM Site Coordinator monthly.
. Adhere to IBM Site Safety, Security and
personnel conduct policies
. Define process which manages new
requirements from IBM
. Monthly Quality updates and action plans
. Perform configuration and setup of hardware
and installation of software packages for the
equipment assigned to them.
8
<PAGE>
- --------------------------------------------------------------------------------
1.14 Rate Schedule
- --------------------------------------------------------------------------------
Table 1. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - "C" Programmer - $/HR $/HR
Atlanta Pay Rate Bill Rate
- --------------------------------------------------------------------------------
Programmer **** ****
Senior "C" Programmer **** ****
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 2. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - Atlanta Desktop $/HR $/HR
Pay Rate Bill Rate
- --------------------------------------------------------------------------------
Desktop Support Representative **** ****
Senior Desktop Support Represen- **** ****
tative
Desktop Support Team Leader **** ****
System Installation Technician **** ****
- --------------------------------------------------------------------------------
**** Confidential treatment is being requested for these portions of this
agreement.
9
<PAGE>
- --------------------------------------------------------------------------------
Table 3. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - Atlanta Network $/HR $/HR
Support Pay Rate Bill Rate
- --------------------------------------------------------------------------------
LAN Monitoring & Administration - **** ****
Entry
LAN Monitoring & Administration - **** ****
3 months in position
LAN Monitoring & Administration - **** ****
6 months in position
LAN Software- Single NOS Product **** ****
Certification Assigned - Entry
LAN Software- Single NOS Product **** ****
Certification Assigned - 3 Months
LAN Software - Single NOS Product **** ****
Certification Assigned - 6 Months
LAN Software - Multi-NOS Product **** ****
Certification Assigned - Entry
LAN Software - Multi-NOS Product **** ****
Certification Assigned - 3 Months
LAN Software- Multi-NOS Product **** ****
Certification Assigned - 6 Months
IDNX Remote Support Represen- **** ****
tative
LAN/WAN Connectivity Support **** ****
Representative
Wireless/Cellular Support Represen- **** ****
tative
Senior Wireless/Cellular Support **** ****
Representative
Network Support Team Leader **** ****
- --------------------------------------------------------------------------------
**** Confidential treatment is being requested for these portions of this
agreement.
10
<PAGE>
- --------------------------------------------------------------------------------
Table 4. Rate Schedule
- --------------------------------------------------------------------------------
Job Description- Chicago Advanced $/HR $/HR
Workstation Support Pay Rate Bill Rate
- --------------------------------------------------------------------------------
RISC/6000 Hardware PD **** ****
Multivendor Support Representative **** ****
- - UNIX
RISC/6000 Call Screening - **** ****
RISC/AIX
PNID/Parts Number Service **** ****
- --------------------------------------------------------------------------------
Table 5. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - Tampa EUS $/HR $/HR
Pay Rate Bill Rate
- --------------------------------------------------------------------------------
SW Application Support Represen- **** ****
tative up to 3 years IBM experience
SW Application Support Represen- **** ****
tative with IBM approved certif-
ication or 3 years IBM experience
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 6. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - MVS Support Rep- $/HR $/HR
resentative Pay Rate Bill Rate
- --------------------------------------------------------------------------------
MVS Support Representative **** ****
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 7. Rate Schedule
- --------------------------------------------------------------------------------
Job Description - Graphics Coordi- $/HR $/HR
nator Pay Rate Bill Rate
- --------------------------------------------------------------------------------
Graphics Coordinator **** ****
- --------------------------------------------------------------------------------
. Notes
-- IBM shall pay overtime at a rate of ****%
of the regular pay rate.
-- IBM will not pay shift premium
-- IBM will not pay overtime for CGS
managers/CGS Site Coordinator
-- Pay rate times uplift equals the bill rate
**** Confidential treatment is being requested for these portions of this
agreement.
11
<PAGE>
-- It is IBM's intent to reimburse for "productive" hours worked. Supplier
should plan on invoicing IBM for actual hours worked at the support center
location. Vacation/sick and other time away from the job should be absorbed
in overhead.
-- CGS will not use an employee assigned to an IBM location for any outside
consulting work without receiving advanced authorization, in writing, from
IBM.
- --------------------------------------------------------------------------------
1.15 Glossary of Terms
. "Technical Representative" is a person who is skilled in the use of a product
and is considered to be of an advisory capacity on the product.
. "Help Desk" Services (HDS) are a bundle of separate services available
through IBM's Workstation Technical Support organization to provide a
comprehensive array of services that uniquely address a customer's needs in
today's complex mixed vendor computer processing environments.
. "OEM" is the original equipment manufacturer (e.g. Compaq, Apple, etc.).
. "Problem" is a singular request for assistance on a specific product. Requests
for assistance on multiple products, or different problems with the same
product will be considered to be multiple problems. If an initial answer does
not resolve the problem, subsequent calls may be placed under the original
problem number. A problem may involve multiple conversations or actions: the
initial request, off-line research, a callback. and closure.
. "NOS" is a Network Operating System such as OS/2 LANServer, BANYAN,
MICROSOFT NT, etc.
. "Supported Product" is an eligible software/hardware product which is on a
current Workstation Technical Support supported product list. Supported
implies trained personnel are ready and available to handle calls on the
product.
. "Workstation" is a machine of an eligible type and at least one eligible
program listed on the supported product list.
. "CSIS" (Customer Situation Information System) is IBM's customer complaint
system for tracking, monitoring, and ensuring satisfactory resolution.
. "Entitlement" is the process of ensuring customers are entitled to receive
warranty/maintenance service or helpdesk services from IBM.
. "Retain" (Remote Technical Assistance Network) is IBM's world-wide database
storing customer problem records.
. "VM" (Virtual Machine) is the IBM mainframe operating system.
. "Trailer Call" is the process used to measure a customer's level of
satisfaction with the way their call was handled.
. "ISO 9000" are internationally recognized industry standards which identify
the requirements for an effective quality management system.
<PAGE>
AMENDMENT TO SERVICE AGREEMENT BETWEEN
INTERNATIONAL BUSINESS MACHINES CORPORATION
AND
COMPUTER GENERATED SOLUTIONS INC.
DECEMBER 20, 1996
Vivian Valvo
212-745-6011
IBM CUSTOMER SOLUTIONS PROCUREMENT
590 MADISON AVENUE
NEW YORK,NY 10022
SERVICE AGREEMENT NUMBER 2165
<PAGE>
Amendment #3
This document shall be a formal amendment to Service Agreement Number 2165 dated
October 04, 1995.
Except as hereby amended, all other terms and conditions of this Agreement
shall remain in full force and effect as written.
This Agreement can be canceled by both IBM or CGS. By 30 days written notice.
If you agree with the above modifications, this document shall constitute an
Amendment to Agreement Number 2165. Please indicate your agreement by signing
both copies of this document and returning one copy to IBM Corp., 590 Madison
Avenue, New York, N.Y. 10022, Attention: Vivian Valvo, Dept. 001H.
In witness whereof, the parties hereto have caused this Agreement to be executed
by their respective duly authorized representatives.
International Business Machines Corporation Computer Generated Solutions Inc.
By: /s/ By: /s/ Philip Friedman
---------------------------------- -----------------------------
Title: Contracts Admin. Title: President
------------------------------- ---------------------------
Date: 1/29/97 Date: 1/23/97
-------------------------------- ---------------------------
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1.0 Term 1 1.5.4.4 Network Team Leader 4
1.1 Project Description 1 1.6 EUS Center, Tampa 4
1.2 Responsibilities as an IBM Subcontractor 1 1.7 IBM Large Computing Support Location 4
1.3 Coordinators/Supervisors 1 1.7.1 MVS Support Atlanta 4
1.4 Work Schedules 1 1.8 Training 4
1.5 IBM Workstation Support Locations 1 1.9 Transitional Training 5
1.5.1 Advanced Workstation Support Center 2 1.10 Service Level Agreement 5
Chicago
1.5.2 Desktop Support Center, Atlanta 2 1.10.1 Basic Understanding 5
1.5.3 Network Support Center, Atlanta 2 1.10.2 Minimum Customer Satisfaction Level 5
1.5.4 LAN Services Support 3 1.10.3 Duality Measurement/Reporting 5
1.5.4.1 IDNX Support Center 3 1.10.4 Risk/Reward Incentives 5
1.5.4.2 LAN/WAN Connectivity Support Center 3 1.10.5 IBM Responsibilities 5
1.5.4.3 Wireless/Cellular HelpDesk 3 1.10.6 CGS Responsibilities 6
1.11 Glossary of Terms 6
</TABLE>
<PAGE>
Pricing for 1997 IBM Technical Support Relationship
<TABLE>
<CAPTION>
At IBM At CGS
<S> <C> <C> <C> <C>
Atlanta** Per Call - Desktop $ **** $ N/A
-------
Point of Sale $ **** $ N/A
-------
Server $ **** $ N/A
-------
Per Hour - Uncertified $ ****
-------
Certified $ ****
-------
Desktop / Network
*Team Leader $ ****
-------
CHICAGO:** Per Call - Call Screening $ **** $ N/A
-------
CE Support $ **** $ N/A
-------
Parts Tier II $ **** $ N/A
-------
PNID $ **** $ N/A
-------
Per Hour - UNIX Admin $ ****
-------
Stand $ ****
-------
<****> **** call /
mo.
Tampa:*** Per Call Express $ **** $ **** / $ ****
---- ----- -----
Lite $ **** $ **** / $ ****
---- ----- -----
Comprehensive $ **** $ N/A
-----
Per Hour - Uncertified $ **** $ N/A
-----
Lotus Certified* $ **** $ N/A
-----
</TABLE>
* Two Levels Of Admin. Certification only
Implementation of Scheduling; Risk Reward start dates for the following queues
are as follows:
**Atlanta: Desktop 2/16/97
Point of Sale 2/16/97
Server 3/16/97
**Chicago: Call Screening 2/16/97
CE Support 3/16/97
Parts Tier II 1/16/97
PNID 1/16/97
***Tampa: Please refer to 1.10.4 for Risk Reward start dates
**** Confidential treatment is being requested for these portions of this
argument.
<PAGE>
1.0 Term
The term of this Statement of Work dated Jan. 1 effective from January 1,1997
through December 31, 1999.
1.1 PROJECT DESCRIPTION
Helpdesk Services (IIDS) is an IBM Workstation Support services capability,
which provides helpdesk support for many hardware and software products, both
IBM and non-IBM (specifies by location follow), CGS employees must be able to
provide support for all of these environments.
The number of CGS employees performing hourly tasks may change with the
concurrence of both parties. This number can fluctuate based on the number of
customers being supported and the cost of support from CGS as compared to
alternate sources. CGS will periodically be asked to supply additional
employees (either full time or part time) to meet these needs. When requesting
additional CGS employees, IBM will identify specific product skills which the
CGS employees must possess before being assigned to work in IBM. The member that
are performing non-hourly task (standard rate per call) will be determined by
CGS to maintain IBM's standard of measure. Further, both parties have agreed
that a number (to be determined) of calls may be redirected from an IBM HDS
center to a CGS owned facility for resolution.
1.2 RESPONSIBILITIES AS AN IBM SUBCONTRACTOR
CGS employees shall be responsible for:
. Answering requests for service received via telephone from customers and
providing the required information/resolution of customer issues. The
requests will involve questions and/or problems related to the use,
configuration, or installation of the supported products. The questions must
be answered in a complete, accurate, and timely fashion.
. Demonstrating sufficient technical knowledge of the supported products listed
to provide problem determination for the customer and usage assistance to
customers, and to obtain information as needed from the product vendor.
. Demonstrating tact, sound business judgment, and good communication skills
when dealing with customers, with IBM employees, and with product vendors.
. Demonstrating effective telephone communication skills.
. Provide efficient use and successful completion of customer requests using
the call management system to handle call activity and to record sympton/fix
information.
. Utilizing call handling/routing processes and procedures established between
IBM and CGS.
. Training of CGS employees on additional products to assist IBM when workload
peaks occur or when other responsibilities listed above are net being
pursued.
. Recognizing when a customer situation warrants the intervention of an IBM
manager and reporting the situation immediately.
. Maintaining an acceptable business appearance and conduct.
. Providing technical representatives capable of delivering prompt, quality
solutions as described in the "IBM Helpdesk Services Locations" section.
1.3 COORDINATORS/SUPERVISORS
IBM and CGS shall appoint Site Coordinators. Each party shall inform the other
of the name(s) of the coordinators appointed at the date of contract execution.
CGS shall appoint a Site Coordinator, who shall supervise and direct the work of
CGS employees and shall handle all personnel issues. This supervisor will
interface with the IBM Site Coordinator(s) and will be the focal point for all
on-site CGS interaction. This CGS Site Coordinator will be provided at no
additional charge.
The CGS Site Coordinator is expected to attend regularly scheduled technical
meetings and reviews.
The CGS Site Coordinator is expected to review CGS employee contributions on a
regular basis to ensure CGS employees are achieving the quality/productivity
goals as described later in the "Quality Assurance" section. The CGS Site
Coordination will receive reports on a regular basis, detailing call activity
for all CGS employees.
The CGS Site Coordinator is expected to actively assist the IBM Site
Coordination in improving overall HDS services.
1.4 WORK SCHEDULES
The IBM Support Centers provide customer assistance 24 hours per day, 7 days per
week. CGS must be able to fulfill all shift requirements.
Since IBM Support Centers operate on a 24 hours per day, 7 days per week
schedule, employees, including some number of CGS employees, will be required to
work on IBM designated Holidays.
1.5 IBM WORKSTATION SUPPORT LOCATIONS
The following are the current IBM locations where CGS employees are required to
provide telephone assistance to remotely diagnose customer problem/questions and
communicate a correct response:
<PAGE>
1.5.1 ADVANCED WORKSTATION SUPPORT CENTER, CHICAGO
CGS employees will have all necessary skills, knowledge and expertise to provide
support on:
. RISC/6000 Hardware Problem Determination. Provide prompt, quality support for
hardware and usage problems related to the RISC/6OOO operating environment.
Responders require one to two years experience on the RISC/6000 hardware
platform, support experience, strong interpersonal skills, attention for
detail, demonstrated call leadership, ability to follow center procedure,
team player, and potential to qualify as an AIX/UNIX support rep.
. MULTIVENDOR SUPPORT - Provide remote hardware and software support for UNIX
platforms. Responders require two to three years experience as a UNIX
Administrator, knowledge of SUN, IIP, and SOC, ability to apply
administrative knowledge in a variety of environments, attention to detail,
strong interpersonal skills.
. RISC/6000 CUSTOMER CALL SCREENING - Provide hardware and software RISC/6000
and AIX call screening and problem resolution. Responders require two to
three years with RISC/AIX platform as an administrator or equivalent
experience. Strong communication skills, attention to detail, ability to
follow center procedures, customers, orientation, sensitive to escalation
process, and a team player.
. PNID/PARTS NUMBER SERVICE - Provide remote parts number identification
services to IBM customers. Responders require strong organizational and
communication skills, operational knowledge of a PC, be a team player and
customer focused.
1.5.2 DESKTOP SUPPORT CENTER, ATLANTA
Desktop Support Representative
CGS employees will have all necessary skills, knowledge and expertise including
A+ Certification to:
provide assistance on and have a good working knowledge of PC, PS/2 Point of
Sale terminals, and/or associated workstation equipment.
Senior Desktop Support Representative - same as above, plus:
. Provide strong computer skills specific to the product supported.
. Provide strong problem determination skills.
. Capable of training one assisting Desktop representatives.
. Provide excellent customer service techniques.
. Possess excellent oral and written communications skills.
Desktop Support Center Team Leader - This position is imited to one (1) team
leader per twenty-five (25) employees within the Desktop Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time as
describe in the position above, plus:
. Schedule assigned resources to workload and alert IBM when available skills
and/or resources will not satisfy a known engagement.
. Provide overall work direction to a team or technical resources sufficient to
satisfy assigned service level objectives.
. Identify and respond to critical changes within assigned mission (technical,
distribution of workload, etc.) with action plans for IBM review and
implementation.
. Demonstrate ability to serve as escalation point for all critical customer
calls.
System Installation Technician Position Concept: Travel to various customer
locations to install computer systems and disconnect existing equipment.
Responsibilities
. Travel to customer locations based on a provided schedule.
. Unpack hardware systems and install according to procedures. Back up data
from existing system. Load data to new system. Diagnose any system problem
discovered during process. Disconnect existing system. Pack specified items
for return.
. Accurately complete on-line electronic term with the required information for
the new system and the disconnected system.
. Perform customer training on the new system.
. Communicate any problems/discrepancies to Project Manager(s).
. Utilize good judgment when handling any unusual situations.
. Submit accurate labor and expense data on a timely basis.
1.5.3 NETWORK SUPPORT CENTER, ATLANTA
<PAGE>
The Network Support Center is comprised of four groups; LAN SERVICES Support,
IDNX, LAN/WAN Connectivity, and Wireless/Cellular Helpdesk. The LAN Services
environment is separated into three (3) skill requirements: 1. Remote LAN
Monitoring & Administration: 2. LAN Software - level II to perform Network
Operating System (NOS) single product certification required and must be
assigned workload in one of the following: Netware, Microsoft NT, Banyan, OS/2
Lanserver, etc.; and 3. LAN Software - level II multiple NOS product
certification and assigned workload. A Team Leader may be named and is limited
to one (1) per twenty-five (25) employees within the Network Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time. Other
duties are described in the job description.
1.5.4 LAN SERVICES SUPPORT
CGS EMPLOYEES will have all necessary skills, knowledge and expertise to:
. Provide remote support to IBM internal LAN installation in a LAN
Administration support role. Must be able to troubleshoot over the phone all
hardware/software problems associated with IBM Lanserver and OS/2 related
problems. Requires in-depth knowledge of IBM Lanserver and OS/2.
. Provide remote telephone support to customer's to isolate LAN failures to the
failing component. Interface with other IBM resources on LAN related issues
and OEM vendor conference calls as a technical resource for the customer.
. Provide direct dial in support for servers, includes monitoring critical
resources, error and event logs, tuning, down loading software code, backing
up critical files and operating system configurations, adding/deleting users,
resetting passwords, creating print servers, etc.
. Products Supported:
. Servers, file, print, gateway, domain MAU's, LAM's, CAU's connectivity
token ring and ETHERNET topologies, LAN operating systems (OS/2 Lanserver,
NOVELL, etc.), IBM and OEM LAN adapter cards.
. Environments supported:
. Hardware, software, configuration, tuning, multi-vendor product
connectivity.
. Certifications:
. Novell CNE, Banyan, Windows NT, OS/2 Operating system, Netware, LAN
Network Manager etc. Environment will require assigned workload in either
single product or multiple product certified skills.
See Bill Rate Appendix A
1.5.4.1 IDNX SUPPORT CENTER
CGS employees will provide direct support to IBM end users customers, and other
IBM organizations on workstations and remotely diagnosing event and error legs,
to resolve hardware problems with voice and data equipment, working with TELCO
and other equipment supplier vendors identified by IBM. Requires an in-depth
knowledge of multiplexors, data communications devices, and switches.
. Products supported:
. IDNX
. ADNX
. STM
. Environment Supported:
. Wide area high bandwidth, PBX/CBX, Channel banks, echo cancellors, T-1/t-3,
LWX LAN adapter, voice, data, video, image, frame relay, all speeds of data
transmission.
1.5.4.2 LAN/WAN CONNECTIVITY SUPPORT CENTER
CGS will isolate all network failures to a failing component, invoke and
coordinate IBM resources, as required, participate in OEM vendor and TELCO
conference calls as a technical resource for the customer. Interface with
product and software engineering on defects and quality issues.
. Products Supported:
. All IBM communication type products (modems, controllers, adapters, CPU's,
etc.), over 200 in number. OEM communication type products.
. Environment Supported:
. Hardware, software, configuration, TELCO carriers, OEM vendors.
1.5.4.3 WIRELESS/CELLULAR HELPDESK
Wirless/Cellular Helpdesk Representatives
CO's employees will provide support to IBM end user customers that have
contracted for cellular helpdesk services. Strong technical knowledge and/or
experience in the cellular/wireless industry to accurately and quickly perform
problem determination and resolution. Must have thorough knowledge of all PC
Laptops (IBM and OEM). Must be "modem literate" pertaining to all types,
capabilities, and standards, compression and error protocols, and completed
range of asynchronous terminology. Familiar with CDPD for purpose of
installation assistance, trouble-shooting installing some knowledge of TCP/IP
concepts and protocols.
<PAGE>
Senior Wireless/Celluar Helpdesk Representative - same as above, plus:
. In-depth knowledge of all laptops, modem, cellular protocols
. Able to train and assist Cellular/wireless helpdesk representative
. In-depth knowledge of TCP/IP protocols and networks
. Be escalation point for difficult technical problems
1.5.4.4 NETWORK TEAM LEADER
Network Support Center Team Leader - This position is limited to one (1) team
leader per twenty-five (25) employees within the Network Support Center. The
team leader is expected to respond to customer/ce calls 50% of the time as
described in the position above, plus:
. Schedule assigned resources to workload and alert IBM when available skills
and/or resources will not satisfy a known engagement.
. Provide overall work direction to a team of technical resources sufficient to
satisfy assigned service level objectives.
. Identify and respond to critical changes within assigned mission (technical,
distribution of workload, etc.) with action plans for IBM review and
implementation
. Demonstrate ability to serve as escalation point for all critical customer
calls
1.6 EUS CENTER, TAMPA
End User Support (EUS) supports over 250 IBM and non-IBM commercially
available, cross industry, PC software applications and PC hardware products:
this includes DOS, OS/2, and Apple Macintosh operating systems.
EUS also provides support on custom software/hardware. A customer product is an
application developed by an IBM end user or its vendor to meet unique needs.
CGS employees must have the capability to learn and support products that IBM is
or may be supporting and have the ability to learn new custom products which IBM
may elect to support in the future.
Certification inlude Microsoft Certified Professional, 0S/2 Certified
Engineer/Instructor, Microsoft Windows 95 Certification, Certified Novell
Engineer. Additional acceptable certifications require prior written approval of
both IBM Procurement and the IBM Site Coordinator.
1.7 IBM LARGE COMPUTING SUPPORT LOCATION
The following are the current IBM locations where contract employees are
required to provide telephone assistance to remotely diagnose customer
problems/questions and communicate a correct response.
1.7.1 MVS SUPPORT GROUP, ATLANTA
Provide remote systems support to MVS customers worldwide. Requires an in-depth
knowledge of MVS internals, sub-systems, and programs products.
1.8 TRAINING
Training provided by CGS to its employees supporting IBM will fall into one of
three categories - new employee, continuing, of new support.
"New employee" training is a combination of technical and process education. CGS
is responsible for the "new employee" technical education required for CGS
employees prior to being assigned to IBM. This training must ensure that new CGS
employees have sufficient technical knowledge of the supported products to
provide reliable problem determination and usage assistance to customers, and to
provide an efficient interface with the product vendor.
CGS is responsible for providing IBM with a detailed outline of their "new
employees" technical training plan, and the criteria used to certify completion
of the training plan for each employee. All CGS employees are expected to
complete this certification process prior to being assigned to work supporting
IBM. IBM will not be responsible for any charges associated with this training.
CGS employees will be expected to maintain currency on new versions and new
releases of supported products. This training is described as "continuing"
training. Time spent on "continuing" training activities is ongoing for uniform
improvement of technical skills.
"New support" training applies to time spent on education required to provide
new or improved support to customers. IBM will provide for "new support"
training for CGS Site Coordinators. This type of training may occasionally
involve certification tests or exams. IBM will pay all costs associated with the
training of site coordinators (unless special provisions are made in advance).
CGS is expected to provide this training, testing and certification to its
employees and to pay for the cost of the certification tests or exams.
IBM will provide "new employees" process education on specific items which are
considered to be unique to IBM. This education will be conducted once for the
CGS Site Coordinator (or their designated representative). Thereafter, the CGS
Site Coordinator is responsible for the new employee" process education for all
other CGS employees.
<PAGE>
The IBM Site Coordinator shall coordinate all IBM activities in support of the
"new employees" process training.
1.9 TRANSITIONAL TRAINING
In the event of cancellation or at the expiration of this Agreement, CGS agrees
to provide a minimum of fifteen (15) days transitional training to a supplier to
be specified by IBM if other than CGS. Said training shall be conducted by an
adequate number of CGS employees to ensure continuity of service at a competent
level of performance. IBM shall pay for such training at the rates specified in
the Statement of Work for the job descriptions of the employees providing such
training. CGS shall ensure that it continues to meet all performance and quality
requirements specified in the Statement of Work throughout such training period.
1.10 SERVICE LEVEL AGREEMENTS
CGS shall be responsible for customer satisfaction survey results for calls
responded to by CGS employees. On an exception basis only, an appeal process may
apply when root cause analysis has detected a defect in the customer
satisfaction survey beyond CGS's control.
However, the appeal process will only exist if the IBM location has been
successful in removing these defects from the center's customer satisfaction
measurements. The surveys will be conducted under IBM's authorization at random
on a monthily basis. The sample should include a minimum of 3% to 5% of IBM end
users whose problems have been resolved. Customer satisfaction results are a
key indicator of service and will be shared between IBM and CGS Survey Data must
be provided at an agent level. Please refer to exhibits 1 to 6.
1.10.1 BASIC UNDERSTANDING
CGS will provide employees who can meet or exceed a minimum customer
satisfaction level for all sites where it provides servIces to IBM. CGS will
track these levels and replace any employees not meeting the minimum customer
satisfaction level.
1.10.2 MINIMUM CUSTOMER SATISFACTION LEVEL
CGS employees must maintain an average of 95% minimum customer satisfaction
level based on IBM's customer satisfaction survey. The satisfaction level is to
be measured quarterly using a rolling three month average.
1.10.3 QUALITY MEASUREMENTS/REPORTING
IBM will provide the CGS Site Coordinator with reports and/or information
detailing CGS's performance against the quality goals. This information will be
supplied on a weekly and/or monthly basis. The CGS Site Coordinator is
expected to work with the IBM Site Coordinator to ensure attainment of quality
goals.
CGS employees will participate and demonstrate commitment to quality improvement
programs such as IBM Business Management Measurements (BMM) and ISO 9000
assessments/certification.
Specific measurements will be developed by IBM and CGS to gauge performance and
quality requirements. Overall areas measured will include but are not limited
to:
. Qualification of staff
. Adherence to procedures
. Customer satisfaction
. Quality control
. Problem Duration
. Call Response time/Call Abandon Rate
. First Call Resolution
. Minimal Customer Situation Information System (CSIS) incidents (actual
formula to be determined)
1.10.4 RISK/REWARD INCENTIVES
Risk/reward inventive was established and agreed to by both IBM and CGS to
maximize service level agreements.
It is agreed that risk/reward provision for service CGS provides at the IBM
Tampa facility only will not be implemented until technology capable of
supporting intelligent, skill based call routing (updated phone switch) has been
installed, programmed & operational for 30 days. (CGS will provide an estimate
to provide that capability if requested)
Further, it is agreed that risk provisions will be waived for the month in Tampa
facility only where actual call volumes exceed projected call volumes by 15% or
more. CGS is still eligible for any rewards earned. However CGS will not be
subject to risk. This provision will not apply if IBM provides CGS within 45
days, notice of changes to projected volumes.
Exhibit No. 2, Chicago Customer Call Screening:
Measurements must be defined by IBM and CGS by March 31,1997 as agreed to by IBM
and CGS.
Rewards will be paid on a quarterly bases for monthly results.
1.10.5 IBM RESPONSIBILITIES
IBM is responsible for the following:
. Existing Processes and Procedures
. IBM Site Safety, Security and personnel conduct policies
. Hardware/Software/Tools as described below (IBM Business use only) IBM will
provide and maintain ownership of IBM PC's or PS/2'S printers, as well as
<PAGE>
any IBM and OEM software/hardware and all related technical manuals it deems
necessary. Maintenance of the equipment will be performed by IBM.
. Office facilities
. Personal shared workstation and required software
. Access to required systems/tools
. RETAIN
. KBS
. VM
. FUS ON-LINE
. Access to any additional required equipment
. Badge access to assigned location
. Intelligent skill based call routing capability
Note: The supplier shall follow the practices, procedures and priorities of IBM
in the use of IBM equipment, systems, and tools.
1.10.6 CGS Responsibilities
CGS is responsible for the following:
. Answer customer requests in a timely, professional, and accurate manner
. Monitor call quality using a remote call monitoring system
. Ensure operating processes and procedures are accurately followed
. Assist in updating these processes and procedures as
. Updates customer database records
. Ensure skill requirements are met, maintained and updated
. Provide effective management of personnel and workload
. Train any additional personnel required after initial training
. Support and adhere to ISO 9000 registration when complete and all other
quality programs (CGS personnel will talk to ISO 9000 auditors if asked)
. Evaluate work performance and increase or decrease to allow for efficiencies
or increased workload at IBM's approval
. CGS shall supply for IBM's review and approval, transition and implementation
plans to meet targets
. CGS management is expected to have regularly scheduled status meetings and
provide written reports to the IBM Site Coordinator monthly.
. Adhere to IBM Site Safety, Security and personnel conduct policies
. Define process which manages new requirements for IBM
. Monthly Quality updates and action plans
. Perform configuration and setup of hardware and installation of software
packages for the equipment assigned in them
. CGS will be responsible for all IBM assets replace cost covered by CGS for:
Lost, theft & breakage for anything other than normal wear and tear
1.11 GLOSSARY OF TERMS
. "Technical Representative" is a person who is skilled in the use of a product
and is considered to be of an advisory capacity on the product
. "Help Desk" Services (HDS) are a bundle of separate services available
through IBM's Workstation Technical Support organization to provide a
comprehensive array of services that uniquely address a customer's needs in
today's complex mixed vendor computer processing environments.
. "OEM" is the original equipment manufacturer (e.g., Compaq, Apple, etc.),
. "Problem" is a singular request for assistance on a specific product.
Requests for assistance on multiple products, or different problems with the
same product will be considered to be multiple problems. If an initial
answer does not resolve the problem, subsequent calls may be placed under
the original problem number. A problem may involve multiple conversations or
actions, the initial request, off-line research, a callback, and closure.
. "NOS" is a Network Operating System such as OS/2 Lanserver, BANYAN, MICROSOFT
NT., etc.
. "Supported Product" is an eligible software/hardware product which is on a
current Workstation Technical Support supported product list. Supported
implies trained personnel are ready and available to handle calls on the
product
. "Workstation" is a machine of an eligible type and at least one eligible
program listed on the supported
<PAGE>
. "CSIS" (Customer Situation Information System) is IBM's customer complaint
system for tracking, monitoring, and ensuring satisfactory resolution.
. "Entitlement" is the process of ensuring customers are entitled to receive
warranty/maintenance service or helpdesk services from IBM.
. "Retain" Remote Technical Assistance Network) is IBM's world-wide database
storing customer problem records.
. "VM" (Virtual Machine) is the IBM mainframe operating system
. "Trailer Call" is the process used to measure a customer's level of
satisfaction with the way their call was handled.
. "ISO 9000" are internationally recognized industry standards which identify
the requirements for an effective quality management system.
<PAGE>
EXHIBIT 10.9
NOTE: Fill in all blanks before signing. If a particular provision is not
desired or has no applicability, delete the provision or, if it contains
a blank space, insert "N/A" or the words "Not Applicable" in such space.
All deletions should be initialled by the Borrower and the Bank.
- --------------------------------------------------------------------------------
[LOGO]Bank Leumi INSTALLMENT PROMISSORY NOTE
Trust Company of New York
MEMBER FDIC
New York. N.Y.
June 29, 1994
----------------- ---
$ 800,000.00
----------------------
A. GENERAL; TERMS OF PAYMENT
1. FOR VALUE RECEIVED, the undersigned, Computer Generated Solutions, Inc.
------------------------------------
(Exact Name of Borrower)
a Corporation (1) organized under the laws of the State of
- ---------------, -----------------
Delaware (the "Borrower"), hereby promises to pay to the order of BANK
- ---------------
LEUMI TRUST COMPANY OF NEW YORK (the "Bank"), at its office at 535 Seventh
------------------
(Address of Branch Office)
Avenue, New York, N.Y. 10018 the principal sum of Eight Hundred Thousand and
- ---------------------------- ------------------------------
(Write Out Principal Sum)
00/100 Dollars ($ 800,000.00 ):
- ------- --------------
[x] in Thirty-six ( 36 ) consecutive Monthly (2) installments;
-------------- -------------
the first Thirty-five ( 35 ) installments of which shall each be in the
--------------
amount of $ 22,222.22 and the last installment of which shall be in the
---------------
amount of $ 22,223.30 , payable on the last day of each month (3) in
--------------- -------- ---------
each year, commencing July , 1994 ; (or)
-------- ----
[ ] in ( ) installments, to be paid on the dates and in
-------------
the amounts set forth in the following schedule:
Date Principal
Payment Due Amount of Payment
----------- -------------------
The Borrower will pay interest on the unpaid principal amount hereof from time
to time outstanding, computed on the basis of a 360-day year (the charging of
interest on the basis of a 360-day year results in the payment of more interest
than would be required if interest were charged on the basis of the actual
number of days in the year), at a rate per annum which shall be equal to
[ ] % per annum; or
---------
[x] 1 1/4 % per annum above the rate of interest designated by the Bank,
--------
and in effect from time to time, as its "Reference Rate", adjusted
when said Reference Rate changes. (The Borrower acknowledges that the
Reference Rate may not necessarily represent the lowest rate of
interest charged by the Bank to customers.)
The Borrower will pay interest, at the rate described above, monthly on the last
day of each month in each year, commencing June , 19 94 , at maturity
------------- ------
(whether by acceleration or otherwise) and upon the making of any prepayment, as
hereinafter provided. In addition, the Borrower will pay interest on any overdue
installment of principal for the period for which overdue, on demand, at a rate
equal to 3% per annum above the rate of interest hereinabove indicated.
In no event shall interest exceed the maximum legal rate permitted by law.
- -----------------------
(1) Insert the word "corporation" or "partnership," as applicable, or strike the
phrase if Borrower is an individual.
(2) Insert the word "monthly," "quarter-annual" or "semi-annual," as
applicable.
(3) Insert the word "month" if installments are payable monthly or, if the
installments are payable quarterly or semi-annually, the names of the
months in each quarter or 6-month period in which payable.
Form No. 640 (R10/86)
<PAGE>
2. All Property (as hereinafter defined) held by the Bank shall be subject to
a security interest in favor of the Bank as security for any and all Liabilities
(as hereinafter defined). The term "Property" shall mean the balance of every
deposit account of the Borrower with the Bank or any of the Bank's nominees or
agents and all other obligations of the Bank or any of its nominees or agents to
the Borrower, whether now existing or hereafter arising, and all other personal
property of the Borrower (including without limitation all money, accounts,
general intangibles, goods, instruments, documents and chattel paper) which, or
evidence of which, are now or at any time in the future shall come into the
possession or under the control of or be in transit to the Bank or any of its
nominees or agents for any purpose, whether or not accepted for the purposes for
which it was delivered. The term "Liabilities" shall mean the indebtedness
evidenced by this Note and all other indebtedness, liabilities and obligations
of any kind of the Borrower (or any partnership or other group of which the
Borrower is a member) to (a) the Bank, (b) any group of which the Bank is a
member, or (c) any other person if the Bank has a participation or other
interest in such indebtedness, liabilities or obligations, whether (i) for the
Bank's own account or as agent for others, (ii) acquired directly or indirectly
by the bank from the Borrower or others, (iii) absolute or contingent, joint or
several, secured or unsecured, liquidated or unliquidated, due or not due,
contractual or tortious, now existing or hereafter arising, or (iv) incurred by
the Borrower as principal, surety, endorser, guarantor or otherwise, and
including without limitation all expenses, including attorneys' fees, incurred
by the Bank in connection with any such indebtedness, liabilities or obligations
or any of the Property (including any sale or other disposition of the
Property).
3. Prepayment. The Borrower shall have the right to prepay this Note in whole
at any time or in part from time to time (but if in part, in the principal
amount of $5,000.00 or any whole multiple thereof), in each case upon not less
than 10 days prior written notice to the Bank, without penalty or premium,
provided that on each prepayment the Borrower shall pay accrued interest on the
principal amount so prepaid to the date of such prepayment, and each partial
prepayment shall be applied to the installments of this Note in the inverse
order of their stated maturities.
4. Manner of Payment. All payments by the Borrower on account of principal,
interest or fees hereunder shall be made in lawful money of the United States of
America, in immediately available funds. The Borrower authorizes (but shall not
require) the Bank to debit any account maintained by the Borrower with the Bank,
at any date on which a payment is due under this Note, in an amount equal to any
unpaid portion of such payment. If any payment of principal or interest becomes
due on a day on which the Bank is closed (as required or permitted by law or
otherwise), such payment shall be made not later than the next succeeding
business day, and such extension shall be included in computing interest in
connection with such payment.
B. EVENTS OF DEFAULT: REMEDIES
If any of the following events shall occur and be continuing:
1. the Borrower shall fail to make any payment of principal of or interest on
this Note, or any fee provided for herein, when due;
2. the Borrower shall default in the performance or observance of any
covenant or agreement contained herein;
3. an event of default or default shall occur and be continuing under any
other agreement, document or instrument executed and delivered to the Bank by
the Borrower or any guarantor or hypothecator relating to any Liabilities;
4. any representation or warranty made by or on behalf of the Borrower in
this Note or in any other certificate, agreement, instrument or statement
delivered to the Bank by or on behalf of the Borrower shall at any time prove to
have been incorrect when made in any material respect;
5. the Borrower or any Subsidiary (as hereinafter defined) shall default in
the payment of principal of or interest on any indebtedness for borrowed money
(including any such indebtedness in the nature of a lease) or shall default in
the performance or observance of the terms of any instrument pursuant to which
such indebtedness was created or is secured, the effect of which default is to
cause or permit any holder of any such indebtedness to cause the same to become
due prior to its stated maturity (and whether or not such default is waived by
the holder thereof);
6. any change in the condition or affairs (financial or otherwise) of the
Borrower or any Subsidiary shall occur which, in the opinion of the Bank,
increases its risk with respect to the loan evidenced by this Note or impairs
any security therefor;
7. any judgment against the Borrower or any Subsidiary or any attachment,
levy or execution against any of their properties for any amount shall remain
unpaid, or shall not be released, discharged, dismissed, stayed or fully bonded
for a period of thirty (30) days or more after its entry, issue or levy, as the
case may be;
8. the Borrower or any Subsidiary shall become insolvent (however evidenced)
or be unable, or admit in writing its inability, to pay its debts as they
mature; or
9. the Borrower or any Subsidiary shall make an assignment for the benefit of
creditors, or a trustee, receiver or liquidator shall be appointed for the
Borrower or any Subsidiary or for any of their property, or the commencement of
any proceedings by the Borrower or any Subsidiary under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute (including, if the
Borrower is a partnership, its dissolution pursuant to any agreement or
statute), or the commencement of any such proceedings without the consent of the
Borrower or any Subsidiary and such proceedings shall continue undischarged for
a period of 30 days, or the death of the Borrower (if an individual) or any
member of the Borrower (if a partnership) [or]
<PAGE>
10. [Other] (4) - Philip Friedman shall not at all times be active
in the management of the borrower.
then and in any such events the Bank may declare the entire unpaid principal
amount of this Note and all interest and fees accrued and unpaid hereon to be
forthwith due and payable, whereupon the same shall become and be forthwith due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower. The balance of every account
of the Borrower with, and each claim of the Borrower against, the Bank existing
from time to time shall be subject to a lien and subject to be set off against
any and all Liabilities, including those hereunder.
For purposes of this Note, the term "Subsidiary" shall mean and include any
corporation of which more than 50% of the outstanding shares of capital stock
having ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time capital stock of
any other class or classes of such corporation shall or might have voting power
upon the occurrence of any contingency) is at the time, directly or indirectly,
owned by the Borrower or by one or more other Subsidiaries.
C. MISCELLANEOUS
1. Covenants. So long as this Note shall remain outstanding, the Borrower
agrees to (a) furnish to the Bank within 90 days after the end of each fiscal
year of the Borrower, financial statements (including a balance sheet and an
operating statement), prepared and certified by independent accountants
acceptable to the Bank, and within 45 days after the end of each fiscal quarter
of the Borrower, unaudited quarterly financial statements (including a balance
sheet and an operating statement), (b) furnish to the Bank, with reasonable
promptness, such other information concerning the business, operations,
properties and condition, financial or otherwise, of the Borrower as the Bank
may reasonably request from time to time, and (c) at any reasonable time and
from time to time, permitted Bank or any of its agents or representatives to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers, directors or independent accountants.
2. No Waiver; Remedies Cumulative. No failure on the part of the Bank to
exercise, and no delay in exercising any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Bank of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
3. Costs and Expenses. The Borrower shall reimburse the Bank for all costs
and shall pay the pay the reasonable fees and disbursements of counsel to the
Bank in connection with enforcement of the Bank's rights hereunder. The Borrower
shall also pay any and all taxes (other than taxes on or measured by net income
of the holder of this Note) incurred ar payable in connection with the execution
and delivery of this Note.
4. Amendments. No amendment, modification or waiver of any provision of
this Note nor consent to any departure by the Borrower therefrom shall be
effective unless the same shall be in writing and signed by the Bank and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
5. Construction. This Note shall be deemed to be a contract made under the
laws of the State of New York and shall be construed in accordance with the laws
of said State.
6. Successors and Assigns. This Note shall be binding upon the Borrower and
its heirs, legal representatives, successors and assigns and the terms hereof
shall inure to the benefit of the Bank and its successors and assigns, including
subsequent holders hereof.
7. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
- -----------------------
(4) Insert the word "None" if no additional events of default are to be
included in this Note.
<PAGE>
8. Jurisdiction; Waiver of Jury Trial. The Borrower hereby irrevocably
consents to the jurisdiction of any New York State or Federal court located in
New York City over any action or proceeding arising out of any dispute between
the Borrower and the Bank and the Borrower further irrevocably consents to the
service of process in any such action or proceeding by the mailing of a copy of
such process to the Borrower at the address set forth below. In the event of
litigation between the Borrower and the Bank over any matter connected with
this Note or resulting from transactions hereunder, the right to a trial by
jury is hereby waived by the Borrower and the Bank.
D. ADDITIONAL PROVISIONS (5)
So long as the Note shall remain outstanding, and unless the Bank shall
otherwise consent in writing, the Borrower will not:
1) Tangible Net Worth
------------------
Permit Tangible Net Worth of the Borrower, plus Subordinated Debt to be
less than $1,400,000.00 at 12/31/94 and anytime thereafter. "Tangible Net
Worth" shall mean the excess of the total assets of the Borrower over its
Total Liabilities, excluding, however, from the determination of total
assets, all assets which would be classified as intangible under generally
accepted accounting principles, including, without limitation, patents,
trademarks, trade names, copyrights, franchises, deferred charges and
goodwill, and any writeup of the book value of assets since 12/31/93.
"Subordinated Debt" shall mean debt subordinated to the Bank only.
2) Working Capital
---------------
Permit the Working Capital of the Borrower at any time to be less than
$1,200,000.00. "Working Capital" shall mean the excess of Current Assets
over Current Liabilities of the Borrower, both determined in accordance
with generally accepted accounting principle.
3) Ratio of Liabilities to Net Worth plus Subordinated Debt
--------------------------------------------------------
Permit the Total Liabilities of the Borrower less at Subordinated Debt at
any time to be greater than (375%) of the Tangible Net Worth of the
Borrower plus Subordinated Debt. "Total Liabilities" shall mean all items
of liability, indebtedness and obligation of the of Borrower which would,
in accordance with generally accepted accounting principals, be classified
as liabilities on the balance sheet of the Borrower.
Computer Generated Solutions, Inc.
---------------------------------------------
(Name of Borrower)
By: /s/ Philip Friedman
-----------------------------------------
Philip Friedman, President (Title)
By:
-----------------------------------------
(Title)
1250 Broadway, New York, N.Y. 10001
---------------------------------------------
(Address of Borrower)
[Corporate Seal]
- -----------------------
(5) Insert the word "None" if no additional provisions are to be included in
this Note.
<PAGE>
FIRST AMENDMENT TO INSTALLMENT PROMISSORY NOTE
----------------------------------------------
AGREEMENT, made as of the 13 day of July 1995 between BANK LEUMI TRUST COMPANY
OF NEW YORK, a New York banking corporation, having an office at 562 Fifth
Avenue, New York, New York 10036 ( "Bank" ) and COMPUTER GENERATED SOLUTIONS,
INC., a Delaware corporation , having an office at 535 Seventh Avenue, New
York, New York 10018 (" Borrower") .
W I T N E S S E T H:
WHEREAS:
(a) Borrower executed an Installment Promissory Note in favor of the Bank
dated June 29, 1994, in the original principal amount of $800,000 ("Note");
(b) For good and valuable consideration, the Bank and the Borrower desire to
modify the Tangible Net Worth covenant in the Note as hereinafter set forth.
NOW, THEREFORE, the parties hereto intending to be legally bound and in
consideration of the mutual covenants and conditions herein contained, hereby
agree as follows:
(1) The first sentence of section D(1) of the Note is hereby deleted and
replaced with the following, "Permit Tangible Net Worth of the Borrower, plus
Subordinated Debt, to be less than $1,400,000 at December 31, 1994, $1,600,000
at December 31, 1995 and any time thereafter."
(2) The Note, as modified hereby, shall continue to be secured by an all
asset lien on assets of the Borrower and the Limited Guaranty of Philip
Friedman.
(3) Except as herein set forth, the terms and conditions of the Note, and
all other documents and instruments in connection therewith shall remain
unmodified and in full force and effect. The Borrower certifies that no offsets
or defenses exist in connection with the Note, as modified hereby. This
Agreement will be binding upon the Borrower and its successors and assigns and
the terms hereof shall inure to the benefit of the Bank and its successors and
assigns.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Agreement the
day and year first above written
BANK LEUMI TRUST COMPANY OF NEW YORK
By: /s/
_____________________________________
(Title)
By:______________________________________
(Title)
COMPUTER GENERATED SOLUTIONS, INC.
By: /s/ PRESIDENT
_____________________________________
(Title)
By: _____________________________________
(Title)
-2-
<PAGE>
SECOND AMENDMENT TO INSTALLMENT PROMISSORY NOTE
-----------------------------------------------
AGREEMENT, made as of the as of the 21 day of December 1995 between BANK
LEUMI TRUST COMPANY OF NEW YORK, a New York banking corporation, having an
office at 562 Fifth Avenue, New York, New York 10036 ("Bank") and COMPUTER
GENERATED SOLUTIONS, INC., a Delaware corporation having an office at 1675
Broadway, New York, New York 10019 ("Borrower").
W I T N E S S E T H:
WHEREAS:
(a) Borrower executed an Installment Promissory Note in favor of the Bank
dated June 29, 1994, in the original principal amount of S800,000 ("Note");
(b) Borrower executed a First Amendment to the Note on July 13, 1995. The
Note as modified is hereinafter referred to as the Amended Note.
(c) For good and valuable consideration, the Bank and the Borrower desire to
modify the Amended Note as hereinafter set forth.
NOW, THEREFORE, the parties hereto intending to be legally bound, and in
consideration of the mutual covenants and conditions herein contained, hereby
agree as follows:
(1) The first sentence of section D(1) of the Amended Note is hereby deleted
and replaced with the following: "Permit Tangible Net worth of the Borrower,
plus Subordinated Debt, to be less than $1,400,00o at December 31, 1994 and
$2,500,000 at December 31, 1995 or any time thereafter."
(2) The first sentence of section D(2) of the Amended Note is hereby deleted
and replaced with the following: "Permit the Working Capital of the Borrower to
be less than $1,200,000 any time prior to December 31, 1995, $1,600, 000 at
December 31, 1995, $2,000,000 at June 30, 1996 or any time thereafter."
(3) The first sentence of section D(3) of the Amended Note is hereby deleted
and replaced with the following: "Permit the Total Liabilities of the Borrower
less Subordinated Debt to be greater than 375% of the Tangible Net Worth of the
Borrower plus Subordinated Debt
<PAGE>
at any time prior to December 31, 1995 and 300% at December 31, 1995 or any time
thereafter."
(4) The Amended Note, as modified hereby, shall continue to be secured by a
lien on all assets of the Borrower and the Limited Guaranty of Philip Friedman.
(5) Except as herein set forth, the terms and conditions of the Amended Note,
and all other documents and instruments in connection therewith shall remain
unmodified and in full force and effect. The Borrower certifies that no offsets
or defenses exist in connection with the Amended Note, as modified hereby. This
Agreement will be binding upon the Borrower and its successors and assigns and
the terms hereof shall inure to the benefit of the Bank and its successors and
assigns.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Agreement the
day and year first above written.
BANK LEUMI TRUST COMPANY OF NEW YORK
By: /s/
____________________________________
(Title)
By:____________________________________
(Title)
COMPUTER GENERATED SOLUTIONS, INC.
By: /s/ PRESIDENT
------------------------------------
(Title)
By:____________________________________
(Title)
-2-
<PAGE>
EXHIBIT 10.10
S CORPORATION TERMINATION AGREEMENT
This S CORPORATION TERMINATION AGREEMENT (the "Agreement") dated March
__, 1997 among Computer Generated Solutions, Inc., a Delaware corporation (the
"Company"), and Philip Friedman and Victor Friedman (individually a
"Stockholder" and collectively the "Stockholders").
WHEREAS, the Company contemplates offering its stock to the public
pursuant to a Registration Statement on Form S-1 filed with the Securities and
Exchange Commission (the "Public Offering");
WHEREAS, the Company plans to distribute a dividend to the
Stockholders subsequent to the completion of such Public Offering, in an
aggregate amount equal to the Company's undistributed Accumulated Adjustments
Account ("AAA"), as defined in Section 1368(e) of the Internal Revenue Code of
1986, as amended (the "Code"), as of the Termination Date (as hereinafter
defined);
WHEREAS, the Company has been an S corporation since incorporation and
will continue to be an S corporation until the Termination Date, upon which it
will be a C corporation;
WHEREAS, Real Time Technology, Inc. ("RTT") was an S corporation at
the time of its acquisition by the Company on October 1, 1994;
WHEREAS, the Company and the Stockholders wish to enter into an
agreement to apply (and elect) the method provided in Code Section 1362(e)(3) to
allocate the Company's income during its S Termination Year (as hereinafter
defined) between the S Short Year (as hereinafter defined) and the C Short Year
(as hereinafter defined); and
WHEREAS, the Company and the Stockholders wish to provide for a tax
allocation and indemnification agreement in connection with the Company's
termination as an S corporation;
NOW, THEREFORE, the parties agree as follows:
<PAGE>
1. THE TERMINATION
---------------
(a) Termination of S Status. The Stockholders agree to terminate the
------------------------
S corporation status of the Company by revoking the S corporation election
pursuant to Code Section 1362(d)(1), effective on the day preceding the closing
of the sale of shares of the Company's common stock under the Public Offering
(the "Termination Date").
(b) S Termination Year. The calendar year 1996 will be the Company's
-------------------
S Termination Year for federal income tax purposes, as defined in Section
1362(e)(4) of the Code. Pursuant to Section 1362(e)(1) of the Code, the S
Termination Year of the Company shall be divided into two short taxable years:
an S Short Year and a C Short Year. As defined in Section 1362(e)(1)(A) of the
Code, the S Short Year shall be that portion of the Company's S Termination Year
ending on the day immediately preceding the Termination Date, and pursuant to
Section 1362(e)(1)(B) of the Code, the C Short Year shall be that portion of the
Company's S Termination Year beginning on the Termination Date and ending on the
last day of the calendar year. For federal income tax purposes, the Company
will be treated as an S corporation during its S Short Year and as a C
corporation during its C Short Year.
2. ELECTION TO ALLOCATE INCOME
---------------------------
(a) Allocation Election. The Company shall elect, and the
--------------------
Stockholders shall consent, pursuant to Section 1362(e)(3) of the Code, to
allocate tax items to its S Short Year and C Short Year pursuant to normal tax
accounting rules (the "closing of the books method") rather than by the pro rata
allocation method contained in Section 1362(e)(2) of the Code. Pursuant to the
attached resolution, the Company shall make the election and the Stockholders,
as the only Stockholders of the Company on the first day of its C Short Year,
shall sign the requisite consents to said election on the Termination Date.
3. DISTRIBUTIONS
-------------
(a) Distribution of Accumulated Adjustments Account. Immediately
------------------------------------------------
after the closing of the Public Offering, the Company shall distribute to the
Stockholders the sum of $4,750,000 ("Estimated AAA"), in proportion to the
percentages in which they own the common stock of the Company as of the
Termination Date. Any distributions provided for in the preceding sentences
shall be subject to the limitations set
2
<PAGE>
forth in Section 170 of the Delaware General Corporation Law.
(b) Post Termination Date Adjustment. Within forty-five (45) days
---------------------------------
after the Termination Date, the Company shall calculate the actual balance of
the AAA as of the day immediately prior to the Termination Date ("Actual AAA").
If the Actual AAA is greater than the Estimated AAA, the Company shall make an
additional distribution to the Stockholders, or if the Actual AAA is less than
the Estimated AAA, the Stockholders shall make a contribution to the Company, in
proportion to the percentages in which they own the common stock of the Company
as of the Termination Date, in an amount equal to such excess or shortfall. The
Company or the Stockholders, as the case may be, shall also pay interest on the
amount of such distribution or contribution, from the closing under the Public
Offering to the date of the distribution or contribution, at the rate which The
Bank of New York announces from time to time as its prime lending rate, as in
effect from time to time, compounded annually. Any such additional distribution
and interest shall be due and payable by the Company within three (3) business
days of the determination of the Actual AAA, and any such contribution and
interest shall be due and payable by each Stockholder within three (3) business
days after receipt by such Stockholder of a written notice from the Company
showing the amount of the Actual AAA and the amounts of the contribution and
interest payable by such Shareholder.
(c) Filing of Tax Return. The Company shall file the federal income
---------------------
tax return of the Company for the S Termination Year and such return shall
reflect the Actual AAA and the distributions made pursuant to this Section 3.
4. INDEMNIFICATION
---------------
(a) Indemnification by Stockholders. The Stockholders jointly and
--------------------------------
severally hereby indemnify and agree to hold the Company harmless from, against
and in respect of (i) any increase in federal, state and local income tax
liability (including interest and penalties, if any), incurred by the Company
(after taking into account any federal tax savings realized by the Company as a
result of an increase in state or local taxes), resulting from a final
determination (whether by judicial decision, administrative settlement, closing
agreement or otherwise) of an adjustment (in connection with an amended return,
claim for refund, audit or otherwise) which has the effect of decreasing the S
Corporation Taxable Income (as hereinafter defined) of such Stockholder and
correspondingly increasing the taxable
3
<PAGE>
income of the Company for a period ending after the Termination Date, or (ii)
any federal and New York State income tax liability (including interest and
penalties, if any) resulting from a final determination (whether by judicial
decision, administrative settlement, closing agreement or otherwise) that the
Company failed to qualify as an S Corporation for federal and New York State
income tax purposes for any year or years ending on or prior to December 31,
1995 or for the S Short Year; provided, however, that the amount of a payment
made by a Stockholder pursuant to clause (i) of this Section 4(a) shall not
exceed the amount of such Stockholder's S Corporation Taxable Income that was
shifted to a C corporation taxable year of the Company less the amount of
federal, state and local taxes paid (and not refunded) by such Stockholder with
respect thereto. "S Corporation Taxable Income" of a Stockholder shall mean such
Stockholder's allocable share of taxable income of the Company (or RTT) from all
sources for all periods in which it and RTT qualified as an S Corporation for
federal income tax purposes through and including the close of business on the
last day of the S Short Year of the Company.
(b) Indemnification by Company. The Company hereby indemnifies and
---------------------------
agrees to hold each of the Stockholders harmless from, against and in respect of
any federal, state and local income tax liability (including interest and
penalties, if any), incurred by each such Stockholder resulting from a final
determination (whether by judicial decision, administrative settlement, closing
agreement or otherwise) of an adjustment (in connection with an amended return,
claim for refund, audit or otherwise) which has the effect of decreasing the
Company's taxable income for a period ending after the Termination Date and
correspondingly increasing the S Corporation Taxable Income of such Stockholder;
provided, however, that for purposes of this Section 4(b), the tax liability of
a Stockholder resulting from an adjustment described herein shall be calculated
without regard to any tax benefit such Stockholder may realize from an increase
in the basis of his common stock that results from such adjustment. Any payment
to a Stockholder pursuant to this Section 4(b) made more than one year after the
S Termination Date shall be increased by the amount of all federal, state and
local income taxes incurred by such Stockholder with respect to such payment (as
increased pursuant to this sentence).
(c) Payments. The Stockholders or the Company, as the case may be,
---------
shall make any payment required under this Agreement within thirty (30) days
after receipt of
4
<PAGE>
notice from the other party that a payment is due by such party to the
appropriate taxing authority.
(d) Subrogation. The party (or parties) providing the indemnity under
-----------
either Section 4(a) or 4(b) (defined solely for purposes of this Section 4(d) as
the "Indemnifying Party") shall be subrogated to all rights to recovery (the
"Subrogation Claims") that the party (or parties) being indemnified under
Section 4(a) or 4(b), respectively (defined solely for purposes of this Section
4(d) as the "Indemnified Party"), may have against any person or organization in
respect of the tax liabilities for which the Indemnifying Party is providing
indemnity. Such right of subrogation shall not exceed the amount paid by the
Indemnifying Party to the Indemnified Party. The Indemnified Party shall
execute and deliver instruments and papers and do whatever else is reasonably
necessary to secure such rights of subrogation for the Indemnifying Party. The
Indemnified Party shall provide all reasonable assistance as requested by the
Indemnifying Party in order for the Indemnifying Party to pursue the Subrogation
Claims. The Indemnified Party shall do nothing after any Subrogation Claim
arises to prejudice the rights of the Indemnifying Party.
5. MISCELLANEOUS
-------------
(a) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of New York (excluding its choice of law rules).
(b) Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or mailed by certified mail, return receipt requested,
addressed to the addresses as shall be furnished in writing by either party in
like manner. Any such notice or communication shall be deemed to have been
given as of the date delivered in person or mailed.
(c) Assignment. This Agreement may not be assigned by any of the
----------
parties hereto without the prior written consent of the other parties. This
Agreement shall be binding upon, and inure to the benefit of, the parties
hereto, their heirs, legal representatives, successors and permitted assigns.
(d) Entire Agreement. This Agreement supersedes all prior agreements
----------------
and understandings between the parties hereto with respect to the subject matter
contained herein. It shall constitute the entire agreement between the parties
5
<PAGE>
with respect to such subject matter and may not be modified or terminated
orally. No modification, termination, or attempted waiver shall be valid unless
in writing signed by the party against whom the same is sought to be enforced.
(e) Severability. The invalidity or unenforceability of any provision
------------
hereof shall not in any way affect the validity or enforceability of any other
provision.
(f) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.
(g) Construction of Terms. Nothing herein expressed or implied is
---------------------
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
(h) Headings. The headings contained in this Agreement are solely for
--------
the purposes of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPUTER GENERATED SOLUTIONS,
INC.
By:
-------------------------
Fred B. Schlossberg
Vice President, Finance &
Administration
STOCKHOLDERS:
- ------------------------------------ -------------------------------
Philip Friedman Victor Friedman
6
<PAGE>
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
-------------------------
AGREEMENT dated as of February , 1997 by and among Computer
Generated Solutions, Inc., a Delaware corporation (the "Company"), and Philip
Friedman and Victor Friedman (collectively, the "Selling Stockholders").
WHEREAS, the Company has filed a registration statement (Registration
Number 333-09297) on Form S-1, as amended (the "Registration Statement"), under
the Securities Act of 1933, as amended (the "Securities Act"); and
WHEREAS, the Selling Stockholders are selling certain shares of the
Company's common stock (the "Common Stock") pursuant to such Registration
Statement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
1. Definitions.
------------
(a) As used herein, the term "Underwriting Agreement" shall mean the
Underwriting Agreement to be entered into among the parties to this Agreement
and Oppenheimer & Co., Inc. and Furman Selz LLC, as representatives of the
several underwriters to be identified therein pertaining to the Registration
Statement.
(b) As used herein, all other capitalized terms, unless the context
otherwise requires, shall have the meaning set forth in the Underwriting
Agreement.
2. Indemnification
---------------
(a) The Company hereby agrees to indemnify and holds harmless, to the
fullest extent permitted by law, the Selling Stockholders from and against any
and all losses, claims, damages and liabilities (including, without limitation,
the legal fees and other expenses reasonably incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
<PAGE>
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Selling Stockholder furnished to the Company in writing by such
Selling Stockholder, expressly for use therein.
(b) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Selling Stockholder in respect of which indemnity may be sought pursuant to
the preceding paragraph (a), such Selling Stockholder (the "Indemnified Person")
------------------
shall promptly notify the Company (the "Indemnifying Person") in writing, and
-------------------
such Indemnifying Person, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may designate in such
proceeding and shall pay the reasonable fees and expenses incurred by such
counsel related to such proceeding. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Person unless (i)
such Indemnifying Person and such Indemnified Person shall have mutually agreed
to the contrary, (ii) such Indemnifying Person has failed within a reasonable
time to retain counsel reasonably satisfactory to such Indemnified Person or
(iii) the named parties in any such proceeding (including any impleaded parties)
include an Indemnifying Person and an Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that an
Indemnifying Person shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed as
they are incurred. Any such separate firm for the Selling Stockholders shall be
designated in writing by the Selling Stockholders. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, such Indemnifying Person agrees to indemnify each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the preceding sentence, if at any time
an Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for fees and expenses incurred by counsel as contemplated
by the third sentence of this paragraph, such Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding
2
<PAGE>
effected without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such Indemnifying Person of the aforesaid request
and (ii) such Indemnifying Person shall not have reimbursed the Indemnified
Person in accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding.
(c) If the indemnification provided for hereunder is unavailable to an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to herein, then the Indemnifying Person, in lieu of indemnifying such
Indemnified Person hereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, and the Selling Stockholders,
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 the Company, on the one
hand, and the Selling Stockholders, 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. The
relative benefits received by the Company, on the one hand, and the Selling
Stockholders, on the other hand, shall be deemed to be in the same respective
proportion as the net proceeds from the offering (before deducting expenses)
received by the Company and such Selling Stockholder, in each case as set forth
in the table on the cover of the Prospectus, bear to the aggregate public
offering price of the Shares. The relative fault of the Company, on the one
hand, and the Selling Stockholders, on the other hand, 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 Stockholders and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
3
<PAGE>
(d) Each of the Company and the Selling Stockholders agrees that it
would not be just and equitable if contribution pursuant to this Section 2 were
determined by pro rata allocation (even if the Company on the one hand, and the
--- ----
Selling Stockholders, on the other hand, were each treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 2, in no event shall a Selling
Stockholder be required to contribute any amount in excess of the amount by
which the net proceeds received by it through the sale of its Shares to the
Underwriters exceeds the amount of any damages that such Selling Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The remedies provided for hereunder are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
4. Confirmation of Shares to be Sold. Each Selling Stockholder agrees that the
---------------------------------
disclosure contained under "Principal and Selling Stockholders" in the Company's
Preliminary Prospectus dated February 14, 1997, correctly sets forth the number
of shares of Common Stock that such Selling Stockholder has agreed to sell.
5. Miscellaneous.
--------------
(a) The indemnification and contribution agreements of the Company
and the Selling Stockholders in this Agreement shall remain in full force and
effect regardless of (i) any termination of the Underwriting Agreement, (ii) any
investigation made by or on behalf of the Company, any Selling Stockholders, any
Underwriter or any controlling person, and (iii) delivery of and payment for the
Shares under the Underwriting Agreement.
4
<PAGE>
(b) Changes in or additions to this Agreement may be made, and
compliance with any provision of this Agreement may be omitted or waived, only
by a written instrument executed by the parties hereto.
(c) No failure or delay in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
(d) The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
(e) Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
(f) This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all previous agreements,
negotiations, commitments and writings in respect of such subject matter.
(g) This Agreement shall be binding upon and inure to each of the
parties hereto and its respective successors and permitted assigns.
(h) This Agreement shall be governed by the law of the State of New
York, United States of America, without regard to its principles of conflict of
laws.
(i) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
COMPUTER GENERATED SOLUTIONS, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
----------------------------------
Philip Friedman
----------------------------------
Victor Friedman
6
<PAGE>
EXHIBIT 16.1
To: Securities and Exchange Commission
We audited the financial statements of Computer Generated Solutions, Inc.
(the "Company") at December 31, 1994, and for the year then ended. In this
regard, we agree with the statements made by the Company in the Company's
Registration Statement on Form S-1 dated the date hereof under the caption
"Change of Auditors."
BDO Seidman, LLP
New York, NY
March 3, 1997
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Computer Generated Solutions, Inc.
New York, New York
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Information" and to the use of our reports dated January
30, 1997 (except for paragraph 8 of Note 12, as to which the date is February
28, 1997), in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-
09297) and related Prospectus of Computer Generated Solutions, Inc. for the
registration of shares of its common stock.
Ernst & Young LLP
New York, New York
March 3, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Computer Generated Solutions, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 21, 1995, relating to the
financial statements of Computer Generated Solutions, Inc. which is contained
in that Prospectus.
We also consent to the reference to us under the captions "Selected
Financial Information" and "Experts" in the Prospectus.
BDO Seidman, LLP
New York, New York
March 3, 1997
