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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-23195
TIER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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California 94-3145844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 Treat Boulevard, Suite 250
Walnut Creek, California 94596
(925) 937-3950
(Address of principal executive offices and registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class B Common
Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $78,036,091 on December 3, 1999 based on the last
reported sale price of the registrant's Class B Common Stock on the Nasdaq
National Market on such date. As of December 3, 1999, the number of shares
outstanding of the registrant's Class A Common Stock was 1,639,762 and the
number of shares outstanding of the registrant's Class B Common Stock was
10,845,173.
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended September
30, 1999. Portions of such proxy statement are incorporated by reference into
Part III of this report.
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TIER TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS
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PART I Page
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Item 1. Business...................................................... 3
Item 2. Properties.................................................... 11
Item 3. Legal Proceedings............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders........... 11
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PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 12
Item 6. Selected Financial Data....................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 28
Item 8. Financial Statements and Supplementary Data................... 29
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure...................................... 29
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PART III
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Item 10. Directors and Executive Officers of the Registrant............ 30
Item 11. Executive Compensation........................................ 30
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 30
Item 13. Certain Relationships and Related Transactions................ 30
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K........................................................... 30
SIGNATURES
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Private Securities Litigation Reform Act Safe Harbor Statement
Certain statements contained in this report, including statements regarding
the development of the Company's services, markets and future demand for the
Company's services, and other statements regarding matters that are not
historical facts, are forward-looking statements (as defined in the Private
Securities Litigation Reform Act of 1995). When used in this report, the words
"believes", "expects", "anticipates", "intends", "estimates", "shows", "will
likely" and similar expressions are intended to identify such forward-looking
statements. Such forward-looking statements include risks and uncertainties;
consequently, actual results may differ materially from those expressed or
implied thereby. Factors that could cause actual results to differ materially
include, but are not limited to, those factors listed in the "Factors That May
Affect Future Results" section, as set forth beginning on page 22 of this
report. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements or factors to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated
events.
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PART I
Item 1. Business
General
Tier Technologies, Inc. ("Tier" or the "Company") provides information
technology ("IT") consulting, application development, software engineering,
training and business process outsourcing services that facilitate the
transformation of clients' enterprise-wide legacy systems and applications to
leading edge technologies. Tier provides IT migration solutions by applying
the Tier Migration SolutionSM, a methodology by which the Company evaluates or
"scores" the efficacy of a client's existing imbedded IT capital against its
business goals. Tier has branded its Migration Solution around such themes as:
"How do you fix the machine without turning it off?"SM and "Taking the risk
out of change."SM Through offices located in the United States, Australia and
the United Kingdom, the Company works closely with its Fortune 1000,
government and other clients to determine, evaluate and implement an IT
strategy that allows it to rapidly adopt, deploy and transfer emerging
technologies while preserving viable elements of the client's legacy systems.
Tier combines significant understanding of enterprise-wide IT systems with
expertise in vertical industries such as healthcare, financial services and
government services to provide clients with rapid and flexible migration
solutions. By helping clients maintain their core IT systems, Tier believes
that it provides high value, cost-effective, flexible solutions that minimize
the risks associated with migration to new technologies.
Tier was incorporated in the State of California in 1991. From December 1996
through September 30, 1999, the Company made twelve acquisitions for a total
purchase price of approximately $26.7 million in cash and shares of Class B
Common Stock, excluding future contingent payments. The Company also incurred
$1.8 million in compensation charges related to business combinations
resulting from these acquisitions. These acquisitions helped the Company to
expand its operations in the United States, to establish its operations in
Australia and the United Kingdom, to broaden the Company's client base,
service offerings and technical expertise and to supplement its human
resources. See Note 8 to Notes to Consolidated Financial Statements.
Background
Today, large corporations and government agencies often face a number of
challenges, including a rapidly changing operating environment, intense
competitive pressures and accelerating technological change. To adapt to
change and remain competitive, these organizations have sought to harness
their intellectual and informational capital by investing in advanced IT
systems. As these organizations have become increasingly dependent on more
complex IT systems, their ability to integrate advanced technologies in a
rapid, reliable and cost-effective manner has become critical to their
success.
The migration of enterprise-wide IT systems, which is the process of
incrementally supplementing and replacing legacy IT system components to
integrate advanced technologies, has become a key competitive strategy. This
process enables an organization to preserve the imbedded capital in its
installed base of IT systems, to obtain the benefits of technological
innovations and to mitigate some of the risks, costs and delays inherent in
full system replacements. Migration provides organizations with an important
alternative to the traditional limits of a "buy versus build" analysis.
Several forces are driving the increased use of rapid migration strategies. As
a result of the increasing pace of technological change along with rapid
changes in competitive and business environments, the useful lives of new
technologies have tended to shorten dramatically. To capture more of the
benefits of these technologies, IT projects must be designed and completed
relatively quickly or they risk being out of date upon completion.
Organizations are re-using existing IT components both to preserve the
significant imbedded capital represented by those systems and to achieve new
functionality. For example, mainframe computers are now being used as high
volume servers in distributed computing environments because of their data
storage capacity and transaction processing speeds. As the length and scope of
an IT project expands, so too does the likelihood that the project will fail
to satisfy time, cost or functionality expectations. Consequently,
organizations seek high-impact IT solutions that can be implemented quickly.
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Given the complex and mission-critical nature of IT systems, many
organizations choose to outsource the development and eventual migration of
these systems to new technologies. The Company believes that successful IT
service providers will be characterized by:
. significant experience in the migration of enterprise-wide IT systems;
. an ability to adopt, deploy and transfer relevant, emerging technologies
rapidly and reliably;
. an understanding of the client's industry, business and existing IT
environments;
. successful management of the risks inherent in large system projects; and
. the ability to deliver services on a global basis.
The Tier Migration Solution
The Tier Migration Solution is generally applied to all of the Company's
projects. Initially, the Company assesses a client's existing business
processes and clearly defines the scope of the project, including a
determination of the client's expectations for quantifiable business
improvement. The Company then analyzes the client's existing IT system to
determine which areas would benefit the most from the application of new
technologies. When this assessment is completed, Tier develops a specific IT
strategy that uses a system architecture consistent with the client's existing
environment and takes advantage of new technologies. Tier then implements the
recommended IT strategy. Throughout all phases, the Company evaluates the
risks inherent in the project. If the Company detects areas of concern, it
investigates the matter at an early stage and takes appropriate corrective
action to mitigate potential costs and delays. The Tier Migration Solution
seeks to "take the risk out of change."SM
Strategy
The Company seeks to become the leading provider of comprehensive IT
migration solutions to Fortune 1000 companies and large government entities.
The Company's strategy includes the following elements:
Expertise in Key Vertical Markets. The Company intends to increase its
client base and leverage its expertise by focusing its sales, marketing and
development efforts on high-value opportunities in certain vertical markets,
such as government services, healthcare, financial services and insurance
services. Within those markets, Tier has developed expertise in areas such as
child welfare services, child support services and procurement processes. The
Company believes that large organizations with intensive information
processing needs provide the best near-term market opportunities for the
Company's services.
Concentrate on Migration Opportunities. The Company focuses on the migration
of enterprise-wide IT systems to leading edge technologies for Fortune 1000
companies and large government entities. The Company maintains proficiency in
relevant mainstream and legacy technologies, while also developing expertise
in high demand, emerging technologies that are expected to facilitate the
Company's development and deployment of IT solutions. This strategy allows
Tier to function effectively in open architecture IT environments and to
rapidly adopt, deploy and transfer emerging technologies within existing IT
systems.
Pursue Strategic Acquisitions. Tier considers potential acquisitions which
may expand the Company's presence in key geographic or vertical marketplaces,
supplement the Company's technical scope or industry expertise or allow it to
acquire additional human resources or strategic client relationships. Given
the highly fragmented nature of the IT services marketplace, the Company
believes significant acquisition opportunities exist. From December 1996
through September 30, 1999, Tier has acquired twelve IT service providers in
order to add domestic and international locations, broaden the Company's
technical expertise and expand its professional resources.
Expand Geographic Presence. The Company intends to expand its operations by
opening additional offices in targeted domestic and international locations to
augment its current operations in the United States,
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Australia and the United Kingdom. Tier integrates domestic and multi-national
resources to deliver timely, cost-effective IT solutions on a local level. By
expanding its geographic presence, the Company has increased its access to
international labor markets and is able to compete more effectively for highly
skilled employees who have particular geographic preferences. The Company
believes that the local delivery of services is a significant differentiating
factor among IT service providers.
Actively Brand the Tier Migration Solution. The Company intends to continue
to develop market recognition and acceptance of the Company's services by
branding the Tier Migration Solution. Tier believes it has differentiated and
sold the Company's Migration Solution with the Tier logo and themes such as
"How do you fix the machine without turning it off?"SM and "Taking the risk
out of change."SM Company believes that significant opportunity exists to
develop brand recognition and loyalty.
Attract and Retain Highly Skilled Employees. The Company maintains programs
and personnel to identify, hire, train and retain highly skilled IT
professionals because it believes these professionals are a critical element
in its ability to deliver high quality services to clients. The Company (1)
offers competitive compensation and benefits including stock option and other
stock-based awards; (2) has developed a career advancement program that offers
employees career enrichment opportunities, technical training opportunities,
and on-the-job learning opportunities; and (3) has developed centralized work
sites or "application development centers" where consultants work on projects
for clients located throughout the country, thus reducing the need for travel
by consultants.
Develop Strategic Partnerships. The Company develops strategic partnerships
with service and technology providers pursuant to which Tier jointly bids and
performs certain engagements. The Company believes these relationships provide
a number of competitive advantages, including (i) enabling the Company to
broaden its client base; (ii) allowing the Company to project its staffing
needs and more fully maximize employee utilization; and (iii) maintaining the
Company's technological leadership through the deployment of leading edge
applications.
Services and Methodology
The Company provides IT consulting, application development and software
engineering services that facilitate the migration of its clients' existing IT
systems to leading edge technologies. These services are typically provided on
an enterprise-wide basis. Tier's methodology for providing migration services
combines the ability to evaluate or "score" the efficacy of the client's
imbedded IT capital in comparison to its stated business goals, with a risk
assessment process to manage and benchmark projects on an on-going basis. Tier
maintains a high level of vertical market and industry expertise. As a result,
the Company is able to understand the environment and business rules in which
its clients operate. This approach allows Tier to retain, reuse, repeat and
distribute its experiential knowledge throughout the Company and to achieve
significant improvements in cost, quality and time to deployment on client
projects.
Services
The Company seeks to rapidly implement cost-effective IT solutions through a
flexible combination of one or more of the following services:
Repeatable Transfer Solution. In some situations, the Company identifies
existing, transferable IT applications or components that satisfy a portion of
the client's needs. Tier addresses the client's remaining functional elements
through either custom built applications or packaged software. Transfer
solutions greatly shorten the development cycle by providing a working system
as the starting point for the IT solution. For example, between government
agencies, the Company has successfully transferred components of IT systems
that it has built to solve complex child support and welfare requirements.
Custom Build. The Company often custom builds an IT solution or component
for the client. Even in a custom build solution, the Company's consultants
strive to re-use components of a client's legacy environment
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and to extract, update, and forward engineer business rules from legacy
programs. The Company has developed custom applications in several vertical
markets, including healthcare, financial services, government services and
telecommunications, using advanced languages such as Java, Forte, PowerBuilder
and COOL:Gen. The Company's technical professionals have implemented custom
applications on a variety of platforms and working environments, such as
mainframe, Windows NT, UNIX and other distributed platforms, using a number of
databases, including Oracle, Sybase, DB2, SQL Server and Informix. Tier has
also developed Internet/intranet, data warehouse, web-enabled legacy and e-
commerce applications, as well as applications in the more established
mainframe and client/server environments.
Packaged Software. When the most appropriate solution for a client includes
a commercially available application package, the Company evaluates,
recommends, implements and integrates applications software. The Company has
developed expertise with commercial applications in areas such as operations
resource management, e-commerce and procurement.
Methodology
The Company has developed the Tier Migration Solution over numerous client
engagements and relies on this methodology to provide services in various
industries and technical environments. The four-phase scaleable, repeatable
and leverageable methodology is modular in design and the various phases can
be tailored depending on the scope of a client's needs.
Phase I--Business Assessment and Scoping. The Company establishes the scope
of each project and determines expectations for quantifiable business
improvement. The Company assesses the client's current business processes,
identifies improvement opportunities and inventories the existing IT
applications and systems. Tier consultants bring industry and technical
expertise to each engagement and employ current business engineering
techniques, such as workflow analysis, process mapping, use-case analysis and
business rules definition. Typically, Tier consultants interview key
management personnel, lead group discussions, conduct workshops, review
existing business process documentation and inventory the existing application
portfolio. The work product is usually a business requirements and scope
document that provides a clear charter for the project and a risk management
assessment map to measure project performance throughout the project's life
cycle.
Phase II--Application Effectiveness Scoring. The Company develops a
technology portfolio analysis to determine how best to leverage the client's
capital investment in its existing IT system. Generally, Tier conducts an in-
depth analysis of the existing IT application portfolio using a qualitative
method of "scoring" to determine which areas would benefit most from the
application of new technologies. The resulting matrix correlates the client's
business functions with the most suitable IT solution. Once agreed to by the
client, the application scoring matrix becomes a roadmap to assist in
determining whether to replace or re-use components of the client's existing
IT system.
Phase III--IT Strategy, Architecture and Prototyping. The Company develops a
specific IT migration strategy to address the development, transfer or
acquisition of new IT solutions and their integration into the client's
existing business environment. Tier may model critical business rules to test
the underlying assumptions of the IT migration solution and often prepares an
early look-and-feel prototype to allow the user to visualize the resulting
integrated IT environment. Ultimately, Tier provides clients with a defined IT
architecture designed to meet the client's expectations specified at the
beginning of the engagement.
Phase IV--Information Technology Implementation. Tier implements the IT
solution. The Company employs rapid IT processes and incorporates the
Company's collective experience in managing enterprise-wide IT projects in
areas such as packaged software implementation, custom software development,
quality assurance and testing, systems integration, client testing and
acceptance, implementation and help desk support. The output of this final
phase is an implemented IT solution set. Following installation, the Company
and the client may conduct a post-project assessment to evaluate the
effectiveness of the new IT solution against the business improvement goals
established in Phase I. In addition, the Company often provides post-
implementation services,
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such as on-going software maintenance and enhancements, help desk support and
training of end users and in-house IT staff.
Across all four phases of its methodology, Tier employs a comprehensive risk
management process. The Company believes that its emphasis on risk management
is a critical component of its methodology, particularly in a market that
increasingly demands service providers to undertake large scale projects while
maintaining a high success rate. Using the risk management assessment map
developed in Phase I of Tier's Migration Solution, the Company evaluates
projects on a periodic basis against a checklist of risk factors which
determines the frequency of intervention and review required. The Company
typically focuses on the following risk factors: size of revenue and credit
exposure to the Company, number of resources employed, progress against
defined project milestones, clarity of user expectations, definition of
project scope, use of new technology, effectiveness of project management
personnel and other quantitative and qualitative measures as may be
appropriate to a particular project. If the Company detects areas of concern,
it investigates the matter at an early stage and takes appropriate corrective
action to mitigate potential costs and delays.
Sales and Marketing
The Company markets and sells its services through a direct sales force. As
of September 30, 1999, Tier had a sales and marketing staff of 49. In
addition, the Company's senior management is closely involved in a significant
portion of the Company's sales and marketing activities. Most of the Company's
sales professionals have extensive work experience in the IT industry, often
as strategic IT consultants or managers. In order to more clearly define the
delivery of its services and to reflect the needs of its clients, the Company
has organized its sales and marketing effort into three strategic business
units ("SBUs"): Commercial Services, which targets healthcare, financial
services, insurance services, telecommunications and other commercial markets;
Government Services, which targets the fast-growing health and human services
and state strategic IT markets; and International Services, which targets the
country specific needs of Australia and the United Kingdom.
The Company's focus on the vertical markets defined by these SBUs broadens
its knowledge and expertise in these selected industries and generates
additional client engagements. As a result of its focused sales channel
approach, the Company believes that it is able to penetrate markets quickly
and with lower sales acquisition costs.
The sales team derives leads through (i) industry networking and referrals
from existing clients; (ii) government requests for proposals; (iii) strategic
partnerships with third parties under which the Company jointly bids and
performs certain engagements; (iv) directed sales activities identified by
other strategic business units within the Company; and (v) a national
marketing program. The Company believes that its use of these multiple sales
and marketing activities results in a shorter sales cycle than generally
experienced by other providers.
The Company's marketing program includes targeted software industry trade
shows; joint marketing through strategic partnership arrangements;
participation in user groups; provision of speakers to technology conferences;
publication of white papers, articles and direct client newsletters; and
distribution of marketing materials and public relations announcements.
Clients
The Company's clients consist primarily of Fortune 1000 companies with
information-intensive businesses and government entities with large volume
information and technology needs. Tier's sales and marketing objective is to
develop relationships with clients that result in both repeat and long-term
engagements.
Tier has derived, and believes that it will continue to derive, a
significant portion of its revenues from a small number of large clients, many
of which engage the Company on a number of projects. For the twelve months
ended September 30, 1999, Humana Inc. and the State of Missouri accounted for
27.4% and 13.0% of the Company's revenues, respectively. Most of our contracts
can be terminated by the client with little or no
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notice and the completion, cancellation or significant reduction in the scope
of a large project could have a material adverse effect on the Company's
business, financial condition and results of operations.
In its Government Services SBU, the Company sometimes obtains project
engagements through prime contractors. The Company believes that it has been
able to secure large, complex government projects with low acquisition costs
by capitalizing on the reputation, marketing infrastructure and government
relationships of these prime contractors, while at the same time allowing the
prime contractors to leverage Tier's IT competency in their bid proposals. For
the fiscal year ended September 30, 1999, approximately 37.9% of Tier's
worldwide revenues were derived from sales to government agencies. Such
government agencies may be subject to budget cuts or budgetary constraints or
a reduction or discontinuation of government funding. A significant reduction
in funds available for government agencies to purchase IT services could have
a material adverse effect on Tier's business, financial condition and results
of operations.
Until fiscal 1997, Company revenues were generated primarily through Tier's
domestic operations. For the fiscal year ended September 30, 1999,
international operations accounted for 33.7% of the Company's total revenues.
See Note 10 to Notes to Consolidated Financial Statements. The Company
believes that the percentage of total revenues attributable to international
operations will continue to be significant and may continue to grow.
Human Resources
Tier's approach to managing human resources has allowed the Company to meet
its staffing needs while also achieving what the Company believes to be a low
level of employee turnover. As of September 30, 1999, the Company had a
workforce of 780, including 509 IT consultants of which 316 were salaried
employees, 37 were hourly employees and 156 were independent or sub-
contractors. The workforce also includes 116 payment processors, 49 sales and
marketing employees and 106 general and administrative employees. Of the
Company's total workforce as of September 30, 1999, 65.0%, 27.6% and 7.4% were
located in the United States, Australia and the United Kingdom, respectively.
The Company employs a Senior Vice President of Human Resources Management
and several recruiters who pursue a three level employee-sourcing strategy.
The primary sources include employee referrals, job fairs, Internet job
postings and direct recruiting. Tier also has established national and
international sources through preferred-rate partnerships with recruiting
suppliers. If peak staffing demand exceeds these resources, the Company
engages recruiting agencies on a contingent basis at market rates. Given the
rapid pace of technological evolution, Tier recognizes that skill obsolescence
is a fundamental concern for IT professionals. Tier attracts and retains
employees by offering technical training opportunities including an intensive
training program for new entry-level employees, a stock option award program
and a competitive benefits and compensation package. As a key component of the
Company's employee retention program, Tier has developed and implemented a
performance based compensation structure supported by a performance planning
and review ("PPAR") process that allows each employee and his or her manager
to develop performance plans with specific measurable objectives. The result
of implementing the PPAR program is a focus by each employee on what he or she
needs to achieve to perform at the highest level, which directly influences
his or her compensation. In addition, the Company has developed centralized
work sites or "application development centers" where consultants work on
projects for clients located throughout the country, thus reducing the need
for travel by consultants. The Company believes that there is a shortage of,
and significant competition for, IT professionals and that its future success
is highly dependent upon its ability to attract, train, motivate and retain
skilled IT consultants with the advanced technical skills necessary to perform
the services offered by the Company.
Competition
The IT services market is highly competitive and is served by numerous
international, national and local firms. Market participants include systems
consulting and integration firms, including national accounting firms and
related entities, the internal information systems groups of its prospective
clients, professional services companies, hardware and application software
vendors, and divisions of large integrated technology companies
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and outsourcing companies. Many of these competitors have significantly
greater financial, technical and marketing resources, generate greater
revenues and have greater name recognition than the Company. In addition,
there are relatively low barriers to entry into the IT services market, and
the Company has faced, and expects to continue to face, additional competition
from new entrants into the IT services market.
The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability of its clients or competitors to hire, retain
and motivate project managers and other senior technical staff; the ownership
by competitors of software used by potential clients; the price at which
others offer comparable services; the ability of its clients to perform the
services themselves; and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements with current and future
competitors or that competitive pressures will not cause the Company's
revenues or income to decline or otherwise materially adversely affect its
business, financial condition and results of operations.
Intellectual Property Rights
Tier's success has resulted, in part, from its methodologies and other
intellectual property rights. The Company relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright
and trademark laws to protect its proprietary rights and the proprietary
rights of third parties from whom the Company licenses intellectual property.
The Company enters into confidentiality agreements with its employees and with
many of its consultants and clients, and limits distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter the misappropriation of proprietary
information or that the Company will be able to detect unauthorized use of
this information and take appropriate steps to enforce its intellectual
property rights.
A portion of the Company's business involves the development of software
applications for specific client engagements. Ownership of such software is
the subject of negotiation with each particular client and is typically
assigned to the client. In limited situations, the Company may retain
ownership, or obtain a license from its client, which permits Tier or a third
party to market the software for the joint benefit of the client and Tier or
for the sole benefit of Tier.
Executive Officers of the Registrant
The following persons were executive officers of the Company as of December
3, 1999:
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<CAPTION>
Name Age Position with the Company
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James L. Bildner............... 45 Chairman of the Board and Chief Executive
Officer
William G. Barton.............. 43 President, Chief Technology Officer and
Director
George K. Ross................. 58 Executive Vice President, Chief Financial
Officer, Secretary, Treasurer and
Director
James Weaver................... 42 President, Government Services Division
Stephen McCarty................ 46 Senior Vice President, Human Resources
Management
Laura B. DePole................ 35 Senior Vice President, Finance and Chief
Accounting Officer
David Laidlaw.................. 58 President, International Operations
</TABLE>
Mr. Bildner joined Tier as Chairman of the Board in November 1995 and became
Chief Executive Officer in December 1996. From December 1994 to December 1996,
Mr. Bildner was employed as a principal of Argus Management Corporation, a
management consulting firm. Mr. Bildner received an A.B. from Dartmouth
College and a J.D. from Case Western Reserve School of Law.
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Mr. Barton, one of the initial founders of the Company, has served as Chief
Technology Officer since February 1998 and as President and a Director since
1991. From 1991 until February 1998, he also served as Chief Operating Officer
of the Company. He received a B.S. in Business Administration and Management
from the University of Phoenix and a Presidential/Key Executive MBA from
Pepperdine University.
Mr. Ross has been a Director of the Company since January 1996, has served
as Executive Vice President since 1998, has served as Chief Financial Officer
since February 1997 and has served as Secretary and Treasurer since July 1998.
From February 1997 until April 1998, Mr. Ross also served as Senior Vice
President. From September 1992 to January 1997, Mr. Ross was a partner at
Capital Partners, a private equity investment firm. Mr. Ross received a B.A.
from Ohio Wesleyan University and an MBA from Ohio State University. Mr. Ross
is a Certified Public Accountant. Mr. Ross is not seeking re-election to the
Company's Board of Directors at the Annual Meeting of Shareholders on January
11, 2000. In addition, effective as of the date of the Annual Meeting, Mr.
Ross will resign as Chief Financial Officer, Secretary and Treasurer of the
Company. Mr. Ross will retain the position of Executive Vice President of
Business Affairs.
Mr. Weaver joined Tier as President, Government Services Division in May
1998. From June 1997 until May 1998, Mr. Weaver served as Vice President,
Government Solutions of BDM International, Inc., an information technology
company, where he was responsible for SBU strategic planning, policy and
procedure development, client base expansion and overall business planning and
development. From March 1995 until June 1997, he served as National Program
Director, Public Sector for Unisys Corporation, an information technology
company. Prior to that time, he served as Director, Public Sector Services
with Lockheed Information Management Services and District Manager with the
Commonwealth of Virginia, Division of Child Support Enforcement. Mr. Weaver
received a B.A. in Psychology from California University of Pennsylvania.
Mr. McCarty joined the Company as Senior Vice President, Human Resources
Management in October 1998. From January 1998 to October 1998, he served as a
Vice President of Renaissance Worldwide, Inc., a consulting firm. From
February 1993 to January 1998, he served as a Vice President of Arthur D.
Little, a consulting firm. Mr. McCarty received a B.A. in Psychology from
State University of New York (SUNY) at Plattsburgh and a M.S. in Industrial/
Organizational Psychology from Rensselaer Polytechnic Institute.
Ms. DePole has served as Senior Vice President, Finance since April 1999 and
Chief Accounting Officer since August 1997. From October 1998 to April 1999,
Ms. DePole was Vice President, Finance and from August 1997 to October 1998,
Ms. DePole was also the Corporate Controller of the Company. Prior to that
time Ms. DePole was a Senior Manager at Ernst & Young LLP, an international
public accounting firm. Ms. DePole received a B.S. in Accounting from San
Francisco State University and is a Certified Public Accountant. Effective as
of the Company's Annual Meeting of Shareholders to be held on January 11,
2000, the Board of Directors has elected Ms. DePole to serve as Chief
Financial Officer, Secretary and Treasurer of the Company.
Mr. Laidlaw joined the Company as President, International Operations in
March 1999. From January 1996 through February 1999, Mr. Laidlaw served as
General Manager for the IBM Global Services Australia Consulting and Systems
Integration Unit. From 1966 through December 1995 Mr. Laidlaw held various
other positions within IBM information technology services units in Australia,
the United Kingdom and the Asia Pacific region. Mr. Laidlaw received a B.S.
and M.S. in Engineering from Melbourne University.
10
<PAGE>
Item 2. Properties
The Company's headquarters and principal administrative functions are
located in approximately 11,150 square feet of leased space in Walnut Creek,
California. The lease for this space expires November 30, 2002.
The Company also operates through leased facilities in
<TABLE>
<C> <S>
. Arizona; . Missouri;
. Georgia; . New Jersey;
. Idaho; . New York;
. Illinois; . Tennessee;
. Indiana; . Australia; and
. Kentucky; . United Kingdom
</TABLE>
Tier anticipates that additional space will be required during fiscal 2000
as its business expands and believes that it will be able to obtain suitable
space as needed.
Item 3. Legal Proceedings
The Company received a notice dated December 17, 1998 that a prime
contractor was exercising its right to terminate one of the Company's
Australian projects alleging a breach of the sub-contract. The Company
believes that the termination was not proper under the terms of the sub-
contract and that it has not breached the agreement. On June 28, 1999, the
Company filed a civil action (Tier Technologies, Inc. v. Unisys Corporation)
in the United States District Court for the Northern District of California
seeking money damages in excess of $2 million and a declaration that the
Company has performed its duties and obligations under the agreement, that it
has no further obligations under the agreement, and that the prime contractor
is obligated to pay the Company all amounts outstanding under the agreement.
At that time, the Company established a reserve for the entire net receivable
balance of $1,856,000. On August 11, 1999, the Company received the prime
contractor's answer and counterclaim in response to the Company's complaint.
The prime contractor denied the Company's claim and counterclaimed alleging
breach of contract and seeking declaratory relief. The prime contractor is
also seeking damages in excess of $8 million and indemnification for damages,
claims, penalties, fines and/or other sanctions which may be levied in the
future by the client of the prime contractor. The Company denies the prime
contractor's allegations and intends to vigorously pursue its own claim
against the prime contractor. The parties to the action have commenced
voluntary discovery.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended September 30, 1999.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Class B Common Stock is traded on the Nasdaq National Market
under the symbol "TIER." The following table sets forth for the quarterly
periods indicated the range of high and low sales prices for the Company's
Class B Common Stock since its initial public offering effective as of
December 17, 1997:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
------------ ------------
High Low High Low
------ ----- ------ -----
<S> <C> <C> <C> <C>
First Quarter................................... $17.50 $5.56 $10.75 $8.50*
Second Quarter.................................. 20.00 7.88 18.13 8.88
Third Quarter................................... 9.56 5.06 23.25 14.25
Fourth Quarter.................................. 8.59 6.41 20.50 12.13
</TABLE>
--------
* Initial public offering price per share.
The Company has never declared or paid cash dividends on its Common Stock.
The Company's credit facility contains restrictions on the Company's ability
to pay cash dividends. The Company currently intends to retain future
earnings, if any, to fund the development and growth of its business and does
not anticipate paying any cash dividends in the foreseeable future.
As of December 3, 1999, there were approximately 334 holders of record of
the Company's Class B Common Stock and one holder of record of the Company's
Class A Common Stock.
12
<PAGE>
Item 6. Selected Financial Data
The following table summarizes selected consolidated financial data of the
Company:
<TABLE>
<CAPTION>
Year Ended Twelve-Month Nine-Month Nine-Month Year Ended
September 30, Period Ended Period Ended Period Ended December 31,
---------------- September 30, September 30, September 30, ---------------
1999 1998 1997 1997(1) 1996 1996 1995
------- ------- ------------- ------------- ------------- ------- -------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Revenues................ $91,976 $57,725 $26,885 $22,479 $11,790 $16,197 $12,373
Cost of revenues........ 56,236 37,273 17,864 14,917 8,669 11,616 9,066
------- ------- ------- ------- ------- ------- -------
Gross profit............ 35,740 20,452 9,021 7,562 3,121 4,581 3,307
Costs and expenses:
Selling and marketing.. 6,095 3,009 2,234 1,836 577 975 627
General and
administrative........ 18,988 9,743 5,197 4,397 1,774 2,574 1,560
Compensation charge
related to business
combinations.......... 608 737 469 470 -- -- --
Purchased in-process
technology............ 4,000 -- -- -- -- -- --
Reserve for contract
dispute............... 1,856 -- -- -- -- -- --
Depreciation and
amortization.......... 3,864 1,169 283 259 56 80 45
------- ------- ------- ------- ------- ------- -------
Income from operations.. 329 5,794 838 600 714 952 1,075
Interest (income) and
expense, net........... (1,321) (980) 123 99 50 74 61
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 1,650 6,774 715 501 664 878 1,014
Provision for income
taxes.................. 644 2,642 287 201 266 351 570
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 1,006 $ 4,132 $ 428 $ 300 $ 398 $ 527 $ 444
======= ======= ======= ======= ======= ======= =======
Basic net income per
share(2)............... $ 0.08 $ 0.45 $ 0.11 $ 0.06 $ 0.08 $ 0.11 $ 0.04
======= ======= ======= ======= ======= ======= =======
Shares used in computing
basic
net income per
share(2)............... 12,056 9,231 4,037 5,400 5,220 4,988 10,062
======= ======= ======= ======= ======= ======= =======
Diluted net income per
share(2)............... $ 0.08 $ 0.39 $ 0.10 $ 0.05 $ 0.07 $ 0.10 $ 0.04
======= ======= ======= ======= ======= ======= =======
Shares used in computing
diluted
net income per
share(2)............... 12,869 10,624 4,265 5,794 5,478 5,246 10,062
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
----------------------- -------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................ $19,092 $39,301 $ 106 $ 306 $ --
Working capital......................... 35,840 49,695 2,361 1,191 920
Total assets............................ 83,944 74,503 10,496 4,133 2,316
Long-term debt, net of current
obligations............................ 454 202 1,608 576 156
Total shareholders' equity.............. 70,268 64,172 3,892 1,028 686
</TABLE>
- --------
(1) In September 1997, the Company changed its fiscal year end to September 30.
(2) See Notes 1 and 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing net income per
share.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Tier provides IT consulting, application development, software engineering,
training and business process outsourcing services that facilitate the
migration of clients' enterprise-wide systems and applications to leading edge
technologies. Through offices located in the United States, Australia and the
United Kingdom, the Company works closely with its Fortune 1000, government
and other clients to determine, evaluate and implement an IT strategy that
allows it to rapidly adopt, deploy and transfer emerging technologies while
preserving viable elements of the client's legacy systems. The Company's
revenues increased to $92.0 million in the fiscal year ended September 30,
1999 from $57.7 million in the fiscal year ended September 30, 1998. The
Company's workforce has grown from 569 on September 30, 1998 to 780 on
September 30, 1999.
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials basis, a fixed price basis or a per-
transaction basis. Time and materials revenues are recognized as services are
performed. Fixed price revenues are recognized using the percentage-of-
completion method, based upon the ratio of costs incurred to total estimated
project costs. Revenues from performance-based contracts are recognized based
on fees charged on a per-transaction basis. During the fiscal year ended
September 30, 1999, 20.9% of the Company's revenues were generated on a fixed
price basis. The Company believes that the percentage of total revenues
attributable to fixed price contracts will continue to be significant and may
continue to grow. Substantially all of Tier's contracts are terminable by the
client following limited notice and without significant penalty to the client.
From time to time, in the regular course of its business, the Company
negotiates the modification, termination, renewal or transition of time and
materials and fixed price contracts that may involve an adjustment to the
scope or nature of the project, billing rates or outstanding receivables. To
date, the Company has generally been able to obtain an adjustment in its fees
following a significant change in the assumptions upon which the original
estimate was made, but there can be no assurance that the Company will be
successful in obtaining adjustments in the future.
The Company has derived a significant portion of its revenues from a small
number of large clients. For many of these clients, the Company performs a
number of different projects pursuant to multiple contracts or purchase
orders. For the fiscal year ended September 30, 1999, Humana Inc. and the
State of Missouri accounted for 27.4% and 13.0% of the Company's revenues,
respectively. The Company anticipates that a substantial portion of its
revenues will continue to be derived from a small number of large clients. The
completion, cancellation or significant reduction in the scope of a large
project would have a material adverse effect on the Company's business,
financial condition and results of operations. A significant portion of the
Company's revenues are derived from sales to government agencies. For the
fiscal year ended September 30, 1999, approximately 37.9% of the Company's
revenues were derived from sales to government agencies.
Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. Senior executives manage the Company's personnel
utilization rates by carefully monitoring its needs and basing most personnel
increases on specific project requirements. To the extent revenues do not
increase at a rate commensurate with these additional expenses, the Company's
results of operations could be materially and adversely affected. In addition,
to the extent that the Company is unable to hire and retain salaried employees
to staff new or existing client engagements and retains hourly employees or
independent contractors in their place, the Company's business, financial
condition and results of operations would be materially and adversely
affected.
From December 1996 through September 30, 1999, the Company made twelve
acquisitions for a total cost of approximately $26.7 million in cash and
shares of Class B Common Stock, excluding future contingent payments. The
Company also incurred $1.8 million in compensation charges related to business
combinations resulting from these acquisitions. Generally, contingent payments
are recorded as additional purchase price at the time the payment can be
determined beyond a reasonable doubt. If a contingent payment is based, in
part, on a seller's continuing employment with the Company, the payments are
recorded as compensation expense over the vesting period when the amount is
deemed probable to be made. These acquisitions helped the Company to
14
<PAGE>
expand its operations in the United States, to establish its operations in
Australia and the United Kingdom, to broaden the Company's client base,
service offerings and technical expertise and to supplement its human
resources. In fiscal year 1999, the Company acquired all the issued and
outstanding capital stock of Midas Computer Software Limited, which added to
the Company's software integration services; all the issued and outstanding
capital stock of ADC Consultants Pty Limited, which added to the Company's
data management services; certain assets and liabilities of Service Design
Associates, Inc. which added to the Company's government services practice;
and certain assets and liabilities of the Technology Training Services
division of Automated Concepts, Inc. which added to the Company's training
services. For the fiscal year ended September 30, 1999, international
operations accounted for 33.7% of the Company's total revenues. The Company
believes that the percentage of total revenues attributable to international
operations will continue to be significant and may continue to grow.
International operations subject the Company to foreign currency translation
adjustments and transaction gains and losses for amounts denominated in
foreign currencies.
In September 1997, the Company changed its fiscal year end to September 30.
Fiscal year 1997 comprises the nine months ended September 30, 1997.
Results of Operations
The following table summarizes the Company's operating results as a
percentage of revenues for each of the periods indicated:
<TABLE>
<CAPTION>
Twelve Months Ended Nine Months
September 30, Ended
------------------------- September 30,
1999 1998 1997 1997
----- ----- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Revenue............................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues................... 61.1 64.6 66.5 66.4
----- ----- ----- -----
Gross profit....................... 38.9 35.4 33.5 33.6
Costs and expenses:
Selling and marketing............ 6.6 5.2 8.3 8.1
General and administrative....... 20.6 16.9 19.3 19.6
Compensation charge related to
business combinations........... 0.7 1.3 1.7 2.1
Purchased in-process technology.. 4.4 -- -- --
Reserve for contract dispute..... 2.0 -- -- --
Depreciation and amortization.... 4.2 2.0 1.1 1.2
----- ----- ----- -----
Income from operations............. 0.4 10.0 3.1 2.6
Interest (income) and expense,
net............................... (1.4) (1.7) 0.4 0.4
----- ----- ----- -----
Income before income taxes......... 1.8 11.7 2.7 2.2
Provision for income taxes......... 0.7 4.5 1.1 0.9
----- ----- ----- -----
Net income......................... 1.1% 7.2% 1.6% 1.3%
===== ===== ===== =====
</TABLE>
Fiscal Years Ended September 30, 1999 and 1998
Revenues. Revenues are generated primarily by providing professional
consulting services on client engagements. Revenues increased 59.3% to $92.0
million for the fiscal year ended September 30, 1999 from $57.7 million for
the fiscal year ended September 30, 1998. This increase resulted from internal
growth, including an expanded client base and several significant new
contracts, and from multiple acquisitions.
Gross Profit. Cost of revenues consists primarily of those costs directly
attributable to providing service to a client, including employee salaries,
independent contractor and subcontractor costs, employee benefits,
15
<PAGE>
payroll taxes, travel expenses and any equipment or software costs. For
business process outsourcing projects, cost of revenues also include facility
and overhead costs. Gross margin increased to 38.9% for the fiscal year ended
September 30, 1999 from 35.4% in 1998. The increase in gross margin was
primarily attributable to higher margins on certain large contracts and an
increased use of salaried as opposed to hourly employees.
Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, travel costs and product literature.
Selling and marketing expenses increased 102.6% to $6.1 million for the fiscal
year ended September 30, 1999 from $3.0 million for the fiscal year ended
September 30, 1998. As a percentage of revenues, selling and marketing
expenses increased to 6.6% for the fiscal year ended September 30, 1999 from
5.2% in 1998. The increase in selling and marketing expenses was primarily
attributable to the addition of sales and marketing personnel, both internally
and through acquisitions, to support the higher revenue base and increased
selling and marketing efforts. The Company expects that selling and marketing
expenses will continue to increase in future periods in absolute dollars,
although such expenses may vary as a percentage of revenues.
General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, legal, accounting and information systems, as
well as professional fees related to legal, audit, tax, external financial
reporting and investor relations matters. General and administrative expenses
increased 94.9% to $19.0 million for the fiscal year ended September 30, 1999
from $9.7 million for the fiscal year ended September 30, 1998. As a
percentage of revenues, general and administrative expenses increased to 20.6%
for the fiscal year ended September 30, 1999 from 16.9% in 1998. The increase
in total general and administrative expenses was primarily attributable to
building the infrastructure to support, manage and control the Company's
growth, as well as the costs of integrating and operating acquired businesses.
The Company expects that general and administrative expenses will continue to
increase in future periods in absolute dollars, although such expenses may
vary as a percentage of revenues.
Compensation Charge Related to Business Combinations. Compensation charge
related to business combinations consists primarily of certain contingent
performance payments made in connection with prior acquisitions. Compensation
charge related to business combinations decreased 17.5% to $608,000 for the
fiscal year ended September 30, 1999 from $737,000 for the fiscal year ended
September 30, 1998. As a percentage of revenues, compensation charge related
to business combinations decreased to 0.7% for the fiscal year ended September
30, 1999 from 1.3% for the fiscal year ended September 30, 1998. The decrease
in total compensation charge related to business combinations was attributable
to the timing of the contingent performance payment periods. See Note 8 to the
Consolidated Financial Statements for the compensation charges related to each
business combination.
Purchased In-Process Technology. Purchased in-process technology charge of
$4 million resulted from the purchase of exclusive worldwide licensing rights
to components of a large scale, enterprise-wide commercial billing system
currently under development by the Company for a client which had not yet
reached technological feasibility and had no alternative future use. The
completion of the software is expected to occur in the second quarter of
fiscal year 2000. Once developed, this software would require significant
customization prior to a sale to a customer.
Reserve for Contract Dispute. Reserve for contract dispute charge of $1.9
million for the fiscal year ended September 30, 1999 relates to an ongoing
contract dispute with a prime contractor to which the Company is a
subcontractor. After a series of discussions with the prime contractor, the
Company determined that collection of the outstanding accounts receivable
balance was unlikely. This matter is currently in litigation. See Item 3.--
"Legal Proceedings."
Depreciation and Amortization. Depreciation and amortization consists
primarily of expenses associated with depreciation of equipment and
improvements and amortization of certain other intangible assets resulting
from acquisitions and purchases of certain intellectual property. Depreciation
and amortization increased 230.5% to $3.9 million for the fiscal year ended
September 30, 1999 from $1.2 million for the fiscal year ended
16
<PAGE>
September 30, 1998. As a percentage of revenues, depreciation and amortization
increased to 4.2% for the fiscal year ended September 30, 1999 from 2.0% in
1998. The increase in total depreciation and amortization expense was
primarily attributable to the amortization of increased intangible assets from
business combinations, the amortization of the costs associated with the
purchase of a project management system and depreciation associated with
increased capital expenditures. The Company expects that depreciation and
amortization will continue to increase in future periods in absolute dollars,
although they may vary as a percentage of revenues.
Interest Income and Interest Expense, Net. The Company had net interest
income of $1.3 million for the fiscal year ended September 30, 1999 compared
to net interest income of $980,000 for the fiscal year ended September 30,
1998. This increase was primarily attributable to the interest income
generated from the investment of proceeds from the Company's initial and
secondary public offerings.
Provision for Income Taxes. The provision for income taxes was $644,000 for
the fiscal year ended September 30, 1999 as compared to $2.6 million for the
fiscal year ended September 30, 1998. The effective tax rate for the fiscal
years ended September 30, 1999 and 1998 was 39.0%. This rate differs from the
federal statutory rate due to state and foreign income taxes and tax-exempt
interest income. The Company expects that its effective tax rate for the
fiscal year ending September 30, 2000 will not be materially different from
the effective tax rate for the fiscal year ending September 30, 1999. The
future tax rate may vary due to a variety of factors, including, but not
limited to, the relative income contribution by domestic and foreign
operations, changes in statutory tax rates, the amount of tax exempt interest
income generated during the year, and any non-deductible items related to
acquisitions.
Twelve-Month Fiscal Year Ended September 30, 1998 and the Twelve Months Ended
September 30, 1997
Revenues. Revenues increased 114.7% to $57.7 million for the fiscal year
ended September 30, 1998 from $26.9 million in the twelve months ended
September 30, 1997. This increase resulted from internal growth, including an
expanded client base and several significant new contracts, and from
acquisitions.
Gross Profit. Gross profit increased 126.7% to $20.5 million for the fiscal
year ended September 30, 1998 from $9.0 million in the twelve months ended
September 30, 1997. Gross margin increased to 35.4% for the fiscal year ended
September 30, 1998 from 33.5% in the twelve months ended September 30, 1997.
The increase in gross margin was primarily attributable to higher margins on
certain large contracts and an increased use of salaried as opposed to hourly
employees, offset in part by software sublicense fees and other start-up costs
incurred in implementing a significant new contract in the first quarter of
1998.
Selling and Marketing. Selling and marketing expenses increased 34.7% to
$3.0 million for the fiscal year ended September 30, 1998 from $2.2 million in
the twelve months ended September 30, 1997. As a percentage of revenues,
selling and marketing expenses decreased to 5.2% for the fiscal year ended
September 30, 1998 from 8.3% in the twelve months ended September 30, 1997.
The increase in total selling and marketing expenses was primarily
attributable to the addition of sales and marketing personnel and the
Company's increased selling and marketing efforts and was partially offset by
the use of sales and marketing personnel on client projects, which costs were
included in cost of revenues.
General and Administrative. General and administrative expenses increased
87.5% to $9.7 million for the fiscal year ended September 30, 1998 from $5.2
million in the twelve months ended September 30, 1997. As a percentage of
revenues, general and administrative expenses decreased to 16.9% for the
fiscal year ended September 30, 1998 from 19.3% in the twelve months ended
September 30, 1997. The increase in total general and administrative expenses
was primarily attributable to building the infrastructure to support, manage
and control the Company's growth and the increased costs of being a public
company.
Compensation Charge Related to Business Combinations. Compensation charge
related to business combinations increased 57.0% to $737,000 for the fiscal
year ended September 30, 1998 from $469,000 in the
17
<PAGE>
twelve months ended September 30, 1997. The increase in total compensation
charge related to business combinations was primarily attributable to
contingent payments earned during the current period by previous owners of the
acquired businesses.
Depreciation and Amortization. Depreciation and amortization increased
313.2% to $1.2 million for the fiscal year ended September 30, 1998 from
$283,000 in the twelve months ended September 30, 1997. As a percentage of
revenues, depreciation and amortization increased to 2.0% for the fiscal year
ended September 30, 1998 from 1.1% in the twelve months ended September 30,
1997. The increase in total depreciation and amortization expenses was
primarily attributable to the depreciation associated with increased capital
expenditures and the amortization of increased intangible assets resulting
from acquisitions.
Interest Income and Interest Expense, Net. The Company had net interest
income of $980,000 for the fiscal year ended September 30, 1998 compared to
net interest expense of $123,000 for the twelve months ended September 30,
1997. This change was primarily attributable to the Company's repayment of all
borrowings under its bank lines of credit and interest income generated from
its investment of proceeds from its initial and secondary public offerings.
Provision for Income Taxes. The effective tax rate for the fiscal year ended
September 30, 1998 was 39.0%, compared to 40.1% for the twelve months ended
September 30, 1997. The decrease in the effective tax rate was primarily
attributable to the investment income earned on tax-exempt securities.
18
<PAGE>
Selected Quarterly Statements of Income
The following tables set forth certain unaudited consolidated quarterly
statement of income data for each of the eight quarters ending September 30,
1999. In the opinion of management, this information has been prepared on the
same basis as the audited Consolidated Financial Statements contained herein
and includes all necessary adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary to present fairly this
information in accordance with generally accepted accounting principles. This
information should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto appearing elsewhere in this Form
10-K. The Company's operating results for any one quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- --------- -------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Revenues................ $9,150 $12,672 $14,890 $21,012 $21,356 $20,243 $23,798 $26,579
Cost of revenues........ 5,680 8,756 9,241 13,595 13,156 12,664 13,913 16,503
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 3,470 3,916 5,649 7,417 8,200 7,579 9,885 10,076
Costs and expenses:
Selling and marketing.. 815 601 800 792 1,287 1,470 1,716 1,622
General and
administrative........ 1,800 1,903 2,725 3,316 3,459 4,593 5,598 5,338
Compensation charge
related to business
combinations.......... 198 354 94 90 61 60 355 131
Purchased in-process
technology............ -- -- -- -- -- -- 4,000 --
Reserve for contract
dispute............... -- -- -- -- -- -- 1,856 --
Depreciation and
amortization.......... 150 219 337 463 527 831 1,219 1,287
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 507 839 1,693 2,756 2,866 625 (4,859) 1,698
Interest (income) and
expense, net........... (56) (269) (219) (436) (456) (368) (266) (230)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 563 1,108 1,912 3,192 3,322 993 (4,593) 1,928
Provision (benefit) for
income taxes........... 228 449 713 1,252 1,296 387 (1,791) 752
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 335 $ 659 $ 1,199 $ 1,940 $ 2,026 $ 606 $(2,802) $ 1,176
====== ======= ======= ======= ======= ======= ======= =======
Basic net income (loss)
per share.............. $ 0.05 $ 0.07 $ 0.12 $ 0.16 $ 0.17 $ 0.05 $ (0.23) $ 0.10
====== ======= ======= ======= ======= ======= ======= =======
Diluted net income
(loss) per share....... $ 0.04 $ 0.06 $ 0.11 $ 0.15 $ 0.16 $ 0.05 $ (0.23) $ 0.09
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenues:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 62.1 69.1 62.1 64.7 61.6 62.6 58.5 62.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 37.9 30.9 37.9 35.3 38.4 37.4 41.5 37.9
Costs and expenses:
Selling and marketing.. 8.9 4.7 5.4 3.8 6.0 7.2 7.2 6.1
General and
administrative........ 19.7 15.0 18.3 15.8 16.2 22.7 23.5 20.1
Compensation charge
related to business
combinations.......... 2.1 2.8 0.6 0.4 0.3 0.3 1.5 0.5
Purchased in-process
technology............ -- -- -- -- -- -- 16.8 --
Reserve for contract
dispute............... -- -- -- -- -- -- 7.8 --
Depreciation and
amortization.......... 1.6 1.8 2.3 2.2 2.5 4.1 5.1 4.8
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. 5.6 6.6 11.3 13.1 13.4 3.1 (20.4) 6.4
Interest (income) and
expense, net........... (0.6) (2.1) (1.5) (2.1) (2.1) (1.8) (1.1) (0.9)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 6.2 8.7 12.8 15.2 15.5 4.9 (19.3) 7.3
Provision (benefit) for
income taxes........... 2.5 3.5 4.8 6.0 6.0 1.9 (7.5) 2.9
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 3.7% 5.2% 8.0% 9.2% 9.5% 3.0% (11.8)% 4.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
19
<PAGE>
Liquidity and Capital Resources
Prior to its initial public offering, the Company financed its operations
principally through cash flows from operating activities, the private
placement of equity securities and proceeds from borrowings under asset-based
lines of credit. The Company closed its initial and secondary public offerings
of Class B Common Stock in December 1997 and June 1998, respectively. The
Company received net proceeds totaling approximately $55 million.
The Company's principal capital requirement is to fund working capital to
support its growth, including potential future acquisitions. The Company
maintains an $8 million revolving credit facility (the "Credit Facility"). The
Credit Facility allows the Company to borrow the lesser of an amount equal to
85% of eligible accounts receivable or $8 million. The Credit Facility bears
interest, at the Company's option, either at the adjusted LIBOR rate plus 2.5%
or an alternate base rate plus 0.5%. The alternate base rate is the greater of
the bank's prime rate or the federal funds effective rate plus 0.5%. The
Credit Facility is secured by first priority liens and security interests in
substantially all of the Company's assets, including a pledge of all stock of
its domestic subsidiaries and a pledge of approximately 65% of the stock of
its foreign subsidiaries. The Credit Facility contains certain restrictive
covenants, including limitations on the total amount of loans the Company may
extend to officers and employees, the incurrence of additional debt and a
prohibition against the payment of dividends (other than dividends payable in
its stock). The Credit Facility requires the maintenance of certain financial
ratios, including a minimum quarterly net income requirement and a minimum
ratio of total liabilities to earnings before interest, taxes, depreciation
and amortization. As of September 30, 1999, there were no borrowings
outstanding under the Credit Facility; however the availability of the total
commitment amount to the Company has been reduced by an $800,000 letter of
credit issued in connection with the acquisition of Service Design Associates,
Inc. ("SDA") in March 1999.
Net cash used in operating activities was $1.6 million in fiscal 1999, $1.6
million in fiscal 1998, and $1.4 million in the nine-month fiscal year ended
September 30, 1997. Throughout these periods, in addition to the net income
for the period, the Company experienced increases in receivables as a result
of increases in the Company's sales volume. During the year ended September
30, 1999, the Company acquired the exclusive worldwide licensing rights to
components of a large scale, enterprise-wide commercial billing system
currently under development.
Net cash used in investing activities was $11.5 million in fiscal 1999,
$28.9 million in fiscal 1998 and $2.5 million in the nine-month fiscal year
ended September 30, 1997. The decrease in cash used in investing activities in
fiscal 1999 as compared to fiscal 1998 is largely attributable to a decreased
investment balance, offset by investments in the acquisition of Midas Computer
Software Limited, ADC Consultants Pty Limited, the acquisition of certain
assets and liabilities of Service Design Associates, Inc. and Technology
Training Services, a division of Automated Concepts, Inc. Capital
expenditures, including equipment acquired under capital lease but excluding
assets acquired or leased through business combinations, were approximately
$5.8 million in fiscal 1999, $2.0 million in fiscal 1998 and $554,000 in the
nine-month fiscal year ended September 30, 1997. The increase in capital
expenditures was primarily attributable to an increased workforce, geographic
expansion, establishment of business process outsourcing centers and
development of the Company's technology infrastructure. The Company
anticipates that it will continue to have significant capital expenditures in
the near-term related to, among other things, purchases of computer equipment
to enhance the Company's global operations and support its growth, as well as
potential expenditures related to new office leases and the establishment of
business process outsourcing centers.
Net cash provided by financing activities totaled $769,000 in fiscal 1999,
$53.4 million in fiscal 1998, and $3.7 million in the nine-month fiscal year
ended September 30, 1997. In fiscal 1999, the cash provided by financing
activities was primarily the result of stock option exercises. In fiscal 1998,
the Company raised approximately $55 million in its public offerings of Class
B Common Stock and made net payments of $2.8 million under its line of credit.
In the nine-month fiscal year ended September 30, 1997, the Company raised
gross proceeds of $1.9 million through the issuance of 420,953 shares of
Series A Preferred Stock and increased its net borrowing by $2.1 million under
its former credit facility.
20
<PAGE>
The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, will be
adequate to fund the Company's operations for at least the next 12 months.
There can be no assurance that changes will not occur that would consume
available capital resources before such time. The Company's capital
requirements depend on numerous factors, including potential acquisitions, new
contracts, the timing of the receipt of accounts receivable and employee
growth. The Company is involved in a contract dispute with a prime contractor.
See Item 3. "Legal Proceedings." On June 28, 1999, the Company filed a federal
civil action against the prime contractor for the amounts the Company is due
under the contract. On August 11, 1999, the Company received the prime
contractor's answer and counterclaim, in which the prime contractor denies the
Company's claim, alleges breach of contract by the Company and seeks
declaratory relief and damages in excess of $8 million. The Company denies the
allegations and intends to vigorously pursue its own claim against the prime
contractor. At this time, there can be no assurance as to the course of this
dispute or its possible resolution. In the event the prime contractor prevails
in its action, the Company's financial condition and results of operations
would be materially and adversely affected. To the extent that the Company's
existing capital resources are insufficient to meet its capital requirements,
the Company will have to raise additional funds. There can be no assurance
that additional funding, if necessary, will be available on favorable terms,
if at all.
Recent Accounting Standards
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position No. 98-1("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
computer software costs related to internal software that are incurred in the
preliminary project stage be expensed as incurred. Once the capitalization
criteria of SOP 98-1 have been met, external direct costs of materials and
services consumed in developing or obtaining internal-use computer software;
payroll and payroll-related costs for employees who are directly associated
with and who devote time to the internal-use computer software project (to the
extent of the time spent directly on the project); and interest costs incurred
when developing computer software for internal use should be capitalized. SOP
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. Accordingly, the Company will adopt SOP 98-1 in its
consolidated financial statements for the year ending September 30, 2000. The
adoption of SOP 98-1 is not expected to have a material impact on the
consolidated financial statements of the Company.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organization costs. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for financial statements for fiscal years beginning after December
15, 1998. The adoption of SOP 98-5 is not expected to have a material impact
on the consolidated financial statements of the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133") which will be effective in fiscal 2001. The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values
of those derivatives will be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is that
the derivative must be highly effective in achieving offsetting changes in
fair value or cash flows of the hedged items during the term of the hedge. The
Company has not yet determined the impact, if any, that the adoption of FAS
133 will have on the consolidated financial statements.
Year 2000
The "Year 2000 Issue" is typically the result of software being written
using two digits rather than four to define the applicable year. The Company
uses a significant number of computer software programs and operating
21
<PAGE>
systems in its service offerings, financial business systems and
administrative functions. To the extent these software applications are unable
to appropriately interpret the upcoming calendar year "2000", remediation of
such applications will be necessary.
The Company is continuing to assess the preparedness of its internal IT and
non-IT systems and has substantially completed the remediation, testing and
certification of its critical internal systems. To date, no significant Year
2000 related problems have been identified. The Company's internal systems are
largely PC-based and a majority were recently acquired or installed. As a
result, the Company believes that a high percentage of its hardware and non-IT
systems already address the Year 2000 Issue, as does a majority of its
software. The remediation, testing and certification process of its remaining
systems and software was substantially completed during the summer of 1999.
The Company has not incurred material remediation costs to date and does not
anticipate that the cost of such process will have a material adverse effect
on the Company's business, result of operations or financial condition.
In addition, the Company made an evaluation of the Year 2000 readiness of
its key suppliers and other key third parties. The Company continues to work
with these parties to address the Year 2000 Issue and to obtain appropriate
assurances. The Company's operations could be materially adversely affected if
these third parties or the products or services they supply to Tier are
disrupted or impaired by the Year 2000 Issue.
There can be no assurance that the remediation, testing and certification of
the Company's systems will be successful or that the Company's key contractors
will have successful conversion programs, and that such Year 2000 Issue
compliance failures will not have a material adverse effect on the Company's
business, results of operations or financial condition.
As a result of the Company's assessment to date, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
Factors That May Affect Future Results
The following factors, among others could cause actual results to differ
materially from those contained in forward-looking statements in this Form 10-
K. Tier is referred to in this section as "we" or "us".
Variability of Quarterly Operating Results. Our revenues and operating
results are subject to significant variation from quarter to quarter due to a
number of factors, including:
. the accuracy of estimates of resources required to complete ongoing
projects,
. the number, size and scope of projects in which we are engaged,
. the contractual terms and degree of completion of such projects,
. start-up costs including software sublicense fees incurred in connection
with the initiation of large projects,
. our ability to staff projects with salaried employees versus hourly
independent contractors and sub-contractors,
. competitive pressures on the pricing of our services,
. any delays incurred in connection with, or early termination of, a
project,
. employee utilization rates,
. the number of billable days in a particular quarter,
. the adequacy of provisions for losses,
. the accuracy of estimated transaction volume in computing transaction
rates for business process outsourcing,
. demand for our services generated by strategic partnerships and certain
prime contractors,
22
<PAGE>
. our ability to increase both the number and size of engagements from
existing clients, and
. economic conditions in the vertical and geographic markets we serve.
Due to the relatively long sales cycles for our services in the government
services market, the timing of revenue is difficult to forecast. In addition,
the achievement of anticipated revenues is substantially dependent on our
ability to attract, on a timely basis, and retain skilled personnel. A high
percentage of our operating expenses, particularly personnel and rent, are
fixed in advance. In addition, we typically reach the annual limitation on
FICA contributions for many of our consultants before the end of the calendar
year. As a result, payroll taxes as a component of cost of sales will vary
from quarter to quarter during the fiscal year and will generally be higher at
the beginning of the calendar year. Because of the variability of our
quarterly operating results, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful, should not be relied
upon as indications of future performance and may result in volatility in the
price of our common stock. In addition, our operating results will from time
to time be below the expectations of analysts and investors.
Potential Adverse Effect on Operating Results from Dependence on Large
Projects, Limited Clients or Certain Market Sectors. The completion,
cancellation or significant reduction in the scope of a large project or a
project with certain clients would have a material adverse effect on our
business, financial condition and results of operations. Most of our contracts
are terminable by the client following limited notice and without significant
penalty to the client. We have derived, and believe that we will continue to
derive, a significant portion of our revenues from a limited number of
clients. For the twelve months ended September 30, 1999, Humana Inc. and the
State of Missouri accounted for 27.4% and 13.0% of our revenues, respectively.
The volume of work performed for specific clients is likely to vary from
period to period, and a major client in one period may not use our services in
a subsequent period. In addition, as a result of our focus in specific
vertical markets, economic and other conditions that affect the companies in
these markets could have a material adverse effect on our business, financial
condition and results of operations. See Item 3 "Legal Proceedings."
Inability to Attract and Retain Professional Staff Necessary to Existing and
Future Projects. Our inability to attract, retain and train skilled employees
could impair our ability to adequately manage and staff our existing projects
and to bid for or obtain new projects, which would have a material adverse
effect on our business, financial condition and results of operation. In
addition, the failure of our employees to achieve expected levels of
performance could adversely affect our business. Our success depends in large
part upon our ability to attract, retain, train, manage and motivate skilled
employees, particularly project managers and other senior technical personnel.
There is significant competition for employees with the skills required to
perform the services we offer. In particular, qualified project managers and
senior technical and professional staff are in great demand worldwide and
competition for such persons is likely to increase. In addition, we require
that many of our employees travel to client sites to perform services on our
behalf, which may make a position with us less attractive to potential
employees. There can be no assurance that a sufficient number of skilled
employees will continue to be available, or that we will be successful in
training, retaining and motivating current or future employees.
Dependence on Key Personnel. Our success depends in large part upon the
continued services of a number of key employees. Although we have entered into
employment agreements with certain key employees, these employees may
terminate their employment agreements at any time. The loss of the services of
any key employee could have a material adverse effect on our business. In
addition, if one or more of our key employees resigns to join a competitor or
to form a competing company, the loss of such personnel and any resulting loss
of existing or potential clients to any such competitor could have a material
adverse effect on our business, financial condition and results of operations.
Control of Company and Corporate Actions by Principal
Shareholders. Concentration of voting control could have the effect of
delaying or preventing a change in control of us and may affect the market
price of our stock.
. All of the holders of Class A Common Stock have entered into a Voting
Trust with respect to their shares of Class A Common Stock, which
represents 60.2% of the total common stock voting power at
23
<PAGE>
September 30, 1999. All power to vote shares held in the Voting Trust has
been vested in the Voting Trust's trustees, Messrs. Bildner and Barton. As
a result, Messrs. Bildner and Barton will be able to control the outcome
of all corporate actions requiring shareholder approval, including changes
in our equity incentive plan, the election of a majority of our directors,
proxy contests, mergers, tender offers, open-market purchase programs or
other purchases of common stock that could give holders of our Class B
Common Stock the opportunity to realize a premium over the then-prevailing
market price for their shares of Class B Common Stock.
Potential Failure to Identify, Acquire or Integrate New Acquisitions. A
principal component of our business strategy is to expand our presence in new
or existing markets by acquiring additional businesses. From December 1996
through September 30, 1999, we acquired twelve businesses. There can be no
assurance that we will be able to identify, acquire or profitably manage
additional businesses or to integrate successfully any acquired businesses
without substantial expense, delay or other operational or financial problems.
Acquisitions involve a number of special risks, including:
. diversion of management's attention,
. failure to retain key personnel,
. amortization of acquired intangible assets,
. client dissatisfaction or performance problems with an acquired firm,
. assumption of unknown liabilities, and
. other unanticipated events or circumstances.
Any of these risks could have a material adverse effect on our business,
financial condition and results of operations.
Inability to Manage Growth. If we are unable to manage our growth
effectively, such inability would have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our
business, financial condition and results of operations. Our growth has
placed, and is expected to continue to place, significant demands on our
management, financial, staffing and other resources. We have expanded
geographically by opening new offices domestically and abroad, and intend to
open additional offices. Our ability to manage growth effectively will require
us to continue to develop and improve our operational, financial and other
internal systems, as well as our business development capabilities, and to
train, motivate and manage our employees. In addition, as the average size and
number of our projects continues to increase, we must be able to manage such
projects effectively. There can be no assurance that our rate of growth will
continue or that we will be successful in managing any such growth.
Dependence on Partnerships with Third Parties in Performing Certain Client
Engagements. We sometimes perform client engagements in partnership with third
parties. In the government services market, we often join with other
organizations to bid and perform an engagement. In these engagements, we may
engage subcontractors or we may act as a subcontractor to the prime contractor
of the engagement. In the commercial services market, we sometimes partner
with software or technology providers to jointly bid and perform engagements.
In both markets, we often depend on the software, resources and technology of
our partners in order to perform the engagement. There can be no assurance
that actions or failures attributable to our partners or to the prime
contractor or subcontractor will not also negatively affect our business,
financial condition or results of operations. In addition, the refusal or
inability of a partner to permit continued use of its software, resources or
technology by us, or the discontinuance or termination by the prime contractor
of our services or the services of a key subcontractor, would have a material
adverse effect on our business, financial condition and results of operations.
24
<PAGE>
Dependence on Contracts with Government Agencies. For the fiscal year ended
September 30, 1999, approximately 37.9% of our revenues were derived from
sales to government agencies. Such government agencies may be subject to
budget cuts or budgetary constraints or a reduction or discontinuation of
government funding. A significant reduction in funds available for government
agencies to purchase IT services would have a material adverse effect on our
business, financial condition and results of operations. In addition, the loss
of a major government client, or any significant reduction or delay in orders
by such client, would have a material adverse effect on our business,
financial condition and results of operations.
Failure to Estimate Accurately Fixed Price and Performance-Based
Contracts. Our failure to estimate accurately the resources or time required
for a fixed price project or the expected volume of transactions under a
performance-based contract could have a material adverse effect on our
business, financial condition and results of operations. Under fixed price
contracts, we receive our fee if we meet specified objectives such as
completing certain components of a system installation. For performance-based
contracts, we receive our fee on a per-transaction basis, such as the number
of child support payments processed. To earn a profit on these contracts, we
rely upon accurately estimating costs involved and assessing the probability
of meeting the specified objectives or realizing the expected number of
transactions within the contracted time period. If we fail to estimate
accurately the factors upon which we base our contract pricing, we may incur
losses on these contracts. During the fiscal year ended September 30, 1999,
20.9% of our revenues were generated on a fixed price basis. We believe that
the percentage of total revenues attributable to fixed price contracts will
continue to be significant and may continue to grow.
Potential Costs or Claims Resulting from Project Performance. Many of our
engagements involve projects that are critical to the operations of our
clients' businesses and provide benefits that may be difficult to quantify.
The failure by us, or of the prime contractor on an engagement in which we are
a subcontractor, to meet a client's expectations in the performance of the
engagement could damage our reputation and adversely affect our ability to
attract new business, and could have a material adverse effect upon our
business, financial condition and results of operations. We have undertaken,
and may in the future undertake, projects in which we guarantee performance
based upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties or delays in
completing such projects may result in client dissatisfaction and a reduction
in payment to, or payment of damages (as a result of litigation or otherwise)
by us, which could have a material adverse effect upon our business, financial
condition and results of operations. In addition, unanticipated delays could
necessitate the use of more resources than we initially budgeted for a
particular project, which also could have a material adverse effect upon our
business, financial condition and results of operations.
Insufficient Insurance Coverage for Potential Claims. Any failure in a
client's system could result in a claim against us for substantial damages,
regardless of our responsibility for such failure. There can be no assurance
that the limitations of liability set forth in our service contracts will be
enforceable or will otherwise protect us from liability for damages. Although
we maintain general liability insurance coverage, including coverage from
errors or omissions, there can be no assurance that such coverage will
continue to be available on reasonable terms, will be available in sufficient
amounts to cover one or more claims or that the insurer will not disclaim
coverage as to any future claim. The successful assertion for one or more
claims against us that exceed available insurance coverage or changes in our
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would adversely affect our business,
financial condition and results of operations.
Delay or Failure to Develop New IT Solutions. Our success will depend in
part on our ability to develop IT solutions that keep pace with continuing
changes in technology, evolving industry standards and changing client
preferences. There can be no assurance that we will be successful in
developing such IT solutions in a timely manner or that if developed we will
be successful in the marketplace. Delay in developing or failure to develop
new IT solutions would have a material adverse effect on our business,
financial condition and results of operations.
25
<PAGE>
Substantial Competition in the IT Services Market. The IT services market is
highly competitive and is served by numerous international, national and local
firms. There can be no assurance that we will be able to compete effectively
in the market. Market participants include systems consulting and integration
firms, including national accounting firms and related entities, the internal
information systems groups of our prospective clients, professional services
companies, hardware and application software vendors, and divisions of large
integrated technology companies and outsourcing companies. Many of these
competitors have significantly greater financial, technical and marketing
resources, generate greater revenues and have greater name recognition than we
do. In addition, there are relatively low barriers to entry into the IT
services market, and we have faced, and expect to continue to face, additional
competition from new entrants into the IT services market.
We believe that the principal competitive factors in the IT services market
include:
. reputation,
. project management expertise,
. industry expertise,
. speed of development and implementations,
. technical expertise,
. competitive pricing, and
. the ability to deliver results on a fixed price as well as a time and
materials basis.
We believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including:
. the ability of our clients or competitors to hire, retain and motivate
project managers and other senior technical staff,
. the ownership by competitors of software used by potential clients,
. the price at which others offer comparable services,
. the ability of our clients to perform the services themselves, and
. the extent of our competitors' responsiveness to client needs.
Our inability to compete effectively on these competitive factors would have
a material adverse effect on our business, financial condition and results of
operations.
Inability to Protect Proprietary Intellectual Property. The steps we take to
protect our intellectual property rights may be inadequate to avoid the loss
or misappropriation of such information, or to detect unauthorized use of such
information. We rely on a combination of trade secrets, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect
our intellectual property rights. We also enter into confidentiality
agreements with our employees, generally require that our consultants and
clients enter into such agreements and limit access to our proprietary
information.
Issues relating to the ownership of, and rights to use, software and
application frameworks can be complicated, and there can be no assurance that
disputes will not arise that affect our ability to resell or reuse such
software and application frameworks. A portion of our business involves the
development of software applications for specific client engagements.
Ownership of such software is the subject of negotiation with each particular
client and is typically assigned to the client. We also develop software
application frameworks, and may retain ownership or marketing rights to these
application frameworks, which may be adapted through further customization for
future client projects. Certain clients have prohibited us from marketing the
software and application frameworks developed for them entirely or for
specified periods of time or to specified third parties, and there can be no
assurance that clients will not demand similar or other restrictions in the
future.
26
<PAGE>
Although we believe that our services and products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against us in the future, or that if asserted, any
such claim will be successfully defended.
Failure to Manage and Expand International Operations. For the fiscal year
ended September 30, 1999, international operations accounted for 33.7% of our
total revenues. We believe that the percentage of total revenues attributable
to international operations will continue to be significant. In addition, a
significant portion of our sales are to large multinational companies. To meet
the needs of such companies, both domestically and internationally, we must
provide worldwide services, either directly or indirectly. As a result, we
intend to expand our existing international operations and may enter
additional international markets, which will require significant management
attention and financial resources and could adversely effect our operating
margins and earnings. In order to expand international operations, we will
need to hire additional personnel and develop relationships with potential
international clients through acquisition or otherwise. To the extent that we
are unable to do so on a timely basis, our growth in international markets
would be limited, and our business, financial condition and results of
operations would be materially and adversely affected.
Our international business operations are subject to a number of risks,
including:
. difficulties in building and managing foreign operations,
. difficulties in enforcing agreements and collecting receivables through
foreign legal systems,
. longer payment cycles,
. fluctuations in the value of foreign currencies, and
. unexpected regulatory, economic or political changes in foreign markets.
There can be no assurance that these factors will not have a material
adverse effect on our business, financial condition and results of operation.
Potential Year 2000 Non-Compliance. The "Year 2000 Issue" is typically the
result of software being written using two digits rather than four to define
the applicable year. The Company uses a significant number of computer
software programs and operating systems in its service offerings, financial
business systems and administrative functions. To the extent these software
applications are unable to appropriately interpret the upcoming calendar year
"2000", remediation of such applications will be necessary.
The Company is continuing to assess the preparedness of its internal IT and
non-IT systems and has substantially completed the remediation, testing and
certification of its critical internal systems. To date, no significant Year
2000 related problems have been identified. The Company's internal systems are
largely PC-based and a majority were recently acquired or installed. As a
result, the Company believes that a high percentage of its hardware and non-IT
systems already address the Year 2000 Issue, as does a majority of its
software. The remediation, testing and certification process of its remaining
systems and software was substantially completed during the summer of 1999.
The Company has not incurred material remediation costs to date and does not
anticipate that the cost of such process will have a material adverse effect
on the Company's business, result of operations or financial condition.
In addition, the Company made an evaluation of the Year 2000 readiness of
its key suppliers and other key third parties. The Company is working with
these parties to address the Year 2000 Issue and to obtain appropriate
assurances. The Company's operations could be materially adversely affected if
these third parties or the products or services they supply to Tier are
disrupted or impaired by the Year 2000 Issue.
There can be no assurance that the remediation, testing and certification of
the Company's systems will be successful or that the Company's key contractors
will have successful conversion programs, and that such Year 2000 Issue
compliance failures will not have a material adverse effect on the Company's
business, results of operations or financial condition.
27
<PAGE>
As a result of the Company's assessment to date, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
Potential Volatility of Stock Price. A public market for our Class B Common
Stock has existed only since the initial public offering of the Class B Common
Stock in December 1997. There can be no assurance that an active public market
will be sustained. The market for securities of early stage companies has been
highly volatile in recent years as a result of factors often unrelated to a
company's operations, including:
. quarterly variations in operating results,
. announcements of technological innovations or new products or services by
us or our competitors,
. general conditions in the IT industry or the industries in which our
clients compete,
. changes in earnings estimates by securities analysts, and
. general economic conditions such as recessions or high interest rates.
Further, in the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
instituted against the issuing company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on our business, financial
condition and results of operations. Any adverse determination in such
litigation could also subject us to significant liabilities. There can be no
assurance that such litigation will not be instituted in the future against
us.
Issuance of Preferred Stock May Prevent Change in Control and Adversely
Affect Market Price for Class B Common Stock. The Board of Directors has the
authority to issue preferred stock and to determine the preferences,
limitations and relative rights of shares of preferred stock and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by our shareholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior
to the rights of our Class B Common Stock. The potential issuance of preferred
stock may delay or prevent a change in control of us, discourage bids for the
Class B Common Stock at a premium over the market price and adversely affect
the market price and the voting and other rights of the holders of our common
stock.
No Current Intention to Declare or Pay Dividends. We have never declared or
paid cash dividends on our capital stock and do not anticipate paying any cash
dividends in the foreseeable future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates. The Company is exposed to market risk
because of changes in foreign currency exchange rates as measured against the
U.S. dollar and currencies of the Company's subsidiaries and operations in
Australia and the United Kingdom.
Foreign Currency Exchange Rate Risk. The Company has two wholly owned
subsidiaries in Australia and conducts operations in the United Kingdom
through a U.S.-incorporated subsidiary and a United Kingdom subsidiary.
Revenues from these operations are typically denominated in Australian Dollars
or British Pounds, respectively, thereby potentially affecting the Company's
financial position, results of operations and cash flows due to fluctuations
in exchange rates. The Company does not anticipate that near-term changes in
exchange rates will have a material impact on future earnings, fair values or
cash flows of the Company and has engaged in foreign currency hedging
transactions on a limited basis in connection with certain acquisitions, and
no contracts are outstanding as of September 30, 1999. There can be no
assurance that a sudden and significant decline in the value of the Australian
Dollar or British Pound would not have a material adverse effect on the
Company's financial condition and results of operations.
28
<PAGE>
Item 8. Financial Statements and Supplementary Data
See "Index to Consolidated Financial Statements" for a listing of the
financial statements filed with this report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
As previously reported on the Current Report on Form 8-K filed on July 27,
1998, effective as of July 25, 1998, the Company's Audit Committee approved,
subject to ratification by its shareholders, the engagement of
PricewaterhouseCoopers LLP as its independent accountants for the fiscal year
ending September 30, 1998 and approved the resignation of the firm of Ernst &
Young LLP, who resigned as auditors of the Company effective July 24, 1998.
Ernst & Young LLP, under the rules of its profession, resigned solely due to a
prospective independence issue.
The reports of Ernst & Young LLP on the Company's financial statements for
the two fiscal years ended September 30, 1997 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended September 30, 1997, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to
the matter in their report. The Company provided Ernst & Young LLP with a copy
of the Form 8-K and requested Ernst & Young LLP furnish a letter addressed to
the Commission stating whether it agreed with the above statements. A copy of
that letter, dated July 27, 1998, was filed as Exhibit 16.1 to the Form 8-K.
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Executive Officers. See "Executive Officers of the Registrant" in Part I
of this report.
(b) Directors. The information required by this item is incorporated herein
by reference to the Company's definitive proxy statement to be filed pursuant
to Regulation 14A (the "1999 Proxy Statement"), under the headings "Election
of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and
"Executive Officers," which the Company intends to file with the Securities
and Exchange Commission within 120 days of the Company's fiscal year ended
September 30, 1999.
Item 11. Executive Compensation
The information required under this item may be found under the section
captioned "Compensation of Executive Officers" in the 1999 Proxy Statement and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item may be found under the section
captioned "Security Ownership of Certain Beneficial Owners and Management" in
the 1999 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required under this Item may be found under the section
captioned "Election of Directors--Certain Related Transactions" in the 1999
Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements. See "Index to Consolidated
Financial Statements" on Page F-1.
(2) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
All other schedules have been omitted because they are not
applicable, not required, were filed subsequent to the filing of
the Form 10-K or because the information required to be set forth
therein is included in the consolidated financial statements or in
notes thereto.
(3) Exhibits. See "Exhibit Index."
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1999.
(c) Exhibits. See "Exhibit Index."
(d) Financial Statement Schedules. See "Index to Consolidated Financial
Statements" on page F-1.
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TIER TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Report of Independent Auditors............................................. F-3
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Income.......................................... F-5
Consolidated Statements of Shareholders' Equity............................ F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
Financial Statement Schedule II............................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Tier Technologies, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Tier Technologies, Inc. and its subsidiaries at September 30, 1999
and 1998, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 29, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Tier Technologies, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Tier Technologies, Inc. for the nine
month period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 result of operations and cash flows of Tier
Technologies, Inc. for the nine month period ended September 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Walnut Creek, California
October 6, 1997
F-3
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $10,121 $22,466
Restricted cash............................................ 819 712
Short-term investments..................................... 8,971 16,834
Accounts receivable, net of allowance for doubtful accounts
of $2,285 in 1999 and $260 in 1998........................ 26,151 18,335
Prepaid expenses and other current assets.................. 2,653 1,399
------- -------
Total current assets..................................... 48,715 59,746
Equipment and improvements, net.............................. 7,012 2,371
Notes and accrued interest receivable from related parties... 1,486 1,871
Intangible assets, net....................................... 23,913 9,794
Other assets................................................. 2,818 721
------- -------
Total assets............................................ $83,944 $74,503
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 2,759 $ 3,263
Accrued liabilities........................................ 2,618 934
Accrued subcontractor expenses............................. 1,113 2,503
Accrued compensation and related liabilities............... 3,476 2,310
Income taxes payable....................................... 995 450
Deferred income............................................ 1,506 500
Capital lease obligations due within one year.............. 381 67
Other current liabilities.................................. 27 24
------- -------
Total current liabilities................................ 12,875 10,051
Capital lease obligations, less current portion.............. 443 163
Other liabilities............................................ 358 117
------- -------
Total liabilities....................................... 13,676 10,331
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, no par value; authorized shares--4,579.... -- --
Common stock, no par value; authorized shares--44,260;
issued and outstanding shares--12,260 in 1999 and 11,861
in 1998................................................... 66,012 62,656
Notes receivable from shareholders......................... (1,773) (2,159)
Deferred compensation...................................... (352) (591)
Accumulated other comprehensive income (loss).............. (101) (1,210)
Retained earnings.......................................... 6,482 5,476
------- -------
Total shareholders' equity............................... 70,268 64,172
------- -------
Total liabilities and shareholders' equity.............. $83,944 $74,503
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine-Months
September 30, Ended
--------------- September 30,
1999 1998 1997
------- ------- -------------
<S> <C> <C> <C>
Revenues......................................... $91,976 $57,725 $22,479
Cost of revenues................................. 56,236 37,273 14,917
------- ------- -------
Gross profit..................................... 35,740 20,452 7,562
Costs and expenses:
Selling and marketing.......................... 6,095 3,009 1,836
General and administrative..................... 18,988 9,743 4,397
Compensation charge related to business
combinations.................................. 608 737 470
Purchased in-process technology................ 4,000 -- --
Reserve for contract dispute................... 1,856 -- --
Depreciation and amortization.................. 3,864 1,169 259
------- ------- -------
Income from operations........................... 329 5,794 600
Interest income.................................. 1,398 1,136 70
Interest expense................................. 77 156 169
------- ------- -------
Income before income taxes....................... 1,650 6,774 501
Provision for income taxes....................... 644 2,642 201
------- ------- -------
Net income....................................... $ 1,006 $ 4,132 $ 300
======= ======= =======
Basic net income per share....................... $ 0.08 $ 0.45 $ 0.06
======= ======= =======
Shares used in computing basic net income per
share........................................... 12,056 9,231 5,400
======= ======= =======
Diluted net income per share..................... $ 0.08 $ 0.39 $ 0.05
======= ======= =======
Shares used in computing diluted net income per
share........................................... 12,869 10,624 5,794
======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Notes Accumulated
------------- -------------------------------- Receivable Other Total
Class A Class B From Deferred Comprehensive Retained Shareholders'
Shares Amount Shares Amount Shares Amount Shareholders Compensation Income (Loss) Earnings Equity
------ ------ ------- ------ ------- ------- ------------ ------------ ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. -- $ -- 1,720 $ 32 2,580 $ 47 $ (95) $ -- $ -- $1,044 $ 1,028
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $318......... 421 1,892 (95) (2) 95 2 -- -- -- -- 1,892
Exercise of
stock options... -- -- 660 1,350 660 846 (2,196) -- -- -- --
Tax benefit of
stock options
exercised....... -- -- -- 270 -- 404 -- -- -- -- 674
Payment on notes
receivable...... -- -- -- -- -- -- 37 -- -- -- 37
Net income...... -- -- -- -- -- -- -- -- -- 300 300
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- (40) -- (40)
---- ------ ----- ------ ------ ------- ------- ----- ------- ------ -------
Balance at
September 30,
1997............. 421 1,892 2,285 1,650 3,335 1,299 (2,254) -- (40) 1,344 3,891
Exercise of
stock options... -- -- -- -- 249 933 -- -- -- -- 933
Issuance of
Class B common
stock through
Employee Stock
Purchase Plan... -- -- -- -- 11 116 -- -- -- -- 116
Tax benefit of
stock options
exercised....... -- -- -- -- -- 544 -- -- -- -- 544
Conversion of
Series A
convertible
preferred stock
and Class A
common stock
into Class B
common stock.... (421) (1,892) (645) (12) 1,066 1,904 -- -- -- -- --
Issuance of
Class B common
stock, net of
issuance costs
of $2,258....... -- -- -- -- 5,460 54,856 -- -- -- -- 54,856
Payments on
notes
receivable...... -- -- -- -- -- -- 95 -- -- -- 95
Issuance of
Class B common
stock in
business
combinations.... -- -- -- -- 100 1,366 -- (701) -- -- 665
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 110 -- -- 110
Net income...... -- -- -- -- -- -- -- -- -- 4,132 4,132
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- (1,170) -- (1,170)
---- ------ ----- ------ ------ ------- ------- ----- ------- ------ -------
Balance at
September 30,
1998............. -- -- 1,640 1,638 10,221 61,018 (2,159) (591) (1,210) 5,476 64,172
Exercise of
stock options... -- -- -- -- 377 1,244 -- -- -- -- 1,244
Issuance of
Class B common
stock through
Employee Stock
Purchase Plan... -- -- -- -- 46 388 -- -- -- -- 388
Tax benefit of
stock options
exercised....... -- -- -- -- -- 611 -- -- -- -- 611
Payments on
notes
receivable...... -- -- -- -- -- -- 386 -- -- -- 386
Issuance of
Class B common
stock and
options in
business
combinations.... -- -- -- -- 51 1,527 -- -- -- -- 1,527
Repurchase of
common stock.... -- -- -- -- (75) (414) -- -- -- -- (414)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 239 -- -- 239
Net income...... -- -- -- -- -- -- -- -- -- 1,006 1,006
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- 1,109 -- 1,109
---- ------ ----- ------ ------ ------- ------- ----- ------- ------ -------
Balance at
September 30,
1999............. -- $ -- 1,640 $1,638 10,620 $64,374 $(1,773) $(352) $ (101) $6,482 $70,268
==== ====== ===== ====== ====== ======= ======= ===== ======= ====== =======
<CAPTION>
Comprehensive
Income
-------------
<S> <C>
Balance at
December 31,
1996.............
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $318.........
Exercise of
stock options...
Tax benefit of
stock options
exercised.......
Payment on notes
receivable......
Net income...... $ 300
Foreign currency
translation
adjustment...... (40)
-------------
Balance at
September 30,
1997............. $ 260
=============
Exercise of
stock options...
Issuance of
Class B common
stock through
Employee Stock
Purchase Plan...
Tax benefit of
stock options
exercised.......
Conversion of
Series A
convertible
preferred stock
and Class A
common stock
into Class B
common stock....
Issuance of
Class B common
stock, net of
issuance costs
of $2,258.......
Payments on
notes
receivable......
Issuance of
Class B common
stock in
business
combinations....
Amortization of
deferred
compensation....
Net income...... $ 4,132
Foreign currency
translation
adjustment...... (1,170)
-------------
Balance at
September 30,
1998............. $ 2,962
=============
Exercise of
stock options...
Issuance of
Class B common
stock through
Employee Stock
Purchase Plan...
Tax benefit of
stock options
exercised.......
Payments on
notes
receivable......
Issuance of
Class B common
stock and
options in
business
combinations....
Repurchase of
common stock....
Amortization of
deferred
compensation....
Net income...... $ 1,006
Foreign currency
translation
adjustment...... 1,109
-------------
Balance at
September 30,
1999............. $ 2,115
=============
</TABLE>
See accompanying notes.
F-6
<PAGE>
TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Nine
September 30, Months Ended
------------------ September 30,
1999 1998 1997
-------- -------- -------------
<S> <C> <C> <C>
Operating activities
Net income................................... $ 1,006 $ 4,132 $ 300
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization............... 4,229 1,169 259
Amortization of deferred compensation....... 239 109 --
Provision for doubtful accounts............. 2,025 210 50
Deferred income taxes....................... (3,231) (721) (144)
Tax benefit of stock options exercised...... 611 544 674
Forgiveness of notes receivable from
employees.................................. 621 275 --
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable......................... (8,291) (12,680) (2,740)
Income taxes payable........................ 544 1,271 (793)
Prepaid expenses and other current assets... 34 (611) (214)
Other assets................................ 101 (545) 13
Accounts payable and accrued liabilities.... (411) 4,796 1,234
Deferred income............................. 965 466 (21)
-------- -------- -------
Net cash used in operating activities........ (1,558) (1,585) (1,382)
-------- -------- -------
Investing activities
Purchase of equipment and improvements....... (5,749) (1,759) (554)
Notes and accrued interest receivable from
related parties............................. (740) (1,228) (1,028)
Repayment on notes and accrued interest
receivable from related parties............. 454 -- --
Business combinations, net of cash acquired.. (13,168) (8,271) (915)
Restricted cash.............................. (39) (712) --
Purchases of available-for-sale securities... (28,463) (30,204) --
Sales of available-for-sale securities....... 19,328 13,370 --
Maturities of available-for-sale securities.. 16,999 -- --
Other assets................................. (104) (108) --
-------- -------- -------
Net cash used in investing activities........ (11,482) (28,912) (2,497)
-------- -------- -------
Financing activities
Borrowings under bank lines of credit........ 909 6,912 10,356
Payment of borrowings on bank lines of
credit...................................... (1,466) (9,671) (8,253)
Repurchase of common stock................... (414) -- --
Net proceeds from issuance of common stock... 388 54,972 --
Net proceeds from issuance of preferred
stock....................................... -- -- 1,892
Repayment by shareholder on note receivable.. 386 95 37
Deferred financing costs..................... -- 224 (224)
Exercise of stock options.................... 1,244 933 --
Payments on capital lease obligations........ (252) (45) (33)
Payments on notes payable to shareholders.... (26) (47) (56)
-------- -------- -------
Net cash provided by financing activities.... 769 53,373 3,719
-------- -------- -------
Effect of exchange rate changes on cash...... (74) (516) (40)
-------- -------- -------
Net (decrease) increase in cash and cash
equivalents................................. (12,345) 22,360 (200)
Cash and cash equivalents at beginning of
period...................................... 22,466 106 306
-------- -------- -------
Cash and cash equivalents at end of period... $ 10,121 $ 22,466 $ 106
======== ======== =======
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest paid............................... $ 77 $ 96 $ 170
======== ======== =======
Income taxes paid (refunded), net........... $ 2,724 $ 1,548 $ 465
======== ======== =======
Equipment acquired under capital lease
obligations................................. $ 72 $ 219 $ --
======== ======== =======
Common stock issued in exchange for notes
receivable.................................. $ -- $ -- $ 2,196
======== ======== =======
Accrued purchase price and assumed
liabilities related to business
combinations................................ $ 3,670 $ 397 $ 531
======== ======== =======
Conversion of preferred stock into common
stock....................................... $ -- $ 1,892 $ --
======== ======== =======
Common stock issued in business
combinations................................ $ 1,328 $ 666 $ --
======== ======== =======
Restricted stock held in escrow for
employees................................... $ -- $ 701 $ --
======== ======== =======
</TABLE>
See accompanying notes.
F-7
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The Company
Tier Technologies, Inc. (the "Company") provides information technology
consulting, application development, software engineering, training and
business outsourcing services to large companies and government entities.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. The Company
translates the accounts of its foreign subsidiaries using the local foreign
currency as the functional currency. The assets and liabilities of the foreign
subsidiaries are translated into U.S. dollars using exchange rates in effect
at the balance sheet date, revenues and expenses are translated using the
average exchange rate for the period, and gains and losses from this
translation process are included in shareholders' equity. Foreign currency
transaction gains and losses have not been material to the Consolidated
Statements of Income for the years ended September 30, 1999 and 1998, and the
nine months ended September 30, 1997.
In September 1997, the Company changed its fiscal year end to September 30.
Accounting for Business Combinations
Contingent payments are generally recorded as additional purchase price at
the time the payment can be determined beyond a reasonable doubt and the
amounts are amortized over the estimated remaining useful life of the acquired
assets. If a contingent payment is based, in part, on a seller's continuing
employment with the Company, the payments are recorded as a compensation
charge related to business combinations over the vesting period when the
amount is deemed probable to be made.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes that the estimates and
assumptions used in preparing the accompanying consolidated financial
statements and related notes are reasonable in light of known facts and
circumstances, actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials basis, a fixed price basis or a per-
transaction basis. Time and materials revenues are recognized as services are
performed. Revenues from fixed price contracts are recognized using the
percentage-of-completion method of contract accounting based on the ratio of
incurred costs to total estimated costs. Losses on contracts are recognized
when they become known and reasonably estimable. Actual results of contracts
may differ from management's estimates and such differences could be material
to the consolidated financial statements. Revenues from performance-based
contracts are recognized based on fees charged on a per-transaction basis.
Most of the Company's contracts are terminable by the client following limited
notice and without significant penalty to the client. The completion,
cancellation or significant reduction in the scope of a large project would
have a material adverse effect on the Company's business, financial condition
and results of operations.
F-8
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies--(continued)
Unbilled receivables represent revenue recognized in excess of amounts billed
in accordance with contractual billing terms. Unbilled receivables were
$8,390,000 and $3,444,000 at September 30, 1999 and 1998, respectively.
Revenues derived from sales to governmental agencies were approximately
$34,846,000, $20,862,000 and $10,133,000 for the years ended September 30,
1999 and 1998, and the nine months ended September 30, 1997, respectively.
Credit Risk and Significant Clients
Financial instruments that potentially subject the Company to significant
levels of credit risk are accounts receivable.
The Company extends credit based on an evaluation of its client's financial
condition and does not require collateral. The Company's historical credit
losses have not been significant, except for the reserve established due to a
contract dispute. See Note 13, "Contract Dispute."
For the year ended September 30, 1999, revenues from two clients totaled
approximately $25,200,000 and $11,986,000 which represented 27.4% and 13.0% of
total revenues, respectively. Accounts receivable balances at September 30,
1999 relating to these two clients amounted to approximately $6,530,000. For
the year ended September 30, 1998, revenues from three clients totaled
approximately $15,271,000, $11,525,000 and $6,471,000, which represented
26.5%, 20.0% and 11.2% of total revenues, respectively. Accounts receivable
balances at September 30, 1998 relating to these three clients amounted to
approximately $11,372,000. During the nine months ended September 30, 1997,
revenues from three clients totaled approximately $5,019,000, $4,734,000 and
$4,437,000, which represented 22%, 21% and 20% of total revenues,
respectively. Accounts receivable balances at September 30, 1997 relating to
these three clients amounted to approximately $1,611,000.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original maturities of
three months or less and are stated at amounts that approximate fair value,
based on quoted market prices. Cash equivalents consist principally of
investments in interest-bearing demand deposit accounts with financial
institutions and highly liquid debt securities of corporations, state
governments, municipalities and the U.S. Government.
Restricted Cash
In accordance with an acquisition agreement, the Company deposited cash in
an escrow account which will be released to the sellers of the acquired
business upon the satisfaction of certain contingencies. The Company has
classified this deposit as restricted cash.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, restricted cash, short-term investments,
accounts receivable, notes receivable, accounts payable and accrued
liabilities approximate fair value due to their short maturities.
Short-Term Investments
The Company has classified all short-term investments as available-for-sale.
Available-for-sale securities are recorded at amounts that approximate fair
market value based on quoted market prices and have included
F-9
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies--(continued)
investment-grade municipal securities and commercial paper. Realized gains and
losses and declines in value judged to be other-than-temporary on available-
for-sale securities are included in income. Unrealized and realized gains and
losses have not been material to the Consolidated Statements of Income for the
years ended September 30, 1999 and 1998 and the nine months ended September
30, 1997.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and amortization
are computed using the straight-line method over the shorter of the estimated
useful life of the asset or the lease term, which range from three to five
years. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain
or loss is reflected in operations in the period realized.
Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations, such as equipment and improvements, and intangible assets when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of the
assets.
Software Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, (SFAS 86) "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Under the standard, capitalization of software development costs begins upon
the establishment of technological feasibility. To date, all such amounts have
been charged to expenses.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and provides the disclosure required in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using enacted tax rules and laws that
are expected to be in effect when the differences are expected to reverse.
Net Income Per Share
The Company computes net income per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") and
Securities and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB
98"). Under FAS 128, basic net income per share is computed by dividing the
net income for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares,
F-10
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies--(continued)
composed of unvested restricted common stock, incremental common shares
issuable upon the exercise of stock options and warrants and upon conversion
of preferred stock, are included in diluted net income per share to the extent
such shares are dilutive.
Comprehensive Income
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting comprehensive income
and its components, including presentation in an annual financial statement
that is displayed with the same prominence as other annual financial
statements. Various components of comprehensive income may, for example,
consist of foreign currency items and unrealized gains and losses on certain
investments classified as available-for-sale.
Segment Reporting
The Company is managed through four reportable segments: commercial
services, government services, Australian operations and United Kingdom
operations. The commercial services segment provides information technology
("IT") consulting, application development and software engineering services
to Fortune 1000 clients in the United States. The government services segment
provides IT consulting, application development, legal and policy consulting,
and business process outsourcing services to state and local government
entities in the United States. The Australian operations segment provides IT
consulting, application development, call center and software engineering
services to clients in the public and private sectors in Australia. The United
Kingdom operations segment provides IT consulting, business process
reengineering, software engineering and application development services to
clients in the public and private sectors in the United Kingdom. The Company
follows the requirements of Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131").
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements and related notes to conform to the current year
presentation.
Impact of Recently Issued Accounting Standards
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position No. 98-1("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires computer
software costs related to internal software that are incurred in the
preliminary project stage should be expensed as incurred. Once the
capitalization criteria of SOP 98-1 have been met, external direct costs of
materials and services consumed in developing or obtaining internal-use
computer software; payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use computer
software project (to the extent of the time spent directly on the project);
and interest costs incurred when developing computer software for internal use
should be capitalized. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Accordingly, the Company will
adopt SOP 98-1 in its consolidated financial statements for the year ending
September 30, 2000. The adoption of SOP 98-1 is not expected to have a
material effect on the consolidated financial statements of the Company.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," which provides guidance on the financial reporting of
start-up costs and organization costs. SOP 98-5 requires costs of start-up
activities and
F-11
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies--(continued)
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP 98-5 is not expected to have a material impact on the
consolidated financial statements of the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). The Company is required to adopt this statement in the fourth quarter
of fiscal year 2001. The new standard requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains
or losses resulting from changes in the values of those derivatives will be
reported in the statement of operations or as a deferred item, depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for hedge accounting is that the derivative must be highly
effective in achieving offsetting changes in fair value or cash flows of the
hedged items during the term of the hedge. The Company has not yet determined
the impact, if any, that the adoption of FAS 133 will have on the consolidated
financial statements.
2. Net Income Per Share
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended
------------- September 30,
1999 1998 1997
------ ------ -------------
(in thousands, except per
share data)
<S> <C> <C> <C>
Numerator:
Net income.................................... $1,006 $4,132 $ 300
====== ====== =====
Denominator for basic income per share-weighted
average common shares outstanding.............. 12,056 9,231 5,400
Effects of dilutive securities:
Common stock options.......................... 684 1,274 274
Convertible preferred stock................... -- 90 120
Common stock held in escrow................... 129 29 --
------ ------ -----
Denominator for diluted net income per share-
adjusted weighted average common shares and
assumed conversions............................ 12,869 10,624 5,794
====== ====== =====
Basic net income per share...................... $ 0.08 $ 0.45 $0.06
====== ====== =====
Diluted net income per share.................... $ 0.08 $ 0.39 $0.05
====== ====== =====
</TABLE>
Options to purchase approximately 1,519,000 million shares of Class B common
stock at a price ranging from $10.88 to $17.81 per share were outstanding at
September 30, 1999, but were not included in the computation of diluted net
income per share because the options' exercise prices were greater than the
average market price of the shares.
F-12
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Balance Sheet Components
The components of equipment and improvements are as follows:
<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- ------
(in thousands)
<S> <C> <C>
Computer equipment and software............................. $ 7,455 $2,482
Furniture, equipment and leasehold improvements............. 2,317 723
------- ------
9,772 3,205
Less: Accumulated depreciation and amortization............. (2,760) (834)
------- ------
$7,012 $2,371
======= ======
</TABLE>
Depreciation and amortization expense related to equipment and improvements
for the years ended September 30, 1999 and 1998, and the nine months ended
September 30, 1997, was $1,928,000, $600,000 and $104,000, respectively. The
cost of assets acquired under capital leases is $1,195,000 and $296,000 and
the related accumulated amortization is $407,000 and $107,000 at September 30,
1999 and 1998, respectively.
The components of acquired intangible assets are as follows:
<TABLE>
<CAPTION>
September 30,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Intangible assets:
Goodwill................................................. $25,863 $ 9,555
Acquired workforce....................................... 990 924
------- -------
26,853 10,479
Less: Accumulated amortization............................. (2,940) (685)
------- -------
$23,913 $ 9,794
======= =======
</TABLE>
4. Bank Lines of Credit
At September 30, 1998, the Company had a $10 million revolving credit
facility which had a maturity date of March 31, 2001. During the year ended
September 30, 1999, the Company amended its credit facility and at September
30, 1999, the Company had an $8 million revolving credit facility which
matures on May 27, 2000. The total commitment amount is limited to the lesser
of 85% of eligible accounts receivable or $8 million and is secured by first
priority liens and security interests in substantially all of the Company's
assets, including a pledge of all stock of its domestic subsidiaries and a
pledge of approximately 65% of the stock of the Company's foreign
subsidiaries. Interest is based on the adjusted LIBOR rate plus 2.5% or an
alternate base rate plus 0.5%, at the Company's option. The alternate base
rate is the greater of the bank's base rate or the federal funds effective
rate plus 0.5%. Among other provisions, the credit facility requires the
Company to maintain certain minimum financial ratios. As of September 30,
1999, the Company was in compliance with all financial ratios and had no
outstanding borrowings under its credit facility; however, the availability of
the total commitment amount to the Company has been reduced by an $800,000
letter of credit issued in connection with the acquisition of certain assets
and liabilities of Service Design Associates, Inc.
F-13
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Bank Lines of Credit--(continued)
Prior to March 31, 1998, the Company had a credit agreement with a bank
which provided for lines of credit of up to $2,250,000 for general corporate
purposes and $1,500,000 for acquisition purposes (including up to $500,000 for
stand-by letters of credit). The lines of credit bore interest at the bank's
prime rate (8.5% at September 30, 1997) plus 1.5% and 1.75%, respectively.
Total borrowings were limited to the lesser of $3,750,000 or 85% of eligible
accounts receivable and were secured by the Company's assets. All borrowings
under this credit facility were repaid in December 1997.
5. Commitments
The Company leases its principal facilities and certain equipment under
noncancellable operating and capital leases which expire at various dates
through 2004. Future minimum lease payments for noncancellable leases with
terms of one year or more are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Years ending September 30,
2000..................................................... $1,768 $ 439
2001..................................................... 1,305 308
2002..................................................... 1,008 142
2003..................................................... 485 22
2004..................................................... 442 --
------ -----
Total minimum lease payments............................. $5,008 911
======
Less amounts representing interest....................... (87)
-----
Present value of capital lease obligations............... 824
Less amounts due within one year......................... (381)
-----
$ 443
=====
</TABLE>
Rent expense for the years ended September 30, 1999 and 1998, and the nine
months ending September 30, 1997, was approximately $1,277,000, $530,000 and
$184,000, respectively.
6. Shareholders' Equity
Common Stock
In February 1997, the Company's Board of Directors authorized two classes of
common stock, Class A common stock and Class B common stock. Each then
outstanding share of common stock was converted into 40 shares of Class A
common stock and 60 shares of Class B common stock. All share and per share
information in the accompanying financial statements has been retroactively
adjusted to reflect this conversion. In October 1997, the Board of Directors
increased the authorized shares of Class B common stock to 42,600,000.
The holders of Class A common stock and Class B common stock have 10 votes
per share and 1 vote per share, respectively. Each share of Class A common
stock will automatically convert into one share of Class B common stock upon
transfer, except in limited circumstances, or at the election of the holder of
such Class A common stock.
F-14
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Shareholders' Equity--(continued)
Upon conversion of shares of Class A common stock into shares of Class B
common stock, such Class A common stock shares are retired from the authorized
shares and are not reissuable by the Company. The number of authorized shares
of Class A common stock was approximately 1,660,000 at September 30, 1999.
Voting Trust
In November 1997, all Class A shareholders (the "Beneficiaries") transferred
their Class A common stock into a voting trust. The Company's Chief Executive
Officer and President are the trustees of the voting trust (the "Trustees")
and have the exclusive right to vote all shares of Class A common stock held
in the voting trust. The voting trust has a term of 10 years and is renewable
by consent of the Beneficiaries and the Trustees during the last two years of
the original or an extended term. The voting trust terminates upon the earlier
of the expiration of the term or in the event of (i) an agreement of the
Trustees to terminate or (ii) the death of the sole remaining Trustee, leaving
no incumbent or identified successor.
Initial Public Offering
In December 1997, the Company completed an initial public offering of
3,400,000 shares of its Class B common stock at $8.50 per share. Of those
shares, 2,725,000 shares were sold by the Company and 675,000 shares were sold
by certain selling shareholders. In January 1998, the underwriters from the
Company's initial public offering exercised their over-allotment option to
purchase an additional 510,000 shares of Class B common stock from the Company
at the initial public offering price. Net proceeds to the Company, including
the over-allotment option, were approximately $23,900,000 after deducting the
underwriters' discount, commissions and related issuance costs. The Company
did not receive any net proceeds from the sale of shares by the selling
shareholders in the offering.
Secondary Public Offering
In June 1998, the Company completed a secondary public offering of 3,000,000
shares of its Class B common stock at $15.00 per share. Of those shares,
1,775,000 shares were sold by the Company and 1,225,000 shares were sold by
certain selling shareholders. In June 1998, the underwriters from the
Company's secondary public offering exercised their over-allotment option to
purchase an additional 450,000 shares of Class B common stock from the Company
at the secondary public offering price. Net proceeds to the Company, including
the over-allotment option, were approximately $31,000,000 after deducting the
underwriters' discount, commissions and related issuance costs. The Company
did not receive any net proceeds from the sale of shares by the selling
shareholders in the offering.
Common Stock Repurchase Program
In October 1998, the Board of Directors authorized the repurchase of up to
one million shares of common stock. The purchases were to be made in the open
market or in privately negotiated transactions at the discretion of the
Company's management, depending on financial and market conditions or as
otherwise provided by the Securities and Exchange Commission and the Nasdaq
rules and regulations. As of September 30, 1999, 75,000 shares have been
repurchased for a total cost of $414,000.
Preferred Stock
In July 1997, the Company issued approximately 421,000 shares of Series A
preferred stock at $5.25 per share resulting in net proceeds of approximately
$1,900,000. The Series A preferred stock had the same voting
F-15
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Shareholders' Equity--(continued)
rights as the Class B common stock. Series A preferred stock was initially
convertible into one share of the Class B common stock, subject to certain
antidilution provisions. On December 17, 1997, as a result of the Company's
initial public offering, approximately 421,000 shares of Series A preferred
stock automatically converted into approximately 421,000 shares of Class B
common stock. At September 30, 1999, approximately 4,579,000 shares of
preferred stock were authorized.
Stock Options
For the year ended December 31, 1996, the Company issued to employees
options to purchase 440,000 shares of Class A common stock and 660,000 shares
of Class B common stock at exercise prices ranging from $0.12 to $1.82 per
share. Options for 200,000 shares of Class A common stock and 300,000 shares
of Class B common stock vested upon grant. The remaining options vested one-
third upon the completion of the Company's initial public offering in December
1997, one-third on December 31, 1997, and the final one-third on December 31,
1998. In February 1997, the Company issued options to purchase an additional
240,000 shares of Class A common stock at an exercise price of $3.58 per
share. As of September 30, 1999, options for 660,000 shares of Class A common
stock and 660,000 shares of Class B common stock had been exercised at prices
ranging from $0.12 to $3.58 per share (weighted average exercise price of
$1.66 per share) and options for 20,000 shares of Class A common stock at an
exercise price of $3.58 per share remain outstanding. These outstanding
options will expire in 2002. The weighted average fair value of these options
granted during the nine months ended September 30, 1997 was $0.48 per share.
At September 30, 1999, all of these options were vested.
F-16
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Shareholders' Equity--(continued)
1996 Equity Incentive Plan
In February 1997, the Company adopted the 1996 Equity Incentive Plan (the
"Plan"), under which the Board of Directors may issue incentive stock options
for Class B common stock to employees and nonstatutory stock options, stock
bonuses or the right to purchase restricted stock to employees, consultants
and outside directors. The Board of Directors or a committee designated by the
Board determines who shall receive awards, the number of shares and the
exercise price (which cannot be less than the fair market value at date of
grant for incentive stock options and other awards). Options granted under the
Plan expire no more than 10 years from the date of grant and must vest at a
rate of at least 20% per year over five years from date of grant. Incentive
stock options granted to employees deemed to own more than 10% of the combined
voting power of all classes of stock of the Company must have an exercise
price of at least 110% of the market price of the stock at the date of grant
and the options may not be exercisable after the expiration of five years from
the date of grant. Through September 30, 1999, no compensation expense had
been recorded in connection with stock based employee incentive awards under
the Plan. At September 30, 1999 and September 30, 1998, the number of shares
authorized for issuance under the Plan was approximately 5,989,000 and
2,989,000, respectively. A summary of activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
-------------- --------------
(in thousands)
<S> <C> <C>
Options outstanding at December 31, 1996...... -- $ --
Options granted.............................. 1,783 4.02
Options cancelled............................ (40) 3.33
-----
Options outstanding at September 30, 1997..... 1,743 3.93
Options granted.............................. 1,201 13.76
Options cancelled............................ (136) 9.23
Options exercised............................ (249) 3.71
-----
Options outstanding at September 30, 1998..... 2,559 8.28
Options granted.............................. 1,936 10.31
Options cancelled............................ (543) 11.13
Options exercised............................ (377) 3.30
-----
Options outstanding at September 30, 1999..... 3,575 9.47
=====
</TABLE>
The weighted average fair value of options granted to employees under the
Plan during the years ended September 30, 1999, 1998 and the nine months ended
September 30, 1997 was $5.43, $5.51 and $0.85 per share, respectively. At
September 30, 1999, 1998 and 1997, there were 1,505,000, 845,000 and 207,000
options exercisable at a weighted average exercise price of $10.07, $6.83 and
$3.31, respectively. At September 30, 1999, options to purchase approximately
1,788,000 shares of Class B common stock were available for grant. The
weighted average remaining life of outstanding options under the Plan at
September 30, 1999 was 8.52 years.
F-17
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Shareholders' Equity--(continued)
The following table summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- -------------- ---------------- -------------- ------------- --------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$2.45--$3.25 451 7.40 $ 2.98 291 $ 2.95
$4.25--$5.78 410 5.35 $ 5.25 212 $ 5.18
$6.00--$6.00 433 9.59 $ 6.00 10 $ 6.00
$6.81--$7.03 391 9.74 $ 6.90 74 $ 6.85
$7.06--$10.88 635 8.91 $ 9.50 310 $10.61
$13.88--$14.25 385 9.02 $14.14 188 $14.17
$14.38--$15.19 473 8.99 $14.89 158 $15.19
$16.13--$17.00 343 9.00 $16.31 234 $16.17
$17.75--$17.75 20 9.33 $17.75 20 $17.75
$17.81--$17.81 34 8.75 $17.81 8 $17.81
----- -----
$2.45--$17.81 3,575 8.52 $ 9.47 1,505 $10.07
===== =====
</TABLE>
Employee Stock Purchase Plan
In October 1997, the Company adopted the Employee Stock Purchase Plan. The
Company reserved a total of 100,000 shares of Class B common stock for
issuance under the plan. The plan has consecutive six-month purchase periods
and eligible employees may purchase Class B common stock at 85% of the lesser
of the fair market value of the Company's Class B common stock on the first
day or the last day of the applicable purchase period. The two purchase
periods ending in the year ended September 30, 1999 resulted in proceeds of
approximately $388,000 from the sale of 46,000 shares. The first purchase
period ended in May 1998 and resulted in proceeds of approximately $116,000
from the sale of approximately 11,000 shares.
Pro Forma Disclosures of the Effect of Stock-Based Compensation
The effect of applying the FAS 123 fair value method to the Company's stock-
based awards results in net income and net income per share as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended
-------------- September 30,
1999 1998 1997
------ ------ -------------
(in thousands, except per
share data)
<S> <C> <C> <C> <C>
Net income, as reported................... $1,006 $4,132 $300
Net income (loss), pro forma.............. (2,062) 2,616 165
Basic net income per share, as reported... 0.08 0.45 0.06
Basic net income (loss) per share, pro
forma.................................... (0.17) 0.28 0.03
Diluted net income per share, as
reported................................. 0.08 0.39 0.05
Diluted net income (loss) per share, pro
forma.................................... (0.17) 0.25 0.03
</TABLE>
F-18
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Shareholders' Equity--(continued)
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended
----------------------- September 30,
1999 1998 1997
----------- ----------- -------------
<S> <C> <C> <C>
Expected dividend yield................ 0% 0% 0%
Expected volatility.................... 82.3% 65% 0%
Risk-free interest rate................ 4.18%-5.77% 4.79%-5.60% 6.48%
Expected life of the option............ 0.5-5 years 0.5-4 years 1-5 years
</TABLE>
7. Alliance Agreement
In September 1999, the Company entered into a long-term strategic alliance
("Alliance Agreement"), with Siemens Business Services Limited ("SBS"). Under
the Alliance Agreement, the Company has committed to utilizing a minimum
amount of resources from the SBS Application Services Center ("ASC"). The
Company will market the ASC's services worldwide in exchange for fees based on
the utilization of resources. To the extent there is a shortfall in minimum
utilization, the Company's obligation under the Alliance Agreement shall not
exceed $17,400,000 over the five-year life of the agreement. The Company will
also receive approximately $11,200,000 for consultancy services provided over
the life of the Alliance Agreement.
8. Acquisitions
All acquisitions have been accounted for using the purchase method of
accounting and intangible assets are being amortized using the straight-line
method. Initial purchase price includes cash paid and stock issued at the date
of acquisition, estimated acquisition costs and any guaranteed future
consideration.
On December 16, 1996, the Company acquired the intangible assets of Chicago
Consulting Alliance, LLC ("CCA"). CCA was based in Chicago, Illinois and
provided consulting services for the custom design of software and computer
systems for business applications. The initial purchase price was
approximately $170,000. As of September 30, 1999, intangible assets of
approximately $170,000 are being amortized over a six-year period.
On December 31, 1996, the Company acquired certain assets and liabilities of
Encore Consulting, Inc. ("Encore"), a Missouri-based corporation which
provided consulting services for computer systems integration on a government
contract. The initial purchase price was approximately $726,000 and
liabilities assumed were approximately $59,000. Additional acquisition costs
of approximately $20,000 were incurred. Tangible assets acquired were
approximately $538,000. As of September 30, 1999, intangible assets of
approximately $267,000 are being amortized over a six-year period. Contingent
payments of up to $300,000 were to be made if renewals of a significant client
contract occur and provided that the key employee/sellers continue to be
employed by the Company. Based on the annual renewals of such contract,
contingent payments to the former Encore shareholders of $150,000 were
expensed during each of the year ended September 30, 1998 and the nine months
ended September 30, 1997 as compensation charge related to business
combinations.
On January 2, 1997, the Company acquired the intangible assets of Five
Points Consulting, LLC ("Five Points") which was based in Atlanta, Georgia.
Five Points custom designed software and computer systems for special business
applications. The initial purchase price was approximately $284,000. As of
September 30, 1999, intangible assets of approximately $284,000 are being
amortized over a six-year period.
F-19
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Acquisitions--(continued)
On March 10, 1997, the Company acquired the intangible assets of Tangent
Group, Pty. Limited ("Tangent Group"), an Australian entity which provided
computer systems consulting services. The initial purchase price was
approximately $488,000 (converted to U.S. dollars as of the date of the
acquisition). As of September 30, 1999, intangible assets recorded of
approximately $421,000 (converted into U.S. dollars using the September 30,
1999 exchange rate) are being amortized over a six-year period. In addition,
the Company recorded a liability to pay $120,000 in guaranteed minimum
royalties. The royalty is based on 3% of the Company's gross revenues
generated by its Australian operations. The maximum royalties to be paid over
the first three-year period are approximately $240,000. The minimum royalty of
$120,000 was included in the initial purchase price and any additional amounts
will be included in the purchase price when accrued.
On July 11, 1997, the Company acquired certain assets and liabilities of
Albanycrest, Limited ("Albanycrest"), a United Kingdom private limited
company, which provided information and management consulting services on the
design of software and computer systems. The initial purchase price was
approximately $335,000, tangible assets acquired were approximately $300,000
and liabilities assumed were approximately $243,000 (all converted into U.S.
dollars as of the date of the acquisition). As of September 30, 1999,
intangible assets of approximately $299,000 (converted into U.S. dollars using
the September 30, 1999 exchange rate) are being amortized over a six-year
period. During the year ended September 30, 1998 and nine months ended
September 30, 1997, approximately $477,000 and $319,000, respectively, of
compensation charge related to business combinations was recorded with respect
to certain payments made to former shareholders based on performance criteria
and continued employment. The performance criteria included renewal of a
specific contract and minimum levels of both the number of consultants and
billing amounts.
Effective March 1, 1998, the Company acquired certain assets and liabilities
of Sancha Computer Services Pty Limited and Sancha Software Development Pty
Limited ("Sancha Group"), Australian entities which provided computer systems
consulting services. The initial purchase price was approximately $5,219,000,
of which $4,554,000 was paid in cash and $666,000 in Class B common stock (all
converted into U.S. dollars as of the date of the acquisition). In addition,
liabilities assumed were approximately $66,000. Tangible assets of
approximately $40,000 were acquired. Additional acquisition costs of
approximately $397,000 were incurred. As of September 30, 1999, intangible
assets of approximately $6,472,000 (converted into U.S. dollars using the
September 30, 1999 exchange rate) are being amortized over a period of 8 to 15
years. Contingent payments totaling approximately $696,000 and $312,000 were
paid during the years ended September 30, 1999 and 1998, respectively.
Additional contingent payments of up to approximately $650,000 (based on
September 30, 1999 exchange rate of AU $1.54 to US $1.00) may be paid by May
15, 2000 if certain performance targets are met. The performance targets
specify the achievement of certain revenue levels of the continuing business
measured annually over a two-year period.
Effective April 1, 1998, the Company acquired certain assets and liabilities
of Simpson Fewster & Co. Pty Limited ("SFC"), an Australian entity which
provided information technology consulting services to develop and implement
call center applications. The initial purchase price was approximately
$788,000 and liabilities assumed were approximately $165,000 (both converted
into U.S. dollars as of the date of the acquisition). Additional acquisition
costs of approximately of $211,000 were incurred. Total tangible assets and
accounts receivable acquired were approximately $214,000. Contingent payments
of approximately $124,000 were paid during the year ended September 30, 1999.
Additional contingent payments may be paid based on the achievement of future
performance targets and the continued employment of certain key
employee/sellers with the Company. These payments will be recorded as
compensation charge related to business combinations at the time it is deemed
probable that such payments will be made. In addition, 48,768 shares of the
Company's Class B common stock, valued as of the date of the acquisition at
approximately $701,000, were issued and are held in
F-20
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Acquisitions--(continued)
escrow and will be released over three years provided that the key
employee/sellers are employed by the Company on the release dates. The value
of these shares are reflected as deferred compensation on the balance sheet
and are being amortized over the three year vesting period. In March 1999,
approximately 16,000 of these shares were released from escrow. As of
September 30, 1999, approximately $349,000 of compensation expense has been
amortized and intangible assets of approximately $905,000 (converted into U.S.
dollars using the September 30, 1999 exchange rate) are being amortized over a
six-year period.
Effective August 1, 1998, the Company acquired certain assets and
liabilities of Infact Pty Limited as trustee of the Infact Unit Trust
("Infact"), an Australian entity which provided information technology
consulting services. The initial purchase price was approximately $3,242,000,
tangible assets acquired were approximately $23,000 and liabilities assumed
were approximately $156,000 (all converted into U.S. dollars as of the date of
the acquisition). Additional acquisition costs of $57,000 were incurred. As of
September 30, 1999, intangible assets of approximately $4,483,000 (converted
into U.S. dollars using the September 30, 1999 exchange rates) are being
amortized over a period of 8 to 15 years. Contingent payments of approximately
$1,008,000 in cash and stock were earned during the year ended September 30,
1999. Approximately $246,000 of this first year contingent payment was
contingent upon employment and expensed during the year as a compensation
charge related to business combination and the remaining $762,000 was recorded
as additional purchase price. The remaining contingent payments of up to
approximately $716,000 in cash (based on a current exchange rate of AU $1.54
to US $1.00) and approximately 25,000 shares of the Company's Class B common
stock may be paid for the period ended August 1, 2000 if certain performance
targets are met. Such amounts are held in escrow prior to the achievement of
the performance targets. The performance targets specify the achievement of
certain levels of profit before taxes and revenues of the continuing business
measured annually. Approximately 71% of such payments will be accounted for as
additional purchase price and the remaining payments will be treated as
business combination compensation expense at the time the payments are deemed
probable to be made because such payments are contingent, in part, on the
continuing employment of a key employee/seller.
Effective November 30, 1998, the Company acquired all the issued and
outstanding capital stock of Midas Computer Software Limited ("Midas"), a
United Kingdom entity which provided data warehouse migration services. The
initial purchase price totaled approximately $3,907,000 (converted into U.S.
dollars as of the date of the acquisition), of which approximately $2,579,000
was paid in cash and acquisition costs and approximately $1,328,000 was
recorded as a result of the issuance of the Company's Class B common stock
with a guaranteed minimum value of approximately $1,317,000 (converted into
U.S. dollars using the September 30, 1999 exchange rates) three years from the
effective date of the acquisition. Additional acquisition costs of $374,000
were incurred. Tangible assets acquired were approximately $1,813,000 and
liabilities assumed were approximately $1,692,000. Additional contingent
payments of up to approximately $12,300,000 (based on the exchange rate at the
time of the agreement of GBP 0.61 to US $1.00), may be paid in cash and shares
of the Company's Class B common stock over a three-year period based on
achieving certain performance targets. Contingent payments will be accrued
when earned and recorded as additional purchase price. As of September 30,
1999, intangible assets of approximately $4,113,000 (converted into U.S.
dollars using the September 30, 1999 exchange rate) are being amortized over a
period of 8 years.
Effective January 1, 1999, the Company acquired all the issued and
outstanding capital stock of ADC Consultants Pty Limited ("ADC"), an
Australian entity that provided data management services. The initial purchase
price was approximately $2,565,000 in cash (converted into U.S. dollars as of
the date of the acquisition). Total liabilities assumed were $310,000 and
tangible assets acquired were $365,000. Additional contingent payments of up
to approximately $1,561,000 (based on September 30, 1999 exchange rate of
AU $1.54 to US $1.00) may be paid in cash and shares of the Company's Class B
common stock over a three year period
F-21
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Acquisitions--(continued)
based on the acquired business achieving certain levels of profits before
taxes and revenues measured annually over the three-year period. Contingent
payments will be accrued when earned and recorded as additional purchase
price. As of September 30, 1999, intangible assets of approximately $2,664,000
(converted into U.S. dollars using the September 30, 1999 exchange rate) are
being amortized over a period of 8 years.
Effective March 1, 1999, the Company acquired certain assets and assumed
certain liabilities of Service Design Associates, Inc. ("SDA"), an Indiana
corporation that provided payment processing, policy and IT systems services
for state and local government child support agencies. The initial purchase
price was approximately $4,351,000. Total liabilities assumed were
approximately $1,087,000. Total tangible assets acquired were approximately
$415,000. As of September 30, 1999, intangible assets of approximately
$5,023,000 are being amortized over a period of 8 years. In addition to the
initial purchase price of the acquisition, contingent payments of up to
approximately $900,000 in cash and $3.2 million in shares of the Company's
Class B common stock or cash, at the Company's election, will be paid to SDA
upon the achievement of certain performance targets over a three-year period.
Of the total contingent payments, SDA will be entitled to $500,000 cash upon
the award of a certain client contract with a specified revenue and gross
profit level and will be entitled to the remaining contingent payments on the
second and third anniversaries of the acquisition based upon the acquired
business achieving certain levels of profits before taxes and revenues over
that three-year period. In connection with the acquisition, Tier caused a
letter of credit of up to $800,000 to be issued as additional security for an
obligation of the surviving company. Contingent payments will be accrued when
earned and recorded as additional purchase price.
Effective May 1, 1999, the Company acquired certain assets and assumed
certain liabilities of the Technology Training Services division ("TTS") of
Automated Concepts, Inc., a leading provider of training services to the IT
professionals of Fortune 500 companies and other major corporations. The
initial purchase price was $1,713,000 in cash. Additional acquisition costs of
$95,000 were incurred. Total liabilities assumed were $71,000 and tangible
assets acquired were $131,000. Additional contingent payments of up to $1.5
million may be paid in shares of the Company's Class B common stock and cash
over a two-year period based on the acquired business achieving certain levels
of gross profit and revenues measured annually over the two-year period.
Shares of the Company's Class B common stock equal to $1.5 million based on
the average closing price of the Company's Class B common stock for the five
trading days preceding the agreement date of April 6, 1999, are currently in
an escrow account. If contingent performance requirements are met, the number
of shares released will be determined utilizing the average closing price of
the Company's Class B common stock for the five trading days preceding each
performance anniversary. In the event the value of the shares in the escrow
account is not sufficient to satisfy the additional contingent payments, such
shortfall shall be paid in cash. Any shares not released at the end of the
two-year performance period will be returned to the Company. Contingent
payments will be accrued when earned and recorded as additional purchase
price. As of September 30, 1999, intangible assets of approximately $1,748,000
are being amortized over a period of 8 years.
The Company recorded a charge to earnings for the $4 million purchase of the
exclusive worldwide licensing rights to components of a large scale,
enterprise-wide commercial billing system currently under development by the
Company for a client, which had not reached technological feasibility and had
no alternative future use. The license, which was effective May 19, 1999,
includes all additions, enhancements, and improvements to the software to the
extent that the Company is employed by the licensor to make such changes in
the future. The completion of the software is expected to occur in the second
quarter of fiscal year 2000. Once developed, this software would require
significant customization prior to a sale to a customer. If the development of
the software is not completed, the Company's cash flows and operations would
not be materially adversely affected.
The accompanying consolidated financial statements include the results of
operations of these acquired businesses for periods subsequent to the
respective acquisition dates.
F-22
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Acquisitions--(continued)
Pro Forma Disclosure of Significant Acquisitions (Unaudited)
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company as if Sancha Group, Infact
and Midas had been purchased by the Company as of October 1, 1997, after
including the impact of certain adjustments, such as increased amortization
expense due to recording of intangible assets:
<TABLE>
<CAPTION>
Year Ended September
30,
-----------------------
1999 1998
----------- -----------
(in thousands,
except per share data)
<S> <C> <C>
Revenues............................................ $ 92,692 $ 71,603
Net income.......................................... 830 4,779
Net income per share................................ 0.07 0.51
Diluted net income per share........................ 0.06 0.44
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be a projection of future results.
9. Related Party Transactions
Notes Receivable
The Company has outstanding notes receivable from certain officers and
employees of the Company as of September 30, 1999 and 1998, which total
approximately $975,000 and $1,557,000, respectively. These notes bear interest
at rates ranging from 5.75% to 9.00% and have due dates ranging from three to
ten years. Certain of these notes are being forgiven in accordance with the
terms of the officers' and employees' agreements and have an aggregate balance
of approximately $279,000 at September 30, 1999.
Notes receivable from shareholders issued in connection with the exercise of
options to purchase Class B common stock are due in February 2007, bear
interest at 6.99%, are secured and full recourse, and have a balance of
approximately $1,773,000 as of September 30, 1999. The related parties have
pledged a total of 241,902 shares of the Company's common stock as security
for the notes. As of September 30, 1999, the pledged stock had a market value
of approximately $1,663,000.
Guaranty of Obligation
On December 22, 1998, the Company guaranteed a portion of an obligation of
James L. Bildner, the Company's Chief Executive Officer, with respect to his
California residence (the "Guaranty"). The Company's liability under the
Guaranty is capped at $1,000,000. In connection with the Guaranty, Mr. Bildner
had previously pledged to the Company shares of the Company's common stock
owned by him with a fair market value of at least 110% of the Guaranty amount
and agreed to indemnify the Company for any loss, liability or expense
incurred in connection with the Guaranty. Effective June 30, 1999, the Company
amended the pledge agreement with Mr. Bildner such that his pledge to the
Company is set at 126,619 shares of the Company's common stock, which as of
September 30, 1999 had a market value of $870,506. Mr. Bildner continues to
indemnify the Company for any loss, liability or expense incurred in
connection with the Guaranty.
F-23
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Segment and Geographic Areas
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended
---------------- September 30,
1999 1998 1997
------- ------- -------------
(in thousands)
<S> <C> <C> <C>
Revenues:
United States............................... $60,989 $45,286 $19,407
Australia................................... 20,091 7,575 2,049
United Kingdom.............................. 10,896 4,864 1,023
------- ------- -------
Total......................................... $91,976 $57,725 $22,479
======= ======= =======
Income (loss) from operations:
United States............................... $ 224 $ 4,115 $ 456
Australia................................... 1,279 852 206
United Kingdom.............................. (1,174) 827 (62)
------- ------- -------
Total......................................... $ 329 $ 5,794 $ 600
======= ======= =======
<CAPTION>
September 30,
------------------------------
1999 1998 1997
------- ------- -------------
(in thousands)
<S> <C> <C> <C>
Identifiable assets:
United States............................... $55,629 $60,442 $ 8,129
Australia................................... 20,772 12,983 1,258
United Kingdom.............................. 7,543 1,078 1,109
------- ------- -------
Total......................................... $83,944 $74,503 $10,496
======= ======= =======
</TABLE>
The United States revenues for the years ended September 30, 1999 and 1998,
and the nine months ended September 30, 1997, include revenues from one
project with a U.S. company performed in Australia of approximately $110,000,
$4,165,000 and $2,111,000.
Segment Reporting
The Company is managed through four reportable segments, commercial
services, government services, Australian operations and United Kingdom
operations. The commercial services segment provides information technology
("IT") consulting, application development and software engineering services
to Fortune 1000 clients in the United States. The government services segment
provides IT consulting, application development, legal and policy consulting,
and business process outsourcing services to state and local government
entities in the United States. The Australian operations segment provides IT
consulting, application development and software engineering services to
clients in the public and private sectors in Australia. The United Kingdom
operations segment provides IT consulting, business process reengineering,
software engineering and application development services to clients in the
public and private sector in the United Kingdom.
The Company evaluates its segment performance and allocates resources based
on revenue and gross profit (net revenue less direct costs), while other
operating costs are evaluated on a geographical basis. Accordingly, the
Company does not include selling and marketing expenses, general and
administrative expenses, depreciation and amortization expense, interest
income (expense), other income (expense) and income tax expense in segment
profitability. The accounting policies of the reportable segments are the same
as those described in Note 1. The
F-24
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Segment and Geographic Areas--(continued)
table below presents financial information for the four reportable segments and
for items that cannot be allocated to the operating segments (in thousands):
<TABLE>
<CAPTION>
United
Commercial Government Australian Kingdom
Services Services Operations Operations Other Total
---------- ---------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues................ $29,477 $29,474 $20,091 $10,896 $2,038 $91,976
Gross profit............ 13,434 10,390 7,923 3,354 639 35,740
1998
Revenues................ 25,383 19,903 7,575 4,864 -- 57,725
Gross profit............ 9,225 7,048 2,758 1,421 -- 20,452
1997 (nine month period)
Revenues................ 9,523 9,884 2,049 1,023 -- 22,479
Gross profit............ 3,260 3,511 438 353 -- 7,562
</TABLE>
11. Income Taxes
The domestic and foreign components of income before income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended Nine
September 30, Months Ended
-------------- September 30,
1999 1998 1997
------ ------ -------------
(in thousands)
<S> <C> <C> <C>
United States................................... $1,771 $5,127 $356
Foreign......................................... (121) 1,647 145
------ ------ ----
Total......................................... $1,650 $6,774 $501
====== ====== ====
</TABLE>
F-25
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes--(continued)
<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- ------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Accrual basis to cash basis adjustments................... $ -- $ 158
Depreciation.............................................. -- 140
Other..................................................... 222 205
------- ------
Total deferred tax liabilities.............................. 222 503
Deferred tax assets:
Vacation accruals......................................... 175 229
Accrued expenses.......................................... 114 107
Accrued revenue........................................... 423 57
Accrued rent.............................................. 4 8
Accrued bonus............................................. 165 137
Depreciation.............................................. 18 --
Intangibles............................................... 645 122
Accounts receivable allowance............................. 866 99
Deferred miscellaneous revenue............................ -- 133
Purchased in-process technology........................... 1,432 --
Foreign tax credit carryforward........................... 572 156
Valuation allowance....................................... (572) (156)
------- ------
Total deferred tax assets................................... 3,842 892
------- ------
Net deferred tax assets..................................... $ 3,620 $ 389
======= ======
</TABLE>
Effective January 1, 1996, the Company changed from the cash to the accrual
method of accounting for income tax purposes. Differences in income tax basis
existing at that date were amortized to taxable income over a four-year
period.
At September 30, 1999, the Company had approximately $572,000 of foreign tax
credit carryforward for tax reporting purposes available to offset future U.S.
Federal Income Tax. Such foreign tax credit carryforward will expire in 2004.
The benefit from the foreign tax credit carryforward may be limited in certain
circumstances. The Company believes sufficient uncertainty exists regarding
the realizability of the foreign tax credit such that a valuation allowance is
required.
F-26
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Income Taxes--(continued)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Nine
Year Ended Months
September 30, Ended
--------------- September
1999 1998 30, 1997
------- ------ ---------
<S> <C> <C> <C>
Current:
Federal............................................ $ 3,112 $2,527 $ 144
State.............................................. 378 362 47
Foreign............................................ 385 474 154
------- ------ -----
3,875 3,363 345
------- ------ -----
Deferred (benefit):
Federal............................................ (2,891) (645) (123)
State.............................................. (340) (76) (21)
------- ------ -----
(3,231) (721) (144)
------- ------ -----
Total provision for income taxes..................... $ 644 $2,642 $ 201
======= ====== =====
</TABLE>
The effective tax rate differs from the applicable U.S. statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
Nine
Year Ended Year Ended Months Ended
September 30, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
U.S statutory federal tax rate... 34.0% 34.0% 34.0%
State taxes, net of federal tax
benefit......................... 4.0% 4.0% 6.1%
Tax exempt interest income....... (20.5)% (3.2)% --
Tax effect of foreign
operations...................... 19.6% -- --
Other............................ 1.9% 4.2% --
----- ---- ----
Effective tax rate............. 39.0% 39.0% 40.1%
===== ==== ====
</TABLE>
12. Retirement Plan
The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating
employees may defer a portion of their pretax earnings up to the Internal
Revenue Service annual contribution limit. The Company's contributions to the
401(k) Plan are discretionary. The Company has not contributed any amounts to
the 401(k) Plan to date.
13. Contract Dispute
The Company received a notice dated December 17, 1998 that a prime
contractor was exercising its right to terminate one of the Company's
Australian projects alleging a breach of the sub-contract. The Company
believes that the termination was not proper under the terms of the sub-
contract and that it has not breached the agreement. On June 28, 1999, after a
series of discussion with the prime contractor, the Company filed a federal
civil action against the prime contractor for the amounts the Company is due.
At that time, the Company established a reserve for the entire net receivable
balance of $1,856,000. On August 11, 1999, the Company received the prime
contractor's answer and counterclaim in response to the Company's complaint.
The prime contractor denied the Company's claim and counterclaimed alleging
breach of contract and seeking declaratory relief and damages in excess of $8
million and indemnification for damages, claims, penalties, fines and/or other
F-27
<PAGE>
TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Contract Dispute--(continued)
sanctions which may be levied in the future by the client of the prime
contractor. The Company denies the allegations and intends to vigorously
pursue its own claim against the prime contractor. The parties to the action
have commenced voluntary discovery. In the event the prime contractor prevails
in its action, the Company's financial condition, results of operations and
cash flows would be materially and adversely affected.
14. Subsequent Events
Effective October 1, 1999, the Company acquired all the issued and
outstanding capital stock of Simsion Bowles & Associates ("SBA"), an
Australian entity which provides business process reengineering and
integration of e-commerce consulting services. The initial purchase price
totaled approximately $2,567,000 (converted into U.S. dollars as of the date
of the acquisition) in cash. The acquisition will be accounted for using the
purchase method of accounting. Additional contingent payments of up to
approximately $3,052,000 (based on a current exchange rate of AU $1.54 to US
$1.00) may be paid in cash and shares of the Company's Class B common stock
over a three year period based on achieving certain performance targets.
Contingent payments will be accrued when earned and recorded as additional
purchase price. Intangible assets of approximately $2,397,000 will be recorded
and amortized using the straight-line method over an eight to ten-year period.
In October 1999, the Company (through its Australian subsidiary) entered
into a $2,100,000 revolving line of credit with St. George Bank Limited of
Australia (based on a current exchange rate of AU $1.54 to $1.00). Under the
terms of the agreement, the principal balance of the credit line will reduce
by approximately $195,000 per quarter, beginning February 2000, to a maximum
line of $1,300,000. The line of credit bears interest at fixed rates that are
set at the time of each drawdown on the line.
F-28
<PAGE>
TIER TECHNOLOGIES, INC.
SCHEDULE II
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning end of
of Period Additions Write-offs period
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended September 30, 1999
Allowance for doubtful receivables...... $260 $2,243 $(218) $2,285
Year Ended September 30, 1998
Allowance for doubtful receivables...... 50 320 (110) 260
Nine Months Ended September 30, 1997
Allowance for doubtful receivables...... -- 113 (63) 50
</TABLE>
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Tier Technologies, Inc.
/s/ James L. Bildner
By: _________________________________
Dated: December 10, 1999 James L. Bildner
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James L. Bildner, William G. Barton and George
K. Ross, and each of them, his attorneys-in-fact and agents, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James L. Bildner Chairman of the Board and December 10, 1999
____________________________________ Chief Executive Officer
James L. Bildner (principal executive
officer)
/s/ William G. Barton President, Chief Technology December 10, 1999
____________________________________ Officer and Director
William G. Barton
/s/ George K. Ross Executive Vice President and December 10, 1999
____________________________________ Chief Financial Officer
George K. Ross (principal financial
officer and principal
accounting officer)
/s/ Ronald L. Rossetti Director December 10, 1999
____________________________________
Ronald L. Rossetti
/s/ Samuel Cabot III Director December 10, 1999
____________________________________
Samuel Cabot III
/s/ William Van Faasen Director December 10, 1999
____________________________________
William Van Faasen
/s/ Morgan Guenther Director December 10, 1999
____________________________________
Morgan Guenther
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
2.1 Business Purchase Agreement dated as of August 1, 1998 by and
between Infact Pty Limited as trustee of the Infact Unit Trust
and Tier Technologies (Australia) Pty Limited (the schedules
and annexures to the Business Purchase Agreement have been
omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC) but will be provided
supplementally to the SEC upon request) (1)....................
2.2 First Amendment to Business Purchase Agreement dated as of
September 30, 1998 by and between Infact Pty Limited, as
trustee of the Infact Unit Trust and Tier Technologies
(Australia) Pty Limited (14)...................................
3.1 Amended and Restated Articles of Incorporation (14)............
3.2 Amended and Restated Bylaws (2)................................
4.1 Form of Class B Common Stock Certificate (3)...................
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of
Class B Common Stock of the Registrant.........................
10.1 Amended and Restated 1996 Equity Incentive Plan (8)*...........
10.2 Second Amended and Restated Employment Agreement by and between
the Registrant and James L. Bildner, dated as of February 16,
1998 (4)*
10.3 Second Amended and Restated Employment Agreement by and between
the Registrant and William G. Barton, dated as of February 16,
1998 (4)*......................................................
10.4 Investors' Rights Agreement by and among the Registrant and
holders of the Registrant's Series A Convertible Preferred
Stock, dated as of July 28, 1997 (3)*..........................
10.5 Stock Purchase Agreement by and among the Registrant and
holders of the Registrant's Series A Convertible Preferred
Stock, dated as of July 28, 1997 (3)*..........................
10.6 Full Recourse Promissory Note by and between the Registrant and
James L. Bildner, dated as of December 31, 1996 (3)............
10.7 Full Recourse Promissory Note by and between the Registrant and
James L. Bildner, dated as of January 2, 1997 (3)..............
10.8 Full Recourse Promissory Note by and between the Registrant and
James L. Bildner, dated as of May 31, 1997 (3).................
10.9 Full Recourse Promissory Note by and between the Registrant and
James L. Bildner, dated as of May 31, 1997 (3).................
10.10 Full Recourse Promissory Note by and between the Registrant and
James L. Bildner, dated as of July 15, 1997 (3)................
10.11 Amended and Restated Full Recourse Secured Promissory Note,
dated as of April 1, 1998, and Amended and Restated Pledge
Agreement dated April 1, 1998, by and between the Registrant
and James L. Bildner (4).......................................
10.12 Amended and Restated Full Recourse Secured Promissory Note,
dated as of April 1, 1998, and Amended and Restated Pledge
Agreement dated April 1, 1998, by and between the Registrant
and James L. Bildner (4).......................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
10.13 Full Recourse Promissory Note by and between the Registrant and
William G. Barton, dated as of December 31, 1996 (3)...........
10.14 Full Recourse Secured Promissory Note, dated as of February 28,
1997, and Amended and Restated Pledge Agreement, dated as of
August 1, 1997, by and between the Registrant and William G.
Barton (3).....................................................
10.15 Full Recourse Promissory Note by and between the Registrant and
William G. Barton, dated as of February 28, 1997 (3)...........
10.16 Full Recourse Promissory Note by and between the Registrant and
William G. Barton, dated as of July 15, 1997 (3)...............
10.17 Full Recourse Promissory Note by and between the Registrant and
F. Thomas Latham, dated as of July 15, 1997 (3)................
10.18 Amended and Restated Employment Agreement by and between the
Registrant and George K. Ross, dated as of February 16, 1998
(4)*...........................................................
10.19 Full Recourse Promissory Note by and between the Registrant and
George K. Ross, dated as of February 3, 1997 (3)...............
10.20 Office Lease by and between Urban West Business Park, Colony MB
Partners, L.P., as Landlord, and Tier Corporation, a California
Corporation, as Tenant, as amended July 29, 1997 (3)...........
10.21 Form of Indemnification Agreement (3)..........................
10.22 Tier Corporation 401(k) Plan, Summary Plan Description (3).....
10.23 Asset Purchase Agreement by and among the Registrant, Encore
Consulting LLC, David M. Beman, Thomas E. McLeod and Robert
Myers, dated as of December 31, 1996 (3).......................
10.24 Asset Purchase Agreement by and among the Registrant,
Albanycrest Limited, a Limited Liability Company Incorporated
in England, and Andrew David Armstrong, Thomas Thomson and
Howard Moore, dated as of July 11, 1997 (3)....................
10.25 Agreement for provision of consulting services by and between
the Registrant and Kaiser Foundation Health Plan, Inc. (3).....
10.26 Agreement for provision of consulting services by and between
the Registrant and the State of Missouri (3)...................
10.27 Agreement for provision of consulting services by and between
the Registrant and Unisys Corporation (Arizona) (3)............
10.28 Agreement for provision of consulting services by and between
the Registrant and Unisys Corporation (Australia) (3)..........
10.29 Employee Stock Purchase Plan (2)*..............................
10.30 Voting Trust Agreement (3).....................................
10.31 Form of Buy-Sell Agreement between James L. Bildner and William
G. Barton (2)..................................................
10.32 Business Purchase Agreement by and among Sancha Computer
Services Pty Limited, Sancha Software Development Pty Limited
and Tier Technologies (Australia) Pty Limited,
dated as of February 26, 1998 (5)..............................
10.33 Amendment of Business Purchase Agreement, among Sancha Computer
Services PtyLimited, Sancha Software Development Pty Limited
and Tier Technologies (Australia) Pty Limited, dated as of
March 20, 1998 (5).............................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
10.34 Revolving Credit Agreement by and between the Registrant, Tier
Technologies (United Kingdom) Inc. and BankBoston, N.A. (4)....
10.35 Agreement for provision of consulting services by and between
the Registrant and Humana, Inc. (4)............................
10.36 Full Recourse Promissory Note by and between the Registrant and
George K. Ross, dated as of February 10, 1998 (4)..............
10.37 Full Recourse Promissory Note by and between the Registrant and
James Weaver, dated as of May 22, 1998 (6).....................
10.38 Full Recourse Promissory Note by and between the Registrant and
James Weaver, dated as of May 22, 1998 (6).....................
10.39 Amended Agreement by and between the Registrant and the State
of Missouri, dated August 3, 1998 (14).........................
10.40 Amended and Restated Pledge Agreement and Promissory Note by
and between Registrant and William G. Barton (14)..............
10.41 Amendment to Revolving Credit Agreement by and among the
Registrant, Tier Technologies (United Kingdom), Inc. and
BankBoston, N.A. (14)..........................................
10.42 Second Amendment to Revolving Credit Agreement by and among the
Registrant, Tier Technologies (United Kingdom), Inc. and
BankBoston, N.A. (14)..........................................
10.43 Guaranty Agreement by the Registrant in favor of NationsBank,
N.A. with respect to a promissory note made by James L. and
Nancy J. Bildner, dated as of December 22, 1998 (9)............
10.44 Indemnification Agreement, dated December 22, 1998, by and
between the Registrant and James L. and Nancy J. Bildner (9)...
10.45 Pledge Agreement dated as of December 22, 1998, by and between
the Registrant and James L. Bildner (9)........................
10.46 Agreement for the sale and purchase of the entire issued share
capital of Midas Computer Software Limited, dated November 26,
1998, by and between Robert William Thompson, Yvonne Jayne
Thompson, Dominic Frost, Ian Smith and the other parties named
in Schedule 1 thereto and the Registrant (10)..................
10.47 Amended and Restated 1996 Equity Incentive Plan, dated January
28, 1999 (11)*.................................................
10.48 Agreement for provision of consulting services by and between
the Registrant and the State of New Jersey, division of Family
Development (11)...............................................
10.49 Asset Purchase Agreement dated as of May 17, 1999 by and
between the Registrant and Humana, Inc. (12)...................
10.50 End User Agreement dated as of May 17, 1999 between the
Registrant and Humana, Inc. (12)...............................
10.51 End User Agreement dated as of May 19, 1999 between the
Registrant and Humana, Inc. (12)...............................
10.52 Amended and Restated Pledge Agreement, dated as of June 30,
1999, by and between the Registrant and James L. Bildner.
(13)...........................................................
10.53 Second Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and James L. Bildner.
(13)...........................................................
10.54 Third Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and James L. Bildner.
(13)...........................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
10.55 Third Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and William G. Barton.
(13)...........................................................
10.56 Amended and Restated Revolving Credit Agreement, dated as of
May 28, 1999, by and between the Registrant, Tier Technologies
(United Kingdom) and BankBoston, N.A. (13).....................
10.57 First Amendment to Amended and Restated Revolving Credit
Agreement, dated as of June 30, 1999, by and between the
Registrant, Tier Technologies (United Kingdom), Inc. and
BankBoston, N.A. (13)..........................................
10.58 Standard Services Contract Agreement, dated as of June 1, 1999,
by and between the Registrant and the Maryland Department of
Human Resources. (13)..........................................
10.59 Contract, dated as of May 27, 1999, by and between the
Registrant and the State of Tennessee Department of Human
Services. (13).................................................
10.60 Contract for Goods and/or Services, dated August 10, 1999, by
and between the Registrant and the Government of the District
of Columbia....................................................
10.61 Alliance Agreement in Support of Project Uxbridge dated
September 1, 1999, by and between Tier Technologies (United
Kingdom) Inc. and Siemens Business Services Limited............
10.62 Second Amendment to Amended and Restated Revolving Credit
Agreement, dated as of September 30, 1999, by and between the
Registrant, Tier Technologies (United Kingdom) Inc. and
BankBoston, N.A................................................
10.63 Employment Agreement by and between the Registrant and James R.
Weaver, dated April 19, 1999.*.................................
16.1 Letter re: change in certifying accountant (7).................
21.1 Subsidiaries of the Registrant.................................
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants....................................................
23.2 Consent of Ernst & Young LLP, Independent Auditors.............
27.1 Financial Data Schedule........................................
</TABLE>
- --------
* Management contract or compensatory plan required to be filed as an
exhibit to this report.
(1) Filed as an exhibit to the Current Report on Form 8-K, filed August 21,
1998, and incorporated herein by reference.
(2) Filed as an exhibit to Form S-1/A No. 333-37661), filed on November 17,
1997, and incorporated herein by reference.
(3) Filed as an exhibit to Form S-1 (No. 333-37661), filed on October 10,
1997, and incorporated herein by reference.
(4) Filed as an exhibit to Form S-1/A (No. 333-52065), filed on May 7, 1998,
and incorporated herein by reference.
(5) Filed as an exhibit to the Current Report on Form 8-K, filed March 27,
1998, and incorporated herein by reference.
(6) Filed as an exhibit to Form 10-Q, filed August 14, 1998, and incorporated
herein by reference.
(7) Filed as an exhibit to the Current Report on Form 8-K, filed July 27,
1998, and incorporated herein by reference.
(8) Filed as Schedule A to Schedule 14C Information, filed November 6, 1998,
and incorporated herein by reference.
(9) Filed as an exhibit to Form 10-Q, filed February 12, 1999, and
incorporated herein by reference.
(10) Filed as an exhibit to the Current Report on Form 8-K, filed December 17,
1998, and incorporated herein by reference.
(11) Filed as an exhibit to Form 10-Q, filed May 13, 1999, and incorporated
herein by reference.
(12) Filed as an exhibit to the Current Report on Form 8-K, filed June 16,
1999, and incorporated herein by reference.
(13) Filed as an exhibit to Form 10-Q, filed August 13, 1999, and incorporated
herein by reference.
(14) Filed as an exhibit to Form 10-K, filed December 21, 1998, and
incorporated herein by reference.
<PAGE>
EXHIBIT 10.60
1
Subject to the terms and conditions set forth herein, the Government of the
District of Columbia, hereinafter referred to as the "District", and Tier
Technologies, Inc. who will perform the contract through SDA a Division of Tier
Technologies, Inc., hereinafter referred to as the "contractor", hereby enter
into a contract in accordance with the following terms:
ARTICLE 1
SCOPE OF WORK
-------------
The Office of the Corporation Counsel, Child Support Enforcement Division (CSED)
requires the contractor to provide, operate, install, design and develop
enhancements, implement and maintain its automated District of Columbia Child
Support Enforcement System (DCCSES). This complex system is required to perform
all functions necessary to process child support cases, as well as collections
for such cases, and must also be capable of interfacing with the various local
referral and locate agencies, as well as federal agencies for interception of
information and collection data. In addition, the automated system must have the
capacity to facilitate access to the District Wide Area Network (WAN) and Local
Area Network (LAN) to support the processing of child support cases at both the
CSED and the D.C. Superior Court.
<PAGE>
2
Specifically, the contractor shall provide all personnel, logistical support,
management, equipment, materials and supplies necessary to perform the
following:
1.1 Part 1 - New Equipment and Facility Management Operation
--------------------------------------------------------
1.1.1 Obtain and install new equipment at the contractor's site, install a
new DCCSES network with new updated equipment, equipment testing;
and provide logistical support, equipment capacity analysis,
training, documentation, and monthly operational services, in
accordance with the District's requirements. The equipment and
network should be compatible with the DC WAN in its current and
proposed structure.
The District will approve all plans and provide written
authorization in accordance with paragraph C.5 of the Request for
Proposals. A corresponding adjustment in the deliverable schedule
will be made for delays in the authorization in appropriate
circumstances.
1.2.1 Provide Facility Management services which will not begin until the
District approves in writing all tests (Section 1.1.1 above) and
provides written authorization to the contractor to begin providing
operational services.
1.1.3 Provide security plans and security safeguards for all programs and
data, and work with the present Facility Manager during the transfer
of responsibilities in installing new equipment.
1.1.4 Provide equipment maintenance services for all the contractor's
equipment at the Facility Management site as well as District owned
equipment in the CSED, Superior Court, Public Assistance office, and
the Foster Care office.
1.1.5 Warrant the existing DCCSES and be responsible for identifying and
successfully correcting all defects, deficiencies, errors,
omissions, and other problems that occur in that software.
1.1.6 Within three (3) years from the date of the award of the definitized
contract, the District and the contractor shall examine the leased
equipment and related peripherals
<PAGE>
3
at the contractor's facility management facility and determine if
upgrades are necessary to meet minimum performance standards set
forth in the Request for Proposals (RFP) Section C.8.1.14 and
Amendment 1, item 7. If upgrades are necessary, the contractor shall
provide a plan and if the District requires the upgrades it shall
change order the contract.
1.2 Part 2 - Database Cleanup Services
------------------------------------
1.2.1 Examine case folders at the CSED and Superior Court, comparing the
data contained therein with the new DCCSES database, and with other
sources such as the previously discussed CSED and Superior Court
automated systems, determining the correctness of the data, and
inputting the corrections to the DCCSES database.
1.2.2 Calculate and/or recalculate all financial balances associated with
each obligation in each case in the child support case load up to
the maximum of 100,000 cases in the Database cleanup and validate
the accuracy of each balance using all relevant manual and automated
forms, documents, records, and other materials and applying all
relevant regulatory criteria.
1.2.3 Provide back-up materials in a form and content acceptable to the
District showing the manner in which each balance was validated. If
a balance is not accurate, the contractor shall provide a written
statement of the correct balance and written documentation of the
contractor's calculation supporting the corrected balance. The
contractor shall obtain the District's written approval of all
calculations and shall update the database with corrected balances
only after receipt of such written approval. The contractor shall
not warrant the accuracy of its calculations or any information upon
which its calculation is based but shall meet all performance
criteria incorporated into the Database Cleanup Quality Control Plan
as approved by the District.
1.2.4 Database cleanup shall be no longer than 15 months after the
District's approval of all database cleanup plans.
<PAGE>
4
1.3 Part 3 - DCCSES and Software Changes and Changes required by the Personal
-------------------------------------------------------------------------
Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)
-----------------------------------------------------------------------
1.3.1 Design, develop, test and implement all DCCSES and PRWORA software
changes, the Balanced Budget Act and H.R. 3130 that may be
identified in the Request for Proposals (RFP) by the District during
the term of the contract.
1.3.2 The changes identified in the RFP and made under DCCSES, PRWORA, the
Balanced Budget Act and H.R. 3130 shall be warranted as being defect
free for a period of twelve (12) months after acceptance by the
District of the changes. Any defect in any change shall be corrected
by the contractor at no cost to the District within the warranty
period.
1.3.3 Upon receipt of a timely written notice of any deficiencies in a
change or deliverable, the contractor shall respond with a
corrective action plan or written plan identifying how and when the
deficiency will be corrected.
1.3.4 The task under Part 3 must be prioritized such that the software
changes (DCCSES, PRWORA, Balanced Budget Act and H.R. 3130) shall be
completed no later than April 30, 2001 based upon a definitized
contract award date of July 30, 1999.
1.4 PERFORMANCE REQUIREMENTS
The contractor shall perform the scope of work in accordance with the
Contractor's Performance Requirements, Attachment D, which contains the
performance requirement, performance standard, acceptable quality level and
surveillance method and frequency.
1.5 CONTRACTOR PERFORMANCE RESPONSIBILITIES AND LIMITATIONS
1.5.1 The contractor shall be responsible for all costs related to the
project. The District will provide only office space, desks, chairs,
a copier and copying paper, a phone for local phone calls, and the
use of a fax machine.
<PAGE>
5
1.5.2 The contractor shall provide all of the leased equipment at the
facility management site located in the District, required to
process the DCCSES, meet all contractual performance standards, and
handle communications and terminals. The contractor shall provide
operating software, and supplies necessary for facilities management
to support the DCCSES during the contract term. The contractor's
software utility programs must be included as part of the facilities
management for the purpose of providing magnetic tape dumps.
1.5.3 The contractor shall provide training to the District's staff
designated by the contract administrator. The contractor shall
provide all training related to the scope of work in this contract.
This training shall be in accordance with a District approved
training Plan submitted by the contractor according to the approved
Work Plan. Such training shall include that which is necessary for
coordination with the Facility Manager for operating various DCCSES
programs, and training on how the software changes are used in
DCCSES.
1.5.4 The contractor shall establish a full time office in the CSED on the
date of contract award. All related costs for this office shall be
the sole responsibility of the contractor. At a minimum, the
contractor shall provide CSED and DC Superior Court the following
personnel:
a. A Project Manager or Assistant Project Manager solely dedicated
to the project and is knowledgeable in all aspects of child
support laws, rules, and regulations, who has at least three(3)
years experience in managing comparable services, and who will
be on-site at the CSED office for the duration. References shall
be submitted by the contractor.
b. The contractor shall provide on site one (1) full time technical
person for each working day who is knowledgeable in the
Connecticut Child Support System and the DCCSES each day through
completion of Part 3,
<PAGE>
6
Software Changes (see Section 1.3 above). This technical person
must be capable of responding to system questions from District
users for the existing and future DCCSES.
c. In addition to the overall Contractor Project Manager, a minimum
of one (1) full time person on site in the CSED and Superior
Court, during Part 2, Database Cleanup, (see Section 1.2 above).
The person assigned to this position must be knowledgeable in
database cleanup operations as well as child support operations.
1.6 RESPONSIBILITIES OF THE CHILD SUPPORT ENFORCEMENT DIVISION
The CSED shall be responsible for the following tasks:
1.6.1 Project management;
1.6.2 Provide oversight and assistance to the contractor;
1.6.3 Provide timely approval and payment of deliverables that meet the
District's requirements in accordance with paragraph C.5 of the RFP;
1.6.4 Evaluate contract performance and general contract monitoring;
and
1.6.5 Prepare written reports of system problems and deficiencies of the
contractor.
ARTICLE 2
TRANSITION PERIOD
-----------------
The contractor shall have a 15 week overlap with Unisys Corporation in
testing and installing new equipment and the conversion of the DCCSES
database from the existing equipment to the new equipment.
<PAGE>
7
ARTICLE 3
TYPE OF CONTRACT AND CONTRACT AMOUNT
------------------------------------
3.1 This is a definite-quantity term contract with payment based on fixed
prices as set forth in the contractor's best and final offer dated May 12,
1999, schedules B.1, B.1.1.1, B.1.1.2, B.1.1.3, B.1.1.4, B.1.2.1, B.1.2.2,
B.1.3.1, B.1.4.1, B.1.5.1 and Schedule C, with a price redetermination
element based on the amount of travel as set forth in Article 7 below.
3.2 The District shall pay the contractor a total of thirty-one million, seven
hundred and eighty-three thousand, and three hundred and sixty-five dollars
($31,783,365.00), subject to price redetermination under Article 7 below.
3.3 In addition to the fixed prices, the District shall pay the contractor for
accelerating to October 30, 1999 Year 2000 compliance on the application
software for the DCCSES, an additional $72,000. If the contractor fails to
complete by October 30, 1999, the Year 2000 compliance, the District shall
not pay the contractor the additional amount of $72,000.
ARTICLE 4
COMMENCEMENT OF OPERATIONS AND DELIVERABLES
-------------------------------------------
The contractor shall commence performance of services (other than as
provided in the scope of work in the letter contract, Attachment A)
immediately upon notification of the definitized contract award. With
respect to each task identified in Article 1, the contractor shall provide
the deliverables outlined in Attachment C.
ARTICLE 5
CONTRACT TERM
-------------
This is a multi-year contract with a term beginning May 21, 1999 and
extending five (5) years from the date that the contracting
<PAGE>
8
officer awards the definitized contract. Except for the statement of work
(Attachment A of the letter contract, dated May 21, 1999), due dates for
contract performance including deliverables shall be from the date of award
of the definitized contract.
If funds are not appropriated or otherwise made available for the continued
performance in the subsequent year of the multiyear contract, the contract
for the subsequent year shall be terminated, either automatically or in
accordance with the termination clause of the contract, if any. Unless
otherwise provided for in the contract, the effect of termination is to
discharge both the District government and the contractor from future
performance of the contract, but not from their existing obligations. The
contractor shall be reimbursed for the reasonable value of any nonrecurring
costs incurred but not amortized in the price of the supplies or services
delivered under the contract.
ARTICLE 6
METHOD OF PAYMENT AND INVOICING
-------------------------------
Prohibition against advanced payments: The District cannot make advanced
payment to the contractor. Accordingly, payment to the contractor must be
made by the District after deliverables are received and accepted by the
District. For continuing services, the District will make payment to the
contractor on a pro-rata basis for the period of service for the base term
left after the contractor starts the service. For example, since the Help
Desk will start twelve (12) weeks after award of the definitized contract,
the fixed price of $390,687 will be spread over the nine (9) remaining
months of the first year.
6.1 Part 1, New Computers and Printers: The District shall pay the contractor
----------------------------------
for new computers and printers 50% of the cost of the new computers and
printers upon transfer of title and delivery to the District and the
remaining 50% amount upon installation by the contractor and acceptance by
the District.
6.2 Part 1, Facility Management Services: The District will calculate payments
------------------------------------
based on the fixed prices set forth in the applicable schedules for
facility management services. The fixed prices for facility management
services include the cost of leased equipment for the facility management.
<PAGE>
9
6.3 Part 2, Database Cleanup: Upon receipt of a properly executed invoice, the
------------------------
District will pay the contractor on a fixed-price per month basis not to
exceed the amount of $229,016 per month. This payment amount is based on
100,000 cases at $34.35 per case for a time period of 15 months. The
contractor shall provide appropriate documentation of hours worked as well
as computer generated list of cases completed. The District shall withhold
10% of the invoiced amount until the project is completed or until a
satisfactory audit has been performed, whichever is later, as set forth in
RFP C.8.2.4.7.
6.4 Part 3, Software Changes (Software Modifications): The District shall pay
-------------------------------------------------
the contractor the fixed prices set forth in Schedules B.1.1.3, B.1.1.4 and
B.1.1.2, 20% of the total price upon completion and acceptance of each task
as set forth below:
a. complete business specifications
b. technical specifications
c. conclude testing
d. acceptance by the District
e. installation and implementation
The District shall withhold 10% of each invoiced amount until it has been
notified in writing by the U.S. Department of Health and Human Services
that the system has been certified as meeting the system requirements of
the Personal Responsibility and Work Opportunity Reconciliation Act of
1996, Balanced Budget Act and H.R. 3130.
6.5 Invoices shall be prepared in quadruplicate and submitted on the 10th of
each month to the System Project Manager, Child Support Enforcement
Division, 441 4th Street, NW, 5th Floor, Washington, D.C. 20001, telephone
number (202) 724-1410.
6.6 Invoices shall, at a minimum, contain the following information:
6.6.1 contractor's name and address;
6.6.2 invoice, contract and purchase order numbers;
6.6.3 period of services;
6.6.4 location of delivery;
6.6.5 total dollar amount due;
6.6.6 description of services provided;
6.6.7 contractor's authorized signature; and
6.6.8 contractor's Federal I.D. number.
6.7 Payments under this contract are subject to the quick payment provisions of
the D.C. Code Section 1-1171 et.seq.
<PAGE>
10
ARTICLE 7
PRICE REDETERMINATION BASED ON THE AMOUNT OF TRAVEL
---------------------------------------------------
7.1 At the end of five (5) years from the date of the award of the definitized
contract, if the contractor has made fewer than 276 trips to the greater
Baltimore-Washington area in the performance of this contract, the District
will redetermine the last payment due the contractor by deducting from the
last payment $1,282 for each trip under 276 trips which the contractor
failed to make.
7.2 Prior to the final payment, the contractor shall certify to the District
the number of trips made to the greater Baltimore-Washington area in the
performance of this contract.
7.3 For the purpose of this provision, the contractor has made a "trip" when
one employee of the contractor travels to the greater Baltimore-Washington
area in the performance of this contract, and stays at the greater
Baltimore-Washington area at a minimum of one (1) night. Consistent with
this definition, the contractor would be determined to have taken two (2)
trips if two (2) employees of the contractor travel to the greater
Baltimore-Washington area in the performance of this contract, and stay at
the greater Baltimore-Washington area at a minimum of one (1) night.
ARTICLE 8
CONTRACT ADMINISTRATION
-----------------------
8.1 Contracting Officer: The contracting officer is the only person authorized
-------------------
to contractually bind the District. The contracting officer shall be the
Chief Procurement Officer, Office of Contracting and Procurement, 441 4th
Street, N.W., Suite 800 South, Washington, D.C. 20001, telephone number
(202) 727-0252.
8.2 Contract Administrator: The contract administrator shall be responsible for
----------------------
overall administration of the contract. The contract administrator shall be
the Director, Child Support Enforcement Division, Office of the Corporation
Counsel, 441 4th Street, N.W., Suite 500 South, Washington, D.C. 20001,
telephone number (202) 724-1548.
<PAGE>
11
8.3 Technical Representative: The technical representative is responsible for
------------------------
the daily coordination of operating procedures between the District and the
contractor, and for monitoring contract compliance. The technical
representative shall be the System Project Manager, Child Support
Enforcement Division, 441 4th Street, NW, 5th Floor, Washington, D.C.,
20001, telephone number 202) 724-1410.
ARTICLE 9
CANCELLATION CEILING
--------------------
In accordance with Article 5, Contract Term, in the event of cancellation
of the contract because of non-appropriation of funds for fiscal years
2000, 2001, 2002, 2003, and 2004, there shall be a cancellation ceiling of
$11,496,229 for year 2000, $6,062,228 for year 2001, $4,178,572 for 2002,
$4,532,094 for year 2003, and $5,514,242 for year 2004.
ARTICLE 10
KEY PERSONNEL
-------------
The following are considered to be key personnel:
Irma Neal, Project Executive
S. Diane Stokes, Project Manager
John Raffauf, Deputy Project Manager
The key personnel are considered to be essential to the work being
performed hereunder. Prior to making any material changes in key personnel,
the contractor shall notify the contract administrator one (1) week in
advance and shall submit justification (including proposed substitutions in
case of reassignments, promotions) in sufficient detail to permit
evaluation of the impact on the program. No material changes in key
personnel shall be made by the contractor without the written consent of
the contract administrator.
<PAGE>
12
ARTICLE 11
YEAR 2000 WARRANTY
------------------
11.1 The contractor shall warrant that the DCCSES and all information
technology (IT)(as defined in FAR 2.101), whether commercial or
noncommercial, delivered under this contract or modified by the
contractor, that will be required to perform date/time processing
involving dates subsequent to 31 December 1999, shall be Year 2000
compliant if properly installed, operated, and maintained in accordance
with the contract specifications and applicable documentation. If the
contract requires that specific deliverables operate together as a
system, this warranty shall apply to these deliverables as a system.
11.2 Year 2000 Compliant (as defined in FAR 39.002) means that the IT
accurately possesses date/time data (including, but not limited to
calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and
leap year calculations, to the extent that other IT, used in combination
with the IT being delivered, properly exchanges date/time data with it.
The proper exchange of date/time data shall be in accordance with the
interface requirements specification(s) of the contract.
11.3 For line item deliverables which are commercial items (as defined in FAR
2.101), and which include commercial IT, the terms and conditions of the
standard commercial warranty covering such commercial IT shall apply in
addition to, and to the extent such terms and conditions are consistent
with, this warranty. Any applicable commercial warranty shall be
incorporated into this contract by attachment.
11.4 Notwithstanding any provision to the contrary in other warranty
requirement(s) of this contract, or in the absence of any such warranty
requirement(s), the remedies available to the District under this
warranty shall include those provided in the Inspection clause of this
contract (Standard Contract Provisions,
<PAGE>
13
Attachment B, section 7(l). Nothing in this warranty shall be construed
to limit any rights or remedies the District may otherwise have under
this contract.
11.5 Unless specified elsewhere in this contract, the contractor shall also
deliver to the District a report summarizing any Year 2000 compliance
testing that was performed, and the results thereof.
11.6 This warranty shall expire on January 21, 2001, or one hundred eighty
(180) days after acceptance of the last deliverable IT item under this
contract (including any options(s) exercised hereunder), which is later.
ARTICLE 12
LOCATION OF THE CONTRACTOR'S
----------------------------
FACILITY MANAGEMENT AND MAINTENANCE OFFICE
------------------------------------------
The contractor's facility management and maintenance office (office)
shall be located in the District of Columbia with a 24 hour security
surveillance. The office shall be in operation by Decemeber 1, 1999.
ARTICLE 13
LIQUIDATED DAMAGES FOR FAILURE TO MOVE THE
------------------------------------------
FACILITY MANAGEMENT AND MAINTENANCE OFFICE IN THE DISTRICT
----------------------------------------------------------
Failure of the contractor to move its facility into the District by
December 1, 1999 shall result in the assessment of liquidated damages in
the amount of $500.00 for each day that the facility remains outside of
the District.
ARTICLE 14
RIGHTS IN DATA
--------------
14.1 "Data," as used herein, means recorded information, regardless of the
form or media on which it may be recorded. The term includes technical
data and computer software. The term does not include information
incidental to contract administration, such as
<PAGE>
14
financial, administrative, cost or pricing, or management information.
The term "technical data", as used herein, means recorded information,
regardless of form or characteristic, of a scientific or technical
nature. It may include, for example, document research, experimental,
developmental or engineering work, or be usable or used to define a
design or process or to procure, produce, support, maintain, or operate
material. The data may be graphic or pictorial delineations in media such
as drawings or photographs, text in specifications or related performance
or design type documents, or computer printouts. Examples of technical
data include research and engineering data, engineering drawings and
associated lists, specifications, standards, process sheets, manuals,
technical reports, catalog item identifications and related information,
and computer software documentation. Technical data does not include
computer software or financial, administrative, cost and pricing, and
management data or other information incidental to contract
administration.
The term "computer software", as used herein, means computer programs and
computer data bases. "Computer programs", as used herein means a series
of instructions or statements in a form acceptable to a computer,
designed to cause the computer to execute an operation or operations.
"Computer programs" include operating systems, assemblers, compilers,
interpreters, data management systems, utility programs, sort/merge
programs, and automated data processing equipment, maintenance diagnostic
programs, as well as applications programs such as payroll, inventory
control and engineering analysis programs. Computer programs may be
either machine-dependent or machine-independent, and may be general-
purpose in nature or designed to satisfy the requirements of a particular
user.
The term "computer data bases", as used herein, means a collection of
data in a form capable of being processed and operated on by a computer.
14.2 All data first produced in the performance of this contract shall be the
sole property of the District. Contractor hereby acknowledges that all
data including, without limitation, computer program codes produced by
contractor for the District under this
<PAGE>
15
contract are works made for hire and are the sole property of the
District; but, to the extent any such data may not, by operation of law,
be works made for hire, contractor hereby transfers and assigns to the
District the ownership of copyright in such works, whether published or
unpublished. The contractor agrees to give the District all assistance
reasonably necessary to perfect such rights including, but not limited
to, the works and supporting documentation and the execution of any
instrument required to register copyrights. The contractor agrees not to
assert any rights at common law or in equity in such data. The contractor
shall not publish or reproduce such data in whole or in part or in any
manner or form, or authorize others to do so, without written consent of
the District until such time as the District may have released such data
to the public.
14.3 The District shall have restricted rights in computer software and all
accompanying documentation, manuals and instructional materials listed or
described in a license or agreement made a part of the contract, which
the parties have agreed will be furnished with restricted rights,
provided however, notwithstanding any contrary provision in any such
license or agreement, such restricted rights shall include, at a minimum,
the right to:
14.3.1 Use the computer software and all accompanying documentation and
manuals or instructional materials with the computer for which or
with which it was required, including use at any Government
installation to which the computer may be transferred by the
District;
14.3.2 Use the computer software and all accompanying documentation and
manuals or instructional materials with a backup computer if the
computer for which or with which it was acquired is inoperative;
14.3.3 Copy computer programs for safekeeping (archives) or backup
purposes; and
14.3.4 Modify the computer software and all accompanying documentation
and manuals or instructional materials, or combine it with other
software, subject to the provision that the modified portions
shall remain subject to these restrictions.
<PAGE>
16
14.4 The restricted rights set forth in paragraph 14.3 are of no effect unless
(i) the computer software is marked by the contractor with the following
legend:
RESTRICTED RIGHTS LEGEND
Use, duplication, or disclosure is subject to
restrictions stated in Contract No. 8105-AA-NS-4-JJ
with Service Design Associates a Division of Tier
Technology and (ii) the related computer software
documentation includes a prominent statement of the
restrictions applicable to the computer software. The
contractor may not place any legend on computer
software indicating restrictions on the District's
rights in such software unless the restrictions are set
forth in a license or agreement made a part of the
contract prior to the delivery date of the software.
Failure of the contractor to apply a restricted rights
legend to such computer software shall relieve the
District of liability with respect to such unmarked
software.
14.5 In addition to the rights granted in paragraph 14.3 above, the contractor
hereby grants to the District a nonexclusive, paid-up license throughout
the world, of the same scope as restricted rights set forth in paragraph
14.3 above, under any copyright owned by the contractor, in any work of
authorship prepared for or acquired by the District under the contract.
Unless written approval of the contracting officer is obtained, the
contractor shall not include in technical data or computer software
prepared for or acquired by the District under the contract any works of
authorship in which copyright is not owned by the contractor without
acquiring for the District any rights necessary to perfect a copyright
license of the scope specified in the first sentence of this paragraph.
14.6 Whenever any data, including computer software, are to be obtained from a
subcontractor under this contract, the contractor shall use this same
clause in the subcontract, without alteration, and no other clause shall
be used to enlarge or
<PAGE>
17
diminish the District's or the contractor's rights in that subcontractor
data or computer software which is required for the District.
14.7 For all computer software furnished to the District with the rights
specified in paragraph 14.2, the contractor shall furnish to the District
a copy of the source code with such rights of the scope specified in
paragraph 14.2. For all computer software furnished to the District with
the restricted rights specified in paragraph 14.3 the District, if the
contractor, either directly or through a successor or affiliate shall
cease to provide the maintenance or warranty services provided the
District under this contract or any paid-up maintenance agreement, or if
contractor should be declared bankrupt or insolvent by a court of
competent jurisdiction, shall have the right to obtain, for its own and
sole use only, a single copy of the then current version of the source
code supplied under this contract, and a single copy of the documentation
associated therewith, upon payment to the person in control of the source
code the reasonable cost of making each copy.
14.8 The contractor shall indemnify and save and hold harmless the District,
its officers, agents and employees acting within the scope of their
official duties against any liability, including costs and expenses, (i)
for violation of proprietary rights, copyrights, or rights of privacy,
arising out of the publication, translation, reproduction, delivery,
performance, use or disposition of any data furnished under this
contract, or (ii) based upon any data furnished under this contract, or
based upon libelous or other unlawful matter contained in such data.
14.9 Nothing contained in this clause shall imply a license to the District
under any patent, or be construed as affecting the scope of any license
or other right otherwise granted to the District under any patent.
14.10 Paragraphs 14.3, 14.4, 14.5, 14.7, and 14.8 above are not applicable to
material furnished to the contractor by the District and incorporated in
the work furnished under contract, provided that such incorporated
material is identified by the contractor at the time of delivery of such
work.
<PAGE>
18
ARTICLE 15
DRUG-FREE WORKPLACE (July 1990)
-------------------------------
15.1 Definitions. As used in this clause:
"Controlled substance" means a controlled substance in schedules I
through V of section 202 of the Controlled Substances Act (21 U.S.C. 812)
and as further defined in regulation at 21 CFR 1308.11 -1308.15.
"Conviction" means a finding of guilt (including a plea of nolo
contendere) or imposition of sentence, or both, by any judicial body
charged with the responsibility to determine violations of the Federal or
State criminal drug substance.
"Criminal drug statute" means a Federal or non-Federal criminal statute
involving the manufacturer, distribution, dispensing, possession or use
of any controlled substance.
"Drug-free workplace" means the site(s) for the performance of work done
by the Contractor in connection with a specific contract at which
employees of the Contractor are prohibited from engaging in the unlawful
manufacture, distribution, dispensing, possession, or use of a controlled
substance.
"Employee" means an employee of a Contractor directly engaged in the
performance of work under a Government contract.
"Directly engaged" is defined to include all direct cost employees and
any other Contractor employee who has other than a minimal impact or
involvement in contract performance.
"Individual" means an offeror/contractor that has no more than one
employee including the offeror/contractor.
15.2 The contractor, if other than an individual, shall within 30 calendar
days after contract award (unless a longer period is agreed to in
writing), for contracts of 30 calendar days or more performance duration:
or as soon as possible for contracts of less than 30 calendar days
performance duration:
<PAGE>
19
15.2.1 Publish a statement notifying such employees that the unlawful
manufacture, distribution, dispensing, possession, or use of a
controlled substance is prohibited in the Contractor's workplace
and specifying the actions that will be taken against employees
for violations of such prohibition;
15.2.2 Establish an ongoing drug-free awareness program to inform such
employees about:
A. The dangers of drug abuse in the workplace;
B. The Contractor's policy of maintaining a drug-free
workplace;
C. Any available drug counseling, rehabilitation, and employee
assistance program; and
D. The penalties that may be imposed upon employees for drug
abuse violations occurring in the workplace.
15.2.3 Provide all employees engaged in performance of the contract with
a copy of the statement required by subparagraph 15.2.1 of this
provision;
15.2.4 Notify such employees in writing in the statement required by
subparagraph 15.2.1 of this provision that, as a condition of
continued employment on the contract resulting from this
solicitation, the employee will:
A. Abide by the terms of the statement; and
B. Notify the employer in writing of the employee's conviction
under a criminal drug statute for a violation occurring in
the workplace no later than 5 calendar days after such
conviction;
15.2.5 Notify the Contracting Officer in writing within 10 calendar days
after receiving notice under subdivision 15.2.4.B of this
provision, from an employee or otherwise receiving actual notice
of such conviction. The notice shall include the position title
of the employee; and
<PAGE>
15.2.6 Within 30 calendar days after receiving notice under subdivision
15.2.4.B of this clause of a conviction, take one of the
following actions with respect to any employee who is convicted
of a drug abuse violation occurring in the workplace:
A. Take appropriate personnel action against such employee, up
to and including termination; or
B. Require such employee to satisfactorily participate in a
drug abuse assistance or rehabilitation program approved for
such purposes by a Federal, State, or local health, law
enforcement, or other appropriate agency.
15.2.7 Make a good faith effort to maintain a drug-free workplace
through implementation of subparagraphs 15.2.1 through 15.2.6 of
this clause.
15.3 The contractor, if an individual, agrees by award of the contract or
acceptance of a purchase order, not to engage in the unlawful
manufacture, distribution, dispensing, possession, or use of a controlled
substance in the performance of this contract.
15.4 In addition to other remedies available to the Government, the
contractor's failure to comply with the requirements of paragraph 15.2 or
15.3 of this clause may, pursuant to FAR 23.506, render the contractor
subject to suspension of contract payments, termination of the contract
for default, and suspension or debarment.
ARTICLE 16
SOFTWARE SUPPORT
----------------
The contractor shall provide for up to 120 hours per month of DCCSES
application programming and analysis support and service per month to be
used by the District as required.
ARTICLE 17
SOFTWARE MAINTENANCE
--------------------
The contractor shall perform software maintenance on the District of
Columbia Child Support Enforcement System (DCCSES)
<PAGE>
as it exists on the date of definitized contract award, for a period of
three (3) years from the award date of the definitized contract. The
contractor shall be responsible for identifying and successfully
correcting all defects, deficiencies, errors, omissions, and all other
problems in the software during this period. The contractor is
responsible for allocating sufficient resources to this task to ensure
its successful completion and avoid delays in other deliverables. The
contractor is at a minimum to perform 100 hours per month for software
maintenance. The contractor shall be responsible for providing this
maintenance without additional costs to the District.
ARTICLE 18
ON-LINE POLICY AND PROCEDURES MANUAL
------------------------------------
The requirement for the contractor to produce an on-line policy and
procedures manual has been eliminated from this contract.
ARTICLE 19
HELP DESK PROGRAM POSITION
--------------------------
The contractor shall provide one (1) technical person and one (1) program
person to resolve problems, errors and corrections and to operate the
help desk throughout the term of the contract.
ARTICLE 20
EQUIPMENT PURCHASE
------------------
The District agrees that it is acquiring new equipment under this
contract with the intent to use it within the District government in
support of government operations and not for reselling, remarketing,
leasing or transferring the machines (or components thereof) to a third
party, unless the District is arranging lease-back financing for the
machines or other circumstances agreeable to the contractor apply,
provided that nothing in this provision will prevent the District from
<PAGE>
disposing of the equipment purchased under this clause through the
surplus property program of the District.
ARTICLE 21
DEFINITIONS
-----------
When used in this contract, the following terms and phrases shall have
the meanings ascribed:
21.1 AUTOMATED DOCUMENT TRACKING SYSTEM: An automated software process whereby
documents and cases can be managed, tracked, and monitored throughout
each step in the Database Cleanup process so that their location and
status at any time can be determined.
21.2 BACKUP AND RECOVERY: The process of restoring the DCCSES to an
operational status within a twenty-four (24) hour period after an event
occurrs to make it inaccessible to users.
21.3 BACKUP AND RECOVERY TEST: A series of tests to ensure that the DCCSES can
be made operational quickly after failure of one or more of its
components. This test includes backup, recovery, restart, and transaction
logging routines.
21.4 BACKUP SITE: A location separate from the Facility Management site with
similar equipment on which the DCCSES can be loaded and run in the event
of a prolonged equipment and/or communications failure at the Facility
Management site.
21.5 CAPACITY ANALYSIS: A test conducted with the new Facility Management
equipment, the DCCSES LAN and WAN, and the user terminals (PCs) and
printers to ensure that they will be capable of processing the DCCSES and
meet all required response times.
21.6 DATA ENTRY: The process of entering correct data into the DCCSES database
using Personal Computers.
21.7 DCCSES: The District of Columbia Child Support Enforcement System.
21.8 EMERGENCY DISASTER CONTINGENCY PLAN: A Plan, upon the approval of the
contract administrator, that can be used to recover from any unforeseen
event or circumstance that might jeopardize the contractor's performance
or level of quality during the Database Cleanup process.
<PAGE>
21.9 EQUIPMENT DELIVERY AND INSTALLATION: The process of delivering all
equipment pursuant to the Contractor's offer to the Facility Management
site on or before the District's approved schedule. This includes
delivery and installation of the latest version of the Unix operating
software and Universe database management software that is year 2000
compliant. This process includes testing the equipment and the
preparation and submission to the District's Project Manager of a report
by serial number and testing results of all equipment that was installed.
21.10 EQUIPMENT INSTALLATION PLAN: A Plan which shows all the tasks required to
successfully install the new equipment, and the successful transfer of
the DCCSES from the existing equipment to the Contractor's new equipment.
21.11 EQUIPMENT MAINTENANCE: Contractor provided maintenance of all operating
software, all equipment, including District of Columbia owned Personal
Computers, printers and print servers, all DCCSES telecommunications
equipment and software, and the interagency LAN to ensure continuous
DCCSES efficient and timely processing.
21.12 EQUIPMENT PILOT OPERATIONS: A process whereby the equipment,
communications, operating software, and the application software, are run
together to ensure that all are operating correctly and efficiently. This
Pilot Operation includes tests of daily, weekly, and monthly backup and
recovery processes.
21.13 FACILITY MANAGER: The Contractor's computer organization that contains
all the equipment and staff required to operate the DCCSES. The Facility
manager is also responsible for courier service to the District Child
Support Agencies, mass mailings, equipment Help Desk, and printing of
large volume reports as required.
21.14 FEDERAL CERTIFICATION: A process whereby federal officials review the
PRWORA and other required DCCSES changes to ensure they meet federal
standards and requirements as specified in federal regulations.
21.15 HELP DESK: A contractor staffed office to which DCCSES users can
telephone to receive a solution to any DCCSES problem. This office must
be staffed from 8:00 AM through 5:00 PM
<PAGE>
Monday through Friday.
21.16 NEW EQUIPMENT: This is the latest, state-of-the-art computer equipment
that will be used to operate DCCSES and meet all on- line and batch
processing requirements and response times.
21.17 PROJECT COMPLETION PLAN: A Plan that will be used to ensure that the
Database Cleanup process will be successfully completed on time and that
all required activities, equipment, files, documents, and other pertinent
items are turned over to the District.
21.18 PROJECT INITIATION: The process of beginning the project. This includes
meeting with District personnel to review the requirements for the
project, review Work Plans, answer questions, assign specific roles and
tasks to the contractor and District personnel, develop reporting
requirements, and ensure that all personnel, the contractor and District,
are familiar with the requirements of the project.
21.19 PRWORA: The Personal Responsibility and Work Opportunity Reconciliation
Act of 1996. Also referred to as the Welfare Reform Act.
21.20 QUALITY CONTROL: A process of monitoring all project activities,
including employee performance, changes to DCCSES, and document and case
folder flow, to ensure that they conform to District approved standards.
21.21 RESEARCH: The process of examining data contained in case folders and/or
automated systems for the purpose of obtaining and recording correct data
for DCCSES.
21.22 SCHEDULED DOWNTIME: A preplanned block of time during which the equipment
is not available to the District for online processing.
21.23 SECURITY PLAN: A Plan identifying how the confidentiality of DCCSES data,
software, access to identified sensitive areas, and protection of theft
of District equipment and supplies will be maintained.
21.24 SYSTEM LIVE OPERATIONS: The DCCSES successfully running in a full
production mode on the new equipment.
21.25 TESTING: A series of activities that will exercise all parts of
<PAGE>
the DCCSES in an integrated fashion, including all equipment, all
software (operating and application), all communications, and the
District's LAN and WAN, to ensure that DCCSES processing can be
accomplished in a timely and efficient manner and according to all
required performance standards.
21.26 TRAINING: The process of instructing users in any new procedures or new
equipment and communications requirements for DCCSES.
21.27 TRANSFER AND CONVERSION: The process of successfully transferring the
existing DCCSES application software, to include the UniVerse Database
Management software that is year 2000 compliant, to the new equipment at
the Facility Management site, and testing the complete system to ensure
DCCSES runs correctly and meets all performance standards on the new
equipment.
ARTICLE 22
DOCUMENTS INCORPORATED AND ORDER OF PRIORITY
--------------------------------------------
A conflict in language shall be resolved by giving precedence to the
document in the highest order or priority that contains language
addressing the issue in question. The following documents are
incorporated into the contract by reference in descending order of
priority:
22.1 Articles 1 through 24 of this contract;
22.2 Letter Contract, dated May 21,1999 (Attachment A);
22.3 Standard Contract Provisions for use with District of Columbia Government
Supply and Services Contract dated December 1984, as amended (Attachment
B);
22.4 Contractor's Deliverables (Attachment C);
22.5 Contractor's Performance Requirements (Attachment D);
22.6 Letter dated June 7, 1999, including the technical and price proposal for
the new network (Attachment E);
<PAGE>
22.7 Letter dated May 19, 1999, including the price proposal and work plan for
accelerating the Year 2000 compliance on the application software to
October 30, 1999 (Attachment F);
22.8 Contractor's Best and Final Cost document, dated May 12, 1999 (Attachment
G);
22.9 Letter dated May 5, 1999, regarding the contractor's agreement to move
its facility management and maintenance office into the District
(Attachment H);
22.10 Contractor's Best and Final technical proposal, dated February 16, 1999
(Attachment I);
22.11 Comments on the SDA Price Proposal Draft-January 6, 1999, Submitted by
SDA, January 18, 1999 (Attachment J);
22.12 SDA Comments on Draft Statement of Work for New Equipment and Facility
Management Services, Database Cleanup and Software Changes in Support of
the Government of the District of Columbia (Attachment K);
22.13 Contractor's letter dated January 7, 1999 setting forth questions and
answers regarding issues from the contract negotiations between the
contractor and the District (Attachment L);
22.14 Contractor's technical proposal dated August 17, 1998 (Attachment M); and
22.15 Request for Proposals No. 8105-AA-NS-4-JJ, including Amendment No. 1,
dated July 29, 1998, Addendum No. A, dated July 29, 1998, Amendment No.
2, dated August 12, 1998, and Addendum B, dated August 12, 1998
(Attachment N).
ARTICLE 23
CONTRACT APPROVALS
------------------
This contract for over a million dollars for a multi-year term is subject
to the approval of the D.C. City Council and the Federal Office of Child
Support Enforcement.
<PAGE>
ARTICLE 24
TOTAL AGREEMENT
---------------
This contract, including specifically incorporated documents, constitutes
the total and entire agreement between the parties. All previous
discussions, writings, and agreements are merged herein.
<PAGE>
EXHIBIT 10.61
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. (S)(S) 200.80(B)(4),
200.83 AND 240.24B-2
ALLIANCE AGREEMENT
------------------
IN SUPPORT OF PROJECT UXBRIDGE
------------------------------
BETWEEN
-------
TIER TECHNOLOGIES (UNITED KINGDOM) INC.
---------------------------------------
AND
---
SIEMENS BUSINESS SERVICES LIMITED
---------------------------------
Contract Reference Number : MIG/UXBR/CON/145
--------------------------------------------
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
<S> <C>
1 PURPOSE 6
2 TERM 6
3 PRECEDENCE 7
4 ALLIANCE STEERING GROUP 7
5 ALLIANCE MANAGERS 9
6 BUSINESS DEVELOPMENT METHODOLOGY 10
7 CONSULTATION AND CO-ORDINATION OF THE PARTIES 10
8 CONSULTANCY SERVICES 11
9 THE ASC SERVICES 12
10 SBS STAFF SERVICES 13
11 OTHER RESPONSIBILITIES OF THE PARTIES 13
12 PAYMENT 14
13 INTELLECTUAL PROPERTY RIGHTS 15
14 FORCE MAJEURE 18
15 INSURANCES 19
16 LIABILITY 19
17 EMPLOYMENT INDEMNITIES 23
18 RESPONSIBILITIES AND COSTS 24
19 NOTICES 25
20 DATA PRIVACY AND ACCESS TO INFORMATION 26
21 DISPUTE ESCALATION PROCEDURE 26
22 DISPUTE RESOLUTION PROCEDURE 27
23 DEFAULT IN PERFORMANCE 29
24 TERMINATION 33
25 CHANGE CONTROL 36
26 MILLENNIUM COMPLIANCE 36
27 CONFIDENTIALITY 37
28 PUBLICITY 39
29 ENGAGEMENT OF SENIOR EMPLOYEES 39
30 FAILURE TO ENFORCE AND WAIVER 40
31 VALIDITY 40
32 ASSIGNMENT 40
33 NOT A PARTNERSHIP OR AGENCY 41
34 ORIGINALITY OF AGREEMENT 41
35 ENTIRE AGREEMENT 41
SCHEDULE 1
1 Interpretations 43
2 Definitions 43
SCHEDULE 2
1 Introduction 50
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
2 Supply of Consultancy Services 51
3 Method of Obtaining Supply 53
4 Workpackage Leaders 54
5 Performance 54
6 Fees 55
7 Payment 56
8 Discharge of the Consultancy Services Minimum Total Commitment 57
ATTACHMENT 1 TO SCHEDULE 2
1 Consultancy Services Charge Rates 58
ATTACHMENT 2 TO SCHEDULE 2
1 Tier Consultancy Services Description 59
SCHEDULE 3
1 Introduction 60
2 Scope 61
3 Programme 62
4 Calculation of Fees 62
5 Payment 63
6 Discharge of the SBS Staff Services Minimum Total Commitment 64
7 Success Fees 65
ATTACHMENT 1 TO SCHEDULE 3
1 Introduction 67
2 Assumptions 67
3 Payment Profile 68
SCHEDULE 4
1 Introduction 71
2 Contractual Relationships 71
3 Master Services Supply Agreement Form 72
SCHEDULE 5
1 Introduction 73
2 Condition Precedent 73
3 Due Diligence 73
4 Programme 74
SCHEDULE 6
1 Introduction 75
ATTACHMENT 1 TO SCHEDULE 6 76
ATTACHMENT 2 TO SCHEDULE 6
1 Introduction 77
2 Contents 77
ATTACHMENT 3 TO SCHEDULE 6 78
SCHEDULE 7
1 Introduction 80
2 Location of the ASC Infrastructure 80
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
3 Establishment of the ASC Infrastructure 80
SCHEDULE 8
1 Introduction 83
ANNEX 1 84
ANNEX 2
1 Purpose 85
2 Term 86
3 The ASC Services 86
4 SBS Staff Services 87
5 Payment 87
6 Default in Performance 88
7 Termination 89
ANNEX 3
1 Purpose 90
2 Approach 90
</TABLE>
4
<PAGE>
THIS AGREEMENT is made the 1st day of September NINETEEN HUNDRED AND NINETY NINE
BETWEEN
( 1 ) Tier Technologies (United Kingdom) (Inc). a company incorporated in
Delaware whose Registered Address is situated at 1013 Centre Road,
Wilmington, New Castle County, Delaware, USA ("Tier") and
( 2 ) Siemens Business Services Limited whose Registered Address is situated at
Siemens House, Oldbury, Bracknell, Berkshire RG12 8FZ ("SBS")
Hereinafter collectively referred to as "the Parties".
RECITALS
Recital ( A ) - SBS entered into an agreement with the Director of National
Savings on 27 January 1999 for the outsourcing of the
services directorate of National Savings ("the National
Savings Agreement") for a period of 10 years.
Recital ( B ) - SBS wishes to obtain Consultancy Services from Tier in
relation to the National Savings Bank Agreement and other
SBS projects generally and Tier wishes to supply Consultancy
Services to SBS.
Recital ( C ) - [***]
Recital ( D ) - The Parties held discussions on the establishment of an
alliance ("Alliance")between them for the mutual exchange of
business opportunities and benefits in relation to the
National Savings Bank Agreement and more generally in other
SBS projects. As a consequence of those discussions the
Parties agree to establish the Alliance on the terms,
conditions and principles as detailed herein.
* CONFIDENTIAL TREATMENT REQUEST(ED)
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Recital (E) - Notwithstanding the creation of the Alliance the obligations
in this Agreement relating specifically to the Consultancy
Services on the one hand and the SBS Staff Services
(including the ASC Services and the ASC Infrastructure) on
the other are independent, free standing and severable of
each other.
IT IS NOW HEREBY AGREED AS FOLLOWS:
1 PURPOSE
1.1 The purpose of this Agreement is to stipulate the provisions, terms
and conditions under which the Parties will co-operate in the
fulfilment of their obligations hereunder and under which the Parties
may share the risks and rewards expected to arise from it and to set
out the Parties' responsibilities and liabilities.
1.2 In particular this Agreement is established for the following specific
purposes:
1.2.1 To set out the contractual commitments of the Parties relating
to the provision of:
1.2.1.1 Consultancy Services including an obligation on SBS
to procure Consultancy Services up to the
Consultancy Services Minimum Total Commitment;
1.2.1.2 SBS Staff Services including an obligation on Tier
to meet the SBS Staff Services Minimum Total
Commitment.
1.2.1.3 the ASC Services.
[***]
2 TERM
2.1 The Parties agree that this Agreement shall have full force and legal
effect for the Contract Period unless and until terminated in
accordance with the provisions of Clauses 14 or 24.
2.2 At the Final Date Tier shall have an option to require SBS to enter
into a new and separate agreement substantially in accordance with the
terms set out in Annex 2.
* CONFIDENTIAL TREATMENT REQUEST(ED)
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3 PRECEDENCE
3.1 Where there is a conflict between the provisions of any Schedule,
Appendix or Attachment of this Agreement and any of these General
Terms and Conditions, then the latter shall take precedence.
3.2 Where there is a conflict between the provisions of any document
referenced or referred to herein and the provisions of this Agreement,
then the latter shall take precedence.
3.3 Where there is a conflict between the provisions of any document
agreed by the Parties, and the provisions of this Agreement the
provisions of this Agreement shall prevail unless this Agreement has
been amended in accordance with Clause 25 of these General Terms and
Conditions.
4 ALLIANCE STEERING GROUP
4.1 Within thirty (30) Calendar days of the Effective Date or as otherwise
agreed by the Parties each Party shall nominate the representatives
described in Clause 4.2 below to constitute an Alliance Steering Group
(hereafter "ASG") and shall provide written details of the nominees to
the other Party.
4.2 The representatives of the ASG shall comprise;
Role Representative From
---- -------------------
Managing Directors x 2 SBS and Tier
Finance Director x 1 SBS
Sales and Marketing Director x 2 SBS and Tier
Alliance Managers x 2 SBS and Tier
Jim Bildner (or his designee) Tier
4.3 The first meeting of the ASG shall take place within sixty (60)
Calendar days of the Effective Date or as agreed between the Parties
to confirm the initial roles and responsibilities of the appointed
representatives and to ratify the Business Development Methodology.
The Parties shall have the right after having informed the other Party
to replace any of its appointed representatives.
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4.4 The ASG shall meet as agreed by the Parties and in any event not less
than twice a year. Each meeting shall be chaired by one representative
(the "Chairman") in rotation, the first such meeting to be chaired by
SBS. Either Party may convene a meeting and shall give at least
fifteen (15) Working days notice from the date of issue including the
agenda for the said meeting to each representative.
4.5 A meeting of the ASG shall not take place unless a quorum is present.
For the purposes of this Clause a quorum shall be when at least two
representatives of the ASG are present from each Party. If such quorum
is not present the meeting of the ASG shall be adjourned.
4.6 The ASG shall have the following functions;
4.6.1 To co-opt additional members.
4.6.2 To consider and make recommendations on;
4.6.2.1 marketing plans and strategies, account development
(including account management plans) and
identification of future business opportunities;
4.6.2.2 decisions of the VRB;
4.6.2.3 the Business Development Methodology and
conformance, progress and the consideration of any
necessary changes thereto;
4.6.2.4 any Intellectual Property to be introduced into the
project;
4.6.2.5 agreement execution, programme plans, activities and
resources;
4.6.2.6 progress on achieving the said programme objectives
and any issues arising;
4.6.2.7 contractual issues and the ongoing relationship with
each other and third parties;
4.6.2.8 financial performance and projections;
4.6.2.9 the register of risks;
4.6.2.10 internal and external communications; and
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4.6.2.11 any other business required by either Party for the
successful discharge of the Parties' obligations
hereunder.
4.7 The Parties agree that the ASG shall meet in the Calendar month prior
to each of the fourth and fifth anniversaries of the Effective Date to
review inter alia the progress made by each Party in respect of its
obligations under this Agreement and the ongoing and future Alliance
between the Parties.
4.8 The Party which is hosting the meeting shall organise the facilities
required for the meeting. Secretarial services and the drafting of the
minutes arising from the meeting shall be provided by the Chairman.
The minutes shall be circulated to the other Party by the Chairman.
The minutes shall be deemed to have been accepted by the Parties if
following a period of fourteen (14) Calendar days of circulation
neither Party has raised any objections to the minutes with the
Chairman. The Parties shall permit the presence of up to two (2)
further attendees each at any meeting of the ASG for those parts of
the meeting which directly relate to the activities in which those
attendees are engaged.
4.9 The ASG may invite Third Parties to attend its meetings as observers
if so required and agreed by the Parties.
5 ALLIANCE MANAGERS
5.1 Within thirty (30) Calendar days of the Effective Date or as otherwise
agreed by the Parties each Party shall appoint a representative to be
an Alliance Manager (hereinafter "Alliance Manager") to co-ordinate
their operational activities. Each Party shall have the right to
replace its Alliance Manager on giving notice to the other Party.
5.2 The Alliance Managers shall meet at least once a Calendar month to
consider inter alia such matters as;
5.2.1 communications between the Parties;
5.2.2 co-ordination of plans and actions;
5.2.3 monitoring of progress;
5.2.4 resources;
5.2.5 any issues arising and the actions to be taken;
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5.2.6 Workpackages; and
5.2.7 handing over of customers.
5.3 Each Alliance Manager shall submit to the other monthly reports in
respect of current market prospects, monitoring current projects, co-
ordination of approval process, progress of ASC Infrastructure,
availability of SBS Staff Services, Consultancy Services and the
forecasting of requirements for Consultancy Services as appropriate at
least one week before each meeting of the Alliance Managers.
6 BUSINESS DEVELOPMENT METHODOLOGY
6.1 The Alliance Managers shall enter into good faith negotiations to
jointly produce a draft Business Development Methodology for approval
by the Alliance Steering Group, such Business Development Methodology
as set out in Annex 3 which is to be binding on the Parties.
6.2 The Business Development Methodology will contain the following
component parts:
6.2.1 customers and/or markets targeted by Tier in introducing Third
Parties to SBS to take ASC Services;
6.2.2 detailed provisions as to the ASC Services which SBS shall
provide;
6.2.3 agreed criteria and minimum requirements to be included in
agreements with Third Parties for the provision of ASC
Services and according to which the VRB will assess
introductions made by Tier.
6.3 A representative of the ASG from each Party shall sign the Business
Development Methodology and it shall then be reviewed by the ASG at
its first meeting and at each subsequent meeting of the ASG as
necessary. The Business Development Methodology shall only be varied
by agreement in writing by the ASG .
7 CONSULTATION AND CO-ORDINATION OF THE PARTIES
7.1 The Parties agree that they will consult generally with each other in
relation to their obligations under this Agreement, inform each other
and keep each other informed of material and significant developments
or matters arising under the Agreement, co-ordinate
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their activities under this Agreement and provide reports as further
set out in this Clause 7.
7.2 The Parties shall:
7.2.1 consult each other to ensure, so far as possible, that the
activities to be carried out under this Agreement are
conducted in a cost effective and efficient manner;
7.2.2 co-ordinate so far as necessary their respective
responsibilities and activities under this Agreement to
avoid duplication of effort and to assist in achieving the
objectives of this Agreement;
7.2.3 inform each other as soon as possible of any facts which are
known to either of them which may materially or
significantly affect the responsibilities and activities of
the other under this Agreement;
7.2.4 use all reasonable endeavours to devise and carry out the
Consultancy Services and the ASC Services (as the case may
be) efficiently and so as to ensure compatibility between
them.
8 CONSULTANCY SERVICES
8.1 Tier shall:
8.1.1 perform the Consultancy Services in accordance with this
Agreement;
8.1.2 promptly notify SBS of any delay in performance of the
Consultancy Services;
8.1.3 provide the Consultancy Services in accordance with good
consulting, engineering and computing practice;
8.1.4 ensure that the Consultancy Services carried out by them
conform to any quality requirements and/or specifications
stated in this Agreement or in any agreement with SBS or
agreed Workpackages as agreed to by Tier;
8.1.5 comply with all laws and regulations including relevant
health and safety legislation in the provision of the
Consultancy Services;
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8.1.6 have the right, power and authority to provide the Consultancy
Services in accordance with the Agreement or any other
arrangement or agreement with SBS and/or a Third Party.
9 THE ASC SERVICES
9.1 SBS shall:
9.1.1 make available at least the types of services identified in
Schedule 4 and/or the Business Development Methodology using
the ASC Infrastructure;
9.1.2 enter into agreements with Tier and/or Third Parties separate
from this Agreement for the performance and delivery of such
ASC Services, such agreements being substantially on the
basis of the principles set out in SCHEDULE 4 unless
expressly otherwise required by the Third Party;
9.1.3 promptly notify Tier of any delay in performance of the ASC
Services under any contract with a Third Party where such
delay may impact on Tier's performance of Consultancy Services
being provided pursuant to such contract;
9.1.4 provide the ASC Services in accordance with service levels
agreed with Third Parties;
9.1.5 ensure that the ASC Services conform to any quality
requirements and/or specifications stated in this Agreement or
as agreed by SBS in any agreement with a Third Party;
9.1.6 ensure that the ASC Services do not detract from the image and
reputation of Tier;
9.1.7 charge such rates for use of the ASC Services which are
competitive by reference to the benchmarking procedure
described in SCHEDULE 8;
9.1.8 have the right, power, authority and capability to provide the
ASC Services in accordance with the Agreement or any other
arrangement or agreement with Tier and/or a Third Party;
9.1.9 comply with all laws and regulations including relevant health
and safety legislation in the provision of the ASC Services.
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9.1.10 use reasonable endeavours to construct the ASC Infrastructure
in accordance with any timetables required by a Third Party or
as agreed by SBS and Tier for the provision of the ASC
Services.
9.2 The Parties may elect to incorporate the provision of the ASC
Services as a subcontract to Tier in any agreement with a Third
Party, in which case Tier and SBS shall enter into a separate
agreement for that supply of ASC Services, the form of that agreement
being substantially in accordance with the principles set out in
SCHEDULE 4.
10 SBS STAFF SERVICES
10.1 SBS shall:
10.1.1 comply with its obligations during the Ramp-up Period and
there-after to Mobilise sufficient FTE SBS Staff Services to
enable Tier to comply at all times with its obligations under
this Agreement;
10.1.2 procure the training of all SBS Staff Services during the
Contract Period as set out in SCHEDULE 3;
10.1.3 ensure that appropriate instructions and directions are given
to the SBS Staff Services to provide the ASC Services in
accordance with agreements entered into with Third Parties
and/or Tier.
11 OTHER RESPONSIBILITIES OF THE PARTIES
11.1 In respect of the supply of information to each other and/or a
Third Party and in respect of the quality thereof the Parties shall:
11.1.1 use reasonable endeavours to ensure so far as reasonably
practicable the accuracy of such supplied information;
11.1.2 in the event of any material or significant error being
discovered in the supplied information and upon being
notified by the party receiving the information of such
error, the Party supplying the information shall, where
possible immediately correct any such error.
11.2 In respect of the use of Intellectual Property Rights:
11.2.1 Tier shall ensure to the best of its knowledge and belief,
that the provision of the Consultancy Services does not and
will not
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infringe any Third Party's Intellectual Property Rights or
require any licence from a Third Party;
11.2.2 SBS shall ensure to the best of its knowledge and belief,
that the provision of the ASC Services does not and will not
infringe any Third Party's Intellectual Property Rights or
require any licence from a Third Party.
12 PAYMENT
12.1 Tier shall invoice SBS on the first Working Day of every other
Calendar month in respect of Consultancy Services rendered in the
previous two Calendar Months. SBS shall pay such invoice within
thirty (30) days of receipt thereof.
12.2 SBS shall invoice Tier on the first Working Day of every other
Calendar month in respect of the Mobilised SBS Staff Services and/or
the ASC Services provided to Tier in accordance with this Agreement
in the previous two Calendar Months. Tier shall pay such invoice
within thirty (30) days of receipt thereof.
12.3 Payments becoming due under this Agreement, shall be made by the
Banks Automated Clearance System (BACS) or such other method as the
Parties may agree.
12.4 Invoices paid in accordance with the provisions of this Clause 12
shall be deducted against any outstanding balance of the Consultancy
Services Minimum Total Commitment or the SBS Staff Services Minimum
Total Commitment, as the case may be.
12.5 Either Party may dispute an invoice within thirty (30) Calendar
days of receipt of it by giving the other Party written notice
setting out the basis of the dispute.
12.6 Where such a dispute arises or a Party fails to pay without
disputing the invoice under Clause 12.5 the Parties shall use
reasonable endeavours to settle the dispute amicably failing which
the provisions of Clause 22 will apply.
12.7 All payments to be made under this Agreement shall be made in full
without any set-off, restriction or condition and without any
deduction for or on account of any counterclaim.
12.8 Each Party shall:
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12.8.1 keep true and accurate accounts and records in sufficient
detail to enable the amount of all sums payable under this
Agreement to be determined;
12.8.2 at the reasonable request of the other Party from time to
time allow that other Party or its agent at that Party's
expense to inspect those accounts and records and, to the
extent that they relate to the calculation of the sums
payable under this Agreement, to take copies of them.
12.9 Any inspection pursuant to Clause 12.8.2 shall be carried out by an
independent accountant reasonably acceptable to the Party whose
accounts are being inspected who shall be instructed not to divulge
to the Party carrying out the inspection any information obtained by
reason of his inspection, other than information which is directly
relevant to the determination of sums payable under this Agreement or
to use for any unauthorised purpose any information so obtained, and
who shall be required to give to the Party being inspected a direct
and binding undertaking to this effect in such form as that Party may
reasonably request.
12.10 The provisions of Clauses 12.8 and 12.9 shall remain in full force
and effect after the termination of this Agreement for any reason
until the settlement of all subsisting claims of either Party under
this Agreement.
13 INTELLECTUAL PROPERTY RIGHTS
13.1 Each Party shall fully indemnify the other against all claims,
demands, actions, costs, expenses (including but not limited to legal
costs and disbursements on a solicitor and client basis), losses and
damages arising from or incurred by reason of any infringement or
alleged infringement (including but not limited to the defence of
such infringement or alleged infringement) of any third party's
Intellectual Property Right enforceable in the United Kingdom in
connection with the provision or receipt of the Consultancy Services
and/or the ASC Services (as the case may be).
13.2 A Party shall promptly notify the other if any claim or demand is
made or action brought against them (or in their reasonable opinion
is likely to made) for infringement or alleged infringement of any
third party's Intellectual Property Right by reason of the use or
possession of such Intellectual Property Right under this Agreement
which may affect the provision and/or receipt of the Consultancy
Services and/or the ASC Services (as the case may be).
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13.3 The Party against whom the indemnity claim is made shall at its own
expense conduct any litigation arising therefrom and all negotiations
in connection therewith and the other Party hereby agrees to grant to
them exclusive control of any such litigation and such negotiations.
13.4 The other Party shall, at the request of the Party against whom the
claim is made, afford all reasonable assistance for the purpose of
contesting any claim or demand made or action brought against them
and shall be repaid all costs and expenses incurred in doing so.
13.5 The non-defending Party shall not make any admissions which may be
prejudicial to the defence or settlement of any claim, demand or
action for infringement or alleged infringement of any Intellectual
Property Right.
13.6 If a claim or demand is made or action brought for the infringement
or alleged infringement of any third party Intellectual Property
Right, the Parties shall on the reasonable request of either Party,
subject to Clause 25, either:
13.6.1 modify any or all of the Consultancy Services and or the ASC
Services (as the case may be) without reducing the
performance and functionality of the same, or substitute
alternative services of equivalent performance and
functionality for any or all of the Consultancy Services and
or the ASC Services (as the case may be), so as to avoid the
infringement or the alleged infringement, provided that the
terms herein shall apply mutatis mutandis to such modified or
substituted Consultancy Services and or the ASC Services (as
the case may be) and such modified or substituted Consultancy
Services and or the ASC Services (as the case may be) are
acceptable to the Parties, such acceptance not to be
unreasonably withheld; or
13.6.2 procure a licence for the Parties to provide the Consultancy
Services and or the ASC Services (as the case may be) and/or
to receive the full benefit of the Consultancy Services and
or the ASC Services (as the case may be) on terms which are
consistent with the requirements of this Agreement.
13.7 The foregoing provisions of this Clause 13 shall not apply insofar
as and to the extent only that any such claim or demand or action is
in respect of:
13.7.1 any use by or on behalf of one Party of the Consultancy
Services and/or the ASC Services (as the case may be) in
combination
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with any item not supplied by the other Party where such
combined use directly gives rise to the claim, demand or
action; or
13.7.2 any modification carried out by or on behalf of one Party to
any item supplied by the other Party under this Agreement if
such modification is not authorised by that Party in writing;
or
13.7.3 any use by one Party of software or documentation in a manner
not reasonably to be inferred from this Agreement; or
13.7.4 any software or documentation produced by either Party
pursuant to and in accordance with a technical specification
given by the other Party.
13.8 If the Parties have availed themselves of their rights to modify
the Consultancy Services and or the ASC Services (as the case may be)
or supply substitute services pursuant to Clause 1361 or to procure a
licence under Clause 1362 and such exercise of the said rights has
avoided any claim, demand or action for infringement or alleged
infringement, then there shall be no further liability thereafter
under this Clause 13 in respect of the said claim, demand or action.
13.9 Each Party will retain ownership of its Intellectual Property
Rights in existence at the date of this Agreement. Neither Party
shall have any right title or interest in any Intellectual Property
Rights created outside the Agreement.
13.10 Subject to the provisions of Clause 13.9 and the rights of Third
Parties, SBS shall be the owner of any copyright and other
Intellectual Property Rights (if any) arising from and subsisting
in;
13.10.1 the Consultancy Services provided to SBS by Tier;
13.10.2 documents produced during the Business Development
Activity, Proposal Development Activity and Proposal
Submission Activity;
13.10.3 proposals; and
13.10.4 the ASC Services provided hereunder.
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13.11 SBS shall at Tier's request grant Tier a worldwide royalty free
non-exclusive licence to use any copyright or other Intellectual
Property Rights arising from and subsisting in any or all of the
items set out in Clauses 13.10.1, 13.10.2 and 13.10.3.
13.12 Subject to the rights of Third Parties, SBS shall be the co-owner
with Tier of any trade marks (if any) subsisting in (or becoming or
intended to be vested) in any or all of those things referred to in
Clause 13.10 under which they will be marketed by SBS.
14 FORCE MAJEURE
14.1 Neither Party to this Agreement shall be deemed to be in breach of
this Agreement or otherwise liable to the other Party for any
failure or delay in the performance of its obligations hereunder
which is due to Force Majeure. Notwithstanding the foregoing, each
Party shall use all reasonable endeavours to mitigate the severity
of the Force Majeure.
14.2 If either of the Parties' performance of its obligations under this
Agreement is affected by Force Majeure then:
14.2.1 it shall give written notice to the other Party, specifying
the nature and extent of the Force Majeure on becoming aware
of the Force Majeure;
14.2.2 subject to the provisions of Clause 14.2.3, the date of
performance of such obligations shall be deemed suspended
only for a period equal to the delay caused by such event;
14.2.3 it shall not be entitled to payment from the other Party in
respect of extra costs and expenses incurred by virtue of
the Force Majeure event.
14.3 It is expressly agreed that any failure by a Party to perform or any
delay in performing their obligations under this Agreement which
results from any failure or delay in the performance of their
obligations by any person, firm or company with which they shall
have entered into any contract, supply arrangement or sub-contract
or otherwise, shall be regarded as a failure or delay due to Force
Majeure only in the event that such person, firm or company shall
itself be prevented from or delayed in complying with its
obligations under such contract, supply arrangement or sub-contract
or otherwise as a result of circumstances of Force Majeure.
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14.4 If the Force Majeure in question prevails for a continuous period in
excess of six (6) months (such period to be measured from the date on
which the Force Majeure begins) then the Party not subject to the
Force Majeure shall be entitled to give written notice to the
defaulting Party to terminate this Agreement. The notice to terminate
must specify the termination date, which must not be less than thirty
(30) Working Days after the date on which the notice is given. Once a
notice to terminate has been validly given, the Agreement will
terminate on the termination date set out in the notice.
14.5 For the avoidance of doubt, in the event that the Agreement is
terminated in accordance with Clause 14.4 neither Party shall be
liable to pay the reconciliation payments under SCHEDULE 2 paragraph
8.2 or SCHEDULE 3 paragraph 6.3.
15 INSURANCES
15.1 The Parties shall for the Contract Period procure and maintain with
a reputable insurer insurance as required by law and such further
insurance as set out in Annex 1 up to the limits specified therein
for any event or series of events attributable to a single cause.
15.2 In respect of that insurance required under the provisions of Clause
151 no insurance of either Party shall be permitted to lapse, be
cancelled or materially changed without fourteen (14) Working Days
prior written notice to the other's insurers or brokers.
15.3 Pursuant to the provisions of Clause 151, the Parties shall maintain
insurance policy's substantially the same as set out in Annex 1.
16 LIABILITY
16.1 Subject to the maximum extent permissible in law, all conditions and
warranties which are to be implied by statutes or otherwise by
general law into this Agreement or relating to the ASC Services or
Consultancy Services are hereby excluded.
16.2 The Parties expressly agree that the exclusions and limitations of
liability contained in this Agreement are reasonable because of
(amongst other matters) the likelihood that the amount of damages
awardable to either Party for a breach by the other Party of this
Agreement may be disproportionately greater than the monies paid by
the Parties under this Agreement in respect of the SBS Staff Services
and Consultancy Services.
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16.3 The following provisions set out the Parties' entire liability
(including any liability for the acts and omissions of their
representative, employees, agents or sub-contractors) to each other
in respect of:
16.3.1 any breach of their respective contractual obligations under
this Agreement;
16.3.2 a tortious act or omission, including negligence, arising
under or in connection with this Agreement;
16.3.3 an action arising out of any misrepresentation by either
Party.
(save for the obligation to pay reconciliation payments under
SCHEDULE 2 paragraph 8.2 and SCHEDULE 3 paragraph 6.3, and any
special project agreements as referred to in SCHEDULE 2 paragraph
3.1.1 or Clause 9.2).
16.4 The total aggregate liability of either Party for all acts, omissions
and defaults shall be subject to the financial limits set out in this
Clause 16.4:
16.4.1 the total aggregate liability of either Party resulting in
direct loss of or damage to the property of the other under
this Agreement shall in no event exceed [***]; and
16.4.2 the total aggregate liability of either Party during each
Year of this Agreement for all acts, omissions and defaults
(other than a default governed by Clause 16.4.1) shall in no
event exceed [***].
16.5 In no event shall either Party be liable to the other for:
16.5.1 loss of profits, business, revenue, goodwill or anticipated
savings; and/or
16.5.2 indirect or consequential loss or damage.
16.6 The provisions of Clause 16.5 shall not limit or restrict the right
of one Party to claim from the other:
16.6.1 additional operational and administrative costs and expenses;
and/or
16.6.2 expenditure or charges incurred by that Party rendered
unnecessary,
* CONFIDENT TREATMENT REQUEST(ED)
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as a direct result of any default by the other.
16.7 Notwithstanding anything to the contrary herein contained the
Parties' liability for death or personal injury which arises out of
their negligence or the negligence of their servants, agents or sub-
contractors shall not be limited.
16.8 The Parties expressly agree that any order for specific performance
made in connection with this Agreement in respect of either Party
shall be subject to the financial limitations set out in Clause 16.4.
16.9 Without prejudice to Clause 16.7 each Party agrees that it will have
no remedy against the other in respect of any untrue statement
(unless such statement was fraudulent) made to it upon which they
relied in entering into this Agreement and that the only remedies (if
any, and subject to Clause 24.10) can be for breach of contract,
and/or in respect of any fraudulent misrepresentations made by that
Party.
16.10 Without prejudice to the provisions of Clause 16.7, Tier shall
indemnify SBS within the limits specified in this Clause 16.4 in
respect of any claims and demands arising out of Tier's negligent
misstatement or misrepresentation during the performance of the
Business Development Activity.
16.11 Without prejudice to the provisions of Clause 16.7 if a Third Party
in accordance with the provisions of a separate agreement or
otherwise claims any reimbursement, indemnity or payment of damages
from a Party (the "Claimant") and the other Party's (the
"Indemnifier") negligent act or omission has caused or contributed to
the claim being made the Indemnifier shall indemnify the Claimant
against such claims to the extent that it has caused or contributed
to the claim being made provided always that the total aggregate
limit of liability of the Indemnifier in respect of any and all such
claims shall not exceed that contained within the said separate
agreement (if any) or in the absence of a specified sum, the total
aggregate limit of liability in this Agreement. Where the limitations
of liability in a separate agreement are higher than the limitations
set out in Clause 16.4, the higher limitations on liability shall not
apply unless they have been expressly agreed to in writing by Tier.
16.12 In the event that the Claimant seeks to rely on an indemnity given by
the Indemnifier under this Agreement in respect of a claim made
against the Claimant by a Third Party the Claimant shall:
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16.12.1 provide the Indemnifier with prompt notice of such claim;
16.12.2 ensure at the request in writing of the Indemnifier that
the Indemnifier is placed in a position to dispute the
claim and shall render, or cause to be rendered, to the
Indemnifier at the Indemnifier's expense all such
assistance as the Indemnifier may reasonably require in
disputing the claim.
16.13 The Indemnifier or its insurers shall be entitled to the exclusive
conduct of any such action or claim.
16.14 In connection with the conduct of any dispute relating to the claim:
16.14.1 the Indemnifier shall keep the Claimant informed of its
progress and at the negotiations relating to it;
16.14.2 the Claimant shall undertake no negotiations and make no
settlement or compromise, not agree any matter in relation
to its conduct which is likely to affect the amount
involved in the future liability of the Indemnifier without
the prior approval of the Indemnifier, such approval not to
be unreasonably withheld, developed or refused.
16.15 The Claimant shall take all reasonable steps to mitigate its loss in
respect of the claim being made against the Indemnifier.
16.16 Where in the performance of any obligations under this Agreement a
Party subcontracts such performance to a third party the Party so
subcontracting shall remain wholly liable for the performance of such
obligations.
16.17 The exclusions from and limitations of liability set out in this
Clause 16 shall be considered severably. The invalidity of
unenforceability of any one clause or sub-clause of this Clause 16
shall not affect the validity or enforceability of any other part of
this Clause 16.
16.18 The provisions of this Clause 16 shall survive the termination of the
whole or a part of this Agreement.
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17 EMPLOYMENT INDEMNITIES
17.1 It is the Parties' intention and understanding that the provisions of
TUPE do not apply to this Agreement and none of the SBS Staff
Services will transfer to Tier. The Parties shall take all reasonable
steps to avoid circumstances which give rise to a situation where the
provisions of TUPE are likely to apply by operation of this
Agreement. The Parties have therefore agreed Clauses 17.2, 17.3,
17.4, 17.5 and 17.6 below.
17.2 If any contract of employment of an employee of SBS deemed to have
been effected between Tier and such employee as a result of the
provisions of Regulation 5 of TUPE, then:-
17.2.1 Tier shall within twenty () Working Days of becoming aware
of the application of Regulation 5 to any such contract
notify SBS of the fact in which case SBS shall have thirty
(30) Calendar days in which to offer that employee
employment with SBS, failing which, or if the employee does
not accept the offer unconditionally within fifteen (15)
days of the offer being made, Tier shall have the right to
terminate such contract;
17.2.2 In respect of such an employee SBS will indemnify Tier in
full against any actions, proceedings, costs, claims,
demands, awards, fines, orders, expenses and liability
whatsoever (including legal and other professional fees and
expenses) in relation to that employee whether arising
directly or indirectly out of or in connection with
termination or otherwise, and against any sums payable to
or in relation to that employee in respect of his
employment with Tier; and
17.2.3 In respect of SBS Staff Services recruited externally by
SBS at Tier's request SBS and Tier shall bear all costs and
expenses equally arising directly or indirectly out of or
in connection with termination or otherwise, and any sums
payable to or in relation to such person in respect of his
employment with Tier.
17.3 In the event of any employee of SBS bringing proceedings against
Tier, whether or not that employee is claiming that he is employed by
Tier, SBS will keep Tier indemnified in full against all costs of
defending such proceedings (including legal and other professional
fees and expenses) and any awards, fines, orders, expenses and
liabilities whatsoever arising, directly or indirectly in connection
with such proceedings.
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17.4 In the event of any SBS Staff Services recruited externally by SBS at
Tier's request bringing proceedings against Tier, whether or not that
SBS Staff Services is claiming that he is employed by Tier, SBS and
Tier shall bear all costs equally of defending such proceedings
(including legal and other professional fees and expenses) and any
awards, fines, orders, expenses and liabilities whatsoever arising,
directly or indirectly in connection with such proceedings.
17.5 When reasonably required to do so by Tier, SBS will assist Tier in
taking and/or defending any proceedings by and/or against Tier in
connection with any of its employees or former employees.
17.6 If the right to terminate arises under Clause 17.2.1 and Tier does
not ex ercise that right by terminating the employment or giving
notice of termination within thirty (30) Calendar days of that right
arising then Tier shall be deemed to have accepted the employees
transferred to them and SBS shall have no obligation to indemnify
Tier under any provisions of this Clause 17 arising out of employment
after that thirty (30) Calendar day period.
18 RESPONSIBILITIES AND COSTS
18.1 In respect of costs each Party shall be responsible for and bear
their own costs incurred in executing this Agreement and their
obligations hereunder unless otherwise provided for under this
Agreement.
18.2 Tier shall be responsible for carrying out the Business Development
Activity, the Proposal Development Activity and the Proposal
Submission Activity and SBS shall fully co-operate with Tier as
further set out in the provisions of Schedule 3. In particular the
VRB shall, at all times, act reasonably and within its own guidelines
and give written reasons to Tier for any decision at any stage up to
and including the Formal Commitment Stage not to proceed with an
opportunity presented to it by Tier to Utilise the Mobilised SBS
Staff Services.
18.3 Tier shall bear its own costs arising during the Business Development
Activity, the Proposal Development Activity and the Proposal
Submission Activity.
18.4 SBS shall bear all its own costs arising during and beyond the Formal
Commitment Stage.
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18.5 For the avoidance of doubt Tier shall not be entitled to any
reimbursement of cost or have the right to claim any offset against
the SBS Staff Services Minimum Total Commitment in respect of any
opportunity which the VRB decides not to proceed with.
19 NOTICES
19.1 Any notice required to be given or made hereunder or in connection
with this Agreement shall be in writing and shall be given or made by
delivering the same by hand or by sending the same by prepaid first
class post or other fast postal or courier service or facsimile to
the address or relevant telecommunications number of the relevant
Party set out in Clause 19.3 or such other address or number of the
relevant Party or such other address or number as that Party may have
notified to the other pursuant to the provisions of this Clause 19.
19.2 Any such notice given as aforesaid shall be deemed to have been duly
given if delivered by hand or courier upon delivery at the address of
the relevant Party, two (2) Working Days next following the day of
sending if sent by post and if sent by facsimile at the time of
transmission (provided a confirmatory letter is sent by prepaid first
class post). In proving the fact of despatch by post it shall be
sufficient to show that the envelope containing the notice was
properly addressed, stamped and posted.
19.3 The Parties' Addresses;
19.3.1 For Tier Technologies Inc
1350 Treat Boulevard
Suite 250, Walnut Creek
CA 94596
USA
Tel: 001 925 937 3950
Fax: 001 925 937 3902
For the Attention of: Mr J Bildner
cc: Tier Technologies (United Kingdom) Inc.
19, Wellington Business Park,
Dukes Ride,
Crowthorne,
Berkshire RG45 6LS
Telephone: 01344 760700
Facsimile: 01344 760701
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For the Attention of: Mr. A.D. Armstrong, Managing Director
cc: Eversheds
Senator House
85 Queen Victoria Street
London EC4 4JL
Tel: 0171 919 4500
Fax: 0171 919 4919
For the Attention of: Mr B Gripton
19.3.2 For SBS;
Siemens House,
Oldbury,
Bracknell
Berkshire RG12 8FZ
Telephone: 01344 396104
Facsimile: 01344 396020
For the Attention of: Mr. M.I Gore, Head of Contract
Management and Procurement Mr Gary Pusey and Mr J
Loughrey
20 DATA PRIVACY AND ACCESS TO INFORMATION
20.1 Notwithstanding any obligations contained herein, the Parties shall
ensure that they are and remain compliant with the Data Protection
Act and shall not knowingly cause the other to be in breach of the
provisions thereof.
21 DISPUTE ESCALATION PROCEDURE
21.1 All disputes between the Parties arising out of or relating to this
Agreement which cannot be amicably settled between the Parties'
Alliance Managers shall be referred, by either Party, to their
respective Finance Directors or their nominated representatives for
resolution.
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21.2 If any dispute cannot be resolved by the Parties' respective Finance
Directors or their nominated representatives within a maximum of
fifteen (15) Calendar days after it has been referred under Clause
21.1 that dispute shall be referred to the Parties' Managing
Directors for resolution.
21.3 If the dispute cannot be resolved by the Parties' representatives
nominated under Clause 21.1 within a maximum of fifteen (15) Calendar
days after it has been referred under Clause 21.2 the dispute may be
referred by either Party in accordance with the provisions of Clause
22.
22 DISPUTE RESOLUTION PROCEDURES
22.1 In the event that a dispute is referred under Clause 21:
22.1.1 and if the dispute relates to whether or not the
Consultancy Services and/or the ASC Services (as the case
may be) are being provided in accordance with the technical
provisions of this Agreement including whether or not the
terms of this Agreement relating to quality, scope and
fitness for purpose have been complied with or it relates
to non-payment of an invoice under Clause 14 or a failure
of the Parties to agree the Consultancy Services Charge
Rates in Attachment 1 to SCHEDULE 2, a notice of the
dispute shall be provided to a technical expert (the
"Expert") who shall act as expert and not as arbitrator; or
22.1.2 if the dispute relates either to whether or not any term or
condition of this Agreement is valid or enforceable and/or
as to the proper interpretation or construction of this
Agreement, or to any other matter relating to breach of
this Agreement a notice of the dispute shall be provided to
an arbitrator ("the Arbitrator") who shall act as an
arbitrator and not an expert.
22.2 The Expert shall be selected by mutual agreement or, failing
agreement, within ten (10) Calendar days after a request by one Party
to the other, shall be chosen at the request of either Party by the
President at the time being of the British Computer Society who shall
be requested to choose a suitably qualified and experienced Expert
for the dispute in question.
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<PAGE>
22.3 The Arbitrator shall be selected by mutual agreement or, failing
agreement, within ten (10) Calendar Days after a request by one Party
to the other, shall be chosen at the request of either Party by the
President at the time being of the Chartered Institute of Arbitrators
who shall be requested to choose a suitably qualified and experienced
arbitrator for the dispute in question.
22.4 Thirty (30) Calendar Days after the Expert or Arbitrator (as the case
may be) has accepted the appointment each Party shall submit a
written report on the dispute setting out the issues of the dispute
to the Expert or Arbitrator (as the case may be) and to each other
and ten (10) Calendar Days thereafter shall submit any written
replies they wish to make to the Expert or Arbitrator (as the case
may be) and to each other.
22.5 Both Parties will then afford the Expert or Arbitrator (as the case
may be) all necessary assistance which the Expert or Arbitrator
requires to consider the dispute including but not limited to access
to the Premises of the Parties and any documentation or
correspondence relating thereto which it could be required to produce
on disclosure.
22.6 The Expert or Arbitrator (as the case may be) shall be instructed to
deliver his determination in writing to the Parties within thirty
(30) Working Days after the submission of the written reports
pursuant to Clause 22.4.
22.7 The Expert or Arbitrator (as the case may be) shall have the same
powers to require any party to produce any documents or information
to him and the other Party as an arbitrator and each Party shall
supply to him such information when required to do so which it could
be required to produce on disclosure.
22.8 Subject to the Arbitration Act 1996, decisions of the Expert and
Arbitrator shall be final and binding and not subject to appeal.
22.9 Any decision by the Expert in relation to payment of an invoice shall
be complied with within thirty (30) Calendar Days of the date on
which the decision is published. If a Party has been ordered to pay
the invoice and fails to do so within that thirty (30) Calendar Day
period the Expert shall have the power to order that Party to pay
interest on such sum from the first Working Day after the expiration
of that thirty (30) Working Day period at the annual rate of 4 per
cent above the base lending rate from time to time of National
Westminster Bank PLC accruing on a daily basis until payment is made
whether before or after any judgement.
28
<PAGE>
22.10 The costs of the Arbitrator shall be borne by the Parties in the
proportion as shall be determined by the Arbitrator having regard
(amongst other things) to the conduct of the Parties.
22.11 The costs of the Expert shall be borne equally by the Parties save
where the Expert's decision as to payment of an invoice has not been
complied with within the time limit set out in Clause 22.9 in which
case the Party that has failed to comply with the Expert's decision
shall bear all the costs of the Expert.
22.12 The performance by the Parties of their respective obligations under
this Agreement shall not cease or be delayed by this dispute
resolution procedure and the Parties will give effect to the
determination.
22.13 Each Party will bear its own legal or other costs in connection with
dispute resolution procedure, whether determined by an Expert or an
Arbitrator.
23 DEFAULT IN PERFORMANCE
23.1 Either Party may investigate any and each case where the other Party
(the "Non-Performing Party") appears to have failed to perform any
obligation conferred by and upon it in accordance with this
Agreement.
23.2 Where the Party so investigating (the "Investigating Party") is
satisfied that in any particular case the Non Performing Party has
failed to perform an obligation in accordance with the provisions of
this Agreement, the Investigating Party shall be entitled to
instruct the Non Performing Party to remedy the failure within such
reasonable period as the Investigating Party may determine and
(subject to the limitations of liability expressed in Clause 16)at
no additional cost to the Investigating Party. For the purpose of
this Clause 23.2 only, "reasonable period" shall mean that period of
time that is reasonably necessary to rectify the non performance,
taking into consideration the nature, scale and impact of the non
performance and the circumstances that gave rise to it which in any
event shall be no less than 45 Calendar days.
23.3 Where the Investigating Party issues an instruction to the Non
Performing Party under Clause 23.2 and the Non Performing Party
fails to comply (either wholly or partially) with the instruction
issued by the Investigating Party within the timescale permitted by
the said instruction then the Investigating Party shall be entitled
to issue a Default Notice in respect of each such failure
<PAGE>
23.4 Upon the issue of a Default Notice under Clause 23.3:
23.4.1 where the breach detailed in the said instruction being the
subject of the Default Notice is capable of remedy, the Non
Performing Party shall remedy the said breach within forty-
five (45) Calendar days (or as otherwise agreed between the
Parties) after the Default Notice is served, and if the said
breach is then not remedied within that forty-five (45)
Calendar day period (or such other period as the Parties may
otherwise agree, (as the case may be)) , the Investigating
Party shall be entitled to issue a Major Default Notice; or
23.4.2 where the breach detailed in the said instruction being the
subject of the Default Notice is not capable of remedy, the
Investigating Party shall be entitled, having given the Non
Performing Party ten (10) Calendar days (or such other
period as the Parties may have otherwise agreed (as the case
may be)) written notice of its intention to so do, issue a
Major Default Notice.
23.5 Where the Major Default Notice relates to the performance of the
Consultancy Services, save for a default governed by Clause 12 the
Investigating Party shall specify in the Major Default Notice that
in the event of:
23.5.1 a further Major Default Notice being issued to the Non-
Performing Party within the next six (6) Calendar months; or
23.5.2 three Major Default Notices in total being served within any
eighteen (18) Calendar month period during the Contract
Period, then;
the Investigating Party may either, without prejudice to any
of its other rights and remedies hereunder;
23.5.3 extend the period for performance in relation to any
outstanding Major Default Notices; or
23.5.4 terminate the provisions in the Agreement which relate to
the Consultancy Services, in accordance with the provisions
of Clause 24.1.
<PAGE>
23.6 Where the Major Default Notice relates to the provision of the SBS
Staff Services (including the ASC Services and the ASC
Infrastructure) save for a default governed by Clause 12 the
Investigating Party shall specify in the Major Default Notice that
in the event that:
23.6.1 a further Major Default Notice being issued to the Non-
Performing Party within the next twelve (12) Calendar
months; or
23.6.2 three Major Default Notices in total being served within any
thirty-six (36) Calendar month period during the Contract
Period, then;
the Investigating Party may either, without prejudice to any
of its other rights and remedies hereunder;
23.6.3 extend the period for performance in relation to any
outstanding Major Default Notices; or
23.6.4 terminate the provisions of the Agreement which relate to
the SBS Staff Services (including the ASC Services and the
ASC Infrastructure) in accordance with the provisions of
Clause 24.4.
23.7 Where the Major Default Notice relates to a default governed by
Clause 12 in respect of non-payment of an invoice by SBS for
Consultancy Services provided by Tier where SBS has failed to comply
with an Expert's decision pursuant to Clause 22.9 Tier shall specify
in the Major Default Notice that in the event of:
23.7.1 a further Major Default Notice being issued to SBS relating
to non-payment of an invoice pursuant to an Expert's
decision under Clause 22.9 within the next twelve (12)
Calendar months;
Tier may either, without prejudice to its other rights and
remedies hereunder;
23.7.2 extend the period for performance in relation to the
outstanding Major Default Notices; or
23.7.3 terminate the whole Agreement in accordance with the
provisions of Clause 24.7.
<PAGE>
23.8 Where the Major Default Notice relates to a default governed by
Clause 12 in respect of non-payment of an invoice by Tier in respect
of Mobilised SBS Staff Services and Tier has failed to comply with
an Expert's decision pursuant to Clause 22.9 SBS shall specify in
the Major Default Notice that in the event of:
23.8.1 a further Major Default Notices relating to non-payment of
an invoice being issued to Tier pursuant to an Expert's
decision under Clause 22.9 within the next twelve (12)
Calendar months;
SBS may either, without prejudice to its other rights and
remedies hereunder;
23.8.2 extend the period for performance in relation to the
outstanding Major Default Notice; or
23.8.3 terminate the whole Agreement in accordance with the
provisions of Clause 24.7.
23.9 Where the Major Default Notice relates to a default not governed by
Clauses 23.5.4, 23.6.4, 23.7.3 or 23.8.4 the Investigating Party
shall specify in the Major Default Notice that in the event of:
23.9.1 a further Major Default Notice being issued to the Non-
Performing Party within the next twelve (12) Calendar months
which does not relate to a default governed by Clauses
23.5.4, 23.6.4, 23.7.3 or 23.8.4;
the Investigating Party may either, without prejudice to any
of its other rights and remedies hereunder;
23.9.2 extend the period for performance in relation to any
outstanding Major Default Notice; or
23.9.3 terminate the Agreement in accordance with the provisions of
Clause 24.7.
23.10 To the extent that any failure by the Investigating Party to fulfil
any of its obligations is caused by a default by the Non Performing
Party, then:
23.10.1 the Investigating Party shall use all reasonable endeavours
to arrange all such additional resources as are necessary to
fulfil the said obligation as early as possible thereafter
(at the cost of
<PAGE>
the Non Performing Party (subject to the limitations of
liability expressed in Clause 16; and
23.10.2 the Investigating Party shall be entitled to an extension of
time in respect of such obligation which shall reflect the
delay actually caused by the Non Performing Party's default.
23.11 In the event of the default referred to in Clause 23.10 causing a
delay in any Third Party contract, then the Parties shall use best
endeavours to ensure that the effect on the said Third Party
contract is kept to an absolute minimum and that the said Third
Party is advised immediately about the consequential effects of such
a delay.
24 TERMINATION
24.1 Where the right to terminate arises pursuant to Clause 23.5.4 SBS
may terminate the provisions in the Agreement relating to the
Consultancy Services by serving a written termination notice on
Tier. The termination notice must specify the termination date,
which must not be less than thirty (30) Working Days after the date
on which the termination notice is given.
24.2 In the event that SBS exercises its right under Clause 24.1 to
terminate the provisions in the Agreement relating to the
Consultancy Services:
24.2.1 the provisions relating to the Consultancy Services in the
Agreement will terminate on the termination date set out in
the termination notice. For the avoidance of doubt SBS shall
be immediately discharged from any further liability to pay
the Consultancy Services Minimum Total Commitment;
24.2.2 SBS shall pay forthwith all monies due and owing to Tier in
respect of the Consultancy Services provided up to the
termination date.
24.3 Save as provided in Clause 24.2.1, all other provisions in this
Agreement shall continue in full force and effect, including the
performance by SBS of its obligations in respect of the SBS Staff
Services (including the ASC Services and the ASC Infrastructure) and
Tier shall remain liable to meet the SBS Staff Services Minimum
Total Commitment.
<PAGE>
24.4 Where the right to terminate arises pursuant to Clause 23.6.4 Tier
may terminate the provisions of the Agreement relating to the SBS
Staff Services (including the ASC Services and the ASC
Infrastructure) by serving a written termination notice on SBS. The
termination notice must specify the termination date which must not
be less than thirty (30) Working Days after the date on which the
termination notice is given.
24.5 In the event that Tier exercises its right under Clause 24.4 to
terminate the provisions in the Agreement relating to the SBS Staff
Services (including the ASC Services and the ASC Infrastructure:
24.5.1 the provisions relating to the SBS Staff Services (including
the ASC Services and the ASC Infrastructure) in the
Agreement will terminate on the termination date set out in
the termination notice and for the avoidance of doubt Tier
shall be immediately discharged from any further liability
to pay the SBS Staff Services Minimum Total Commitment;
24.5.2 Tier shall pay forthwith all monies due and owing to SBS in
respect of any Mobilised FTE SBS Staff Services up to the
termination date.
24.6 Save as provided in Clause 24.5.1, all other provisions in this
Agreement shall continue in full force and effect, including the
obligation on SBS to continue to procure Consultancy Services from
Tier up to the Consultancy Services Minimum Total Commitment.
24.7 Where the right to terminate arises pursuant to Clauses 23.7.3,
23.8.3 and 23.9.3 either Party may terminate this Agreement by
serving a written termination notice on the other Party. The
termination notice must specify the termination date, which must not
be less than thirty (30) Working Days after the date on which the
termination notice is given.
24.8 In the event that either Party exercises its right under Clause 24.7
to terminate the Agreement:
24.8.1 the Agreement will terminate on the termination date set out
in the termination notice;
24.8.2 no further payments whatsoever shall be due from one Party
to the other Party other than payments which have fallen due
prior to the termination date, such payments to be made
forthwith.
<PAGE>
24.9 If a Receiver is appointed of the whole or part of one Party's (the
"Insolvent Party") assets or an order is made or a resolution passed
for winding up (unless such order or resolution is part of a
voluntary scheme for the reconstruction or amalgamation of the
Insolvent Party as a solvent corporation and the resulting
corporation if a different legal entity undertakes with the other
party to be bound by the terms of this Agreement) or the Insolvent
Party otherwise becomes subject to or takes advantage of the
bankruptcy or insolvency laws applicable to it then this Agreement
shall immediately terminate without the need of any notice but the
other Party may at its absolute discretion waive such termination by
notice in writing given within twenty (20) Working Days after the
event giving rise to such termination comes to the other Party's
attention in which case this Agreement shall revive and shall be
deemed never to have been terminated and the rights and obligations
under the Agreement shall subsist for the successors and assigns of
the Insolvent Party.
24.10 Save for the provisions under Clause 14 the provisions of Clause 24
shall be the sole provisions relating to termination of this
Agreement in whole or in part and for the avoidance of doubt, the
Parties waive irrevocably pursuant to Clause 30 any other right or
remedy which may otherwise accrue to the other Party howsoever to
terminate and/or rescind this Agreement and/or to cease or suspend
the provision of the Consultancy Services and/or ASC Services (as
the case may be) at any time during the Contract Period but nothing
in this Clause 24.3 shall exclude or restrict the Parties' right (if
any and subject to Clause 16) to claim any other remedy in equity or
law from the other.
24.11 Termination in accordance with this Clause 24 shall not prejudice or
affect any right of action or remedy which shall have accrued or
shall thereafter accrue to either Party (including, without
limitation, in respect of any damages suffered or incurred
thereafter).
24.12 In the event of termination or expiry of this Agreement in whole or
in part, the Parties will promptly return to each other any property
belonging to them which they have no contractual right to retain.
24.13 Subject as otherwise provided in this Agreement, or subject to any
rights or obligations which have accrued prior to termination
neither Party shall have any further obligation to the other under
this Agreement in respect of the part of the Agreement which is
terminated.
<PAGE>
25 CHANGE CONTROL
25.1 Either Party may from time to time request amendments to this
Agreement. Amendments to this Agreement shall be effected only by
way of Change Control Notes signed by the duly authorised
representatives of the Parties, such approval not to be unreasonably
withheld.
25.2 Change Control Notes shall be substantially in the form set out in
ATTACHMENT 1 to SCHEDULE 6 and shall be numbered consecutively.
26 MILLENNIUM COMPLIANCE
26.1 The Parties hereby warrant that the performance and functionality of
all software and hardware or other items in question (the "Relevant
Item") owned or used by, or licensed to them in performing their
obligations under this Agreement will not be affected by the advent
of the year 2000 or by any leap year or by any use of or reference
to a date beyond 31 December 1999. In particular the Relevant Item
will:
26.1.1 handle date information before, during and after 1st January
2000, including but not limited to accepting date input,
providing date output, and accurately performing
calculations on dates or portions of dates in a manner that
is unambiguous as to century;
26.1.2 function accurately and without interruption before, during
and after 1st January 2000, without any changes in operation
associated with the advent of that year or the end of the
preceding year; and
26.1.3 respond to two-digit year date input in a way that resolves
the ambiguity as to century in a disclosed, defined and
predetermined manner without the need for human
intervention;
Provided that until 31st December 1999 the only remedy
available to either Party in respect of any default by the
other Party under this Clause 261 shall be to require that
Party to correct the affected software and hardware or other
item owned or used by, or licensed by that Party as soon as
is practicable such that neither the provision nor the
receipt of the Consultancy Services or the ASC Services will
be affected by the advent of the Year 2000 or by any use of
or reference to a date beyond 31st December 1999.
<PAGE>
27 CONFIDENTIALITY
27.1 For the purpose of this Agreement it is contemplated that either or
both of the Parties may disclose or allow access to certain
information in the pursuance of the Agreement and the Parties wish to
protect and regulate how such Confidential Information is to be
treated in order to protect their interests in this information.
27.2 Each Party hereto possesses valuable information, including without
limitation, ideas, business methods, finances, prices, customer lists
or details, business, financial, marketing, development or manpower
plans, computer systems and software, technical drawings, data,
manuals, techniques, trade secrets, know-how, or other matters
connected with services provided under this Agreement, information
concerning relationships with actual or potential clients or
customers and the needs and requirements of such persons, research
and development data and specifications, and data of a secret and
confidential nature relating to its present and future commercial
activities any of which may be in whatever form, whether imparted
orally or in writing or by other medium including all copies of the
same all of which are regarded by it as commercial assets of
considerable value.
27.3 For the purpose of this Clause 27, the following definitions shall
apply;
27.3.1 "Confidential Information" shall mean those things described
in Clause 272.
27.3.2 "Disclosing Party" shall mean the Party who discloses its
Confidential Information to the other Party.
27.3.3 "Receiving Party" shall mean the Party who receives its
Confidential Information from the Disclosing Party.
27.3.4 The Receiving Party shall:
27.3.4.1 hold all Confidential Information received from
the Disclosing Party in strict confidence;
27.3.4.2 use the Confidential Information solely for the
purpose intended by this Agreement;
27.3.4.3 permit access to such Confidential Information
only to those of its personnel who need to know
for carrying out their respective obligations
under this Agreement.
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<PAGE>
27.3.5 Without prejudice to the generality of the provisions of this
Clause 27, the Receiving Party shall exercise no less a degree
of care in protecting the Confidential Information than which
it uses to protect its own information of like sensitivity and
importance.
27.3.6 The obligations of confidentiality herein shall not apply to
any Confidential Information which:
27.3.6.1 was in the possession of the Receiving Party
before such Confidential Information was imparted
by the Disclosing Party or is independently
developed by any servant, agent or employee of the
Receiving Party without access to or use or
knowledge of the Confidential Information imparted
by the Receiving Party; or
27.3.6.2 was, is in or subsequently comes into the public
domain other than by breach by the Receiving Party
of its obligations hereunder or under any other
agreement of confidentiality between the Parties;
or
27.3.6.3 is received by the Receiving Party without
restriction on disclosure or use from a Third
Party, which Third Party has a lawful right to
make such disclosure; or
27.3.6.4 is disclosed because of a legal requirement.
27.3.7 If any portion of any Confidential Information falls within
any of the above exceptions, the remainder shall continue to
be subject to the restrictions of this Agreement.
27.3.8 Any Confidential Information imparted hereunder shall remain
the property of the Disclosing Party and must be used only for
the purpose of this Agreement. No rights are granted to the
Receiving Party hereunder and no rights shall be deemed to
have arisen or be implied in any Confidential Information.
27.3.9 Upon expiration or termination in whole or in part of this
Agreement, the Receiving Party shall return such Confidential
Information as relates to the part of the Agreement which has
terminated where part-termination has occurred or otherwise
all Confidential Information received from the Disclosing
Party to the Receiving Party, or, upon the consent of the
Disclosing Party, shall destroy all such Confidential
Information and provide to the Disclosing Party a certificate
of such destruction signed by a responsible officer of the
Receiving Party.
38
<PAGE>
27.3.10 Unless otherwise agreed, in writing, these confidentiality
provisions shall survive termination of this Agreement and
shall remain in effect for a period of five (5) years after
return or destruction by the Receiving Party of the other
Party's Confidential Information provided in accordance with
this Agreement.
27.4 The Parties accept and agree not to divulge the nature, existence
and/or content of this Agreement to any other company, organisation
or individual, without the consent of the other Party, save in cases
where it is necessary by virtue of judicial review, legislation
and/or financial regulations, in which cases the one Party shall
receive due notice from the other Party so required to disclose the
necessary information.
28 PUBLICITY
28.1 Neither Party shall publicise the existence of this Agreement nor
make all or any necessary press announcements in respect thereof
without the consent of the other Party.
29 ENGAGEMENT OF SENIOR EMPLOYEES
29.1 Neither Party shall during the Contract Period and for a period of
twelve (12) Calendar months after its termination solicit, employ or
engage or offer to employ or engage any of the other Party's senior
employees or consultants without the prior written consent of the
other Party.
29.2 In the event of breach of Clause 29.1 and only where the senior
employee or consultant in question has actively sought employment
with the defaulting Party, the defaulting Party shall pay to the
other Party a sum equal to 30% of the first year's annual salary paid
to the senior employee or consultant so recruited by the defaulting
Party. Payment of such sum shall be the sole and exclusive liability
of the defaulting Party. Payment shall be made with thirty (30)
Working Days of commencement of employment.
39
<PAGE>
30 FAILURE TO ENFORCE AND WAIVER
30.1 The failure or delay by either Party to exercise any right, power
or remedy under this Agreement shall not constitute a waiver thereof
and shall not in any circumstances impair such right, power or remedy
nor operate as a waiver of it. The single or partial exercise by
either Party of any right, power or remedy under Agreement shall not
in any circumstances preclude any other or further exercise of it or
the exercise of any right, power or remedy.
30.2 A waiver of any breach or default under any terms of this Agreement
shall not be deemed a waiver of any subsequent breach or default and
shall in no way affect the other terms of this Agreement.
31 VALIDITY
31.1 If any provision of this Agreement is held to be invalid, illegal
or unenforceable for any reason (whether by an expert, by
arbitration, or by a court of competent jurisdiction):
31.1.1 such provision will be severed and the remainder of the
provisions will continue in full force and effect as if this
Agreement had been executed with the invalid, illegal or
unenforceable provisions eliminated;
31.1.2 the Parties shall in good faith amend the provision of the
Agreement to reflect as nearly as possible the spirit and
intention behind that invalid, illegal or unenforceable
provision so as to place the Parties in substantially the
same position, to the extent that such spirit and intention
is consistent with the laws of England, and so that the
amended clause complies with the laws of England.
32 ASSIGNMENT
32.1 Neither Party shall assign or purport to assign or transfer this
Agreement or any part thereof without the prior consent in writing of
the other. Any such assignment as aforesaid shall not excuse the
assigning Party from liability for due performance and observance of
any provision expressed herein on its part to be performed or
observed.
40
<PAGE>
33 NOT A PARTNERSHIP OR AGENCY
33.1 Nothing in this Agreement shall constitute or be deemed to
constitute a partnership between the Parties hereto or constitute or
be deemed to constitute SBS as agent of Tier or Tier as agent of SBS
for any purpose whatsoever and SBS shall have no authority or power
to bind Tier and Tier shall have no authority to bind SBS or to
contract in the name of or create a liability against Tier or SBS
(howsoever the case may be) in any way or for any purpose.
34 ORIGINALITY OF AGREEMENT
34.1 This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same document.
35 ENTIRE AGREEMENT
35.1 This Agreement sets out the entire agreement between the Parties
with respect to the subject matter covered by it and supersedes all
prior communications, drafts, representations, agreements,
warranties, statements and understandings of whatever nature, whether
oral or in writing between the Parties, relating to the subject
matter, provided that this shall not exclude any liability which a
Party would otherwise have to the other Party in respect of a
statement made fraudulently by that Party prior to the date of this
Agreement.
35.2 This Agreement shall come into effect on the Effective Date and
subsist for the Contract Period unless or until terminated in
accordance with the provisions of Clauses 14 or 24.
35.3 Neither Party shall have any rights or licence save as specifically
agreed herein.
35.4 This Agreement will be governed by and construed in accordance with
English Law. The Parties hereby submit to the jurisdiction of the
High Court of Justice in England.
41
<PAGE>
AS WITNESS the hands of the Parties hereto the day and year first hereinbefore
written:
SIGNED AND AGREED for and on Behalf of Tier Technologies (United Kingdom) Inc.
Signature: /s/ [ILLEGIBLE]^^ Date: 1 September 99
------------------------- ---------------------------
Name: James L. Bildner Status: CEO
--------------------------- --------------------------
SIGNED AND AGREED for and on Behalf of Siemens Business Services Limited
Signature: /s/ [ILLEGIBLE]^^ Date: 1 Sept 1999
------------------------- ---------------------------
Name: G. S. Posey Status: MD
------------------------- -------------------------
42
<PAGE>
SCHEDULE 1
INTERPRETATIONS AND DEFINITIONS
-------------------------------
1 INTERPRETATIONS
1.1 Clause headings in this Agreement are for ease of reference only and
do not affect interpretation.
1.2 References to Paragraphs shall mean those paragraphs contained within
those Schedules and/or Annexes in which they are contained unless
expressly stated otherwise by references to other Schedules and/or
Annexes.
1.3 The singular includes the plural and vice versa.
1.4 References to Clauses shall mean those clauses contained within the
General Terms and Conditions of the main body of this Agreement unless
expressly stated otherwise.
2 DEFINITIONS
"ASC
Infrastructure" means the infrastructure (as defined in
SCHEDULE 7) to be put into place in
accordance with the provisions of SCHEDULE 7
to facilitate the provision of the ASC
Services by SBS.
"ASC
Infrastructure Specification" means the outline specification relating to
the operational, functional and/or design
characteristics of the ASC Infrastructure to
be provided in accordance with the provisions
of Paragraph 3.1 of SCHEDULE 7.
"ASC
Services" means those services to be provided by SBS to
Tier and/or a Third Party, using the ASC
Infrastructure as further described in
SCHEDULE 4 and the Business Development
Methodology.
"Agreement" Means this agreement comprising the
front/cover page, contents page(s), Clauses 1
to 35 inclusive and SCHEDULE 1 to SCHEDULE 8
inclusive and all or any Annexes, Appendices
or Attachments forming part thereof and any
Change Control Note issued,
<PAGE>
approved and authorised in accordance with
the provisions of Clause 25 and the Business
Development Methodology.
"Bid Manager" means an individual appointed by SBS to
coordinate the Proposal Development Activity
and the production of the Proposal.
"Bid Team" means a group of individuals appointed by the
Bid Manager to assist Tier in discharging its
duties.
"Business Development
Activity" means the development of Third Party
relationships, covering inter alia initial
Third Party contact, Third Party business
needs identification, Third Party business
process definition and service provision
definition, to a standard agreed between the
Parties on a case by case basis.
"Business Development
Methodology" means a contractually binding document
identifying markets, targets, customers, the
ASC Services and including a methodology for
development of Third Party contacts by Tier
to be agreed and signed by a representative
of each Party from the ASG on or before the
date of this Agreement.
"Calendar" means the Gregorian calendar.
"Change Control Note" means a change control note as referred to in
Clause 25 and as amended by any subsequent
Change Control Note.
"Consultancy Services" means those activities to be conducted by
Tier (as may be better described in paragraph
3.1 of SCHEDULE 2) which are provided to SBS
and/or a Third Party under or pursuant to
this Agreement.
"Consultancy Services Charge
Rates" means those rates chargeable for the
provision of the Consultancy Services defined
in ATTACHMENT 1 of SCHEDULE 2.
<PAGE>
"Consultancy Services Minimum
Total Commitment" means the total sum of Consultancy Services to be
procured by SBS and/or a Third Party from Tier during
the Contract Period. The said sum shall be[***]. For
the avoidance of doubt this sum excludes the supply of
hardware or software or training or any other services
sourced through a third party and arranged by Tier
regardless of whether at margin or otherwise and
Consultancy Services procured by customers that have
been handed over to Tier by SBS where SBS requires no
further involvement with that customer.
"Consultancy Services
Timesheets" means timesheets completed in accordance with the
provisions of SCHEDULE 2 using the proforma timesheet
provided for in ATTACHMENT 3 to SCHEDULE 6.
"Contract Period" means the period commencing on the Effective Date of
this Agreement and continuing until the Final Date or
until it is terminated in accordance with Clause 14 or
24 whichever is the earlier date.
"Data Protection Act" means the Data Protection Act 1984 and the Data
Protection Act 1998 as applicable.
"Effective Date" means the first Working Day following the date on which
this Agreement receives its last signature from the
Parties.
[***]
"FTE" means full time equivalent - that is an individual or
series of individuals working collectively all Working
Days in a Calendar month save for leave, absence or
sickness.
"Final Date" means the date occurring exactly sixty (60) Calendar
months after the Effective Date unless and until
extended by agreement between the Parties in accordance
with the provisions of Clause 25.
"Force Majeure" means any cause preventing the performance by either
Party of any or all of its obligations arising from or
attributable to acts, events or omissions
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
beyond its reasonable control including (but
without limiting the generality thereof)
governmental regulations, fire, flood, act of
God, strike, war, riot, breakdown of plant or
machinery or any disaster or an industrial
dispute affecting a third party for which a
substitute third party is not reasonably
available.
"Formal Commitment Stage" means a point in time where a legal agreement
(having full force and effect) between SBS
and a Third Party is entered into directly
between them, such agreement taking the form
of either a letter of intent, letter to
proceed or a full contract for the provision
of ASC Services, where such agreement is
established subsequent to the Proposal
Submission Activity and as a direct
consequence thereof.
"General Terms and Conditions" means Clauses 1 to 35 inclusive and any
Change Control Note issued, approved and
authorised in accordance with the provisions
of Clause 25.
"Intellectual Property" means any and all patents, trade marks,
service marks, copyright, moral rights,
rights in design, know-how, confidential
information and all or any other intellectual
or industrial property rights whether or not
registered or capable of registration and
whether subsisting in the United Kingdom or
any other party of the world together with
all or any goodwill relating thereto.
"Mobilise(d)" means the making available of FTE SBS Staff
Services. SBS shall notify Tier in writing
that a specified number of FTE Staff Services
complete with their employment grade mix, are
prepared in readiness for the provision of
ASC Services, for "availability" in this
context to be proved.
"Mobilisation" means the activity associated with making
Mobilised SBS Staff Services available.
"Premises" means in respect of the Consultancy Services,
the place of performance specified in any
Workpackage or otherwise in respect of the
ASC Services the place of performance for
such ASC Services or the location where the
ASC Infrastructure is established.
<PAGE>
"Proposal" means a document in a form to be agreed on a
case by case basis between the Parties
(taking into account any Third Party
specified requirements) constituting a formal
offer capable of acceptance by a Third Party,
for the provision of ASC Services.
"Proposal Development
Activity" means those activities necessary (including
the obtaining of any necessary consents and
approvals of SBS' Directors and/or VRB) as a
consequence of the Business Development
Activity to ultimately produce a Proposal
including but not limited to the development
and production of specifications, service
level definitions, risk registers, cost
models, Third Party business plans or budgets
and the like or any other documents including
other financial data.
"Proposal Submission Activity" means the activities rendered necessary by
either the Third Party and/or the Parties
after the submission of the Proposal to
assist the Third Party in reaching the Formal
Commitment Stage, including any necessary
approvals of the Third Party or SBS'
Directors and/or VRB. Such activities are
likely to include, but not be limited to,
offering clarifications on the Proposal
content, negotiation of commercial and legal
terms, presentations to the Third Party's
representatives and the like.
"Ramp-up Period" means the period commencing 1st July 2000 and
ending on 30th June 2001 during which SBS
will Mobilise a specified number of FTE SBS
Staff Services.
"SBS Accommodation Services" means the bundling of roof, heat, light etc.
costs and the ASC Infrastructure capital
payment recharge costs, ASC Infrastructure
operational and maintenance costs (and the
like) on a unit basis linked to the number of
FTE SBS Staff Services supplied in accordance
with this Agreement. The appropriate charge
for the SBS Accommodation Services shall be
determined upon the ASC Infrastructure being
established.
"SBS Staff Services" means people employed by SBS or recruited by
SBS where appropriate who will be made
available in accordance with the provisions
of SCHEDULE 3 in readiness to support Tier in
servicing Third Parties
<PAGE>
or Tier's own requirements for ASC Services.
Those employed by SBS are likely be supplied
from [***]
"SBS Staff Services Minimum
Total Commitment" means a maximum sum of [***]payable by Tier
to SBS in respect of the Total Available Man
Months for Mobilised FTE SBS Staff Services
at the Average Mobilised Rate.
"Success Fee" means a sum of money to be paid to Tier by
SBS for Tier's costs and expenses incurred
during the whole of the Business Development
Activity, the Proposal Development Activity,
the Proposal Submission Activity up to and
through the Formal Commitment Stage. The
method of calculating the Success Fee shall
be as described in Paragraph 7 of SCHEDULE 3.
"Third Party(ies)" means businesses, companies and/or
organisations who may potentially have or
will require the provision of or supply of
ASC Services.
"Total Available Man
Months" means the total number of FTE SBS Staff
Services available for Utilisation in
accordance with the payment profile in
Attachment 1 to Schedule 3.
"TUPE" means the Transfer of Undertakings
(Protection of Employment) Regulations 1981
and any subsequent re-enactment or amendments
thereto.
"Utilise/utilised" means the act of using Mobilised SBS Staff
Services in the provision of the ASC Services
to Tier and/or a Third Party under agreements
separate from this Agreement and Utilisation
shall be construed accordingly.
"VRB" means the SBS Value Review Board constituted
and operated in accordance with SBS' VRB
Procedure, (as attached to the Business
Development Methodology ) used to evaluate
inter alia the business value of submitted
opportunities and any risks (including
financial, technical, delivery and resourcing
availability) associated with the said
opportunity. The said procedure is an
iterative one, requiring reviews at certain
identified stages of the project lifecycle.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
The output from the VRB meetings (which are
convened on a weekly basis) is a decision to
proceed to the next stage of the project
lifecycle or not, as the case may be. All
meetings of the VRB are minuted.
"Working Day" means any day other than Saturday or Sunday
or a bank holiday in the UK.
"Workpackage" means those packages of work for Consultancy
Services established in accordance with the
procedures and provisions of SCHEDULE 2.
"Year of this Agreement" means the period of twelve (12) Calendar
months commencing on the Effective Date and
expiring on the first anniversary thereof and
each successive year thereafter during the
Contract Period.
<PAGE>
SCHEDULE 2
Agreement Covering the Provision of Consultancy Services by Tier to SBS
-----------------------------------------------------------------------
1 INTRODUCTION
1.1 The Consultancy Services intended to be made available by Tier under
this Agreement shall include;
1.1.1 Business Process Redesign/Strategic Consulting.
1.1.2 Web Enabled Customer Technology.
1.1.3 People/Change Management.
1.1.4 Data Management and Warehousing.
1.1.5 Call Centres.
1.1.6 Front & Back Office Design.
1.1.7 Major Systems Design.
1.1.8 Training.
1.1.9 Distance Learning Applications.
1.1.10 Application Development
1.1.11 Project Management
and as may be better described in ATTACHMENT 2 to SCHEDULE 2.
1.2 SBS and/or a Third Party may take up the Consultancy Services. The
supply of Consultancy Services directly to a Third Party shall be
subject to an agreement separate from this Agreement, unless such
supply is incorporated into a package of services by SBS to that Third
Party.
1.3 Consultancy Services may be taken up by SBS in support of its
obligations under this Agreement or for any other purpose it may so
choose.
<PAGE>
1.4 SBS and/or a Third Party will during the Contract Period procure the
supply of Consultancy Services up to the Consultancy Services Minimum
Total Commitment. Notwithstanding the foregoing obligation, there is
no commitment by SBS and/or a Third Party as to the proportion or mix
of the Consultancy Services which may be requested from time to time
and no continuity of Workpackages is guaranteed.
2 SUPPLY OF CONSULTANCY SERVICES
2.1 Tier shall make available the Consultancy Services to SBS on a "most
favoured customer" basis and SBS shall so request the Consultancy
Services from Tier on a "Preferred Supplier" basis. For the purpose of
this paragraph "most favoured customer" status shall require Tier to
provide the Consultancy Services to SBS on a priority basis and at
preferential commercial rates. For the avoidance of doubt the
Consultancy Services Charge Rates reflect Tier's current preferential
rates which may be adjusted in accordance with the provisions of
Attachment 1 to Schedule 2. "Preferred supplier" status will require
SBS to offer its requirements for Consultancy Services in respect of
SBS projects to Tier in preference to any other supplier. In
particular SBS shall develop a change management review programme to
consider the options for increasing Tier's involvement in the
provision of Consultancy Services in connection with SBS' obligations
under the National Savings Bank Agreement to an agreed programme.
2.2 Tier shall provide the Consultancy Services to Third Parties in such a
manner as will not detract from the image and reputation of SBS.
2.3 Subject to requirements under the Data Protection Act Tier shall on
reasonable request provide employment status details of the persons
providing the Consultancy Services.
2.4 Tier undertakes that at all times the Consultancy Services shall
remain under the direction and control of Tier. Notwithstanding Tier's
overall control, Tier recognises that the Consultancy Services may
require Tier to perform work in relation to SBS' (and/or a Third
Party's) managed activity and that, in this event, SBS (and/or a Third
Party) shall be responsible for and shall supervise and manage such
activity.
2.5 The Consultancy Services shall be provided in an efficient, effective
and controlled manner and in accordance with the exercise of that
degree of skill, diligence, prudence and foresight which would
reasonably and ordinarily be expected from a skilled and experienced
consultancy company seeking in good faith to comply with its
contractual obligations, complying with all applicable laws and
engaged in the same type of undertaking and under the same or
<PAGE>
similar circumstances and conditions (including financial processing
controls).
2.6 Any material issued by SBS (and/or a Third Party) to Tier "free of
charge" for use in or associated with the Consultancy Services
provided under this Agreement shall remain the property of SBS (and/or
a Third Party). Any such material must be kept in good order and shall
be returned to SBS (and/or a Third Party) on completion of the
relevant Workpackage or otherwise as agreed in the same condition as
received subject to wear and tear. Where consumables are supplied Tier
shall return any unused portion of such consumables to SBS (and/or a
Third Party).
2.7 SBS (and/or a Third Party) may require the removal of any member of
Tier's personnel with immediate effect if such individual:
2.7.1 in the reasonable opinion of SBS (and/or a Third party)
proves unable to perform the Consultancy Services at any
time during his/her attendance at SBS (and/or the Third
Party's) Premises; or is guilty of serious misconduct or of
conduct which is contrary to standards of discipline
reasonably expected by SBS (and/or a Third Party) of its own
staff or does anything harmful to the reputation of SBS
(and/or the Third Party); or
2.7.2 intentionally without the prior written authority of SBS
(and/or the Third Party), removes (for whatever reason) any
of SBS (and/or the Third Party) tapes, disks, documents,
software, data or other materials or information from the
Premises of SBS (and/or the Third Party); or
2.7.3 without the prior written authority of SBS (and/or the Third
Party) makes (for whatever reason) any copies of documents
or software or other materials which belong or are licensed
to SBS (and/or the Third Party) for his/her own benefit or
for the benefit of any person (other than SBS (and/or the
Third Party); or
2.7.4 without the prior written authority of SBS (and/or the Third
Party), bring any software, tapes or disks on to premises of
SBS (and/or the Third Party), unless such software, tapes or
disks are used solely on Tier's equipment used stand-alone
and entirely separate from any of SBS (and/or the Third
Party)'s systems; or
2.7.5 causes a computer to perform any function with intent to
secure unauthorised access to the whole or any part of any
program or data held in any computer or does or omits to do
anything which may cause or facilitate any unauthorised
access, modification, alteration or eradication of the whole
or any part of any program or data held in any computer or
on any storage
<PAGE>
medium or which may otherwise adversely affect the operation
or reliability of any computer or program or the reliability
or accessibility of any data; or
2.7.6 does or omits to do anything which may prejudice the
security of the SBS (and/or the Third Party) Premises,
computers or software.
3 METHOD OF OBTAINING SUPPLY
3.1 SBS shall request and Tier shall provide Consultancy Services under
this Agreement by reference to:
3.1.1 a separate project agreement executed between the Parties;
or
3.1.2 a Workpackage called off under this Agreement which shall be
made in writing in accordance with this SCHEDULE 2; or
3.1.3 an oral request confirmed in writing within five (5) Working
Days by Tier.
3.2 Workpackages will be agreed upon between SBS and Tier prior to the
commencement thereof. Tier shall not commence any particular
Workpackage prior to having received the written approval of SBS.
3.3 Workpackages will be initiated utilising the following generic
process;
3.3.1 SBS shall provide to Tier a specification, describing inter
alia such matters as operational, functional or design
characteristics, major deliverables and timescales required.
3.3.2 Tier shall provide, in response to the said specification,
within thirty (30) Working days (unless agreed otherwise)
its response ("Response").
3.3.3 Tier's Response shall include descriptions of the
Consultancy Services to be provided, the criteria on which
they are to be provided, any dependencies between tasks and
external resources and requirements that may affect the
timely and qualitative delivery of the Workpackage and the
price (calculated using the Consultancy Services Charge
Rates) for providing the required Consultancy Services.
3.3.4 SBS shall then evaluate the Response. If so requested by SBS
Tier may, at no additional cost, make available that
resource reasonably necessary to assist SBS in its
evaluation of the Response, including presentations and the
like.
<PAGE>
3.3.5 Once agreement on the content of the Response has been agreed
and approved by SBS the said Response shall be accommodated
within a Workpackage either as a task or series of tasks as a
complete Workpackage.
3.3.6 SBS shall authorise commencement of the said Workpackage in
writing to Tier.
4 WORKPACKAGE LEADERS
4.1 SBS and Tier shall respectively (unless otherwise agreed) appoint a
representative to be a Workpackage Leader (hereafter "WPL") for each
and every Workpackage.
4.2 The WPL within their respective organisations shall be responsible
for;
4.2.1 co-ordinating with internal party(ies) involved in the
technical activities of the Workpackage;
4.2.2 the drafting, organisation and presentation of the necessary
parts of the Workpackage descriptions and content;
4.2.3 maintaining efficient and effective communication amongst the
said Party(ies) involved in the Workpackage and to ensure that
timescales are maintained;
4.2.4 organising when necessary Workpackage meetings;
4.2.5 keeping the other informed on the current status and progress
made in respect to the Workpackage activities and to help the
other in suggesting any corrective action that may need to be
taken.
5 PERFORMANCE
5.1 Tier undertakes to procure that each of its personnel carrying out the
Consultancy Services shall:-
5.1.1 except as otherwise agreed, attend the Premises and provide
such of the Consultancy Services as SBS requires for eight (8)
hours each Working Day between 8.30am and 5.30pm (unless
otherwise agreed in any particular Workpackage) and devote the
whole of his/her time, attention and ability to SBS during
such hours;
<PAGE>
5.1.2 perform his/her work with the level of skill, care and
technical ability expected of a person specialising in the
type of work specified in this Agreement;
5.1.3 perform his/her work promptly and comply with all reasonable
and lawful directions given by authorised personnel of SBS and
on request promptly give a full account of all matters with
which he/she is entrusted.
5.2 Tier undertakes that if any of its personnel is unable at any time to
work for a period exceeding five (5) Calendar days or more continuous
absence whether through ill health, injury or otherwise, it shall use
all reasonable endeavours to procure, at the request of SBS, that
another person of at least similar ability, experience and status be
supplied to SBS in place of the person who is absent.
5.3 In the event of an increase in the scope of the Consultancy Services
or the time required to provide the Consultancy Services such that SBS
requires additional Consultancy Services from Tier as determined by
SBS, SBS may notify Tier in writing of the need for such additional
Consultancy Services. Upon receipt of a notice in writing from SBS,
Tier shall use all reasonable endeavours to provide additional
Consultancy Services to SBS upon the terms and conditions set out in
this Agreement.
5.4 If the Consultancy Services do not substantially or materially comply
as required in this Agreement or any Workpackage, SBS shall within a
reasonable time give notice of rejection to Tier and without prejudice
to any of SBS' other rights SBS may at its discretion require Tier to
comply with this Agreement and the Workpackage by expeditiously re-
performing or otherwise righting any rejected Consultancy Services. In
such circumstances, Tier shall fully indemnify SBS for any direct
costs, expenses and/or losses incurred by it.
6 FEES
6.1 In consideration of the Consultancy Services provided pursuant to this
Agreement, SBS shall pay Tier the Consultancy Services Charge Rates in
respect of every 8 hours per day worked by each person carrying out
the Consultancy Services. For the avoidance of doubt, the Consultancy
Services Charge Rates shall be applied pro-rata in respect of any
period or periods of less than 8 hours. Periods in excess of eight (8)
hours shall not be chargeable at any premium rate unless otherwise
agreed in writing by the Parties. Any replacement shall (subject to
their being of at least equal ability, experience and status) be
chargeable at the same rate as the person who is thereby replaced.
6.2 Except as provided for in Paragraph 6.5, the Consultancy Services
<PAGE>
Charge Rates shall be inclusive of all secretarial, office
accommodation and other overheads including telephone, facsimile and
postage costs incurred by Tier in the course of its administrative
functions, unless otherwise agreed between the Parties. Such
Consultancy Services Charge Rates will be exclusive of value added tax
but will be deemed to be inclusive of any other forms of tax levies,
imposts, charges, fees and/or duties applicable from time to time.
6.3 The daily Consultancy Services Charge Rates for each person carrying
out the Consultancy Services shall be as detailed in ATTACHMENT 1 to
SCHEDULE 2.
6.4 Any materials or products supplied to SBS by Tier will be charged at
cost unless otherwise agreed by the Parties and in any event in
accordance with SBS' current expenses reimbursement policy for use
with contractors.
6.5 All expenses incurred by Tier in the provision of the Consultancy
Services will, provided SBS agrees in advance where reasonably
practicable to such expenses, be passed on at cost unless otherwise
agreed by the Parties and in any event in accordance with SBS' current
expenses reimbursement policy for use with contractors and included in
appropriate invoices, with associated receipts when requested. Such
expenses shall include, but not be limited to, car travel expenses,
parking, rail fares, air fares, taxis, hotels, subsistence, computer
time, photocopying, slide and report production.
6.6 If the supply of the Consultancy Services or any part of such
Consultancy Services is cancelled, SBS shall only be obliged to pay
any fees due up to the end of the cancellation period. For the
avoidance of doubt this shall not affect SBS' obligation to procure
Consultancy Services up to at least the Consultancy Services Minimum
Total Commitment.
7 PAYMENT
7.1 Except as provided in any particular Workpackage, an invoice with
supporting documentation shall be rendered every other Calendar month
in arrears and payment of the fees shall be made in accordance with
the provisions of Clause 12.
7.2 Invoices shall be based on authorised hours worked by each individual
involved in providing the Consultancy Services as certified by SBS on
the Consultancy Services Timesheets.
<PAGE>
7.3 Invoices raised in accordance with the provisions of Paragraphs 7.1
and 7.2 above shall be deducted against any outstanding balance of the
Consultancy Services Minimum Total Commitment.
8 DISCHARGE OF THE CONSULTANCY SERVICES MINIMUM TOTAL COMMITMENT
8.1 SBS' commitment to procure a defined volume of the Consultancy
Services defined in Paragraph 1.4 of this SCHEDULE 2 shall be fully
discharged immediately upon SBS and/or a Third Party (either
individually or as a sum total) paying invoices for the provision of
Consultancy Services by Tier equal to or in excess of the Consultancy
Services Minimum Total Commitment .
8.2 At the end of the Contract Period (save for early termination in
accordance with Clauses 14 or 24) if SBS and/or the Third Parties
(either individually or as a sum total) has/have not procured
Consultancy Services equal to or in excess of the Consultancy Services
Minimum Total Commitment then Tier shall raise an invoice for the
outstanding sum (if any) of the Consultancy Services Minimum Total
Commitment, calculated by deducting from the Consultancy Services
Minimum Total Commitment any and all invoices raised by Tier and/or
the Third Parties (either individually or as a sum total) for the
provision of the Consultancy Services during the Contract Period.
8.3 SBS shall pay any invoice raised by Tier in accordance with paragraph
8.2 within sixty (60) Working Days from the date of receipt.
<PAGE>
ATTACHMENT 1 to SCHEDULE 2
Consultancy Services Charge Rates
---------------------------------
Charge Rate
------------
Consultant Type ((Pounds)'s per day)
--------------- --------------------
Manager [***]
Senior Consultant [***]
Consultant [***]
Team Leader [***]
Technologist [***]
1 CONSULTANCY SERVICES CHARGE RATES
1.1 Any of the above Consultancy Services Charge Rates may be decreased at
any time by agreement between the Parties and implemented in
accordance with Clause 25.
1.2 Consultancy Services Charge Rates shall be fixed for the first twelve
Calendar Months of this Agreement and thereafter subject to review on
each anniversary of the Effective Date and agreed by the Parties. In
the event the Parties fail to agree on the Consultancy Services Charge
Rates the Parties shall refer to the benchmarking procedure in
SCHEDULE 8. Where the Parties fail to agree pursuant to the procedure
in SCHEDULE 8 either Party may refer the dispute to an Expert under
Clause 22.
1.3 The Consultancy Services Charge Rates specified in this ATTACHMENT 1
to SCHEDULE 2 shall only be amended in accordance with Clause 25 of
this Agreement and shall only take effect upon the equivalent
amendment being agreed between SBS and Tier.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
ATTACHMENT 2 to SCHEDULE 2
Tier Consultancy Services Descriptions
--------------------------------------
1 TIER CONSULTANCY SERVICES DESCRIPTION
1.1 Tier shall provide and continue to maintain the capability to provide
the following Consultancy Services to SBS (and/or a Third Party)
throughout the duration of this Agreement.
<TABLE>
<CAPTION>
QUALIFICATIONS AND EXPECTATION OF CAPABILITY
CONSULTANT TYPE EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manager Degree and five years relevant Project manage a medium/large project
experience including management of to customer requirements on cost and
similar project time to CIS ISO 9001 QMS.
- ----------------------------------------------------------------------------------------------------------------------
Senior Consultant 7 years experience in relevant field. High level tactical or technical
Member of an appropriate professional advice to departments or programmes.
body or educationally qualified for
membership
- ----------------------------------------------------------------------------------------------------------------------
Consultant 5 years experience in relevant field. Provision of technical advice to
Member of an appropriate professional department or to a specific programme.
body or educationally qualified for
membership
- ----------------------------------------------------------------------------------------------------------------------
Team Leader Honours degree and four years Provide leadership, technical advice
relevant experience. or analysis on major portion of a
programme to assignment manager.
- ----------------------------------------------------------------------------------------------------------------------
Technologist City and Guilds or Equivalent and To act as a member of a technical
five years relevant experience. design and development team.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
SCHEDULE 3
Agreement Covering the Provision of SBS Staff Services from SBS to Tier
-----------------------------------------------------------------------
1 INTRODUCTION
1.1 SBS shall make available the SBS Staff Services for Tier's immediate
Utilisation (or otherwise) in accordance with the provisions of this
SCHEDULE 3.
1.2 Tier shall use all reasonable endeavours to identify and create
opportunities using the agreed Business Development Methodology for
SBS to Utilise the Mobilised FTE SBS Staff Services either indirectly
to Third Parties through Tier or directly to Third Parties, via
agreements created through the following processes;
1.2.1 Business Development Activity;
1.2.2 Proposal Development Activity;
1.2.3 Proposal Submission Activity leading up to and including;
1.2.4 Formal Commitment Stage.
1.3 Without prejudice to the other provisions of this Agreement in
relation to this matter, Tier shall submit each process to the VRB for
approval (or otherwise) to continue to the next activity or stage such
approval to be given in accordance with the VRB guidelines, and not to
be unreasonably withheld.
1.4 During the Proposal Development Activity, SBS shall, subject to the
approval of the VRB, make available at least a Bid Manager, who may
appoint a Bid Team to support Tier during the Proposal Development
Activity.
1.5 During the Proposal Submission Activity, SBS shall, subject to the
continuing approval of the VRB, continue to make available a Bid
Manager, and (if any) the Bid Team appointed to support Tier during
the Proposal Development Activity.
1.6 Tier shall at all times during the aforementioned activities and
process work within the VRB guidelines and the Business Development
Methodology.
<PAGE>
1.7 In the event that Tier are unable to Utilise the SBS Staff Services
in accordance with the provisions of this Agreement, Tier shall
during the Contract Period and in accordance with the Programme and
Payment Profile hereinafter defined, procure the Mobilisation of the
SBS Staff Services up to the SBS Staff Services Minimum Total
Commitment.
2 SCOPE
2.1 The SBS Staff Services shall be provided (unless otherwise agreed by
the Parties) from various SBS [***] Premises.
2.2 Where additional skills are required to supplement the Utilised SBS
Staff Services (including but not limited to the areas of management,
team leadership, technical and programme management) SBS shall recruit
up to a maximum of 20% of the Mobilised SBS Staff Services at SBS'
discretion in consultation with Tier and the costs of recruitment for
such additional skills shall be borne equally by SBS and Tier. For the
avoidance of doubt any Mobilised SBS Staff Services recruited shall
count towards the SBS Staff Services Minimum Total Commitment.
2.3 The Mobilisation of such SBS Staff Services in accordance with the
payment profile in ATTACHMENT 1 of this SCHEDULE 3 shall be the sole
trigger for payment by Tier of the SBS Staff Services.
2.4 The capability or otherwise for Tier to Utilise (in whole or in
part) the SBS Staff Services (or not as the case may be) shall not
discharge Tier's obligations under this Agreement and in particular,
the provisions of Paragraph 5 of this SCHEDULE 3.
2.5 SBS will commit to supply Utilised SBS Staff Services to Tier at
appropriate service levels, where such service levels include
accommodation factors.
2.6 SBS will provide human resources support (including recruitment and
selection, if necessary) during the Mobilisation of the SBS Staff
Services.
2.7 For the avoidance of doubt, SBS shall give Tier priority allocation
to its IT personnel being Mobilised and not required by SBS.
2.8 SBS shall provide basic competency skills training to the SBS Staff
Services such as keyboard skills, basic IT operation, basic telephone
skills at SBS' cost.
2.9 For the avoidance of doubt where a Third Party requires additional
training SBS shall provide such training at its own or at the Third
Party's cost.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
2.10 In the event that Tier enters into any agreement with SBS for the
provision of the ASC Services the Parties will agree on any additional
training requirements and the costs shall be borne by SBS save that
SBS' liability for basic and additional training shall not exceed
[***]in aggregate per FTE SBS Staff Services. Tier may provide such
additional training to SBS at cost unless otherwise agreed between the
Parties.
2.11 In respect of training to be provided under Clause 2.9 SBS shall
request the provision of such training from Tier in preference to any
other supplier where Tier has the capability to provide such training.
2.12 SBS shall establish the ASC Infrastructure in accordance with the
provisions of Schedule 7.
3 PROGRAMME
3.1 SBS shall Mobilise the SBS Staff Services in accordance with the
payment profile in ATTACHMENT 1 to SCHEDULE 3 so as to reach a total
of [***] SBS Staff Services at the end of the Ramp-Up Period.
4 CALCULATION OF FEES
4.1 In consideration of the Mobilisation of the SBS Staff Services by
SBS pursuant to the payment profile in ATTACHMENT 1 to this SCHEDULE,
Tier (and/or Third Party) shall become liable for payment to SBS at
the relevant rate for such provision, in accordance with the Payment
Profile defined in Paragraph 5 below.
4.2 At the end of the first Calendar month of the Ramp-Up Period SBS
shall calculate a sum equivalent to [***] of those SBS Staff
Services Mobilised in that Calendar month (the "FTE SBS Staff Services
Rate").
4.3 At the end of each subsequent Calendar month during the Ramp-Up
Period SBS shall calculate the FTE SBS Staff Services Rate in respect
of the preceding month. Having calculated such sum SBS shall aggregate
the FTE SBS Staff Services Rates from the date of commencement of the
Ramp-Up Period to the date on which the calculation is made in order
to calculate a further sum equivalent to the average of the FTE SBS
Staff Services Rates (the "Average Mobilised Rate"). For the avoidance
of doubt in no event shall the Average Mobilised Rate be more than
[***].
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
4.4 At the end of the Calendar month immediately following the end of
the Ramp-Up Period, the Average Mobilised Rate shall become fixed for
the remainder of the Contract Period.
4.5 SBS Staff Services shall be charged to Tier (and/or a Third Party)
at the following rates:
4.5.1 for Mobilised FTE SBS Staff Services directly Utilised by Tier
(and/or a Third Party) at a commercial rate agreed between the
Parties taking into account the then current market conditions
for such services on a like for like comparison (the "Utilised
Rate");
4.5.2 for Mobilised FTE SBS Staff Services NOT directly Utilised by
Tier and/or a Third Party at the Average Mobilised Rate per
Mobilised FTE;
4.5.3 for the avoidance of doubt, where the Utilised Rate is to be
charged to Tier, SBS Accommodation Services shall be
additionally charged.
4.6 The rates set out in this Paragraph 4 will be exclusive of value
added tax but will be deemed to be inclusive of any other forms of tax
levies, imposts, charges, fees and/or duties applicable from time to
time.
5 PAYMENT
5.1 In accordance with the payment profile given in ATTACHMENT 1 to
SCHEDULE 3 SBS shall invoice Tier as follows;
5.1.1 for the fees due for the Mobilised FTE SBS Staff Services
supplied to Tier in the period from the last invoice to the
then current date calculated using the Average Mobilised Rate;
and
5.1.2 for the fees due for the Utilised FTE SBS Staff Services
supplied to Tier in the period from the last invoice to the
then current date calculated using the Utilised Rate; less
5.1.3 any deductions for FTE Utilised SBS Staff Services supplied to
a Third Party in the period from the last invoice to the then
current date calculated by deducting the equivalent number of
the so Utilised FTE SBS Staff Services from the number of
Mobilised FTE SBS Staff Services provided by SBS in the same
period;
<PAGE>
save and unless the total sum becoming payable under an
invoice raised in accordance with the provisions of Paragraph
5.1 above, is a sum of less than one hundred pounds
((Pounds)100), in which case no invoice will be raised for the
period in question, and any sums due will be carried over to
the next period.
5.2 Invoices raised in accordance with this paragraph 5 shall be
deducted against any outstanding balance of the SBS Staff Services
Minimum Total Commitment.
6 DISCHARGE OF THE SBS STAFF SERVICES MINIMUM TOTAL COMMITMENT
6.1 The SBS Staff Services Minimum Total Commitment shall be fully
discharged immediately upon;
6.1.1 Tier having paid invoices in respect of the Mobilised FTE SBS
Staff Services in an amount equal to the SBS Staff Services
Minimum Total Commitment; or
6.1.2 Tier and/or a Third Party Utilising the Mobilised FTE SBS
Staff Services in an amount equal to or greater than the Total
Available Man Months for Utilisation. For the avoidance of
doubt:
[***]
6.1.2.2 if a Third Party introduced to SBS by Tier terminates
its contract with SBS in respect of the ASC Services
on the basis of SBS' default, the Utilisation of SBS
Staff Services under that Third Party contract shall
continue to count against the SBS Staff Services
Minimum Total Commitment for the whole committed
period that the contract would have run but for SBS'
default; or
6.1.3 Failing that Tier being invoiced for the Mobilised FTE SBS
Staff Services that are not Utilised up to an amount equal to
the SBS Staff Services Minimum Total Commitment.
6.2 Tier may request at any time that some or all of SBS Staff Services
be transferred to Tier in accordance with the TUPE Regulations. In the
event that such a transfer takes place Tier's liability to SBS in
respect of the SBS Staff Services so transferred shall be
extinguished.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
6.3 At the end of the Contract Period (save for early termination in
accordance with Clauses 14 or 24) if Tier has not discharged its SBS
Staff Services Minimum Total Commitment in accordance with the
provisions of Paragraph 6 above then SBS shall raise an invoice for
the remaining amount in respect of the Total Available Man Months for
Utilisation not Utilised by Tier or a Third Party. For the avoidance
of doubt the rate to be used in any such calculation of the invoice
sum shall be the Average Mobilised Rate. In no event shall Tier have
to pay in excess of the SBS Staff Services Minimum Total Commitment.
6.4 Tier shall pay any invoice raised by SBS in accordance with
paragraph 6.3 within sixty (60) Working Days from the date of receipt.
7 SUCCESS FEES
7.1 During the Contract Period Tier's Success Fees shall be calculated
in accordance with the following;
7.1.1 For any Third Party opportunity comprising of Business
Development Activity, Proposal Development Activity and
Proposal Submission Activity or any parts thereof that does
not reach the Formal Commitment Stage, the Success Fee payable
by SBS to Tier shall be [***].
7.1.2 For any Third Party opportunity comprising of a complete end-
to-end process of Business Development Activity, Proposal
Development Activity and Proposal Submission Activity that
concludes by reaching the Formal Commitment Stage and where
the said Third Party opportunity Utilises less than fifty (50)
Mobilised FTE SBS Staff Services for the remainder of the
Contract Period, the Success Fee shall be [***].
7.1.3 For any individual Third Party opportunity comprising of a
complete end-to-end process of Business Development Activity,
Proposal Development Activity and Proposal Submission Activity
that concludes by reaching the Formal Commitment Stage and
where the said Third Party opportunity Utilises fifty (50) or
more Mobilised FTE SBS Staff Services for the remainder of the
Contract Period, the Success Fee shall be [***].
7.1.4 For any Third Party opportunity comprising of a complete end-
to-end process of Business Development Activity, Proposal
Development Activity and Proposal Submission Activity that
concludes by reaching the Formal Commitment Stage after Tier
has Utilised [***] SBS Staff Services and the said Third
Party opportunity Utilises any number of Mobilished FTE
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
SBS Staff Services in excess of those [***]
the Success Fee shall be [***].
7.2 Success Fees falling due under the provisions of this Paragraph 7
shall be invoiced to SBS on the effective date of the agreement with
the Third Party unless otherwise agreed by the Parties.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
ATTACHMENT 1 to SCHEDULE 3
Mobilisation Programme and Payment Profile for the SBS Staff Services
---------------------------------------------------------------------
1 INTRODUCTION
1.1 SBS shall Mobilise the SBS Staff Services in accordance with the
Programme identified in the following table.
1.2 Tier shall pay SBS for Mobilised SBS Staff Services in accordance
with the Payment Profile identified in the following table.
1.3 Deductions to the following payments shall be made in respect of all
Utilised SBS Staff Services.
2 ASSUMPTIONS
2.1 Mobilised Rate for Calculations is [***]. This figure shall be
substituted by the Average Mobilisation Rate, on a bi-monthly basis,
until the end of the Ramp-Up Period.
2.2 No allowances have been made for Utilised SBS Staff Services.
Adjustments to the Payment Profile will be made on a bi-monthly basis
to reflect any Utilisation of the SBS Staff Services.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
68
*CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
69
*CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
70
*CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
SCHEDULE 4
Agreement Covering the Provision of ASC Services from SBS to Tier and/or a Third
- --------------------------------------------------------------------------------
Party
-----
1 INTRODUCTION
1.1 The provisions of this SCHEDULE 4 shall determine the way in which the
Parties shall contract with Third Parties and will establish the terms
upon which they will so do.
2 CONTRACTUAL RELATIONSHIPS
2.1 SBS shall, in the provision of ASC Services either to Tier and/or a
Third Party, enter into agreements separate from this Agreement with
those Parties. The said agreements will, wherever possible, contain
minimum twelve (12) month termination and/or exit provisions.
2.2 Where the ASC Services are to be provided to a Third Party, SBS and
Tier shall use reasonable endeavours to ensure that the agreement for
the provision of those ASC Services is established on substantially
the same terms and conditions as those intended by the provisions of
this SCHEDULE 4, taking into consideration always, the requirements of
any Third Party.
2.3 In any such agreement with Tier and/or a Third Party the scope of the
ASC Services to be provided by SBS shall cover the following generic
areas:
[***]
[***]
[***]
[***]
[***]
[***]
* CONFIDENTIAL TREATMENT REQUEST(ED)
71
<PAGE>
[***]
[***]
[***]
[***]
[***]
3 MASTER SERVICES SUPPLY AGREEMENT FORM
3.1 Within six (6) Calendar months from the Effective Date, SBS shall
prepare a Master Services Supply Agreement for review by Tier. Tier
shall review the Master Services Supply Agreement within thirty (30)
Calendar Days of receipt from SBS and shall notify SBS of any
suggested revisions to the Master Services Supply Agreement, which
shall be either incorporated into the Master Services Supply Agreement
by SBS or discussed and resolved at a specially convened meeting of
the representatives of the Parties. The agreed Master Services Supply
Agreement shall be incorporated into this Agreement and, in particular
this SCHEDULE 4, by way of a Change Control Note.
3.2 From the date of that Change Control Note referred to in Paragraph 3.1
of this SCHEDULE 4, the said Master Services Supply Agreement, shall
become the de facto proforma agreement for the supply of ASC Services.
* CONFIDENTIAL TREATMENT REQUEST(ED)
72
<PAGE>
SCHEDULE 5
Commercial Principles Concerning the Assignment of [***]
---------------------------------------------------------------------
1 INTRODUCTION
1.1 This Schedule is intended to define the principles relating to the
possible assignment of [***] subject to the terms of the yet to be
defined Deed of Assignment to be established on the principles as
herein described.
1.2 For the avoidance of doubt, any agreed assignment of [***] shall take
the form of a Deed of Assignment, an agreement separate from this
Agreement (and having full force and effect) between [***], on terms
and conditions to be agreed.
2 CONDITION PRECEDENT
2.1 It shall be a condition precedent to the provisions of this SCHEDULE 5
taking effect that [***] shall obtain unequivocal and irrevocable
agreement from [***] to assign the benefits and burdens (subject to
any terms and conditions that they require) of [***]. In the event
that such permission as aforesaid is not obtained the provisions of
this SCHEDULE 5 shall become null and void on both Parties without
liability of any kind accruing to them.
2.2 For the avoidance of doubt, the failure by [***] to obtain any
necessary consents from [***] to assign [***] shall not constitute a
default hereunder and all other obligations, save for those relating
to this SCHEDULE 5, shall remain unchanged.
3 DUE DILLEGENCE
3.1 Without prejudice to the provisions of Paragraphs 1 and 2 of this
SCHEDULE 5, the Parties may wish to carry out comprehensive technical
and commercial due diligence exercises and the other Party agrees to
offer such opportunity and such assistance as necessary to conclude
such exercises.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
3.2 In the event that the Parties do not proceed to a Deed of Assignment
or information was discovered during due diligence that prevented
either of them proceeding to further agreement, then the full costs
incurred by the Parties during the due diligence exercise shall be
borne by the Party incurring such costs, unless agreement to the
contrary in certain individual cases are otherwise agreed in writing
between the Parties.
4 PROGRAMME
4.1 Without prejudice to the provisions of Paragraphs 1 and 2 of this
SCHEDULE 5, upon [***] obtaining that permission required by virtue of
the provisions of Paragraphs 1 and 2 of this SCHEDULE 5, the Parties
shall commence discussions for the establishment of the detailed plans
for carrying out any necessary due diligence, any necessary
contractual preparation for continued uninterrupted delivery of [***],
including transition arrangements and the like, which will cover [***]
and the like.
4.2 Without prejudice to any other provisions of this SCHEDULE 5, the
Parties are cognisant of the fact that the Parties have agreed a price
[***]at the time of entering into this Agreement. The Parties also
acknowledge and accept that the said price is calculated using a cost
model agreed between the Parties for such purpose and that the said
price is subject to revision as a consequence of inter alia the
effluxion of time from the Effective Date and incoming cashflow
effects and/or all or any of those matters identified in Paragraph 3
above. Accordingly, the foregoing provisions of this Paragraph 4.2
shall be considered in any such discussions contemplated by virtue of
the provisions of Paragraph 4.1.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
SCHEDULE 6
PROFORMAS
---------
1 INTRODUCTION
1.1 This SCHEDULE 6 contains Proformas to be used pursuant to the
provisions of this Agreement during the Contract Period.
1.2 Only properly executed documents constructed in accordance with the
principles contained in this Agreement using the proformas contained
in this SCHEDULE 6 shall be accepted by the Parties under this
Agreement.
<PAGE>
ATTACHMENT 1 TO SCHEDULE 6
Form of Change Control Note
---------------------------
- --------------------------------------------------------------------------------
CHANGE CONTROL NOTE NO: Ref :
This CHANGE CONTROL NOTE is issued pursuant to Clause 24 of the Agreement
dated [date of the Agreement] between Tier Technologies (United Kingdom)
Inc. and Siemens Business Services Limited.
It is now hereby agreed by the signatories below, acting as authorised
representatives of their respective companies, that the above referenced
contract shall be amended as detailed below;
- --------------------------------------------------------------------------------
DESCRIPTION OF CHANGES TO THE ABOVE REFERENCED CONTRACT:
- --------------------------------------------------------------------------------
Issued by: Agreed by:
Signature ....................... Signature: ..............................
Printed Name: ................... Printed Name: ...........................
Title: .......................... Title: ..................................
Date: ........................... Date: ...................................
- --------------------------------------------------------------------------------
<PAGE>
ATTACHMENT 2 TO SCHEDULE 6
Form of Workpackage
-------------------
1 INTRODUCTION
1.1 The specific format of each Workpackage shall be agreed between the
Parties on a case by case basis. Considerations in determining such
format should include, but not be limited to, Third Party
requirements, complexity and size, scope of the Consultancy Services
and duration of the task.
2 CONTENTS
2.1 Each Workpackage is likely to include as a minimum;
2.1.1 A reference to this Agreement.
2.1.2 Appropriate approvals from SBS, Tier and the Third Party (if
applicable).
2.1.3 Contents page.
2.1.4 A project definition.
2.1.5 Stated terms of reference and objectives.
2.1.6 Responsibilities of the parties involved in the Workpackage
activity.
2.1.7 Workpackage breakdown, complete with a description of the
Consultancy Services to be provided.
2.1.8 Clearly identified deliverables, resource requirements
expressed in man days per consultant type and indicative costs
and time to complete.
<PAGE>
ATTACHMENT 3 TO SCHEDULE 6
Form of Timesheet
-----------------
78
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TIER TECHNOLOGIES (UNITED KINGDOM) INC. CONSULTANCY SERVICES PROVISION TO SBS
- ---------------------------------------------------------------------------------------------------------------------------------
CHARGEABLE HOURS
- ---------------------------------------------------------------------------------------------------------------------------------
Name Activity Expenses Materials
Description or to be to be Mon Tues Weds Thurs Fri Sat Sun
Role/Position Workpackage Claimed Claimed
Number (Y/N) (Y/N)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CHARGEABLE -
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Total Total Total Daily Rate
Overtime Standard Chargeable Pound's Total Pound's
Hours Hours Hours
- ----------------------------------------------------------------------------------------------------------
<S> <C>
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- - - (Pounds) -
- ------------------------------------------------------------------------------------------------------------
Hours - Pound (Pounds)
- ------------------------------------------------------------------------------------------------------------
TIMESHEET AUTHORISED BY: SIEMENS BUSINESS SER TIMESHEET ISSUED BY: TIER TECHNOLOGIES (UNITED KINGDOM) INC.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
SCHEDULE 7
ASC Infrastructure
------------------
1 INTRODUCTION
1.1 This SCHEDULE 7 describes the infrastructure to be established by
SBS and at SBS? cost, to facilitate the provision of the ASC
Services to a Third Party or to Tier.
1.2 It shall be a condition precedent to forward capital and/or resource
investment other than the facilities and resources currently in
place into the ASC Infrastructure that at least one Third Party
agreement or an agreement with Tier is entered into (which shall be
determined by the reaching of the Formal Commitment Stage) by SBS
for the provision of ASC Services. SBS shall not be required to
perform any obligations contained in this SCHEDULE 7 until and
unless the said condition precedent is met.
2 LOCATION OF THE ASC INFRASTRUCTURE
[***]
3 ESTABLISHMENT OF THE ASC INFRASTRUCTURE
3.1 Without prejudice to the Paragraph 1.2 above, within three (3)
Calendar months from the Effective Date, SBS shall prepare a ASC
Infrastructure Specification for review by Tier. Tier shall review
the ASC Infrastructure Specification within ()thirty (30) Working
Days of receipt of the ASC Infrastructure Specification from SBS and
shall notify SBS of any suggested revisions to the ASC
Infrastructure Specification, which shall be either incorporated
into the ASC Infrastructure Specification by SBS or discussed and
resolved at a specially convened meeting of the ASG. The agreed ASC
Infrastructure Specification shall be signed as approved by each
Party.
[***]
[***]
[***]
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
[***]
[***]
3.4 SBS agrees to submit to Tier at Calendar monthly intervals during
the implementation of the ASC Infrastructure progress reports.
3.5 SBS and Tier agree to hold management review meetings to discuss and
review progress on the implementation of the ASC Infrastructure.
Such meetings shall be held at such intervals as the Parties shall
agree.
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
3.6 The Parties recognise that during the implementation of the ASC
Infrastructure the requirements relating to it may change. If either
Party identifies the need for any such change, such Party shall
first advise the other Party in writing of such proposed change and
the reasons therefor. The Parties shall meet to discuss such
proposed change and in the event that they jointly agree that such
change is necessary, the Parties shall execute a Contract Change
Note.
<PAGE>
SCHEDULE 8
Benchmarking
------------
1 INTRODUCTION
1.1 The Parties agree to the principle of benchmarking and market
testing to ensure the costs of the Consultancy Services and/or the
ASC Services provided to each other under this Agreement are
competitive in respect of those provided to their other customers of
a similar size and nature and that overall they respectively remain
competitive within the market at large providing the subject
Consultancy Services and/or the ASC Services during the period of
this Agreement. The Parties agree, to ensure that there are no
ambiguities in relation to the Parties? understanding of how this is
measured, it will be necessary to agree a structure around which
these benchmark measurements are to be taken. The principles of such
structures shall include, but not be limited to:
1.1.1 each service offered shall be capable of being benchmarked;
1.1.2 in such benchmarking systems, where a benchmark reveals a
variance, the said systems shall define the mechanisms for
making any necessary adjustments such as inter alia immediate
adjustment, future adjustment, price variation etc;
1.1.3 each benchmarking system will contain a requirement for a
regular review to ensure that the costs of providing the
services one to the other will at all times be competitive in
relation to then current equivalent service offerings
available to each Party in the market place as a whole.
1.2 For the purposes of benchmarking under this Schedule 8 companies
that are considered at the date of this Agreement to provide similar
Consultancy Services include Arthur Anderson, PriceWaterhouse
Coopers, Deloitte & Touche and KPMG, and companies considered at the
date of this Agreement to provide similar services to the ASC
Services include Arthur Anderson, Capita and EDS.
<PAGE>
ANNEX 1
Insurance Policies of Tier and SBS
----------------------------------
<PAGE>
ANNEX 2
AGREEMENT FOR THE PROVISION OF SBS STAFF SERVICES FROM SBS TO TIER
------------------------------------------------------------------
THIS AGREEMENT is made on day of
BETWEEN:
(1) Tier Technologies (United Kingdom) (Inc) a company incorporated in Delaware
whose Registered Address is situated at 1013 Centre Road, Wilmington, New
Castle County, Delaware, USA (?Tier?); and
(2) Siemens Business Services Limited whose Registered Address is situated at
Siemens House, Oldbury, Bracknell, Berkshire RG12 8FZ (?SBS?)
hereinafter collectively referred to as ?the Parties?.
RECITALS
Recital (A) Tier and SBS entered into an Alliance Agreement on 1999. Under the
Alliance Agreement Tier agreed to provide Consultancy Services to
SBS and SBS agreed to provide SBS Staff Services for Utilisation in
the ASC Services.
Recital (B) Tier had an option under the Alliance Agreement to require SBS to
enter into a new and separate agreement under which Tier would
create opportunities for SBS to Utilise the SBS Staff Services.
Pursuant to this option, Tier and SBS agree to enter into this
Agreement on the terms and conditions contained herein.
Recital (C) All the defined terms used in this Agreement shall have the same
meaning as in the Alliance Agreement unless otherwise specified.
IT IS NOW HEREBY AGREED AS FOLLOWS:
1 PURPOSE
1.1 The Parties shall enter into this Agreement on terms identical to
Clauses 4, 5, 6, 11, 13 ? 22, 25 ? 35 and Schedule 1 in the Alliance
Agreement and otherwise agree the terms and conditions set out
herein.
1.2 The purpose of this Agreement is stipulate the provisions, terms and
conditions used which SBS will provide SBS Staff Services and the ASC
Services [***]
* CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
1.3 For the avoidance of doubt SBS is under no obligations to procure
Consultancy Services from Tier under this Agreement and Tier is under
no obligation to provide any such Consultancy Services to SBS.
2 TERM
The Parties agree that this Agreement shall have full force and effect for a
period of two and a half years from the date of this Agreement.
3 THE ASC SERVICES
3.1 SBS shall:
3.1.1 make available the same types of services currently existing
in the ASC Services or any additional services agreed between
the Parties and set out in the Business Development
Methodology or otherwise agreed;
3.1.2 enter into Agreements with Tier and/or Third Parties separate
from this Agreement for the performance and delivery of such
ASC Services, such Agreement to be based on the Master
Services Supply Agreement unless expressly otherwise required
by the Third Party;
3.1.3 promptly notify Tier of any delay in performance of the ASC
Services;
3.1.4 provide the ASC Services in accordance with service levels
agreed with Third Parties;
3.1.5 ensure that the ASC Services conform to any quality
requirements and/or specifications stated in this Agreement or
as agreed by SBS in any agreement with a Third Party;
3.1.6 charge such rates for use of the ASC Services which are
competitive by reference to the benchmarking procedure
described in SCHEDULE 8 of the Alliance Agreement;
3.1.7 have the right, power, authority and capability to provide the
ASC Services in accordance with this Agreement or any other
arrangement or Agreement with Tier and/or a Third Party;
3.1.8 comply will all laws and regulations including relevant health
and safety legislation I the provision of the ASC Services;
<PAGE>
3.1.9 use reasonable endeavours to maintain the ASC Infrastructure
in order to provide the ASC Services in accordance with this
Agreement.
3.2 The Parties may elect to incorporate the provision of the ASC
Services as a sub-contract to Tier in any Agreement with a Third
Party, in which case Tier and SBS shall enter into a separate
Agreement for that supply of ASC Services the form of that Agreement
being the Master Services Supply Agreement unless otherwise agreed
between the Parties.
4 SBS STAFF SERVICES
4.1 SBS shall:
4.1.1 Mobilise sufficient FTE SBS Staff Services for Utilisation by
Tier and/or a Third Party in order to meet all requests for
the ASC Services made by Tier and/or Third Parties introduced
by Tier to SBS during the term of this Agreement. In the
event that SBS are unable to Mobilise SBS Staff Services SBS
shall recruit sufficient SBS Staff Services externally such
recruitment costs to be at SBS? cost.
4.1.2 continue to procure the training of all SBS Staff Services
during this Agreement as set out in SCHEDULE 3 of the
Alliance Agreement;
4.1.3 ensure that appropriate instructions and directions are given
to the SBS Staff Services to provide the ASC Services in
accordance with Agreements entered into with Third Parties
and/or Tier.
5 PAYMENT
5.1 Tier shall be entitled to [***]of any Net Margin (as defined below)
made on any Third Party contract entered into with SBS for the
provision of the ASC Services pursuant to Tier?s introduction of that
Third Party to SBS.
5.2 In respect of each such Third Party contract SBS shall pay Tier [***]of
any Net Margin (as defined below) calculated at the end of each six
month period payable in arrears for the duration of each Third Party
contract.
5.3 At the end of the period of any such Third Party contract the Net
Margin for the whole of that Third Party contract period shall be
calculated and reconciliation payments made to Tier as necessary.
*CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
5.4 For the purposes of this Clause 5 ?Net Margin? means all profit arising
out of a Third Party contract before the deduction of any tax less any
direct costs incurred in relation to such Third Party contract,
including a proportionate element of costs of assets shared between SBS
projects provided that such shared assets are directly used in the
delivery of that Third Party Contract.
5.5 Tier may dispute the amount of any monies paid to it in accordance with
Clause 5.1 within thirty (30) Calendar days of payment being made to it
by giving SBS written notice setting out the basis of the dispute.
Where such a dispute arises or SBS fails to pay Tier its [***]of any
Net Margin due under Clause 5.1 the Parties shall use reasonable
endeavours to settle the dispute amicably failing which the provisions
of Clause 21 of the Alliance Agreement will apply.
5.6 All payments to be made under this Agreement shall be made in full
without any set off, restriction or condition and without deduction for
or on account of any counterclaim.
5.7 Tier shall have access to SBS? accounts in accordance with the
provisions of Clauses 12.8 and 12.9 of the Alliance Agreement.
5.8 For the avoidance of doubt there shall be no additional payments in
respect of a Success Fee.
6 DEFAULT IN PERFORMANCE
6.1 In the event that SBS are unable to provide any SBS Staff Services in
order to perform the ASC Services for Tier and/or a Third Party SBS
shall be in default of this Agreement and Tier shall be entitled to
serve a default notice requiring SBS to remedy the default within
thirty (30) Working Days.
6.2 In the event that SBS fail to pay Tier any sums due to Tier in respect
of Net Margin made as a result of any Third Party contract for the ASC
Services SBS shall be in default of this Agreement and Tier shall be
entitled to serve a default notice requiring SBS to pay within thirty
(30) Working Days.
6.3 In the event that SBS commits three defaults under either Clause 6.1 or
6.2 within a period of six (6) Calendar months Tier shall be entitled
to terminate this Agreement in accordance with the provisions of Clause
7 below.
*CONFIDENTIAL TREATMENT REQUEST(ED)
<PAGE>
7 TERMINATION
7.1 This Agreement may be terminated for default as set out in Clause 6
above or for insolvency as set out in Clause 23 of the Alliance
Agreement.
7.2 In the event of termination pursuant to Clause 6 SBS shall pay Tier
forthwith any sums due and owing in respect of Third Party contracts
for the ASC Services at the date of termination.
SIGNED AND AGREED for and on behalf of Tier Technologies (United Kingdom) Inc.
Signature: Date:
Name: Status:
SIGNED AND AGREED for and on behalf of Siemens Business Services Limited
Signature: Date:
Name: Status:
<PAGE>
ANNEX 3
THE BUSINESS DEVELOPMENT METHODOLOGY
------------------------------------
1 PURPOSE
1.1 The purpose of this document is to describe the processes to be
followed by the Parties to support the Business Development Activity
contemplated under this Agreement.
1.2 In particular this document is established for the specific purposes
set out in Clause 6.2 of the Agreement.
2 APPROACH
2.1 The Alliance Managers shall review, document and agree, at each
Calendar monthly meeting;
2.1.1 In respect of new, anticipated or emerging Third Parties;
2.1.1.1 sales opportunities for the forthcoming six Calendar
month period and those Third Parties to be
approached in the forthcoming Calendar month;
2.1.1.2 the qualification criteria to be used in respect of
each new, anticipated or emerging Third Party
identified in Paragraph 2.1.1.1 above;
2.1.1.3 the sales campaign, action plan and resourcing
requirements to be deployed in respect of each new,
anticipated or emerging Third Party identified in
Paragraph 2.1.1.1 above;
2.1.1.4 any activities required by the VRB;
2.1.1.5 which Party is to be responsible for the activities
arising from Paragraphs 2.1.1.3 and 2.1.1.4 above;
2.1.1.6 to agree on the allocation of resources to support
those activities required by Paragraph 2.1.1.5.
2.1.2 In respect of those anticipated or emerging Third Parties
previously identified by the Parties pursuant to Paragraph
2.1.1.1. above:
2.1.2.1 Business Development Activity planned and undertaken
in the previous Calendar month and that anticipated
in the forthcoming Calendar month;
<PAGE>
2.1.2.2 Proposal Development Activity planned and/or
undertaken in the previous Calendar month and that
anticipated in the forthcoming Calendar month;
2.1.2.3 Proposal Submission Activity planned and/or
undertaken in the previous Calendar month and that
anticipated in the forthcoming Calendar month;
2.1.2.4 qualification criteria, sales campaign, action plan
and resourcing requirements and their ongoing
applicability, and whether or not to discontinue any
identified Third Party opportunity identified
pursuant to Paragraph 2.1.1.1 above;
2.1.2.5 any activities required by, the progress thereof,
and any decisions made by, the VRB and the reasons
for any such decisions;
2.1.2.6 to review the ongoing allocation of resources to
support those activities required by Paragraph
2.1.2.5.
2.2 The documents referred to in this paragraph 2 shall be updated as
necessary and reviewed as agreed between the Parties.
AS WITNESS the hands of the Parties hereto the day and year first hereinbefore
written:
SIGNED AND AGREED for and on Behalf of Tier Technologies (United Kingdom) Inc.
Signature:____________________________ Date:__________________________
Name:____________________________ Status:__________________________
SIGNED AND AGREED for and on Behalf of Siemens Business Services Limited
Signature:____________________________ Date:________________________
Name:____________________________ Status:________________________
<PAGE>
EXHIBIT 10.62
SECOND AMENDMENT
TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Second Amendment dated as of September 30, 1999 to Amended and Restated
Revolving Credit Agreement (the "Second Amendment"), by and among TIER
TECHNOLOGIES, INC., a California corporation (the "Company"), TIER TECHNOLOGIES
(UNITED KINGDOM), INC., a Delaware corporation ("Tier UK" and, collectively with
the Company, the "Borrowers" and each individually, a "Borrower") and
BANKBOSTON, N.A. (the "Bank"), amending certain provisions of the Amended and
Restated Revolving Credit Agreement dated as of May 28, 1999 (as amended and in
effect from time to time, the "Credit Agreement") by and among the Borrowers and
the Bank. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers and the Bank have agreed to modify certain terms and
conditions of the Credit Agreement as specifically set forth in this Second
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
(S)1. Amendment to (S)1 of the Credit Agreement. Section 1.1 of the
-----------------------------------------
Credit Agreement is hereby amended by inserting the following definition in the
appropriate alphabetical order:
St. George Facility. That certain loan facility in the
-------------------
aggregate principal amount of not more than $3,300,000 Australian
Dollars provided from St. George Bank Limited to Tier Australia,
such facility to be on substantially the terms set forth in the
October 19, 1999 letter from St. George Bank Limited to Tier
Australia, a copy of which has been provided to the Bank.
Tier Australia. As defined in Section 6.1(h).
--------------
(S)2. Amendment to (S)5 of the Credit Agreement. Section 5.8 of the
-----------------------------------------
Credit Agreement is hereby amended by deleting the amount "$3,400,000" which
appears in subparagraph (b) of Section 5.8 and substituting in place thereof the
amount "$2,900,000".
(S)3. Amendment to Section 6 of the Credit Agreement. Section 6 of the
----------------------------------------------
Credit Agreement is hereby amended as follows:
<PAGE>
-2-
(a) Section 6.1(g) of the Credit Agreement is hereby amended by (i)
deleting the words "Indebtedness of a Foreign Subsidiary to the Company in
the form of" which appear in Section 6.1(g) and substituting in place
thereof the words "Indebtedness of a Foreign Subsidiary, other than Tier
Australia, to the Company in the form of"; (ii) deleting the words "the
Foreign Subsidiary" which appear in Section 6.1(g)(iv) and substituting in
place thereof the words "such Foreign Subsidiary"; and (iii) deleting the
amount "$3,000,000" which appears in Section 6.1(g)(v) and substituting in
place thereof the amount "$2,000,000".
(b) Section 6.1(h) of the Credit Agreement is hereby amended by (i)
deleting the text of Section 6.1(h)(ii) in its entirety and substituting in
place thereof the words "(ii) the aggregate principal amount of such loan
does not exceed the lesser of (1) $1,000,000 and (2) an amount equal to (A)
the aggregate purchase price for the assets of Simsion & Bowles Pty Ltd. to
be acquired by Tier Australia on or prior to December 31, 1999 (the "S&B
Acquisition") less (B) the aggregate principal amount of the St. George
----
Facility used to finance the S&B Acquisition"; and (ii) deleting the date
"September 28, 1999" which appears in Section 6.1(h)(iii) and substituting
in place thereof the date "November 30, 1999".
(c) Section 6.1(i) of the Credit Agreement is hereby amended by
deleting the word "and" which appears at the end of Section 6.1(i).
(d) Section 6.1(j) of the Credit Agreement is hereby amended by
deleting the period which appears at the end of Section 6.1(j) and
substituting in place thereof a semicolon and the word "and".
(e) Section 6.1 of the Credit Agreement is amended by inserting
immediately after the text of Section 6.1(j) the following:
(k) Indebtedness of Tier Australia to St. George Bank Limited
pursuant to the St. George Facility.
(f) Section 6.5 of the Credit Agreement is hereby amended by (i)
deleting the word "and" which appears at the end of Section 6.5(e); (ii)
deleting the period which appears at the end of Section 6.5(f) and
substituting in place thereof a semicolon and the word "and"; and (iii)
inserting immediately at the end of Section 6.5(f) the following:
(g) liens in favor of St. George Bank Limited on the assets of
Tier Australia to secure the Indebtedness permitted by Section 6.1(k).
(g) Section 6.10 of the Credit Agreement is hereby amended by (i)
inserting immediately after the words "Foreign Subsidiaries" which appears
in Section 6.10(ii) the words "other than Tier Australia"; and (ii)
deleting the text of Section 6.10(iii) in its entirety and restating it as
follows:
<PAGE>
-3-
(iii) Investments by the Company in Tier Australia with respect to
Indebtedness permitted by Section 6.1(h) hereof so long as (1) Tier
Australia remains a Subsidiary of the Company; (2) no Default or
Event of Default has occurred and is continuing; (3) the aggregate
amount of the Investment does not exceed the amount set forth in
Section 6.1(h)(ii); (4) such Investment is made not later than
November 30, 1999; (5) the proceeds of such Investment are used by
Tier Australia to consummate the S&B Acquisition; and (6) such
Investment is not made prior to the date of consummating the S&B
Acquisition;
(S)4. Conditions to Effectiveness. This Second Amendment shall not become
---------------------------
effective until the Bank receives the following:
(a) a counterpart of this Second Amendment, executed by the
Borrowers and the Banks; and
(b) payment in cash of an amendment fee of $8,000 for the account
of the Bank.
(S)5. Representations and Warranties. The Borrowers hereby repeat, on and
------------------------------
as of the date hereof, each of the representations and warranties made by them
in (S)4 of the Credit Agreement, and such representations and warranties remain
true as of the date hereof (except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
- --------
such Credit Agreement as amended hereby. In addition, each Borrower hereby
represents and warrants that the execution and delivery by each Borrower and its
Subsidiaries of this Second Amendment and the performance by such Borrower and
its Subsidiaries of all of its agreements and obligations under the Credit
Agreement as amended hereby and the other Loan Documents are within the
corporate authority of each such Borrower and its Subsidiaries and has been duly
authorized by all necessary corporate action on the part of such Borrower and
its Subsidiaries.
(S)6. Ratification, Etc. Except as expressly amended hereby, the Credit
-----------------
Agreement, the Security Documents and all documents, instruments and agreements
related thereto are hereby ratified and confirmed in all respects and shall
continue in full force and effect. The Credit Agreement and this Second
Amendment shall be read and construed as a single agreement. All references in
the Credit Agreement or any related agreement or instrument to the Credit
Agreement shall hereafter refer to the Credit Agreement as amended hereby.
(S)7. No Waiver. Nothing contained herein shall constitute a waiver of,
---------
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
<PAGE>
-4-
(S)8. Counterparts. This Second Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(S)9. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as a document under seal as of the date first above written.
TIER TECHNOLOGIES, INC.
By: /s/ G.K. Ross
-------------
Title: EVP & CFO
TIER TECHNOLOGIES
(UNITED KINGDOM), INC.
By: /s/ G.K. Ross
-------------
Title: Director
BANKBOSTON, N.A.
By: /s/ illegible
-------------
Title: Vice President
<PAGE>
EXHIBIT 10.63
MEMORANDUM
To: Jim Weaver
From: Jim Bildner
Date: April 19, 1998
Re: Revised Employment Offer
- --------------------------------------------------------------------------------
Jim,
I am delighted to offer you employment as Tier Technologies' President of
Government Systems, a position of vital importance to Tier.
As you and I discussed, you will work directly with me in this position as we
develop the government market and expand our offerings, clients and delivery in
this critical market space. Given the importance of this role, you will report
directly to Bill and me as we manage Tier Technologies global expansion and
activities. Of equal significance, this position has full and complete
accountability for all of Tier's activity in the Government space and as
President of this Group, you will be a member of our Company's core management
and operating committee.
You will be an officer of the Corporation.
Key components of your compensation package would be as follows:
. Base salary - $200,000
. Annual bonus target range (based on agreed to performance criteria) --
$100,000. First year bonus would be guaranteed at minimum of 50% or
$50,000, advanced quarterly against your annual bonus.
. Stock Option Plan - You will be granted options to purchase 50,000 shares
at FMV as of the date of your employment. You will be eligible to receive
an additional grant in an amount no less than 37,500 shares annually, at
FMV as of the date of the grant, upon achievement of your annual
performance targets and the company's achievement of its performance
targets - on a basis similar to other Senior Executives of the Company.
. Relocation and Assistance Loan - $50,000 advanced within 30 days of
signing, and forgiven, ratably, over 3 years unless you are terminated for
cause or you leave Tier Technologies' employment voluntarily. We have
agreed to add to this loan - on the same terms and conditions as above -
any sums you may be required to repay BDM/TRW for termination of your
employment prior to your one year of service, up to but not to exceed
$100,000. Should funds be advanced to you to repay BDM/TRW these funds,
subject to the $100,000 cap, shall be forgiven over 1 year from the date
those funds are advanced to BDM by you. Should you waive your right to seek
an advance of funds to repay any
1.
<PAGE>
obligations you may have to BDM/TRW for termination of your employment, we
agree to add to your relocation and assistance loan an additional $50,000
governed by the same terms and conditions as the first $50,000 advance.
Notwithstanding your notification to us of your waiver of funds advanced to
repay BDM/TRW we agree to provide you up to $25,000 in funds to repay
BDM/TRW for repayment obligations should a claim be made within the first
90 days of your employment by BDM/TRW. In no event shall the total of all
advances to you exceed $125,000 in any combination.
. Medical, dental, vision, 401K/retirement, vacation, etc. - benefits
consistent with other executive packages at Tier Technologies.
In addition, we will include in your employment package, a severance provision
that provides should your employment with Tier be terminated by the Company for
reasons other than cause - as it is defined for other senior executives - Tier
will pay your base salary and benefits for a period of 18 months from the date
of termination; and all outstanding non-vested options held by you will
immediately vest. The Company, at its option, may elect to make a lump sum
payment equal to the present value of your 18 months of base salary plus
benefits. In the event of a change in control of the Company - as defined for
other Senior Executives - Tier will pay your base salary and benefits for a
period of 18 months from the date of termination; and all outstanding non-vested
options held by you will immediately vest. The Company, at its option, may
elect to make a lump sum payment equal to the present value of your 18 months of
base salary plus benefits.
You will be expected to sign comprehensive non-compete, non-disclosure and other
related documents prior to joining.
You will be expected to work extensively and for very long periods, and we both
expect that your position will require you to travel throughout the course of
your employment.
Finally, while we do not currently contemplate requiring you to relocate, should
we reasonably and mutually determine that it is necessary for you to relocate
you agree to relocate to our Walnut Creek/San Francisco headquarters. We agree
to give you reasonable notice and a full, comprehensive relocation package. In
addition, you agree to relocate to another location, under the same terms as
stated above, should you and I mutually agree that such a move makes sense.
I trust this letter meets your approval. Kindly so indicate your acceptance to
these terms and I will begin to draft final documents for your execution. I
can't tell you how excited I am to have you join us.
Best personal regards,
/s/ Jim Bildner
Jim Bildner
Chairman and CEO
I accept this employment offer from Tier Technologies.
/s/ James R. Weaver
- ----------------------------
2.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
1. "Tier Technologies (Australia) PTY Limited", an Australian corporation.
2. "Tier Technologies (United Kingdom), Inc.", a Delaware corporation.
3. "Tsource, Inc.", a Delaware corporation.
4. "Midas Computer Software Limited", a United Kingdom entity.
5. "ADC Consultants PTY Limited", an Australian corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-47259, 333-68255, 333-77051) of Tier
Technologies, Inc. of our report dated October 29, 1999, relating to the
financial statements and financial statement schedules, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
December 8, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Amended and Restated 1996 Equity Incentive Plan of Tier
Technologies, Inc. of our report dated October 6, 1997 with respect to the
consolidated financial statements of Tier Technologies, Inc. included in the
Annual Report (Form 10-K) for the year ended September 30, 1999.
Walnut Creek, California
December 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 10,940
<SECURITIES> 8,971
<RECEIVABLES> 28,436
<ALLOWANCES> 2,285
<INVENTORY> 0
<CURRENT-ASSETS> 48,715
<PP&E> 9,772
<DEPRECIATION> 2,760
<TOTAL-ASSETS> 83,944
<CURRENT-LIABILITIES> 12,875
<BONDS> 0
0
0
<COMMON> 66,012
<OTHER-SE> 4,256
<TOTAL-LIABILITY-AND-EQUITY> 83,944
<SALES> 91,976
<TOTAL-REVENUES> 91,976
<CGS> 0
<TOTAL-COSTS> 56,236
<OTHER-EXPENSES> 35,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 1,650
<INCOME-TAX> 644
<INCOME-CONTINUING> 1,006
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