<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2000
REGISTRATION NO. 333-30586
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CONVERGENT GROUP CORPORATION
(Exact name of registrant as specified in charter)
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DELAWARE 7371 84-1264004
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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6399 SOUTH FIDDLER'S GREEN CIRCLE, SUITE 600
ENGLEWOOD, CO 80111
(303) 741-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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GLENN E. MONTGOMERY, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CONVERGENT GROUP CORPORATION
6399 SOUTH FIDDLER'S GREEN CIRCLE, SUITE 600
ENGLEWOOD, CO 80111
(303) 741-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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With copies to:
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JAMES M. LURIE, ESQ. NEIL WOLFF, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP WILSON SONSINI GOODRICH & ROSATI
30 ROCKEFELLER PLAZA PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10112 650 PAGE MILL ROAD
(212) 408-2400 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(1) REGISTRATION FEE
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Common stock, $.001 par value....... 8,912,500 $14.00 $124,775,000 $32,941(2)
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(1) Includes 1,162,500 shares that the Underwriters have the option to purchase
from the Company and three selling stockholders solely to cover
over-allotments, if any.
(2) 30,360 previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 12, 2000
[CONVERGENT GROUP LOGO]
7,750,000 SHARES
COMMON STOCK
Convergent Group Corporation is offering 7,750,000 shares of its common
stock. This is our initial public offering and no public market currently exists
for our shares. We have applied to have our common stock approved for quotation
on the Nasdaq National Market under the symbol "CVGP." We anticipate that the
initial public offering price will be between $12.00 and $14.00 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Convergent Group................................ $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Three selling stockholders have granted the underwriters a 30-day option to
purchase up to 1,092,000 outstanding shares of common stock and Convergent Group
has granted the underwriters a 30-day option to purchase an additional 70,500
shares of common stock to cover over-allotments. FleetBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 2000.
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ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
WIT SOUNDVIEW
The date of this prospectus is , 2000
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[GRAPHIC]
[FRONT FOLD OUT GRAPHIC DESCRIPTION]
In the upper left hand corner is the Company's logo. Immediately below is
the title of the foldout, which reads: "Transforming to the Digital Enterprise."
In the center of the foldout are five square boxes of equal size entitled, from
left to right: "Architect Infrastructure for eBusiness," "Integrate Existing
Applications," "Deploy Integrated Solutions Across the Enterprise," "Complete
Transformation into The Digital Utility" and "Exploit Digital Opportunities."
The first box contains eight small unattached cubes. As the reader moves
across the page from left to right, the cubes converge further in each box into
a single large cube, which appears in the rightmost box in the foldout. To the
left of the first box are the following eight lines, which represent each of the
small eight cubes in the box: "Field Workforce Management," "Customer
Relationship Management," "Sales and Marketing," "Financial Systems,"
"Distribution and Operations Management," "Work Process Management," "Facilities
Management" and "Human Resource Management." Wording below the first box reads:
"Architect the IT infrastructure required to support the business processes and
information content required for the digital business environment." Wording
below the second box reads: "Install our proprietary Model Office as a working
solution, and customize to meet client needs, for on-line information access."
Wording below the third box reads: "Deploy eBusiness solutions across enterprise
providing on-line information access for rapid decision making and problem
solving." Wording below the fourth box reads: "Complete transformation to
Digital Utility model that incorporates strategies and tactics for new: (bullet)
Opportunities (bullet) Business Partners (bullet) Source options (bullet)
Delivery mechanisms." Wording below the fifth box reads: "Develop intranet,
internet and extranet applications that provide decision makers, partners and
customers with greater access to on-line transactions." Across the bottom of the
page is a series of interconnected cubes running across the page.
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[GRAPHICS]
[FRONT INSIDE COVER GRAPHIC DESCRIPTION]
In the upper half of the page is a picture of city buildings in a circle.
Three arrows point to the circle. One arrow is entitled "Deregulation," one
arrow is entitled "Internet" and one arrow is entitled "Service Demand." Two
arrows come out of the circle. The first arrow points to a box entitled "Digital
Utility" and the second arrow points to a box entitled "Government Gateway." The
"Digital Utility" box on the left contains a picture of a light bulb, a picture
of a power grid and the letters "UTIL." The "Government Gateway" box on the
right contains a picture of a government building, a picture of the scales of
justice and the letters "GOV." The Company logo is in the lower right hand
corner.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
AND THE SELLING STOCKHOLDERS HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO
SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. SUBJECT TO OUR OBLIGATION TO AMEND OR
SUPPLEMENT THIS PROSPECTUS AS REQUIRED BY LAW AND THE RULES OF THE SECURITIES
AND EXCHANGE COMMISSION, THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 2
Risk Factors................................................ 7
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 34
Management.................................................. 48
Certain Transactions........................................ 55
Principal and Selling Stockholders.......................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find More Information......................... 68
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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Convergent Group, the Convergent Group logo, The Digital Utility,
Government Gateway, Solutions for the Digital Economy and Model Office are
service marks of Convergent Group Corporation, and Energy Network Object Model
and Asset Object Model are trademarks of Convergent Group Corporation. All other
service marks and trademarks referred to in this prospectus are the property of
their respective owners.
1
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SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including Risk Factors, before
investing in our common stock.
CONVERGENT GROUP CORPORATION
OUR BUSINESS
We are a leading provider of consulting, software engineering, systems
integration and project management services that enable our utility and local
government clients to implement Internet-based business solutions, also known as
eBusiness solutions. These solutions enable our clients to transform their
organizations into digital business environments that integrate data from
various isolated sources to create a single, Web-based point of entry through
which internal decision-makers, business partners, suppliers, customers and
constituents can access business information on a real-time basis. By combining
our use of existing and emerging digital technologies with our business
expertise in the utility and local government sectors, we are able to help our
clients increase revenues, reduce costs, improve customer services, ensure
service reliability, improve resource management and exploit their information
assets.
We work with our clients through all phases of their eBusiness
transformation process. Throughout this process we:
- Engineer -- with our clients' input, an information technology
infrastructure and internal business processes that tailor our
proprietary Digital Utility and Government Gateway eBusiness frameworks
to our clients' particular needs;
- Build -- the infrastructure, systems and processes with minimal
disruption to our clients' organizations and provide comprehensive
training and change management services; and
- Manage -- our solutions for our clients to help them minimize the
internal resources they must commit to maintain their systems and to help
them maximize their return on investment.
The two large vertical markets we address, utilities and local governments,
have only recently begun converting their traditional customer service and
business models to eBusiness platforms. We were one of the first companies to
integrate energy and service delivery management systems in our core markets. We
have completed engagements for clients such as Allegheny Power, Alliant Energy
Corporation, Cinergy Corp., City of Indianapolis, Indiana, Citizens Utility
Company and the Southern California Edison Company. During the past five years,
we have completed over 270 major information technology engagements.
OUR OPPORTUNITY
According to International Data Corporation, Internet services expenditures
by the U.S. utilities industry, one of the five largest vertical markets in the
United States, are estimated to grow from approximately $345 million in 1999 to
approximately $2.0 billion by 2003, representing a 55% compound annual growth
rate. As the industry continues the process of deregulation, gas and electric
utilities face a new, highly-competitive marketplace in which success will
require that they enhance the nature, quality and efficiency of their services.
International Data Corporation also estimates that government spending on
Internet services will grow from approximately $505 million in 1999 to
approximately $2.8 billion by 2003, representing a 55% compound annual growth
rate. We believe that that growth is being driven by the fact that governments
face demands from their constituents to transition from labor-intensive,
paper-based processes which rely on incompatible computer and telephone systems
to processes which consume fewer resources, maintain or improve service levels,
speed response to constituent demands and allow real-time access to information
by administrators, policy-makers and constituents. We believe that because of
those demands as well as the opportunities afforded by the Internet, utilities
and local governments now realize
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that they must deliver functional, Web-based integrated services to their
business partners, suppliers, customers and constituents.
OUR SOLUTION
Our objective is to transform the operations of our utility and local
government clients from paper-based processes into seamless, digital business
environments, which we call the "Digital Utility" and "Government Gateway." Both
the Digital Utility and the Government Gateway enable our clients to integrate
their core functions, such as maintaining their extensive physical
infrastructures of wires, pipes, roads and sewage systems, with the data
supporting front and back office functions such as customer relationship
management and billing and application processing.
OUR STRATEGY
Our strategic goal is to be the global leader in eBusiness services serving
the utility and local government markets. In order to achieve this goal, we
intend to:
- differentiate ourselves from our potential competitors by capitalizing on
and deepening our industry expertise;
- expand our Internet-based customer relationship management (eCRM) service
offerings by introducing new eCRM service offerings and instituting
partnerships with leading eBusiness and eCRM software companies;
- respond quickly to changing market conditions and evolving client needs
by expanding our repeatable eBusiness components library through the
addition of components based on emerging Internet technologies;
- increase brand awareness by launching an aggressive multi-media marketing
campaign to build brand recognition of our Digital Utility and Government
Gateway solutions;
- recruit and retain highly-qualified professionals by offering them
continuing exposure to new and developing technologies as well as
competitive compensation plans; and
- continue geographic expansion by pursuing both domestic and international
business opportunities and strengthening our long-term client
relationships.
DEPENDENCE ON PRINCIPAL CLIENTS
We derive a significant portion of our revenues from a limited number of
clients. In 1997, our five largest clients accounted for approximately 54% of
our revenues, with Cinergy Corp. representing 15%, Alliant Energy Corporation
representing 14% and Tucson Electric Power representing 10% of our revenues. In
1998, our five largest clients accounted for approximately 59% of our revenues,
with Cinergy representing 20%, Alliant representing 16% and Citizens Utilities
Company representing 11% of our revenues. In 1999, our five largest clients
accounted for approximately 49% of our revenues, with Cinergy representing 18%,
and Alliant and Citizens Utilities each representing 9% of our revenues.
Additionally, approximately 84% of our total revenues in 1997 and 78% of our
total revenues in each of 1998 and 1999 were derived from contracts with our
utility clients.
CORPORATE INFORMATION
We were incorporated in Delaware in April 1994. Our principal executive
offices are located at 6399 South Fiddler's Green Circle, Suite 600, Englewood,
Colorado 80111, and our telephone number is (303) 741-8400. Our Web site is
located at www.convergentgroup.com. Information contained on our Web site does
not constitute part of this prospectus.
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THE OFFERING
Common stock offered by Convergent
Group................................... 7,750,000 shares
Common stock to be outstanding after
this offering........................... 44,065,502 shares
Use of proceeds......................... To repay outstanding indebtedness,
to pay certain fees to one of our
principal stockholders and for
working capital and general
corporate purposes.
Proposed Nasdaq National Market
symbol.................................. CVGP
The number of shares to be outstanding after this offering is based on the
number of shares outstanding on March 31, 2000. The common stock to be
outstanding after the offering excludes:
- 4,595,156 shares issuable upon the exercise of options outstanding as of
March 31, 2000 at a weighted average exercise price of $0.15 per share;
and
- 750,549 shares reserved for future grant under our stock option plan.
Unless otherwise indicated, all share and per share information in this
prospectus gives effect to:
- the declaration of a 1-for-2 reverse stock split of the common stock to
be effected before the completion of this offering; and
- the conversion of all outstanding shares of our preferred stock into
21,243,850 shares of common stock at the time of the closing of this
offering, based on a conversion rate of 1/2 share of common stock for
each share of preferred stock.
All information in this prospectus assumes that the underwriters'
over-allotment option is not exercised.
4
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SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth our summary historical financial data. You
should read this information together with our consolidated financial statements
and the notes to those statements included in this prospectus and the
information under "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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YEARS ENDED DECEMBER 31,
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1995(1) 1996(1)(2) 1997 1998 1999(3)
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues......................... $ 57,980 $ 51,742 $ 40,856 $ 47,415 $ 66,610
Gross profit..................... 17,244 22,403 10,520 15,892 24,109
Restructuring and
recapitalization
costs (recovery).............. -- 16,360 (1,218) (95) 13,249
Operating income (loss).......... (10,907) (26,279) (17) 3,759 (5,995)
Net income (loss)................ (11,061) (26,753) (1,105) 5,677 (5,250)
Basic net income (loss) per
share......................... $ (0.92) $ (1.37) $ (0.07) $ 0.38 $ 1.09(4)
Diluted net income (loss) per
share......................... $ (0.92) $ (1.37) $ (0.07) $ 0.24 $ 0.55(4)
Weighted average shares of common
stock used in computing basic
and diluted net income (loss)
per share
Basic......................... 14,709,120 19,462,165 16,234,348 15,135,368 14,310,546
Diluted....................... 14,709,120 19,462,165 16,234,348 23,771,852 28,279,342
Pro forma basic net income per
share(5)...................... -- -- -- -- $ 0.57
Pro forma diluted net income per
share(5)...................... -- -- -- -- $ 0.55
Pro forma weighted average number
of shares used in calculating
pro forma net income per
share(5):
Basic......................... -- -- -- -- 27,424,410
Diluted....................... -- -- -- -- 28,279,342
</TABLE>
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(1) Results for 1995 and 1996 include revenues from our discontinued graphic
data systems software product line. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Results for 1996 reflect a restructuring charge, the write-off of goodwill
and loss on impairment of assets, principally relating to the
discontinuation of our GDS software product line.
(3) Results for 1999 reflect $13.2 million of charges associated with our August
1999 recapitalization.
(4) Reflects a one time adjustment of $1.45 per share (basic) and $.74 per share
(diluted) related to the purchase in our recapitalization of previously
outstanding preferred stock for less than its stated redemption value.
(5) Reflects the automatic conversion of each outstanding share of preferred
stock into 0.5 shares of our common stock on consummation of this offering
as if these shares were outstanding from their date of issuance.
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<PAGE> 10
The following table is a summary of our consolidated balance sheet at
December 31, 1999. The "as adjusted" column gives effect to the conversion of
all outstanding shares of our preferred stock into common stock as of the
closing of this offering and the sale by us of 7,750,000 shares of common stock
in this offering after deducting estimated underwriting discounts and
commissions and offering expenses payable by us, assuming an initial public
offering price of $13.00 per share and the application of the net proceeds
thereof as discussed under "Use of Proceeds."
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DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,596 $65,393
Working capital (deficit)................................. 5,932 69,729
Total assets.............................................. 26,707 90,504
Long-term debt (net of deferred acquisition costs)........ 21,753 --
Total stockholders' equity (deficit)...................... (11,035) 80,215
</TABLE>
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following risks, together with the other
information contained in this prospectus, before you decide to purchase our
common stock. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer. This could
cause the market price of our common stock to decline, and you could lose all or
part of the money you paid to purchase our common stock.
RISKS RELATED TO THIS OFFERING
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER US AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO CONTROL THE
OUTCOME OF MATTERS SUBMITTED TO THE SHAREHOLDERS FOR APPROVAL
Upon completion of this offering, our directors, executive officers and 5%
stockholders will own, in the aggregate, approximately 73.6% of our outstanding
common stock, or 71.0% if the underwriters exercise their over-allotment options
in full. As a result, these stockholders, if they act together, will be able to
control all matters requiring stockholder approval, including the election of
directors and the approval of significant corporate transactions, such as
acquisitions, and to block an unsolicited tender offer. This concentration of
ownership could have the effect of delaying, deferring or preventing a change in
control of our company or impeding a merger, consolidation, takeover or other
business combination which you, as a stockholder, may otherwise view favorably.
See "Principal and Selling Stockholders."
WE EXPECT THE MARKET PRICE OF OUR COMMON STOCK TO BE VOLATILE, AND IT MAY DROP
UNEXPECTEDLY
Our initial public offering price will be determined through negotiations
among us, the selling stockholders and the representatives of the underwriters
based on factors that may not be indicative of future market performance. Our
initial public offering price may bear no relationship to the price at which our
common stock will trade upon completion of this offering. An active public
market for our common stock may not develop or be sustained after this offering,
and the market price could fall below the initial public offering price. If an
active public market for our common stock does not develop or is not sustained,
it may be difficult for you to sell your shares of common stock at a price that
is attractive to you.
The market price of our common stock after this offering may vary
significantly from the initial offering price in response to a number of
factors, some of which are beyond our control, including the following:
- changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
- changes in market valuations of other electronic commerce software and
service providers or electronic businesses;
- announcements by us or by our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of major clients;
- additions or departures of key personnel; and
- fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could seriously harm our business and the market price of
our common stock.
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THE FUTURE SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK MAY NEGATIVELY AFFECT
OUR STOCK PRICE
The market price of our common stock could drop as a result of sales of a
large number of shares of our common stock in the market after this offering, or
the perception that large sales could occur. These factors also could make it
more difficult for us to raise funds through future offerings of our common
stock.
There will be 44,065,502 shares of common stock outstanding immediately
after this offering. All of the shares sold in this offering will be freely
transferable without restriction or further registration under the Securities
Act, except for shares purchased by our "affiliates" as defined in Rule 144 of
the Securities Act. The remaining 36,315,502 shares will be "restricted
securities" as defined in Rule 144. These restricted securities may be sold in
the future without registration under the Securities Act to the extent permitted
under Rule 144, Rule 701 or an exemption under the Securities Act. In addition,
persons holding an aggregate of 34,439,149 of these restricted securities after
the offering will have registration rights that could allow these holders to
sell all of their shares freely through a registration statement filed under the
Securities Act. In connection with this offering, holders of all shares of
restricted securities have agreed not to sell their shares without the prior
written consent of FleetBoston Robertson Stephens Inc. for a period of 180 days
from the date of this prospectus.
After this offering, we will have 5,345,705 shares of common stock reserved
for issuance under our stock option plan, of which options to purchase 4,595,156
shares are subject to currently outstanding options as of March 31, 2000.
Following this offering, we intend to file a registration statement on Form S-8
to register these shares.
BECAUSE WE ARE CURRENTLY UNABLE TO SPECIFY THE SPECIFIC USES TO WHICH A
SUBSTANTIAL PORTION OF THE NET PROCEEDS FROM THIS OFFERING WILL BE APPLIED, YOU
WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING THE APPLICATION OF
THE PROCEEDS
You will be relying on our management regarding the application of a
substantial portion of the proceeds of this offering. After repaying outstanding
indebtedness and making a payment to one of our principal stockholders with a
portion of the net proceeds of this offering, we expect to use the remaining net
proceeds from this offering of approximately $64.0 million for working capital
and general corporate purposes, but we are unable to identify the specific uses
to which the remaining net proceeds will be applied. Accordingly, our management
will have broad discretion with respect to the expenditure of the proceeds.
YOU WILL SUFFER SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE
COMMON STOCK YOU PURCHASE
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. Accordingly, based on an assumed initial
public offering price of $13.00 per share, purchasers of common stock in this
offering will experience immediate and substantial dilution of approximately
$11.11 in the net tangible book value of the common stock. In addition,
investors will incur additional dilution upon the exercise of approximately
4,595,156 stock options outstanding as of March 31, 2000.
BECAUSE WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS A
CHANGE IN CONTROL OF US THAT A STOCKHOLDER MAY CONSIDER FAVORABLE COULD BE
PREVENTED
Certain provisions of our restated certificate of incorporation and amended
bylaws may discourage, delay or prevent a change in control of our company that
a stockholder may consider favorable. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- a classified board of directors with staggered, three-year terms, which
may lengthen the time required to gain control of our board of directors;
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- prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
- requiring super-majority voting to effect particular amendments to our
restated certificate of incorporation and amended bylaws;
- limitations on who may call special meetings of stockholders;
- prohibiting stockholder action by written consent, thereby requiring all
actions to be taken at a meeting of the stockholders; and
- establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of our company.
RISKS RELATED TO OUR OPERATING RESULTS
OUR SUCCESS DEPENDS ON A LIMITED NUMBER OF SIGNIFICANT CLIENTS, AND OUR REVENUES
COULD BE REDUCED BY THE LOSS OF A MAJOR CLIENT OR SIGNIFICANT PROJECT
We have derived, and believe that we will continue to derive, a significant
portion of our revenues from a limited number of large client projects. In 1998,
our five largest clients accounted for approximately 59% of our revenues, with
Cinergy Corp. representing 20%, Alliant Energy Corporation representing 16% and
Citizens Utilities Company representing 11% of our revenues. In 1999, our five
largest clients accounted for approximately 49% of our revenues, with Cinergy
representing 18%, and Alliant and Citizens Utilities, each representing 9% of
our revenues. The volume of work performed for specific clients is likely to
vary from year to year, and a major client in one year may not contract with us
in a subsequent year. If we lose any major clients or any of our clients cancel
or significantly reduce a large project's scope, our revenues, profits and cash
flows could be significantly reduced.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE DUE TO MANY FACTORS,
SO OUR PAST PERFORMANCE IS NOT A GOOD INDICATOR OF FUTURE PERFORMANCE
Our quarterly revenues and operating results are difficult to predict. Our
quarterly operating results have varied in the past and are likely to vary
significantly from quarter to quarter. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indicator of our future performance. Any unexpected reduction in revenues for a
particular quarter could cause our quarterly operating results to be below the
expectations of public market analysts or investors. In this event, the trading
price of our common stock may fall significantly. A number of factors, primarily
arising from the nature of the services we provide to our clients, are likely to
cause these variations, including:
- Size, Scope and Timing of Projects. The size, scope and timing of the
projects in which we are engaged varies significantly. A few large
projects represent a significant percentage of our revenues in each
quarter. Because the decision to use our services often involves
strategic decisions within a client's organization, we cannot easily
predict or control the quarter in which we will start a new client
engagement. Existing clients may decide to delay starting a new project
for several quarters after finishing a prior portion of a project with
little or no advance notice of the delay to us. As a result, we could be
given notice during a quarter that we will not start projects which we
had previously expected to start, resulting in flat or declining revenues
on a quarter-to-quarter basis. This could result in short-term losses
even if we expect to start the project and recognize the revenues in the
future.
- Project Delays. If we experience delays in connection with a client
project, we may not be able to recognize revenues for the project until
after we have completed the delayed work.
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- Employee Underutilization. Personnel and related costs constitute the
substantial majority of our expenses. To maintain our profitability, we
must keep our employees working at or near their full capacity. We
establish our expenses in advance of any particular quarter. Thus, an
unanticipated termination of a major project, a client's decision not to
proceed to the next stage of a project or the completion during a quarter
of several major client projects could result in employee downtime, which
could significantly reduce our profits. Unanticipated variations in the
number, or progress toward completion, of the projects in which we are
engaged could reduce employee utilization rates, which could, in turn,
cause significant variations in operating results in any particular
quarter and could result in losses for that quarter.
- Retention of Personnel. We may contract with a client to provide
particular services, yet be unable to provide the services or be forced
to delay our completion of the project if we are unable to attract, train
and retain skilled management, strategic, technical, design, sales,
marketing and support professionals.
- Compensation Expense. Four of our officers hold options which vest on
achievement of performance goals, which will result in compensation
expense if the goal is achieved, reducing our reported profits. Our
executive officers and several of our key employees have received below-
market value stock options which will vest over time or through the
achievement of specified performance goals established by the executive
officers, employees and us. The associated compensation expense may cause
our results in a quarter to be materially lower than if the grant had
been made at fair market value.
WE COULD LOSE MONEY UNDER OUR FIXED-PRICE CONTRACTS IF WE DO NOT ESTIMATE ALL OF
OUR COSTS ACCURATELY
In 1998 and 1999, fixed-price contracts accounted for 99% and 91% of our
revenues, respectively. We only maintain our profit margins or make a profit at
all on a fixed-price contract if we keep our costs at the level we estimate
before we begin a project. If our costs are higher than we expected, because,
for example, we need to increase the size of our project team, we are not
entitled to any additional compensation under a fixed-price contract. Therefore,
we assume the financial risk for correctly estimating the costs and resources
needed to complete the project. As a result, our failure to accurately estimate
the resources required for a project or our failure to complete our contractual
obligations in a manner consistent with the project plan upon which the
fixed-price contract was based would result in an unprofitable engagement. If
the contract were large enough, this could adversely affect our overall
profitability. We have been required to commit additional resources to complete
particular projects, which has on occasion resulted in losses on those projects.
We may experience similar situations in the future. In addition, for some
projects we may fix the price before the design specifications are finalized,
which could result in a fixed price that turns out to be too low and therefore
would adversely affect our profitability on the engagement.
OUR CLIENTS' ABILITY TO TERMINATE THEIR CONTRACTS ON SHORT NOTICE MAKES IT
DIFFICULT TO ACCURATELY PREDICT OUR REVENUES
Our clients retain us on a project-by-project basis. Because large client
projects often involve multiple engagements, there is a risk that a client may
choose not to retain us for additional stages of a project or that the client
will cancel or delay additional planned projects. Such cancellations or delays
could result from factors unrelated to our work product or the progress of the
project. In addition, our existing clients can generally reduce the scope of or
cancel their use of our services without penalty and with little or no notice.
Substantially all of our contracts with our clients are terminable by our
clients for convenience and upon short notice, generally 30 days or less. We
cannot, however, reduce our costs as quickly or as easily as our clients can
cancel their contracts with us. If a client were to terminate its contract with
us with little or no notice, our revenues would decline and our gross margin in
the quarter of cancellation would be reduced.
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WE RELY ON A SINGLE SUBCONTRACTOR TO PERFORM ALL OF OUR DATA CONVERSION
SERVICES, AND IF THIS SUBCONTRACTOR IS UNAVAILABLE, WE MAY EXPERIENCE PROJECT
DELAYS, INCREASED COSTS AND REDUCED PROFITS
We derived 18% of our revenues for 1998 and 25% of our revenues for 1999
from data conversion services. We do not perform these services ourselves;
instead, we subcontract these services to a third party and supervise its work.
We principally use one subcontractor, Analytical Surveys, Inc., to provide most
of our data conversion services. This subcontractor's ability to render services
to us may be limited by factors beyond our control, such as high turnover or
personnel shortages within its organization. If this subcontractor were not able
to render services to us for any reason, we may not be able to find suitable
replacements on a timely basis. Our loss of our subcontractor's services could
result in project delays and increased costs associated with switching
subcontractors during a project. Such delays or increased costs could harm our
revenues, cash flows and profits.
OUR FAILURE TO MEET CLIENT EXPECTATIONS, OR DEFICIENCIES IN OUR PERFORMANCE
UNDER SOME CONTRACTS, COULD RESULT IN LOSSES, CONTRACT TERMINATION, NEGATIVE
PUBLICITY OR FINANCIAL PENALTIES
We engineer, build and manage business systems and other applications that
are often critical to our clients' businesses. Any defects or errors in our work
product or any failure to meet our clients' expectations could result in any of
the following:
- delayed or lost revenues because our clients refuse to pay our fees, or
because they stop requesting our services;
- requirements to provide additional services to a client at no charge;
- negative publicity regarding us and our services, which could harm our
reputation and adversely affect our ability to attract and retain
clients; and
- claims for substantial damages against us, regardless of our
responsibility for the failure.
We cannot be sure that contractual provisions which attempt to limit our
liability for damages may not be enforced or may not fully protect us in the
event we are sued. Furthermore, our general liability insurance coverage may not
cover one or more large claims, or the insurer may disclaim coverage as to any
future claim.
RISKS RELATED TO OUR MARKETS
OUR REVENUES AND PROFITABILITY WILL DECLINE IF OUR TARGET MARKETS EXPERIENCE
FINANCIAL DIFFICULTIES
Utilities have large fixed cost bases and often face limits in their
pricing flexibility, so an economic downturn could result in broad cancellations
of discretionary projects. Approximately 78% of our total revenues in each of
1998 and 1999 were derived from contracts with our utility clients. Local
governments derive a significant portion of their revenues from sales and other
taxes, which decline when the economy slows down. Approximately 22% of our total
revenues in each of 1998 and 1999 were derived from contracts with our local
government clients. Because public entities have little ability to increase
revenues by changing taxes in the short term, any decline in the amount of tax
collected by them could result in deferred or cancelled projects as these
clients attempt to preserve their core operations. As a result, these clients
may substantially reduce their information technology and related budgets.
THE MARKET FOR EBUSINESS TRANSFORMATION SERVICES IS NEW, MAY NOT DEVELOP AS
QUICKLY OR AS FULLY AS WE ANTICIPATE, AND ITS VIABILITY MAY DEPEND ON FACTORS
BEYOND OUR CONTROL
A viable market for eBusiness transformation services may not emerge or be
sustainable. If a viable and sustainable market for our services does not
develop, our revenues and the growth of our business could be seriously harmed.
Even if an eBusiness transformation services market develops, we may not be able
to differentiate our services from those of our competitors, which could also
adversely affect our
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revenues, operating margins and the growth of our business. Industry analysts
have made many predictions concerning the growth of the Internet as a business
medium. These predictions should not be relied upon. If the market for eBusiness
transformation services fails to develop, or develops more slowly than expected,
our business may be negatively impacted.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED,
CLIENTS MAY LOSE INTEREST IN OUR WEB-BASED SOLUTIONS
Our success depends in part on the increase in Internet usage generally and
in particular as a means for people and businesses to access and disperse
information electronically. The rate at which the general public and businesses
adapt to the use of the Internet as a viable medium may decrease for a number of
reasons, including:
- network infrastructure which cannot support increased Internet traffic
levels and increased bandwidth requirements;
- delays in the development of Internet-enabling technologies and
performance improvements;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
- delays in the development of the security and authentication technology
necessary to provide secure transmission of confidential information;
- changes in, or insufficient availability of, home or office access to
telecommunications services to support the Internet; and
- failure to meet the public's expectations in providing information and
services over the Internet.
If the public's use of the Internet declines, our clients will have less
interest in transforming their activities to eBusiness platforms, and their
demand for our services could significantly decrease, which would decrease our
revenues and force us to find new markets for our services.
GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT THE OPERATION AND GROWTH OF
OUR BUSINESS
There are currently few laws or regulations on Internet communications or
commerce. Laws and regulations may be adopted in the future, however, that
address Internet-related issues such as user privacy, pricing, and the
characteristics and quality of products and services. An increase in regulation
or the application of existing laws to the Internet could significantly increase
our cost of operations and harm our business.
CHANGES IN THE UTILITY REGULATORY ENVIRONMENT COULD AFFECT OUR CLIENTS AND HAVE
AN ADVERSE EFFECT ON OUR REVENUES
As the utility industry continues to deregulate, our utility clients are
faced with increasing competition from other utility providers, which we believe
has led to increased demand for our services. If governments were to decrease
the rate at which the industry is deregulating, or to reverse the trend of
deregulation altogether, the demand for our services could decline.
In addition, our utility clients are subject to extensive regulations under
laws of the United States and the states in which they offer services. The
failure of our utility clients to comply with these regulatory requirements
could lead to revocation, suspension or loss of licensing status, termination of
contracts and legal and administrative enforcement actions. If a client were to
suffer these consequences, its business would be adversely affected and that
could cause the client to cancel or delay discretionary expenditures such as our
work for the client, thereby reducing our revenues. The regulatory agencies
governing our utility clients' activities have substantial discretion in
evaluating the permissibility of our utility clients' current and future
activities. If a regulatory agency determines that a client's expenditures on
our services should not be made, or that the expenditures cannot be reflected in
the cost structure which underlies the
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client's rates to its end users, then the client would reduce its use of our
services, which would result in a reduction in our revenues.
RISKS RELATED TO OUR TECHNOLOGIES
IF WE ARE UNABLE TO INTEGRATE NEW TECHNOLOGIES AND INDUSTRY STANDARDS
EFFECTIVELY, OUR REVENUES, PROFITS AND CASH FLOWS MAY DECREASE
We must continue to improve the responsiveness, functionality and features
of our solutions in accordance with industry standards and to address the
increasingly sophisticated technological needs of our clients. Our ability to do
this depends, in part, on our ability to:
- Adapt our Solutions to Developing Technologies. We must continue to
develop our technical expertise and, in the process, adapt our solutions
to new technologies which are designed to replace the current Internet
structure around which our solutions are based. These new technologies
may include the use of broadband-based Internet technologies and the
development and adoption of new standard generalized markup language
applications such as XML.
- Maintain Relationships with Suppliers. We use third party software and
applications to create our solutions. These third parties often have not
designed their products specifically for our or our clients' use, and
they could, with no notice to us, substantially modify their products. We
may not have the technical expertise to use these modified products, or
these products may no longer serve our purposes. Moreover, a third party
software or applications developer could choose to discontinue products
that are important to our solutions. If this situation occurred, we would
have to develop new technological expertise, either internally or by
hiring additional professional staff, or find suitable substitutes. As a
result, our costs may increase and our profits may decrease.
- Continue to use Best-in-Class Technologies. We advertise that our
solutions incorporate what we believe to be industry "best-in-class"
third party products and components. If industry standards change too
quickly, or if new or unknown industry participants develop superior
products and components, we may not have the technological expertise
necessary to include these new "best-in-class" products and components in
our solutions.
We may not be successful in responding to the above technological and industry
challenges in a timely and cost-effective manner. If we are unable to integrate
new technologies and industry standards effectively, our revenues, profits and
cash flows may decrease. In addition, we may be required to hire and retain
additional personnel who have expertise in these areas, thus increasing our cost
structure.
IF WE ARE UNABLE TO EFFICIENTLY REUSE SOFTWARE CODE AND METHODOLOGIES, WE MAY
NOT BE ABLE TO DELIVER OUR SERVICES RAPIDLY AND COST-EFFECTIVELY
Our business model depends to a significant extent on our ability to reuse
software code and methodologies that we develop in the course of client
engagements. If we are unable to negotiate contracts which permit us to reuse
codes and methodologies used or developed during a client engagement, our
business model will be significantly affected and our ability to rapidly and
cost-effectively deploy solutions for our clients will be adversely affected. If
this occurs, we will lose some of the competitive advantages which we believe
our current business model enjoys.
Some of our contracts have granted to our clients the rights to specific
portions of the intellectual property developed in the course of that client's
project. As a result, in order to use that intellectual property in future
engagements we must license it back from the client. If we are unable to agree
on the terms of the license, we may incur unanticipated expenses when developing
solutions for new clients.
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WE MAY NOT BE ABLE TO FULLY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS
If we are unable to fully protect our intellectual property and proprietary
rights, we may lose our competitive advantage or face increased competition. Our
success depends largely on the proprietary methodologies and other intellectual
property that we develop during the course of client engagements. We rely upon a
combination of trade secret, nondisclosure and other contractual arrangements,
and copyright and trademark laws to protect our proprietary rights. None of our
intellectual property has been patented. We enter into confidentiality
agreements with our employees, generally require that our clients enter into
confidentiality agreements, and limit access to and distribution of our
proprietary information. However, the steps we have taken to protect our
proprietary rights may not be adequate to deter misappropriation of our
intellectual property. In addition, we may not be able to detect unauthorized
use of our intellectual property and take appropriate steps to enforce our
rights.
Existing trade secret and copyright laws afford us only limited protection.
Third parties may attempt to disclose, obtain or use our solutions or
technologies. Others may independently develop and obtain patents or copyrights
for technologies that are similar or superior to our technologies. If that
happens, we may need to license these technologies and we may not be able to
obtain licenses on reasonable terms, if at all.
Laws and enforcement practices relating to the protection of intellectual
property in many foreign countries are weaker and less reliable than in the
United States. Thus, as our business expands into foreign countries, risks
associated with protecting our intellectual property will increase.
WE MAY BE SUBJECT TO LITIGATION IF ANOTHER PARTY CLAIMS THAT WE HAVE INFRINGED
UPON ITS INTELLECTUAL PROPERTY RIGHTS
The tools, techniques, methodologies, programs and components we use to
provide our services may infringe upon the intellectual property rights of
others, although we are not currently aware of any instances of infringement.
The U.S. Patent and Trademark Office has only recently started granting patents
in our area of specialization, and can issue patents with broad claims on which
our services or software could infringe. Since U.S. patent applications are not
disclosed until the patent issues, we might invest to develop a portion of our
business and then discover that we cannot pursue this business without a license
from another party. Infringement claims generally result in significant legal
and other costs and may distract management from running our core business.
Royalty payments under licenses from third parties, if available, would increase
our costs. If a license were not available we might not be able to continue
providing a particular product or service, which would reduce our revenues.
Additionally, developing non-infringing technologies would increase our costs.
RISKS RELATED TO OUR GROWTH PLAN
FAILURE TO MANAGE OUR GROWTH MAY RESULT IN LOST REVENUES, DECREASED OPERATING
PROFITS AND POTENTIAL NET LOSSES
If we do not manage our growth, our revenues and operating profits may
decrease and we may incur net losses. We have grown rapidly and continue to hire
new employees and open offices in new geographic markets. Our integration,
consulting and other services' revenues increased approximately 35% in 1998 and
42% in 1999. Our headcount has grown from 166 as of January 1, 1998 to 243 as of
December 31, 1999, and is expected to grow significantly over the next 12 to 18
months. Some members of our senior management team have only recently joined us.
In addition, we recently opened offices in Boston, Massachusetts; London,
England and Brisbane, Australia.
Our growth has placed, and will continue to place, a significant strain on
our management and our operating and financial systems. Our personnel, systems,
procedures and controls may be inadequate to support our future operations. In
order to accommodate the increased number of engagements, the number of clients
and the increased size of our operations, we will need to hire, train and
integrate into our
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business a large number of personnel to manage our current engagements and to
manage our operations going forward. We will also need to improve our financial
and management controls, reporting systems and operating systems. We currently
plan to redesign several internal systems, including our recruiting and
engagement management systems. We may encounter difficulties in developing and
implementing these new systems, which could seriously harm our results of
operations. In addition, our future success will depend in large part on our
ability to continue to set fixed-price fees accurately, maintain high rates of
employee utilization and maintain project quality, particularly if the average
size of our projects continues to increase.
Our management has limited experience managing a business of our size and
no experience managing a public company. Managing a publicly traded company will
create additional responsibilities for our management, which may require us to
hire additional personnel.
IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES, OUR RESULTS
OF OPERATIONS MAY DECREASE AND OUR FUTURE GROWTH MAY BE HINDERED
We expect to significantly expand our employee base in order to satisfy the
expected growth in our business. Accordingly, our future success depends in
large part on our ability to hire, train, motivate and retain highly skilled
employees. Any inability to hire, train and retain a sufficient number of
qualified employees could hinder our growth. Skilled personnel are in short
supply, and this shortage is likely to continue for some time. As a result,
competition for these people is intense, and we may have difficulty finding and
retaining qualified personnel. In addition, the stock option component of our
compensation package may be viewed as less valuable after this offering, which
may make it more difficult to hire employees after the offering than experienced
prior to this offering. Consequently, we may have more difficulty hiring
qualified employees after this offering than previously experienced. Moreover,
even if we are able to expand our employee base, the costs incurred to attract
and retain additional employees may reduce our operating margins.
IF OUR EFFORTS TO DEVELOP BRAND AWARENESS OF OUR SERVICES AND SOLUTIONS AND
INTRODUCE NEW SERVICE OFFERINGS ARE NOT SUCCESSFUL, OUR REVENUES AND OPERATING
PROFITS MAY DECREASE
An important element of our business strategy is to develop and maintain
widespread awareness of our Digital Utility and Government Gateway brand names.
Historically, we have not invested in promoting brand awareness and our early
efforts to do so may not be successful. Brand promotion is a long-term
investment and is not expected to result in short-term revenue increases. To
promote our brand names, we plan to increase our marketing expenses, which may
cause our operating margins to decline. Moreover, our brands may be closely
associated with the success or failure of some of our high-profile clients. As a
result, the failure or difficulties of one of our high-profile clients may
damage our brands. If we fail to successfully promote and maintain our brand
names or incur significant related expenses, our operating margins and our
growth may decline. In addition, we have recently introduced new Internet-based
customer relationship management service offerings. If these new service
offerings or future new service offerings do not meet client expectations, our
revenues and operating profits may decrease.
COMPETITION FROM BIGGER, MORE ESTABLISHED COMPETITORS WHO HAVE GREATER FINANCIAL
RESOURCES COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND LOSS OF
MARKET SHARE
Competition in the eBusiness services market is intense. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results would be seriously harmed. We
currently compete against Internet service firms, systems integration firms,
management consulting firms, companies selling electronic commerce hardware,
software, services and solutions, and the internal IT departments of companies
seeking to engage in electronic commerce. We expect competition to persist and
intensify in the future. We compete against companies with longer operating
histories, larger client bases, larger professional staffs, greater brand
recognition and greater financial, technical, marketing and other resources than
we have. This may place us at a disadvantage in responding to our competitors'
pricing strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. We may be unable to compete successfully
with existing or new competitors. In addition, many
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of our current and potential clients may decide for financial or other reasons
to use their internal information technology departments rather than retain our
services.
Although the industry expertise required to enter our market is high, the
technical barriers to entry are low, and we expect other companies to enter our
market. We expect that competition will intensify in the future. Some large
information technology consulting firms have announced that they will focus more
resources on business opportunities in our target markets. Because we contract
with our clients on a project-by-project basis, we compete for engagements at
each successive stage of the eBusiness transformation process, and we may not be
retained by our existing or future clients on later stages of work.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge, reducing our market share
and thereby reducing our revenues and profits.
Historically, only a small percentage of our client engagements resulted
from a competitive bidding process or other request for proposal process. We
believe we have been successful in past competitive bid processes because of our
significant domain and business expertise and notwithstanding that we may not
have submitted the lowest priced proposal. However, if a significant number of
our current or prospective clients decided to adopt a general policy of
conducting a competitive bidding process, pricing considerations may become a
more significant competitive factor.
WE DEPEND ON OUR KEY PERSONNEL, AND THE LOSS OF OUR KEY PERSONNEL COULD
ADVERSELY AFFECT OUR BUSINESS
We believe that our success will depend on the continued employment of our
executive management team, principally Glenn E. Montgomery, Jr., our Chairman
and Chief Executive Officer. This dependence is particularly important to our
business because personal relationships are a critical element of obtaining and
maintaining client engagements. The loss of one or more members of our executive
management team could seriously harm our future sales. In addition, if any of
these key employees joins a competitor or forms a competing company, some of our
clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, our clients or other companies seeking to
develop in-house business capabilities may hire away some of our key employees.
This would not only result in the loss of key employees but could also result in
the loss of a client relationship or a new business opportunity.
OUR INTERNATIONAL EXPANSION PLANS MAY NOT SUCCEED
A key element of our strategy is to expand our operations into
international markets. We have recently opened offices in London, England and
Brisbane, Australia, and we currently have professionals operating in Canada,
Brazil, New Zealand, Korea, the United Kingdom, Australia and South Africa. We
have only limited experience in marketing, selling and delivering our services
internationally, and we may have difficulty managing our international
operations because of distance, language and cultural differences. If we do not
expand our revenues through these international operations, we will suffer
losses due to the costs of starting and operating internationally, and could
potentially lose the investment we make.
Other risks related to our international operations include:
- Currency Exchange Rates. If we are compensated for our services overseas
in U.S. dollars, we may need to convert these funds into the local
currency in order to pay our employees and foreign taxes. Alternatively,
if we are compensated for our services in the applicable local currency,
we may need to convert that currency into U.S. dollars in order to pay
U.S. taxes. In either event, fluctuations in currency exchange rates
could adversely affect our revenues and operating margins.
- Autonomy and Integration of International Offices. Currently our
operations are managed from our Colorado office, but as we continue to
expand we may grant an amount of autonomy to certain of our international
offices. If we grant autonomy to any of these offices, we may experience
difficulties
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integrating their operations with our U.S. operations. This problem could
divert the attention of management and cause unforeseen delays in the
collection of revenues.
- Export of Technology. We may be subject to restrictions on the import and
export of sensitive U.S. technologies such as data security and
encryption technologies that we may wish to use in the solutions we
develop for our foreign clients. These restrictions may limit the amount
of business we are able attract in our international markets.
- Differing Regulatory Requirements. The legal and regulatory requirements
of countries in which we currently conduct business, or in which we wish
to conduct business in the future, may differ from those in the U.S.,
particularly in the areas of tax and labor laws. As a result, we may
incur additional legal expenses complying with these laws and
regulations. In addition, laws relating to the protection and enforcement
of intellectual property rights in many foreign countries are not as
advanced as in the United States.
- Political and Economic Instability. Certain countries in which we conduct
business have experienced political and economic instability in the past,
and may continue to experience political and economic instability in the
future. If a country in which we conduct business experiences political
and/or economic instability, our operations in that country may be
adversely affected. We may experience a decrease in revenue and
profitability and may need to discontinue our operations in that country.
In extreme circumstances, we may lose the full amount of our investment
as a result of this instability.
FUTURE ACQUISITIONS OR INVESTMENTS COULD DISRUPT OUR ONGOING BUSINESS, DISTRACT
OUR MANAGEMENT AND EMPLOYEES, INCREASE OUR EXPENSES AND ADVERSELY AFFECT OUR
BUSINESS
A portion of our future growth may be accomplished by acquiring existing
businesses, products or technologies. If we identify an appropriate acquisition
candidate, we may not be able to negotiate the terms of the acquisition
successfully, finance the acquisition, or integrate the acquired business,
products or technologies into our existing business and operations. Further,
completing a potential acquisition and integrating an acquired business may
cause significant diversions of management time and resources.
If we consummate one or more significant acquisitions in which the
consideration consists of stock or other securities, your ownership interest
could be significantly diluted. If we were to proceed with one or more
significant acquisitions in which the consideration included cash, we could be
required to use a substantial portion of our available cash, including proceeds
of this offering, to consummate the acquisition. Acquisition financing may not
be available on favorable terms, or at all. In addition, we may be required to
amortize significant amounts of goodwill and other intangible assets in
connection with future acquisitions, which would have an adverse effect on our
future operating results.
WE MAY BECOME SUBJECT TO LITIGATION IN CONNECTION WITH THE HIRING OF PARTICULAR
EMPLOYEES
Some companies have adopted a strategy of suing or threatening to sue
former employees and their new employers for the alleged breach of an employment
agreement. As we hire new employees from our current or potential competitors,
we may become a party to one or more lawsuits involving the former employment of
an employee. Any future litigation against us or our employees, regardless of
the outcome, may result in substantial costs and expenses to us and may divert
management's attention away from the operation of our business.
WE MAY BE UNABLE TO ENFORCE THE CONFIDENTIALITY AND NON-COMPETITION RESTRICTIONS
IN SOME OF OUR EMPLOYEES' EMPLOYMENT AGREEMENTS IF THOSE EMPLOYEES LEAVE US
If the confidentiality and non-competition restrictions in some of our
employment agreements with our executive officers and other employees are not
enforced in the event the executive or employee leaves us, we may lose our
competitive advantage or face unexpected competition as a result of the
disclosure or use of our proprietary knowledge, practices and procedures. Our
employees, including key technical
17
<PAGE> 22
personnel, may leave us to join our competitors or start new businesses which
may compete with us. Although members of our executive management team and
particular employees are generally subject to confidentiality restrictions, and
although some members of our executive management team are also subject to
non-competition restrictions, we may be unable to legally enforce these
restrictions or otherwise prevent the unauthorized disclosure or use of our
proprietary knowledge, practices and procedures if these employees leave us.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING AS AND WHEN REQUIRED, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE HARMED
We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to make acquisitions.
Additional financing may not be available on terms favorable to us, and may not
be available at all. If adequate funds are not available on acceptable terms, we
may be unable to fund our expansion, successfully promote our brand, take
advantage of acquisition opportunities, develop or enhance our services or
respond to competitive pressures, any of which could seriously harm our
business, results of operations and financial condition. If we raise additional
funds by issuing equity securities, the newly issued securities may have rights
superior to those of the common stock and stockholders may experience dilution
of their ownership interests. If we raise additional funds by issuing debt, we
may be subject to limitations on the payment of dividends.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business" as
well as in this prospectus generally. We generally use words such as "believes,"
"intends," "expects," "anticipates," "plans," and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially
from those expressed or implied in the forward-looking statements for many
reasons, including the risks described under "Risk Factors" and elsewhere in
this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
This prospectus contains data related to the Internet professional services
industry and estimates regarding its size and growth. These market data have
been included in studies published by the market research firm of International
Data Corporation. These data include projections that are based on a number of
assumptions, including increasing worldwide business use of the Internet, the
growth in the number of Web access devices per user, the absence of any failure
of the Internet and the continued improvement of security on the Internet. If
any of these assumptions is incorrect, actual results may differ from the
projections based on those assumptions and these markets may not grow at the
rates projected by these data, or at all. The failure of these markets to grow
at these projected rates may harm our business and the market price of our
common stock.
18
<PAGE> 23
USE OF PROCEEDS
We estimate that the net proceeds to be received by us from the offering
will be approximately $91.0 million, assuming an initial public offering price
of $13.00 per share and after deducting estimated underwriting discounts and
commissions and expenses payable by us. If the underwriters' overallotment
option is exercised in full, we estimate that the net proceeds to be received by
us will be approximately $91.9 million. We will not receive any proceeds from
the sale of common stock to be sold by the selling stockholders if the
overallotment option is exercised.
We intend to use a portion of the proceeds we receive from this offering to
repay outstanding indebtedness under our revolving credit facility plus accrued
interest. At March 31, 2000, outstanding borrowings under this agreement totaled
approximately $22.3 million. Borrowings under the facility bear interest at our
option at a floating rate based on LIBOR or on the lending bank's prime rate. At
March 31, 2000, borrowings under the facility bore interest at a blended rate of
8.45% per annum. Borrowings under the facility were used to partially fund the
purchase of our previously outstanding Series A and Series B Preferred Stock and
Class A Common Stock in connection with our 1999 recapitalization. Borrowings
under the facility mature on August 12, 2003. See "Certain Transactions -- 1999
Recapitalization." We also intend to use a portion of the proceeds we receive
from this offering to pay to InSight Capital Partners, one of our largest
stockholders, certain fees due it. Through affiliated entities, InSight acquired
a 22.9% interest in us as part of our 1999 recapitalization. In connection with
negotiating the terms of the recapitalization, we agreed to pay to InSight a fee
at the time of our initial public offering and a fee for management and
strategic advice provided by InSight to us up through the date of the initial
public offering. Based on the number of shares of common stock expected to be
outstanding upon consummation of this offering and assuming an initial offering
price of $13.00 per share, the fee payable to InSight Capital Partners will be
approximately $5.7 million. See "Certain Transactions -- InSight Capital
Partners Transaction Fee."
We intend to use the remaining net proceeds we receive from this offering
for working capital and general corporate purposes, including advertising and
marketing our brands and expanding our sales, project management and marketing
staffs. We believe that cash from operations, borrowings available under our
revolving credit facility or a new credit facility and the net proceeds of this
offering, after payment of the InSight fees and repayment of amounts outstanding
under our revolving credit facility, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next twelve
months.
Except for the repayment of outstanding indebtedness and the payment of the
fee to InSight Capital Partners, we have not identified any specific expenditure
plans with respect to the proceeds we will receive from this offering and our
management will have broad discretion in the application of the net proceeds. A
portion of the net proceeds may be used to acquire or invest in complementary
businesses, technologies, products or services or to invest in geographic
expansion. Although we are not contemplating any specific acquisitions at this
time and no portion of the net proceeds has been allocated for any acquisition,
we evaluate acquisition opportunities on an ongoing basis. Pending use, we
intend to invest the net proceeds in interest bearing, investment-grade
instruments, certificates of deposit or direct or guaranteed obligations of the
United States.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividend in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will be dependent upon our
financial condition, operating results and capital requirements and other
factors that our board of directors deems relevant.
19
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of our preferred stock into common stock that will occur upon
consummation of this offering; and
- on a pro forma as adjusted basis to reflect the sale of 7,750,000 shares
of common stock by us in this offering, after deducting estimated
underwriting discounts and commissions and offering expenses, assuming an
initial public offering price of $13.00 per share.
This information should be read together with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt (net of deferred acquisition costs).......... $ 21,753 $ 21,753 $ --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; 75,000,000 shares
authorized; 41,978,689 shares issued and outstanding;
and no shares issued and outstanding pro forma and pro
forma as adjusted...................................... 21 -- --
Common Stock, $.001 par value; 125,000,000 shares
authorized; 13,749,322 shares issued and outstanding;
34,738,666 shares issued and outstanding pro forma; and
42,488,666 shares issued and outstanding pro forma as
adjusted............................................... 14 35 42
Additional paid-in capital................................ 46,899 46,899 138,142
Deferred compensation..................................... (5,397) (5,397) (5,397)
Accumulated deficit....................................... (52,882) (52,882) (52,882)
Accumulated other comprehensive income.................... 310 310 310
-------- -------- --------
Total stockholders' equity (deficit)................. (11,035) (11,035) 80,215
-------- -------- --------
Total capitalization.............................. $ 10,718 $ 10,718 $ 80,215
======== ======== ========
</TABLE>
This table excludes the following:
- 4,595,156 shares issuable upon exercise of stock options outstanding as
of March 31, 2000; and
- 750,549 shares available for future grant or issuance under our stock
option plan as of March 31, 2000.
20
<PAGE> 25
DILUTION
Our pro forma net tangible book value (deficit) as of December 31, 1999 was
$(11.0) million, or $(0.32) per share of common stock. Pro forma tangible book
value (deficit) per share equals our total tangible assets minus our total
liabilities, divided by the total number of shares of common stock outstanding
as of December 31, 1999, assuming conversion of all outstanding shares of our
preferred stock into shares of common stock upon closing of this offering. As of
December 31, 1999, our pro forma net tangible book value (deficit), as adjusted
for the sale by us of the shares in this offering, assuming an initial public
offering price of $13.00 per share, and after deducting the estimated
underwriting discounts and commission and offering expenses, would have been
approximately $80.2 million, or $1.89 per share of common stock. This represents
an immediate increase in pro forma net tangible book value (deficit) of $2.21
per share to existing stockholders and an immediate dilution of $11.11 per share
to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $13.00
Pro forma net tangible book value (deficit) per share at
December 31, 1999...................................... $(0.32)
Increase per share attributable to this offering.......... 2.21
Pro forma net tangible book value (deficit) per share after
this offering............................................. 1.89
------
Dilution per share to new investors......................... $11.11
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999 to give effect to the automatic conversion of all outstanding shares of our
preferred stock into common stock upon the closing of this offering, the total
number of shares of common stock purchased from us, the total consideration paid
to us and the average price paid per share by the existing stockholders and by
new investors purchasing shares in this offering, assuming an initial public
offering price of $13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 34,738,666 80.3% $ 46,934,000 31.8% $ 1.35
New investors..................... 7,750,000 17.9 100,750,000 68.1 $13.00
Shares issuable upon exercise of
options to officers and
directors....................... 755,419 1.8 69,500 0.1 $ 0.09
---------- ----- ------------ -----
Total................... 43,244,085 100.0% $147,753,500 100.0%
========== ===== ============ =====
</TABLE>
If the underwriters over-allotment option is exercised in full, the number
of shares of common stock held by existing shareholders will be reduced to
33,646,666, or 76.2% of the total number of shares of common stock to be
outstanding after this offering, and the number of shares of common stock held
by new investors will increase to 8,912,500 shares, or 23.8% of the total number
of shares of common stock to be outstanding after this offering. See "Principal
and Selling Stockholders."
The foregoing tables and calculations above exclude 4,595,156 shares of
common stock issuable upon exercise of options outstanding as of March 31, 2000
at a weighted average exercise price of $0.15 per share. New investors in this
offering will suffer further dilution to the extent that these options are
exercised. In addition, 750,549 shares of common stock are reserved for future
issuance under our stock option plan at March 31, 2000.
This offering will benefit our existing stockholders by creating a public
market for our common stock.
21
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of December 31, 1998 and
December 31, 1999 and for each of the years in the three-year period ended
December 31, 1999 come from our consolidated financial statements which have
been audited by Grant Thornton LLP, our independent public accountants, and are
included elsewhere in this prospectus. The selected consolidated financial data
at December 31, 1997 and as of and for the years ended December 31, 1995 and
1996 come from our consolidated financial statements which are not included in
this prospectus. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this prospectus. Historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995(1) 1996(1)(2) 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Integration, consulting and other services........ $ 19,966 $ 27,406 $ 21,517 $ 28,957 $ 41,029
Subcontractor and other revenue................... 38,014 24,336 19,339 18,458 25,581
---------- ---------- ---------- ---------- ----------
Total revenues................................ 57,980 51,742 40,856 47,415 66,610
Cost of revenues:
Cost of integration, consulting and other services
(exclusive of $70 in 1999 reported below as
employee stock compensation expense)............ 20,334 16,608 17,326 17,564 22,296
Cost of subcontractor and other revenue........... 20,402 12,731 13,010 13,959 20,205
---------- ---------- ---------- ---------- ----------
Total cost of revenues........................ 40,736 29,339 30,336 31,523 42,501
---------- ---------- ---------- ---------- ----------
Gross profit........................................ 17,244 22,403 10,520 15,892 24,109
Selling, general, and administrative expenses....... 23,027 26,397 11,574 12,123 16,855
(exclusive of $2,161 in 1999 reported below as
employee stock compensation expense)
Recapitalization costs.............................. -- -- -- -- 7,098
Employee stock compensation expense................. -- -- 8 12 2,231
Consulting agreement termination costs.............. -- -- -- -- 3,920
Loss from disposal of assets........................ -- -- -- 93 --
Research and development............................ 5,124 5,925 173 -- --
Gain (loss) from restructuring...................... -- 7,901 (1,218) (95) --
Loss on impaired assets............................. -- 8,459 -- -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses...................... 28,151 48,682 10,537 12,133 30,104
---------- ---------- ---------- ---------- ----------
Operating income (loss)............................. (10,907) (26,279) (17) 3,759 (5,995)
Other income (loss):
Net interest income (expense)..................... (154) (474) (1,088) 57 (602)
---------- ---------- ---------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes.................................... (11,061) (26,753) (1,105) 3,816 (6,597)
Income tax benefit.................................. -- -- -- 1,861 1,347
---------- ---------- ---------- ---------- ----------
Net income (loss)................................... (11,061) (26,753) (1,105) 5,677 (5,250)
========== ========== ========== ========== ==========
Preferred stock adjustment.......................... (2,428) -- -- -- 20,816
---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to common
shareholders...................................... $ (13,489) $ (26,753) $ (1,105) $ 5,677 $ 15,566
========== ========== ========== ========== ==========
Net income (loss) per share:
Basic net income (loss) per share................. $ (0.92) $ (1.37) $ (0.07) $ 0.38 $ 1.09
========== ========== ========== ========== ==========
Diluted net income (loss) per share............... $ (0.92) $ (1.37) $ (0.07) $ 0.24 $ 0.55
========== ========== ========== ========== ==========
Weighted average common shares outstanding:
Basic average shares.............................. 14,709,120 19,462,165 16,234,348 15,135,368 14,310,546
========== ========== ========== ========== ==========
Diluted average shares............................ 14,709,120 19,462,165 16,234,348 23,771,852 28,279,342
========== ========== ========== ========== ==========
Pro forma basic net income per share(3)............... -- -- -- -- $ 0.57
Pro forma diluted net income per share(3)............. -- -- -- -- $ 0.55
Pro forma weighted average number of shares used in
calculating pro forma net earnings per share(3):
Basic average shares................................ -- -- -- -- 27,424,410
Diluted average shares.............................. -- -- -- -- 28,279,342
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 2,918 $ 1,755 $ 2,092 $ 4,958 $ 1,596
Working capital (deficit)........................... (4,638) (12,411) (8,666) (490) 5,932
Total assets........................................ 42,253 23,861 13,511 17,977 26,707
Long-term debt (net of deferred acquisition
costs)............................................ 695 2,830 1,725 -- 21,753
Total stockholders' equity (deficit)................ (24,115) (44,914) (46,153) (40,454) (11,035)
</TABLE>
22
<PAGE> 27
- ---------------
(1) Results for 1995 and 1996 include revenues from our discontinued GDS
software product line. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Our 1996 financial statements were restated for the write-off of goodwill.
No opinion was expressed on the restated financial statements.
(3) Reflects the automatic conversion of each outstanding share of preferred
stock into 0.5 shares of our common stock on consummation of this offering
as if these shares were outstanding from their date of issuance.
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements included
in this prospectus. This discussion includes forward-looking statements that
involve risks and uncertainties. Please see "Cautionary Note Regarding Forward
Looking Statements; Market Data."
OVERVIEW
We provide professional services that enable utilities and local
governments to implement eBusiness solutions that transform their organizations
from paper-based operations into digital business environments. Our solutions
provide our clients with the ability to integrate data from various sources in
order to provide real-time responses to internal and external information
requirements.
Utility Graphics Consulting Corporation, the predecessor of Convergent
Group, was founded in 1985. UGC provided both automated mapping and facilities
management services and geographic information systems (GIS) consulting
services. In 1994, UGC merged with Graphic Data Systems Corporation, a GIS
software product company, to form Convergent Group. Following the merger, we
initially pursued opportunities in the GIS market, developing and marketing
Graphic Data Systems' computer-aided design and GIS products, which we called
"GDS" software. However, after two years of unsuccessful operations, we
discontinued operations of the GDS software group in 1996. Since that time we
have focused solely on the development of information technology solutions for
the utility and local government markets.
We derive the majority of our revenue from our professional services which
include consulting and software integration. Our consulting services consist of
evaluating existing information systems, recommending solutions and components
including hardware and software to transition to real-time information digital
environments, analyzing the cost and benefit, developing the strategies to
implement digital environments and training personnel to transition the change.
Integration services consist of developing specific software code or employing
our previously developed code, which is our intellectual property, to integrate
new software into new or existing systems. These professional services are
included in integration, consulting and other services revenue.
Subcontractor and other revenue includes data conversion services and
computer hardware and software revenue, each of which can be a portion of the
solution we provide our client. Data conversion has historically been performed
principally through a single subcontractor whom we manage as part of delivering
our solutions for our clients. We have recently begun using several other
subcontractors for new client engagements. We act as a value added reseller for
some computer hardware and software manufacturers. We expect revenue from data
conversion services to decline in future years as a percent of our overall
revenues.
We expect that we will derive an increasing percentage of our revenues from
consulting and integration services in future periods. We provide most of our
hardware and software procurement and data conversion services during the
earlier stages of a client engagement, and once we have completed these services
for a client, the client's further requirements for these services are
substantially lower. Thus, when existing clients retain us for subsequent
projects, it will increasingly be to provide consulting and integration software
and eBusiness services.
We derive revenues from our professional services through fixed-price,
fixed-time contracts, obtained mainly on a non-competitive bid basis. To
determine our fixed price, we first evaluate a client's current information
technology resources and its projected requirements. We then prepare a detailed
scope of work that addresses the client's stated requirements. After the client
approves the project, we determine the costs of the various project components,
including those for professional services, hardware, software and data
conversion. These costs are then reviewed internally by our pricing committee,
and the completed contract is delivered to the client for approval. Under most
contracts we require that the client pay a project initiation fee to cover the
mobilization of the project team. Typically, project initiation fees are
24
<PAGE> 29
charged in connection with projects which include a significant amount of
consulting and/or integration costs. We recognize revenue from fixed-price
contracts on the basis of the estimated percentage-of-completion of services
rendered or when the services have been performed, and losses, if any, are
accrued when they become known and/or are reasonably determinable. Clients are
generally invoiced on a monthly basis. Payment is due in 30 days.
Our projects vary in size and scope. In 1998, our five largest clients
accounted for approximately 59% of our revenues, with Cinergy Corp. accounting
for approximately 20%, Alliant Energy Corporation accounting for approximately
16% and Citizens Utilities accounting for approximately 11% of revenues during
this period. In 1999, our five largest clients accounted for approximately 49%
of our revenues, with Cinergy accounting for approximately 18% and Alliant and
Citizens Utilities, each accounting for approximately 9% of revenues during this
period. We expect that our client base will continue to expand and that the
concentration of revenues among a small number of large clients will decrease.
This decrease in concentration is a result of both an industry trend toward
shorter project life cycles and our diversification in markets outside the
United States, particularly in Europe, the Asia-Pacific region, and South
America. Our current average project term is approximately two years. We expect
that this period will decrease to twelve to eighteen months in the future as a
result of the implementation of our rapid performance modeling methodology. In
addition, as a result of rapid changes in the software and information
processing technology industries, our clients are replacing their information
technology systems more frequently than in the past, thereby shortening their
requirements for delivery and completion.
Our most significant operating expenses for integration, consulting and
other services consist of project personnel costs, including compensation,
benefits and project-related travel expenses. We expect to increase the number
of professional staff significantly during 2000 and in future years to support
our expected revenue growth in this area. As a result of this growth, we expect
our direct cost of integration, consulting and other services revenue to
increase significantly. In addition, we expect the personnel cost of each
professional staff member to increase as the solutions we deliver become more
complex and require our staff members to obtain additional training. Members of
our professional staff are highly trained and we expect that salary and benefit
costs will increase as we strive to maintain our competitive position. Although
these direct costs are expected to increase, we expect our gross profit margins
on our integration, consulting and other services revenue to increase due to
improved delivery efficiencies achieved through the use of our internally
developed software solutions and our Rapid Performance Modeling methodology.
Rapid Performance Modeling is the methodology we employ to speed the delivery of
integration software solutions to our clients and to reduce our professional
service costs. At the outset of each engagement, we identify the components used
in previously developed software that can be used to satisfy the new client's
requirements. We deliver the core code of these previously developed software
components to our client, customize the code to meet the client's solution
requirements and eliminate the professional labor cost associated with
redeveloping the core software code.
Expenses related to subcontractor and other revenue include software,
hardware and subcontractor costs. We expect costs of software and hardware to
decrease as a percentage of revenue. Data conversion services are labor
intensive and generate low gross profit margins. We plan to improve our profit
margins on these services by better managing our subcontractors and by engaging
additional subcontractors. Data migration services, which will be included in
integration consulting and other services revenues, are less labor intensive
than data conversion services but require a higher degree of technical skill. As
a result of our personnel growth and accompanying enhanced internal
capabilities, we believe that we can realize higher profit margins on data
migration services than on data conversion services by performing these services
internally.
Selling, general and administrative expenses are expected to increase
during 2000 due to the opening of new sales and marketing offices in the United
Kingdom and Australia, each of which were opened during the first quarter of
2000. Selling expenses are also expected to increase due to our efforts to
develop brand name recognition through the aggressive marketing of our Digital
Utility and Government Gateway solutions. In addition, administrative costs are
expected to increase as a percentage of revenue as we hire additional management
personnel to manage our growth.
25
<PAGE> 30
Due to the historic lack of profitability from the sales of our GDS
software product and the significant research and development costs related to
its continuing development, we discontinued all further development and sale of
the product in December 1996, recording a restructuring charge of $16.3 million
relating to asset write-offs and obligations in excess of expected revenue. We
now have no material revenues or expenses associated with this software product.
In August 1999, we completed a recapitalization in which we repurchased all
of the preferred and common stock previously held by our two largest
shareholders. We raised $45.5 million in the recapitalization through the sale
of preferred equity, and obtained a $25.0 million revolving credit facility,
from which $22.0 million was borrowed in connection with the recapitalization.
Total recapitalization expenses of $13.2 million included $3.9 million paid to
terminate a consulting agreement with a former stockholder, approximately $1.0
million used to pay cash bonuses, $2.2 million of non-cash employee stock
issuance expenses, $2.4 million used to terminate existing employment
agreements, $3.5 million used to retire performance obligations and $200,000
used to pay legal, accounting and termination fees. These expenses represented a
one time charge against our operating income. In connection with the
recapitalization, we issued $1.4 million of stock and stock options. The stock
and options were issued as an incentive to our employees and we recorded the
issuance as a non-cash operating expense. For further information regarding the
recapitalization, see "Certain Transactions -- 1999 Recapitalization."
We have recorded deferred compensation expense with respect to options
outstanding at March 31, 2000 with exercise prices below the fair market value
of our common stock at the date of grant of $11,295,000, which we expect to
recognize as compensation expense in future periods as follows:
<TABLE>
<CAPTION>
DEFERRED COMPENSATION
PERIOD EXPENSE
- ------ ---------------------
<S> <C>
Year Ending December 31, 2000............................... $2,565,000
Year Ending December 31, 2001............................... 2,617,000
Year Ending December 31, 2002............................... 2,212,000
Year Ending December 31, 2003............................... 1,742,000
Year Ending December 31, 2004............................... 2,159,000
</TABLE>
In addition, as a result of the granting of options which vest over the next
five years based on the achievement of performance targets established by our
board of directors, there could be additional non-cash compensation expense of
up to $475,000 over the next five years.
We plan to continue to expand our operations by hiring additional
professional staff members and other employees, and adding new offices, systems
and other infrastructure. The resulting increase in operating expenses would
harm our operating results if our revenues do not increase to support such
expenses. Based on all of the foregoing, we believe that our quarterly revenue
and operating results are likely to vary significantly in the future and that
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied on as indications of future performance.
In the quarter in which this offering is consummated we will record an
additional operating expense related to the fee payable to InSight Capital
Partners. See "Certain Transactions -- InSight Capital Partners Transaction
Fees." Based on the number of shares of common stock expected to be outstanding
upon consummation of this offering, and assuming an initial public offering
price of $13.00 per share, the fee payable to InSight will be approximately $5.7
million.
26
<PAGE> 31
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues of specific
consolidated financial data for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Integration, consulting and other services....... 34.4% 53.0% 52.7% 61.1% 61.6%
Subcontractor and other revenue.................. 65.6 47.0 47.3 38.9 38.4
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of integration, consulting and other
services...................................... 35.1 32.1 42.4 37.0 33.5
Cost of subcontractor and other revenue.......... 35.2 24.6 31.8 29.4 30.3
----- ----- ----- ----- -----
Total cost of revenues................... 70.3 56.7 74.2 66.4 63.8
----- ----- ----- ----- -----
Gross profit....................................... 29.7 43.3 25.8 33.6 36.2
Expenses:
Selling, general, and administrative expenses.... 39.7 51.0 28.3 25.6 25.3
Recapitalization costs........................... -- -- -- -- 10.7
Employee stock compensation expense.............. -- -- -- -- 3.3
Consulting agreement termination costs........... -- -- -- -- 5.9
(Gain) loss from restructuring................... -- 15.3 (2.9) (0.2) --
Loss from disposal of assets..................... -- 16.3 -- 0.2 --
Research and development......................... 8.8 11.5 0.4 -- --
----- ----- ----- ----- -----
Total expenses........................... 48.5 94.1 25.8 25.6 45.2
----- ----- ----- ----- -----
Operating income (loss).................. (18.8) (50.8) -- 8.0 (9.0)
Other income (loss):
Interest income (expense)........................ (0.2) (0.9) (2.7) 0.1 (0.9)
Income (loss) before provision (benefit)
for income taxes....................... (19.0) (51.7) (2.7) 8.1 (9.9)
----- ----- ----- ----- -----
Income tax benefit....................... -- -- -- 3.9 2.0
----- ----- ----- ----- -----
Net income (loss)........................ (19.0) (51.7) (2.7) 12.0 (7.9)
===== ===== ===== ===== =====
Preferred stock adjustments........................ (4.2) -- -- -- 31.3
----- ----- ----- ----- -----
Net income (loss) available to common
stockholders........................... (23.2)% (51.7)% (2.7)% 12.0% 23.4%
===== ===== ===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenues. Revenues increased 40.5% from $47.4 million for the year ended
December 31, 1998 to $66.6 million for the year ended December 31, 1999. This
increase was due to growth in both integration, consulting and other services
revenue and subcontractor and other revenue. Revenues from integration,
consulting and other services increased 41.7% from $29.0 million for the year
ended December 31, 1998 to $41.0 million for the year ended December 31, 1999.
Revenues from subcontractors and other revenue increased 38.6% from $18.5
million for the year ended December 31, 1998 to $25.6 million for the year ended
December 31, 1999. Revenues from subcontractors increased 101% from $8.3 million
for the year ended December 31, 1998 to $16.8 million for the year ended
December 31, 1999. This increase was due to an increase in the number of
engagements requiring data conversion services and performance improvements of
our subcontractor on those engagements during 1999. Hardware and software
revenue decreased by 19.6% from $6.6 million for the year ended December 31,
1998 to $5.3 million for the year ended December 31, 1999 due to the decrease in
the number of engagements requiring hardware and software deliveries.
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<PAGE> 32
Gross Profit. Gross profit increased 51.7% from $15.9 million for the year
ended December 31, 1998 to $24.1 million for the year ended December 31, 1999.
Gross profit from integration, consulting and other services revenue increased
64.4% from $11.4 million for the year ended December 31, 1998 to $18.7 million
for the year ended December 31, 1999. Our gross profit margin from integration,
consulting and other services revenue increased from 39.3% for the year ended
December 31, 1998 to 45.7% for the year ended December 31, 1999. Gross profit
and gross profit margin in 1999 from integration, consulting and other services
does not reflect approximately $70,000 reported as employee stock compensation
expense. The increase in gross profit and gross profit margin reflects the
implementation during 1999 of our Rapid Performance Modeling project approach,
which decreased the cost of delivering our services. The implementation of Rapid
Performance Modeling in 1999 allowed us to eliminate redundant costs of
developing core software code for similar business applications. Rapid
Performance Modeling was deployed during the second half of 1999 on eleven new
projects, reducing professional services costs by approximately $1.4 million.
Gross profit from subcontractor and other revenue increased 19.5% from $4.5
million for the year ended December 31, 1998 to $5.4 million for the year ended
December 31, 1999. The gross profit margin on subcontractor and other revenue
decreased from 24.4% for the year ended December 31, 1998 to 21.0% for the year
ended December 31, 1999. This decrease was due to a shift in revenue from higher
margin hardware and software sales to lower margin subcontractor revenue. Gross
profit margin on subcontractor revenue increased to 10.6% for the year ended
December 31, 1999 from 5.9% for the year ended December 31, 1998 primarily due
to revenue from contracts on new conversion engagements on which we realized an
improvement in our gross profit margin. Gross profit margin on software and
hardware revenue increased marginally by 1.3% to 37.9% for the year ended
December 31, 1999 from 36.6% for the year ended December 31, 1998.
Operating Expenses. Excluding $13.2 million in costs associated with our
recapitalization, total operating expenses increased 38.9% from $12.1 million
for the year ended December 31, 1998 to $16.9 million for the year ended
December 31, 1999. This increase reflected an increase in selling, general and
administrative expense resulting from expenses incurred in connection with our
initiation of customer relationship management services, the opening of a new
office in Boston, Massachusetts, and hiring additional management, marketing and
technical personnel to support the growth in our business.
Net Interest Income (Expense). Net interest income of $100,000 for the year
ended December 31, 1998 compared to net interest expense of $600,000 for the
year ended December 31, 1999. This decrease was due to the interest payable on
the $22.0 million borrowed under our revolving credit loan facility in
connection with our recapitalization.
Income (Loss) Before Taxes. Our income (loss) before provision (benefit)
for income taxes decreased from $3.8 million for the year ended December 31,
1998 to ($6.6) million for the year ended December 31, 1999. Excluding costs
associated with our recapitalization, income before taxes would have increased
74.3% from $3.8 million for the year ended December 31, 1998 to $6.7 million for
the year ended December 31, 1999.
Income Tax Benefit. The income tax benefit was $1.9 million for the year
ended December 31, 1998, compared to an income tax benefit of $1.3 million for
the year ended December 31, 1999. Income tax benefit is recorded to the extent
we expect to realize a tax benefit from the use of our net operating losses in
future periods. We recorded a deferred tax asset at December 31, 1998 based on
our estimated taxable earnings for 1999. At December 31, 1999, the deferred tax
asset was increased based on our estimated taxable earnings for the year ended
December 31, 2000. We believe that, based on our history of operations,
recording a tax benefit for more than the amount we expected to realize in our
next fiscal year would be inappropriate. However, we believe that there is
sufficient positive evidence of near term earnings to conclude that it is more
likely than not that the recognized deferred tax asset will be realized.
At December 31, 1999 we had net operating loss carryforwards for U.S.
federal income tax purposes of $33.1 million which expire at various dates
between 2008 and 2019. As a result of limitations placed on utilization of these
net operating loss carryforwards by Section 382 of the Internal Revenue Code,
our
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<PAGE> 33
utilization of these net operating loss carryforwards will be limited to
approximately $3.8 million per year. We also had approximately $7.0 million of
foreign net operating loss carryforwards, principally resulting from our former
operations in the United Kingdom. These net operating losses carry forward
indefinitely and will be available to offset future operating profits, if any,
in the United Kingdom.
Net Income (Loss). We incurred a net loss of $5.3 million for the year
ended December 31, 1999, as compared to net income of $5.7 million for the year
ended December 31, 1998. Excluding the costs associated with our
recapitalization (net of tax benefits), we would have realized net income of
$8.0 million in 1999. As a result of our repurchase in the recapitalization of
our previously outstanding preferred stock at less than its redemption value, we
also recorded in 1999 a one-time adjustment of $20.8 million.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenues. Revenues increased 16.1% from $40.9 million for the year ended
December 31, 1997 to $47.4 million for the year ended December 31, 1998,
reflecting an increase in integration, consulting and other services revenues of
34.6% from $21.5 million for the year ended December 31, 1997 to $29.0 million
for the year ended December 31, 1998. The increase in integration, consulting
and other services revenue was due to an increase in the number and size of our
client engagements and an increase in the scope of our engagements.
Subcontractor and other revenue decreased 4.6% from $19.3 million for the year
ended December 31, 1997 to $18.5 million for the year ended December 31, 1998.
Revenues from subcontractors increased 270.6% from $2.3 million for the year
ended December 31, 1997 to $8.3 million for the year ended December 31, 1998.
This increase was due to an increase in the number and scope of services on
engagements requiring data conversion services. Hardware and software revenue
decreased by 44.3% from $11.8 million for the year ended December 31, 1997 to
$6.6 million for the year ended December 31, 1998. This decrease was primarily
due to a decrease in third party software purchases, which were required during
the year ended December 31, 1997 to replace the GDS software which we had sold
or had committed to sell in 1996.
Gross profit. Gross profit increased 51.1% from $10.5 million for the year
ended December 31, 1997 to $15.9 million for the year ended December 31, 1998.
This increase was due primarily to an increase in gross profit from integration,
consulting, and other services revenue. Gross profit from integration,
consulting and other services revenue increased 172% from $4.2 million for the
year ended December 31, 1997 to $11.4 million for the year ended December 31,
1998. Our gross profit margin on integration, consulting and other services
revenue increased from 19.5% for the year ended December 31, 1997 to 39.3% for
the year ended December 31, 1998. These increases were primarily due to the
absence in 1998 of approximately $1.3 million of costs incurred in 1997 in
excess of the $1.3 million reserve established in 1996 for project rework
required as a result of the discontinuance of our GDS software product group in
1996. As part of the discontinuance, we transitioned our clients, at our
expense, from GDS software to compatible third-party software. This replacement
and rework was substantially completed during 1997. The majority of our rework
cost resulted from substituting third party software for GDS software. We found
that the third party software did not have the same functionality as the GDS
software, and, as a result, we incurred unexpected costs in connection with the
modification of the third party software to meet our commitments to these
clients. These costs were not fully estimatable at the end of 1996 and
ultimately exceeded our 1996 accrual.
Gross profit from subcontractor and other revenue decreased 28.9% from $6.3
million for the year ended December 31, 1997 to $4.5 million for the year ended
December 31, 1998. The gross profit margin on subcontractor and other revenue
decreased from 32.7% for the year ended December 31, 1997 to 24.4% for the year
ended December 31, 1998. Gross profit margin on subcontractor revenue decreased
marginally by .8% to 5.9% for the year ended December 31, 1998 from 6.7% for the
year ended December 31, 1997. Gross profit margin on software and hardware
revenue increase by 7.3% to 36.6% for the year ended December 31, 1998 from
29.3% for the year ended December 31, 1997. This increase in gross profit margin
was due to our ability to negotiate improved discounts on value added reseller
agreements with our
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<PAGE> 34
vendors during 1998, which were not available during 1997 due to our need to
quickly satisfy commitments to replace GDS software during that year.
Operating Expenses. Operating expenses increased 15.1% from $10.5 million
for the year ended December 31, 1997 to $12.1 million for the year ended
December 31, 1998. Operating expenses for each of the years ended December 31,
1998 and 1997 include reversals of $100,000 and $1.2 million, respectively, of
the restructuring reserve established in 1996 in connection with the
discontinuance of our GDS software product group. The restructuring reserve was
reversed primarily during 1997 to reflect the sale of assets associated with our
discontinued GDS product line. See Note M to the Notes to Consolidated Financial
Statements. There was no restructuring reserve balance remaining at December 31,
1998. Excluding the effect of the reversals, operating expenses increased 4.0%
from $11.8 million for the year ended December 31, 1997 to $12.2 million for the
year ended December 31, 1998. This increase was due primarily to a 4.7% increase
in selling, general and administrative expenses from $11.6 million for the year
ended December 31, 1997 to $12.1 million for the year ended December 31, 1998.
This increase resulted from the increase in the number of our sales, marketing
and administrative employees and related personnel costs.
Net Interest Income (Expense). Net interest expense of $1.1 million for the
year ended December 31, 1997 compared to net interest income of $100,000 for the
year ended December 31, 1998. This increase reflected the elimination of
interest expense on approximately $4.7 million of long-term debt which was
converted into shares of our previously outstanding preferred stock. See Note H
to the Notes to Consolidated Financial Statements.
Income (Loss) Before Taxes. Our income (loss) before benefit for income
taxes increased by $4.9 million from ($1.1) million for the year ended December
31, 1997 to $3.8 million for the year ended December 31, 1998. This increase was
due primarily to improved gross profit from integration, consulting, and other
services revenue.
Income Tax Benefit. The income tax benefit was $1.9 million for the year
ended December 31, 1998. We recorded a deferred tax asset at December 31, 1998
based on our estimated taxable earnings for 1999. No income tax benefit was
recorded for the year ended December 31, 1997 as we did not believe there was
sufficient positive evidence of near term earnings to conclude that a deferred
tax asset would be realized. Income tax benefit is recorded to the extent we
expect to realize a tax benefit from the use of our net operating losses in
future periods.
Net Income (Loss). We realized net income of $5.7 million for the year
ended December 31, 1998, an increase of $6.8 million over a net loss of ($1.1)
million for the year ended December 31, 1997. This increase is due primarily to
an increase in gross profits of $5.4 million, a reduction in interest expense of
$1.1 million, and our income tax benefit recorded for the year ended December
31, 1998.
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QUARTERLY OPERATIONS DATA
The following table sets forth specific unaudited quarterly operations data
for 1998 and 1999. In our opinion, this data reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the data. The results of operations for any quarter are not
necessarily indicative of the results of operations for a full year or any
future period. We expect that our quarterly operating results to vary
significantly in future periods. See "Risk Factors -- Risks Related to our
Operating Results."
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Integration, consulting and
other services........... $ 6,025 $ 7,280 $ 7,471 $8,181 $9,283 $10,366
Subcontractor and other
revenue.................. 4,233 3,567 5,170 5,488 5,526 5,936
-------- -------- -------- ------ ------ -------
Total revenues....... 10,258 10,847 12,641 13,669 14,809 16,302
Cost of revenues:
Cost of integration,
consulting and other
services................. 3,721 4,244 4,144 5,455 5,153 5,865
Cost of subcontractor and
other revenue............ 3,459 3,004 3,493 4,003 4,345 4,719
-------- -------- -------- ------ ------ -------
Total cost of
revenues........... 7,180 7,248 7,637 9,458 9,498 10,584
-------- -------- -------- ------ ------ -------
Gross profit................. $ 3,078 $ 3,599 $ 5,004 $4,211 $5,311 $ 5,718
<CAPTION>
QUARTERS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Integration, consulting and
other services........... $10,724 $10,656
Subcontractor and other
revenue.................. 6,925 7,194
------- -------
Total revenues....... 17,649 17,850
Cost of revenues:
Cost of integration,
consulting and other
services................. 5,600 5,678
Cost of subcontractor and
other revenue............ 5,731 5,410
------- -------
Total cost of
revenues........... 11,331 11,088
------- -------
Gross profit................. $ 6,318 $ 6,762
</TABLE>
Cost of revenue as a percentage of revenue may vary from one quarter to
another due to a shift in our engagement revenue mix or revisions in our
estimates of the costs required to complete our engagements. Short-term
engagements, less than one year in duration, may cause significant variations in
cost of revenue, resulting in fluctuations in quarterly gross profit. Quarterly
results may be adversely affected by short term consulting engagements we
undertake that result in nominal gross profit and represent our investment in a
client which we believe will engage us for systems integration services.
Alternatively, we may undertake short term engagements and realize gross profit
that causes our quarterly gross profit to exceed other quarters' gross profit
due to our efficiencies, use of Rapid Performance Modeling or value added, high
gross profit invoicing. We may also change our estimate of cost we expect to
incur on long term engagements. These changes may have either a positive or
negative affect on the quarter in which the revisions are made causing the gross
profit for that quarter to fluctuate from previously reported quarters.
We do not believe our business is seasonal. However, we experienced a
slight decrease in our integration, consulting and other services revenue during
the fourth quarter of 1999 due to downtime resulting from the relocation of our
operations in October 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations and investments in property and equipment
primarily through the sale of equity securities, bank borrowings, capital lease
financings and cash generated through operations.
Cash provided by (used in) operating activities decreased from $3.9 million
for the year ended December 31, 1998 to ($12.7) million for the year ended
December 31, 1999. This decrease resulted from our net loss of $5.3 million for
1999 compared to our net income of $5.7 million in 1998 and an increase in
receivables and unbilled revenues generated as a result of our revenue growth.
The increase in accounts receivable and unbilled revenue is a result of an
increase in the number of contracts and the revenue recognized. Our contracts
often include hardware, software, integration services and data conversion
services. Clients are billed for hardware and software upon delivery.
Integration service revenue and data conversion revenue is recognized based on
the work accomplished, which does not necessarily parallel billings to our
customer, resulting in unbilled revenue. Some of our contracts provide invoicing
on a fixed schedule independent of service deliveries. Other contracts provide
for invoicing on a percent complete
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<PAGE> 36
basis that parallels our revenue recognition. Our billing occurs one month in
arrears for services resulting in at least one month of revenue reported as
unbilled revenue on the balance sheet.
The days outstanding for accounts receivable and unbilled revenues have
increased from 65 days at December 31, 1998 to 73 days at December 31, 1999. The
primary reason for this increase in days outstanding is due to payment delays on
subcontract conversion revenues which has increased our unbilled revenue by
approximately $636,000 from 1998 to 1999.
The balance in the allowance for doubtful accounts has decreased between
1998 and 1999 as a result of bad debts charged against the allowance relating to
GDS software maintenance. We maintain a deminimus allowance for doubtful
accounts for our system integration projects. Our accounts receivable from our
system integration clients, primarily large stable utilities and government
enterprises, represent nominal credit risk. We realized no bad debt expense on
any system integration or consulting engagement during our fiscal years 1998 and
1999.
Cash provided by operating activities increased from $2.7 million for the
year ended December 31, 1997 to $3.9 million for the year ended December 31,
1998. This increase resulted from the decrease in cash required to satisfy
severance, committed office lease, and equipment rental expenses associated with
the discontinuance of our GDS software product group.
Net cash provided by (used in) financing activities increased from a
nominal amount for the year ended December 31, 1998 to $11.1 million for the
year ended December 31, 1999. This increase resulted from net borrowings on our
revolving credit line of $22.0 million, offset by distributions to shareholders
of $7.3 million in connection with our recapitalization. Net cash provided by
(used in) financing activities decreased from ($1.8) million for the year ended
December 31, 1997 to a nominal amount for the year ended December 31, 1998. This
decrease was due to cash payments in 1997 used to repay both the $1.0 million
outstanding obligation on our then existing line of credit and the $800,000
outstanding in connection with other debt obligations.
Our capital expenditures were $1.8 million for the year ended December 31,
1999, $1.0 million for the year ended December 31, 1998 and $600,000 for the
year ended December 31, 1997. Approximately $200,000 of capital expenditures
during 1999 were used to replace or upgrade existing property and equipment.
Additional expenditures in 1999 were used to purchase new property and equipment
needed as a result of the increase in personnel, the addition of new operating
and administrative hardware and software systems and the opening of additional
offices. Capital expenditures for 2000 are expected to be approximately $5.0
million. The majority of capital expenditures for 2000 are projected to cover
the purchase of additional software and hardware for employees we expect to hire
during the year.
Cash and cash equivalents decreased from $5.0 million for the year ended
December 31, 1998 to $1.6 million for the year ended December 31, 1999. This
decrease resulted from cash expended to complete our recapitalization, including
$3.9 million used to terminate the consulting agreement.
In connection with our August 1999 recapitalization, we entered into a
Revolving Credit Loan Agreement with Fleet Bank which provides a line of credit
of up to $25.0 million. We borrowed $22.0 million under the Agreement during
1999 to partially fund the purchase of our previously outstanding Series A and
Series B Preferred Stock and Class A Common Stock. At our election, interest on
borrowings under this credit facility are based on either the LIBOR rate plus
2.5% or the prime rate plus 0.75%. As of December 31, 1999, $20.0 million of our
outstanding balance bears interest under the LIBOR rate option, and the
remaining $2.0 million bears interest under the prime rate option. The effective
blended interest rate on borrowings at December 31, 1999 was 8.45%. The
Agreement includes covenants relating to the maintenance of specific financial
ratios, including minimum interest coverage, debt service and current assets
ratios and limitations on additional debt. We were in compliance with all
covenants at December 31, 1999. We will use a portion of the net proceeds from
this offering to repay amounts due under the Agreement. Also in connection with
the recapitalization, we issued $44.9 million, net of issuance costs, of
convertible preferred stock to fund the purchase of our Series A and Series B
Preferred Stock and Class A Common Stock.
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<PAGE> 37
We believe that cash provided from operations, borrowings available under
our revolving credit loan facility or a new credit facility and the net proceeds
of this offering will be sufficient to meet working capital and capital
expenditure requirements for at least the next twelve months. Thereafter, we may
need to raise additional funds through public or private financing, or make
other arrangements to fund our operations and potential acquisitions, if any. We
cannot assure you that any financings or other arrangements will be available in
amounts or on terms acceptable to us or at all, and any financings or other
arrangements could place operating or other restrictions on us. Our inability to
raise capital when needed could seriously harm the growth of our business and
results of operations. If additional funds are raised through the issuance of
equity securities, the percentage ownership of our stockholders would be
reduced. Furthermore, these equity securities could have rights, preferences or
privileges senior to those of our common stock.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two-digit entries in the date code field. However,
these systems and software products now need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. While computer systems
and software used by many utilities and local governments have been upgraded to
comply with these year 2000 requirements, existing systems and software at some
of these entities may still need to be upgraded to comply with these year 2000
requirements or risk system failure or miscalculations which could cause
disruptions of normal business activities.
As of the date of this prospectus, we have not experienced any year 2000
problems and are not aware of any material 2000 problems experienced by our
clients or potential clients.
We funded our year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We currently provide our services to clients located in North America, and
to a lesser extent, Europe, South America and the Asia-Pacific region. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As all of our contracts with clients currently provide that payments to us be
made in U.S. dollars, a strengthening of the dollar could make our services less
competitive in foreign markets. We do not expect any material adverse effect on
our consolidated financial position, results of operations or cash flows due to
movements in any specific foreign currency. We currently do not use financial
instruments to hedge foreign denominated operating expenses, but we intend to
assess the need to utilize financial instruments to hedge currency exposures on
an ongoing basis. We do not enter into derivative or other financial instruments
for trading or speculative purposes. Our interest income is sensitive to changes
in the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments. Due to the short-term nature of
our investments, we believe that there is no material risk exposure. Our long
term debt bears interest at variable rates based on LIBOR or the prime rate. As
a result, interest rate changes generally do not affect the fair market value of
our variable rate debt but do impact future earnings and cash flows, assuming
other factors are held constant.
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<PAGE> 38
BUSINESS
OVERVIEW
We are a leading provider of consulting, software engineering, systems
integration and project management services that enable our utility and local
government clients to implement Internet-based business solutions, also known as
eBusiness solutions. These solutions enable our clients to transform their
organizations into digital business environments that integrate data from
various isolated sources to create a single, Web-based point of entry through
which internal decision-makers, business partners, suppliers, customers and
constituents can access business information on a real-time basis. By combining
our use of existing and emerging digital technologies with our business
expertise in the utility and local government sectors, we are able to help our
clients increase revenues, reduce costs, improve customer services, ensure
service reliability, improve resource management and exploit their information
assets.
We work with our clients through all phases of their eBusiness
transformation process. Throughout this process we:
- Engineer -- with our client's input, an information technology
infrastructure and internal business processes that tailor our
proprietary Digital Utility and Government Gateway eBusiness frameworks
to our clients' particular needs;
- Build -- the infrastructure, systems and processes with minimal
disruption to our clients' organizations and provide comprehensive
training and change management services; and
- Manage -- our solutions for our clients to help them minimize the
internal resources they must commit to maintain their systems and to help
them maximize their return on investment.
The two large vertical markets we address, utility and local governments,
have only recently begun converting their traditional customer service and
business models to Internet-based eBusiness platforms. We were one of the first
companies to integrate energy and service delivery management systems in our
core markets. We have completed engagements for clients such as Allegheny Power,
Alliant Energy Corporation, Cinergy Corp., Citizens Utilities Company, Southern
California Edison Company, and the City of Indianapolis, Indiana. During the
past five years, we have completed over 270 major information technology
engagements.
INDUSTRY BACKGROUND
Evolution of the Internet and eBusiness. Commercial Internet use is
expanding rapidly, both in terms of the number of users and the ways in which
organizations use the Internet. The initial commercial use of the Internet was
as a static informational and advertising medium. Web sites had little ability
to automate business processes or execute transactions and thus remained
separate from core business systems, which, in turn, had not been designed to
communicate with standards-based Internet software. Today, organizations faced
with growing competition, deregulation, and globalization pressures seek to
transform their Web sites and intranet and extranet applications from simple
marketing tools into advanced software applications that support core business
processes. In order to accomplish this transformation, organizations are
rebuilding and upgrading their information technology systems to transact
directly, seamlessly and instantaneously with customers, constituents,
suppliers, partners and distributors. This new medium of interaction, commonly
referred to as eBusiness, is rapidly creating new markets, communications
channels and revenue opportunities while enabling organizations to reduce costs,
improve operating efficiencies and improve customer relationship management.
To automate all of the functions associated with an eBusiness environment,
organizations cannot simply link Internet customers, constituents, suppliers,
business partners and distributors directly to their existing internal systems,
which were designed for a static environment in which a defined number of
specifically trained employees performed very specific functions such as
billing, service scheduling or records management. With each internal system
serving a distinct independent function, it is extremely
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<PAGE> 39
difficult for a customer or constituent to have a user-friendly,
customer-service-focused experience without significant integration of existing
internal systems.
To integrate their existing internal systems, organizations need an
advanced technology approach in which "business logic," a set of business
procedures and rules, is built into a set of core software applications that
bridges these existing systems with the Internet. These core software
applications handle business functions that previously could only be executed by
specially trained personnel. A successful eBusiness system must present on-line
functions to customers in a simple format, yet provide comprehensive access to
all of the information and transactional capabilities the organization has to
offer. In addition, the software systems that integrate the Internet with the
existing internal systems must be carefully designed to handle large volumes of
Internet traffic and ensure around the clock reliability. These software systems
must use a component-based design which is flexible and extendable to meet the
needs of the organization as it grows.
Organizations are increasingly turning to outside professional Internet
solutions providers to create and manage these systems. The primary advantages
of outside solutions providers are their comparative expertise, speed,
efficiency and reduced risk. Internal information technology departments, for
example, primarily maintain and troubleshoot legacy systems. This involves
minimal exposure to the Internet and other rapidly developing technologies and
little experience designing and integrating new systems. Compared to internal
departments, outside solutions providers, who can often reapply the components,
techniques and methodologies they developed on similar complex information
technology projects, can identify possible solutions more easily, design and
implement these solutions more quickly, and be more assured that a solution will
actually work. In addition, outside professional Internet solutions providers
can often offer more objective advice, free of internal cultural or political
pressures. The combination of these factors has created a significant and
growing demand for third-party Internet professional service providers.
International Data Corporation has forecasted that the market for Internet
professional services worldwide will grow from $7.8 billion in 1998 to $78.5
billion by 2003.
OUR CORE MARKETS
According to International Data Corporation, the U.S. utilities industry,
one of the five largest vertical markets in the United States, is estimated to
have spent approximately $345 million on Internet services in 1999. That number
is estimated to grow to approximately $2.0 billion by 2003, representing a 55%
compound annual growth rate. As the industry continues the process of
deregulation, gas and electric utilities face the need to simultaneously:
- increase revenues;
- improve customer satisfaction to retain consumers who now can switch
energy providers;
- capitalize on their well developed service delivery infrastructures and
established customer relationships to cross-sell a diverse package of
customer services with other service providers such as cable television
and telephone companies;
- drive down costs as competitive pricing replaces the historic regulatory
cost-plus pricing model;
- differentiate and extend their product lines and services to compete on
factors other than price; and
- obtain and rapidly distribute information about their service networks on
a real-time basis, particularly during emergencies or power outages.
Local governments in the United States also represent a significant segment
of the economy. According to International Data Corporation, government spending
on Internet services is estimated to have been approximately $505 million in
1999. That number is estimated to grow to approximately $2.8 billion by 2003,
representing a 54% compound annual growth rate. Local governments generally
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continue to employ labor-intensive, paper-based processes which rely on
incompatible computer and telephone systems. Local governments face demands from
their individual and business constituents to:
- consume fewer resources while maintaining service levels, in order to
free up tax revenues for social and other services;
- speed the processing of licenses and permits and simultaneously reduce
the occurrence of errors in processing, both to enhance constituent
satisfaction and to compete for expanding and relocating businesses; and
- allow real-time access to information by administrators and policy
makers.
To respond to these demands, utilities and local governments are seeking
ways to improve customer and constituent satisfaction and reduce costs by giving
themselves, their business partners, their suppliers and their customers and
constituents better access to integrated business processes. Utilities and local
governments have realized how the Internet can help service-oriented businesses
achieve their goals, and they now realize that they must deliver functional,
Web-based integrated services to their clients, business partners, suppliers and
constituents.
THE OPPORTUNITY
We believe that many Internet professional service providers lack the
substantive industry expertise required to transform utilities and local
governments into digital business environments. Traditional third-party
enterprise-level planning solutions, for example, integrate support functions
such as financial administration and customer service, but do not integrate core
functions such as work management or land and facilities management. Utilities
and local governments need solutions that are built around their core
functions -- maintaining their extensive, constantly changing physical
infrastructures of wires, pipes, roads and sewage systems -- but are also linked
to their front and back office functions. A complete eBusiness solution for
utilities and local governments must thus integrate the data that supports their
core operations with the data that supports their front and back office
functions -- data that often resides in different departments, on different
databases and on different information systems.
Thus, while Internet professional service providers may possess the
technology and resources that utility and local governments seek, few have the
substantive understanding of the disparate information systems that support a
utility's or local government's core operations required to provide a complete
eBusiness solution for these organizations. Furthermore, developing that domain
expertise is not easily accomplished. As a result, there is substantial unmet
demand for solutions providers who can combine sophisticated technological and
resource expertise with deep knowledge of the utility industry or the public
sector.
THE CONVERGENT SOLUTION
Relying upon our substantial knowledge of, and expertise in, the utility
industry and the public sector, our services help utilities and local
governments to transform their organizations into digital business environments
that can integrate data and processes from various sources to provide real-time
responses to internal and external information requirements. Our solutions are
based on our proprietary Model Office, a component based working solution which
enables us to address our clients' specific organizational goals and to create
our Digital Utility and Government Gateway solutions, which transform our
clients' paper-based processes into seamless, digital business environments.
We design and implement processes that integrate our clients' core
functions with the data supporting front and back office functions, such as
customer relationship management and billing. The result is a single,
integrated, digital system through which internal decision makers, business
partners, customers and constituents can access business information on a
real-time basis.
Our solutions include our business process redesign and change management
services. Our business process redesign services focus our clients' executive
management on how improvements in their
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information technology systems can transform strategic decision making processes
and relationships with customers or constituents, business partners and
suppliers. Our change management services educate individuals within our
clients' organizations on how changes in business processes will change the way
they perform their daily jobs. We help our clients manage their solutions by
providing ongoing technical support and release updates, offering application
hosting services and offering workshops that allow our clients to learn how
their industry peers are using their information technology resources to improve
their business processes and expand their business opportunities.
We deliver our solutions using our proprietary Rapid Performance Modeling
(RPM) delivery methodology -- a project approach that relies on repeatable
processes and methodologies to combine corporate knowledge and industry best
practices and quality methods. These best practices services and tools provide
the backbone for all of our project-related engagements, and can be adapted to
address our clients' specific strategic needs. Solutions components developed on
any specific project can then be reused in future projects, providing us with an
expanded methodology base. We believe that our use of component engineering and
integration techniques provides repeatable, demonstrated functionality to our
clients at accelerated speed and reduced risk compared to more traditional
development approaches.
STRATEGY
Our strategic goal is to be the global leader in eBusiness services serving
the utility and local government markets. The key elements of our corporate
growth strategy include the following:
Capitalize on Our Industry Expertise. We believe that our in-depth
expertise in the utility and local government markets gives us the background to
focus on our clients' most complex, mission-critical problems. Members of our
senior management and sales and project management teams have an average of
fourteen years of utility or public sector consulting and systems integration
experience, and came to us directly from, or have experience working in, the
industries we serve. Our specific industry expertise benefits us and our clients
at each phase of our solutions delivery process by reducing the learning curve
on new engagements, improving efficiency of implementation and reducing project
delivery times. Accordingly, we will continue to emphasize our industry
expertise to differentiate ourselves from our potential competitors.
Expand Internet-Based Customer Relationship Management (eCRM) Service
Offerings and Enhance our Consulting and Internet Service Offerings. As
utilities and local governments seek ways to improve customer and constituent
satisfaction and retention, we will introduce services to meet this need. We are
introducing several new eCRM service offerings, including front office
customer-facing systems enabled by Internet technology. To quickly develop our
expertise and market presence in this area, we have instituted partnerships with
leading eBusiness and eCRM software companies, including Quintus and Vignette,
as well as several other software vendors focused on eBusiness functionality for
the utility and local government markets.
We believe that the leaders in the eBusiness solutions market must be able
to respond quickly to changing market conditions and evolving client needs. To
meet this need, we have developed a corporate intranet that contains a library
of reusable software objects, templates, frameworks, and methodologies we have
developed during our client engagements. These repeatable solutions reduce our
development time and increase our productivity and profitability. We intend to
continuously expand our repeatable eBusiness components library by adding
components based on emerging Internet technologies, particularly in the area of
enhanced applications for customer relationship management and application
maintenance services and hosting.
Broaden Client Relationships. Successful completion of relatively small,
early-stage projects has enabled us to gain much broader, comprehensive
follow-on engagements. A key component of our strategy is to establish
credibility with clients through the successful execution of these smaller,
early-stage projects and to capitalize upon that performance to obtain the
mandate for our clients' larger, business-critical projects.
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Increase Brand Awareness. We have recently launched an aggressive
multi-media marketing campaign to build brand recognition of our Digital Utility
and Government Gateway solutions within their respective markets. We believe
that our success in developing name recognition of our solutions will increase
our visibility with potential clients, industry partners and prospective
employees. We believe that maintaining a reputation for delivering innovative
eBusiness solutions and client satisfaction will enhance our ability to win
sole-source repeat business from our existing clients and attract new clients
through increased referral-driven sales and strong references.
Recruit and Retain Highly Qualified Professionals. Our growth and our
ability to provide strategic eBusiness solutions are based largely on our
ability to attract, develop and retain experienced professionals through our
employee care programs. Our strategy is to expand our existing expertise by
hiring and retaining senior professionals from within our core markets. We
strive to maintain a team-oriented and results-driven culture that offers
energetic professionals exposure to cutting-edge technologies and provides
incentives through competitive compensation plans. We provide learning
opportunities on a continuing basis to expand our employees' ability to deliver
innovative and effective solutions to our clients' rapidly changing
technological environment.
Continue Geographic Expansion. Our clients are based throughout North
America and in Brazil, New Zealand, Korea, the United Kingdom, Australia and
South Africa. In order to expand our global operations we have opened offices in
London, England and Brisbane, Australia. We believe that demand for eBusiness
solutions in the utility and public sector industries is growing rapidly, and
that this demand will create opportunities for us to continue to grow, both in
the United States and globally. We believe that having a regional presence to
serve our utility and public sector clients will help us to develop and
strengthen long-term client relationships and enable us to respond quickly to
our clients' needs.
BUILDING THE DIGITAL ENTERPRISE
eBusiness transformation involves developing and integrating various
systems and processes within an enterprise to provide online, real-time access
to information. Our proprietary Rapid Performance Modeling (RPM) delivery
methodology serves as a roadmap to design, build and manage our eBusiness
solutions. We use our RPM methodology in our projects to manage project scope
and customer expectations and to deliver timely solutions on budget. RPM offers
repeatable approaches to eBusiness transformation, allowing for rapid adoption
of best practices and reinforces consistent quality across all projects. It
provides for quality assurance with unit, integration and systems testing
procedures throughout design, development and deployment to ensure that the
solutions we deliver meet our quality standards and our clients' business needs.
We continually seek to evolve our RPM methodology based on project experiences
that identify and supplement industry best practices.
The key components of our RPM methodology are to:
- evaluate our client's business vision, culture, commitment to technology
solutions and existing information technology infrastructure and
resources;
- present a detailed cost-benefit analysis of the recommended solution that
quantifies costs (such as hardware, software and applications procurement
and development, internal resource requirements and system maintenance),
benefits (such as revenue generation and productivity) and timing;
- customize repeatable components from our prior solutions and develop
specialty applications to suit our client's particular needs;
- develop a deployment impact strategy that outlines key processes, tasks,
communications, coordination and logistical elements for enterprise-wide
deployment with minimal disruption to the organization;
- test all systems hardware and software components, system integration and
capacity against specifications; and
- establish communications channels to support deployment and
administration of our solutions.
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eBusiness Information Technology Infrastructure. We engineer, build and
manage the information technology infrastructure necessary for eBusiness. To
support eBusiness, an information technology infrastructure must allow data from
a variety of disparate internal and external data environments to flow
seamlessly throughout an organization, its supply chain and its customer base.
To accomplish this, we have customized what we determined to be best-in-class
third party commercial software packages to create our proprietary Energy
Network Object Model and our Asset Object Model -- the backbone of our clients'
information technology infrastructures. These components provide standard,
repeatable procedures to move interrelated but isolated data from different
databases to support common energy delivery and asset management applications
such as permitting, public records management, outage and distribution
management and mobile dispatch and field service. By providing real-time access
to the data our clients' employees need to perform their functions, these
components eliminate the need to manually coordinate interrelated functions
before performing work or delivering services, resulting in quicker customer and
constituent response times. As we build and integrate the information technology
infrastructure around our object models, we license our repeatable components to
our clients and design and write specialty applications software programs for
them. These programs are intended to enhance the capabilities of third party
commercial software and integrate this software into the network environment.
We provide comprehensive data management services at this phase of the
eBusiness transformation process. We analyze an organization's data resources to
determine whether they will be sufficient to support the organization's
eBusiness requirements. Due to similar data requirements among clients within
the same industry, if a particular client requires additional data sourcing, we
can generally license data model components we have developed from prior
projects. We also offer data migration services to integrate data into our
network environment, and perform data integrity and acceptance testing to verify
that all data performs as intended within this environment.
eBusiness Process Integration. Our goals for this phase of the eBusiness
transformation process are to customize our repeatable solutions to meet our
clients' specific needs and to focus our clients on how they can best use their
new information technology resources to provide real-time information to
internal decision makers, business partners, customers and constituents. Our
Model Office is a working, integrated model of our solution based on best
practices and processes we have developed from hundreds of prior projects.
Working with the Model Office helps initiate an interactive process with us and
allows our clients to experiment with working solutions adopted by their
industry peers. This interaction allows us to perform what we call "gap
analysis" on two distinct but related levels. At the technology and systems
architecture level, we can identify gaps between the functionality provided by
our pre-packaged solution and our clients' requirements. As we identify these
gaps, we engineer, build, test and implement the additional features, components
and functionalities we need to complete our clients' solutions. To do so, we
combine third party hardware and software with our internally developed software
applications.
At the strategic level, we help our clients to understand the wider
organizational and cultural implications of their new technology systems as
these systems simplify, automate and expand current business processes. As our
clients identify these wider implications, we use our extensive industry
expertise to help our clients redesign their business processes to adapt to an
eBusiness environment and to prepare individuals within their organization for
this transformation. Gap analysis is a dynamic process -- as we redesign a
client's information technology infrastructure, organizations need new business
processes to use this technology, and as we redesign business processes, clients
identify new technology requirements.
Deployment. Our goal for the deployment phase is to transition our solution
from testing to implementation with minimal disruption to our client's
organization. This "change over" process requires extensive component,
integration and systems testing and application development to verify that the
solution conforms to design specifications and our client's business needs. We
provide system documentation and establish communications channels to support
deployment and administration of our solutions. Our training services teach
individuals to use their new information technology resources as intended.
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Exploiting the Digital Enterprise. We develop Internet, intranet and
extranet-based applications that allow decision makers, business partners,
suppliers and customers or constituents to exploit their greater access to
enterprise-wide, real-time data, including:
- intranet-based solutions that allow our clients to develop management
decision support tools that can capture and analyze data from a broader
variety of sources within the organization;
- extranet-based solutions that provide organizations and their business
partners and suppliers with automated, secure communications and
transactions systems that can replace paper-based ordering, invoicing and
billing processes and telephone-based sales support; and
- Internet-based solutions that expedite service delivery, such as
self-application and scheduling of services, provide online customer
service, such as outage and permit approval status updates, capture user
information to evaluate cross-selling opportunities and create positive
user experiences that enhance customer satisfaction.
We have recently introduced a variety of customer relationship management
programs and applications for the digital enterprise, such as:
- Internet-based customer care and customer interaction applications that
integrate voice, text and video-based customer data to supplement
traditional customer call center resources. We intend to develop and
write the integration software needed to support these applications and
integrate them with the client's database;
- Internet, intranet and extranet-based field sales automation applications
such as customer contact management applications. These applications will
allow sales and account managers to update customer information remotely
and give them and their entire sales teams access to real-time customer
information; and
- Internet, intranet and extranet-based integrated customer and market
intelligence applications designed to enable sales and account managers
to perform target marketing, identify cross-selling opportunities and
manage customer relationships.
We also conduct digital economy workshops that allow our clients to learn
how their industry peers are utilizing their information technology resources to
improve their business processes and expand their business opportunities.
SELECTED SERVICES
To help our clients build their digital enterprises, we offer the following
services:
- Program Management. These services provide standards and parameters to
control project quality, scope, schedule and cost. As part of our program
management service, we provide a detailed, written scope of work for all
project activities which formalizes acceptance of project scope and
controls changes to project scope.
- Business Process and Workflow Redesign. Through process and workflow
redesign workshops, we identify functional workflow diagrams and
associated system requirements for optimal system performance. We also
provide change management planning and communications planning to ensure
acceptance of new process design.
- Strategic Technology Consulting. We develop a phased IT implementation
solutions plan that gives our clients a detailed roadmap for rollout of
technological components. To do so, we assess how existing technologies
support future business visions and drivers and develop a schedule for
synchronizing system software implementation with infrastructure
technology deployment.
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- Database Modeling. We design a database model to address the required
functionality for our client's systems, transform the model into a
physical representation of the data and then create and configure the
client's database according to the data model requirements.
- Solutions Testing and Quality Assurance. We develop plans for and conduct
requirements validation, design review, code review, unit testing, system
testing, integration testing, regression testing, acceptance testing and
operational testing.
- Solutions Deployment. We develop a work process cut-over plan to ease
transition to the new system. This plan includes identification of new
roles and tasks within normal workflows that support new operations
processes and a strategy for transitioning new processes around
third-party relationships. We also develop a deployment impact strategy
to outline the necessary processes, tasks, communication, coordination
and logistical elements for a successful implementation.
- Solutions Training. We develop detailed plans for custom on-site
training, role-specific training, simulated use case scenarios and
self-guided, computer-based training, all intended to help system users
understand how the new system affects and can improve their work
processes.
- Operational Support. We provide a dual support environment at the client
site and through our Denver-based help desk and develop a client support
plan and problem reporting procedures. We also provide network
performance and monitoring support.
- Applications Hosting. In collaboration with our business partners, we
offer application hosting services and comprehensive agency services,
including ISP branding.
REPEATABLE SOFTWARE COMPONENT LIBRARY
We have developed an information technology infrastructure that supports
our internal computer network, Web site, intranet and extranet. A key component
of our knowledge base is a workbench of reusable software objects, templates and
frameworks from our client engagements which continues to grow as we complete
additional projects. This knowledge base, which enables us to reuse our
accumulated experience, is a critical resource for both our software engineers
and project managers. This real-time access to information enables our software
engineers to condense the delivery time and to mitigate the potential problems
of a project by identifying those techniques, components, technologies and
methodologies that have been successfully employed in similar systems. In
addition, by providing information on project progress and client needs, the
knowledge base helps project managers prepare for client meetings and project
reviews. Access to this resource is available to all of our employees through
our corporate intranet.
Although we own the majority of the intellectual property that we develop,
some of our contracts grant to our client the rights to specific portions of the
intellectual property developed in the course of that client's project. As a
result, in order to use that intellectual property in future engagements we must
license it back from the client.
We continually evaluate new products to identify advanced technologies and
disseminate this information throughout our company. We believe that our
technology commitment allows our software engineers to employ the latest proven
software engineering tools, multi-tier systems and frameworks. By pre-screening
all of our tools and technologies, we are able to design advanced systems and
consistently deliver proven results on critical business projects. Our
technology professionals have industry leading experience in technologies
including XML, Java, C++, Internet application servers, Distributed Objects
including CORBA and DCom, and Relational and Object Database Management Systems.
CLIENTS
We target medium-sized and large organizations within the utilities and
local governments markets. For example, within the local government market, we
target cities with a population of at least 75,000 residents and counties with a
population of at least 100,000 residents. In the utility market, we
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target utilities serving between 250,000 and 2 million utility customers. As of
December 31, 1999, we had approximately 60 ongoing client engagements. In 1997,
our five largest clients accounted for approximately 54% of our revenues, with
Cinergy Corp. accounting for 15%, Alliant Energy Corp. accounting for 14% and
Tucson Electric Power accounting for 10% of our revenues. In 1998, our five
largest clients accounted for approximately 59% of our revenues, with Cinergy
accounting for 20%, Alliant accounting for 16% and Citizens Utilities Company
accounting for 11% of our revenues. In 1999, our five largest clients accounted
for approximately 49% of our revenues, with Cinergy accounting for 18% and each
of Alliant and Citizens Utilities accounting for 9% of our revenues. At the
present time, we continue to provide services to each of Cinergy, Alliant and
Citizens Utilities. Our current contract with Cinergy runs through June 30,
2001; our current contract with Alliant runs through May 31, 2000; and our
current contract with Citizens Utilities runs through April 30, 2001.
Historically, we have derived the majority of our revenues from our utility
clients, and approximately 84% of our total revenues in 1997 and 78% of our
total revenues in each of 1998 and 1999 were derived from contracts with our
utility clients. As a company, we have completed over 270 information technology
and systems integration engagements during the last five years, each of which
generated over $100,000 dollars in revenue.
We typically enter into fixed-price arrangements with our clients and we
plan to continue to do so in the future. These arrangements are generally
comprised of two components: a fixed price component covering initial design,
installation and maintenance services and an estimated price component covering
optional services which may be purchased by the client after the initial phase
has been completed. Substantially all of our contracts with our utility and
local government clients are terminable by our clients for convenience and upon
short notice, generally 30 days or less.
In 1999, our ten largest clients in each of our utility and local
government markets, by revenue, were:
UTILITIES
Alliant Energy Corporation
Austin Energy
Central Illinois Light Company
Cinergy Corp.
Citizens Gas & Coke Utility
Citizens Utilities Company
Kentucky Utilities
Ontario Hydro
Piedmont Natural Gas Company
SIGCORP, Inc. (Southern Indiana Gas Corporation)
LOCAL GOVERNMENTS
City of Auckland (New Zealand)
City of Columbus (Ohio)
City of Indianapolis (Indiana)
City of Mesa (Arizona)
City of Portland (Oregon)
City of Tallahassee (Florida)
Denver Water Board (Colorado)
Eagle County (Colorado)
Grand Valley Metropolitan Council/REGIS
project (Michigan)
Mecklenburg County (North Carolina)
The following table sets forth information regarding the geographic source
of our revenues as a percent of total revenue for each of the last three fiscal
years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
GEOGRAPHIC SOURCE 1997 1998 1999
----------------- ----- ----- -----
<S> <C> <C> <C>
United States............................................... 90.0% 97.0% 92.0%
Europe...................................................... 7.0 2.0 0.4
Canada...................................................... 3.0 1.0 6.3
Other....................................................... -- -- 1.3
Total............................................. 100% 100% 100%
</TABLE>
SELECTED CLIENT CASE STUDIES
The following case studies provide examples of the services we provide to
our clients.
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Cinergy
Client: Cinergy Corp., created in 1994 through the merger of The Cincinnati
Gas & Electric Co., PSI Energy, Inc., The Union Light, Heat and Power Co. and
Lawrenceburg Gas Co., is one of the nation's largest diversified energy
companies. Its utility subsidiaries serve more than 1.4 million electric and
470,000 gas customers in Ohio, Indiana and Kentucky. Cinergy's international
business unit, Cinergy Global Resources, has assets in power generation,
transmission and distribution projects in the Czech Republic, Spain, the United
Kingdom, Zambia, Bangladesh, Estonia and the United States.
Challenge: Faced with combining the operations of the merged utility
companies and preparing for a highly competitive deregulated business
environment, Cinergy sought a business solution which would enhance customer
service, reduce operations and maintenance costs and improve the productivity
and effectiveness of its work force.
Solution: We are delivering a mission-critical application initiative
called EDSIP, an acronym for Energy Delivery Systems Integration Program for
Cinergy's United States operations. EDSIP is designed to support streamlined
post-merger work processes and integrate and consolidate more than 40 previously
disparate information systems used by Cinergy's Energy Delivery business unit.
As Cinergy developed the vision and strategic plan for EDSIP, we conducted a
needs analysis and technical gap analysis, and developed and deployed a
technology implementation plan. The EDSIP initiative includes a geographic
information system, a work management system, a resource allocation/computer
aided dispatch system, a trouble call/outage management system, an energy
delivery asset system and a distribution planning system. Beginning with a
consulting assignment in 1996, we have developed a strategic systems
implementation plan for Cinergy that has led to a multi-year, multi-million
dollar engagement.
As a result of the success of the EDSIP project, we have contracted with
Cinergy to create a strategic technology deployment plan to help Cinergy compete
effectively in the Internet and deregulated utility economy. This engagement
addresses high priority initiatives that are designed to provide Cinergy with an
additional competitive advantage in a 6 to 12 month timeframe, and enable
Cinergy to develop scaleable eBusiness applications to respond to rapid business
changes over the next 2 to 5 years.
Impact. The EDSIP project has eliminated multiple visits to job sites and
reduced service delivery times. The integrated solution has enabled
multi-tasking of the workforce and a decrease in job specialization. Information
technology support costs have been reduced through the replacement of over 30
software packages with five integrated technologies. An EDSIP business case,
which we developed jointly with Cinergy, projects substantial cost savings
through a combination of work consolidation, reduction in overtime pay and paper
processing, and improved productivity through cycle time reduction.
Alliant
Client: Alliant Energy Corporation was formed in 1997 through the merger of
IES Industries Inc., Interstate Power Co. and WPL Holdings, Inc. Through its
utility subsidiaries, Alliant provides electric, natural gas, water and steam
energy to more than one million customers in Iowa, Illinois, Minnesota and
Wisconsin. Anticipating progressive deregulation and enhanced competition,
Alliant has taken steps to position itself for continued growth and sustainable
long-term shareholder value, including the formation of Alliant Corporate
Services, Inc., which provides services to all the companies within the Alliant
family.
Challenge: Alliant's primary business challenge was to integrate three
separate business processes into one and to position the merged enterprise to
compete in a rapidly changing deregulated business environment.
Solution: We implemented a process improvement program called Vision
IMPACT. The project involved the design and deployment of an integrated
technology architecture to support energy delivery process redesign objectives.
Vision IMPACT integrates four major new information systems that support
distribution operations: outage management, work management, mobile work force
management/dispatch and geographic information management. Vision IMPACT also
integrates these new distribution operations
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systems with the legacy systems of each of the pre-merger companies, including
the materials management system, customer information system, system planning
and property accounting system.
Prior to the formation of Alliant, we were consulting with IES Industries
to develop its strategic systems integration plan. During and after the project,
Alliant retained Convergent Group to develop a strategy to integrate information
technology systems from the merger partners to support combined business
processes. Our IES Vision IMPACT project was a multi-year contract for a scope
of work in excess of $15 million. Our successful partnership with IES has
resulted in additional post-merger follow-on contracts with Wisconsin Power and
Light Company and Interstate Power Co. for a scope of work in excess of $6
million.
Impact: The Vision IMPACT integrated technologies were designed to provide
Alliant staff rapid access to the data and tools they need to respond more
efficiently to emergencies, answer customers' inquiries with more accurate and
timely information, eliminate work order backlog and increase employee safety.
Benefits include the ability to make real-time customer appointment commitments
and conduct automated energy outage analysis. In addition, information via
computer-aided dispatch with in-truck mobile data terminals for rapid customer
responses is now available.
City of Indianapolis/Marion County
Client: The joint City of Indianapolis/Marion County, Indiana government,
representing a population in excess of 1.0 million, embarked on an ambitious
effort to re-engineer and fully automate their core business processes in order
to serve their constituents in both the public and private sectors.
Challenge: The City/County needed to find a system that would lead to a
Web-based solution and would enable the public, developers and contractors to
more effectively and efficiently conduct business in Indianapolis. Permit and
inspection operations are information intensive. Developers, contractors and
others submit plans and application documents that must be examined,
distributed, approved and archived by city and county staff members.
Complicating matters was the fact that information required by these
constituents was stored at multiple locations and in multiple formats. Such
processes often required months of submissions, resubmissions, rescheduled
appointments and downtime.
Solution: After conducting a review of current business processes, we
embarked on a six-year, $18 million partial outsourcing initiative designed to
bring critical city and county property data and government-provided services to
the desktops of the city's and county's employees and their local constituents
through solutions that are a piece of our "Government Gateway." In order to
provide a comprehensive solution which would enable the City/County to
streamline processes that impact the public, developers and contractors in
Indianapolis, we developed a technology infrastructure and Web-based
applications to deliver the right information to the right people at the right
time.
The integrated systems use a geographic information system (GIS) as a
central data hub. The system's data model links key operations to a specific
property, infrastructure or facility, and employees can use their desktop
computer to view accurate, updated information over the network and respond to
citizen or developer inquiries in real-time.
Impact: Two project application examples illustrate the business value we
have delivered:
- A "snowfighter" application can track the locations of snow plows,
determine optimal snow plow routes, issue work orders, calculate the cost
to clear city streets and create up-to-the-minute maps showing which
routes have been cleared most recently. The system can also be used to
answer inquiries from the public, such as the status of snow clearing
procedures in specific neighborhoods, and the information tracked by the
system will eventually be available to the public via the Internet.
- An integrated permitting application aimed at improving customer service
in one of the city's most visible areas improves efficiency, reduces
paperwork and cuts the waiting time for customers by as much as half as a
result of the ability to file, obtain, review and approve permit
applications electronically. This project now makes it possible to
complete an entirely Web-based system.
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<PAGE> 49
We have also deployed tools which maintain, analyze and report critical
data required by city and county organizations and provide enhanced data access
by both the general public and business communities. The system will ultimately
make it possible to provide information access to citizens of the city and
county via personal Web access or kiosks located in public buildings. Access to
the information will be delivered through Internet connections, thereby
providing a "Government Gateway" to a vast array of city and county information
and services.
Grand Valley Metropolitan Council/REGIS Agency
Client: The Grand Valley Metropolitan Council is a forum for the local
governments of 21 towns and counties in western Michigan, representing a
population in excess of one million, to discuss and collaborate on issues of
mutual interest. In 1996 the Council formed the Regional Geographic Information
System (GIS)/Regis agency, and with the assistance of Convergent Group created a
plan to develop one of the largest regional geographic information systems in
the country.
Challenge: The primary challenges faced by the Council were to eliminate
the inefficiencies surrounding the search for government information and to
eliminate the redundant procedures used to process and record map-related data
within the 21 government organizations.
Solution: We were initially engaged to develop a prototype application
system covering a limited geographical area. This prototype would demonstrate
how this system could satisfy the integrated data management needs of a number
of government entities and personnel, including planning and development
departments, utilities (including water, sanitary sewer, storm sewer and
electric), assessors, public safety officials, parks and recreation employees,
clerks, engineers, and zoning planners.
After testing the prototype, the Council engaged us for a multi-year $7
million contract to develop the system for the entire 865-square-mile region.
When this system becomes fully operational in 2002, the network will have 15 to
20 servers and 300 to 500 workstations for accessing an integrated database of
geographic-based information. In addition, the Council has selected us to
implement a $5 million property tax administration system to reengineer the
processes by which property taxes are collected, administered and distributed
within 33 cities and townships in Kent County.
Impact: The system will enable government employees to work more
efficiently and to cooperate with each other on regional transportation and
planning projects. The system also enables standard data submission from
contractors, eliminates redundant data entry and decreases public request
response time. The system's cost-benefit estimate, developed jointly by
Convergent Group and the Council, projects substantial cost savings over the
next 15 years.
SALES AND MARKETING
We employ a team selling approach in which each member of our project team
treats each meeting with clients as an opportunity to showcase the full range of
services we offer. Project team members collaborate with business unit
professionals and management to identify prospects, conduct sales and manage
client relationships. Our sales teams' extensive industry contacts allow us to
generate sales leads at the highest management and information technology
decision-making levels. Our industry expertise allows us to generate sole source
sales opportunities in which clients approach us to define a solution for them
rather than inviting us to submit proposals to implement solutions they
developed themselves.
We generate substantial sole source repeat business from existing clients
who want to expand on prior service offerings and projects. To help develop this
potential, we assign senior executives to support and expand client
relationships. Existing clients are also a valuable sales channel for new
business. To expand our client base and develop awareness of our Digital Utility
and Government Gateway service offerings, we participate in industry trade
shows, publish industry specific articles and books authored by our senior
executives and market information about our services directly to senior
management and information technology executives at utilities and public sector
organizations. We recently launched an industry wide marketing campaign to
promote awareness of our Digital Utility and Government Gateway solutions.
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<PAGE> 50
COMPETITION
Although the market for eBusiness solutions is relatively new, it is
already highly competitive, and we often compete with the in-house technical
staff of our prospective clients. In addition, the market reflects an increasing
number of entrants that have introduced or developed products and services
similar to ours. Our target markets are rapidly evolving and are subject to
continuous technological change.
We compete on the basis of a number of factors, including the following:
- vertical industry knowledge;
- integrated strategy, technology and systems architectural design
services;
- technological innovation;
- quality, pricing and speed of service delivery; and
- understanding clients' strategies and needs.
We believe that we compete favorably in each of these areas and that our
client references, in-depth industry and business domain subject matter
expertise and repeatable, industry proven solutions, supported by our Model
Office, give us a competitive advantage over our potential competitors.
Nevertheless, existing or future competitors may develop or offer strategic
Internet services that provide significant technological, creative, performance,
price or other advantages over the services offered by us. See "Risk Factors --
Competition from bigger, more established competitors who have greater financial
resources could result in price reductions, reduced profitability and loss of
market share."
Current and potential competitors include:
- Internet service firms such as AGENCY.COM, C-bridge Internet Solutions,
Inc., iXL Enterprises, Inc., Modem Media.Poppe Tyson, Proxicom, Inc.,
Razorfish, Inc., Sapient Corp., Scient Corp., MarchFirst (formerly
Whitman-Hart) and Viant Corp.;
- systems integration firms such as Andersen Consulting, Cambridge
Technology Partners, Cap Gemini, Electronic Data Systems Corporation,
Navigant Consulting, Logica, SAIC, SAP Business Partners and WM-Data;
- management consulting firms such as Arthur D. Little, Boston Consulting
Group, Inc., McKinsey & Company and the consulting arms of the Big 5
accounting firms; and
- software and hardware vendors such as Hewlett-Packard, IBM and Oracle.
PEOPLE AND CULTURE
Professional Environment. Our success depends in substantial part upon our
ability to recruit, develop and retain strong technical professionals with deep
subject matter expertise within our core markets. We believe that the
combination of our fast-paced, entrepreneurial corporate culture, technically
challenging project work and our competitive compensation and incentive programs
will allow us to continue to attract world class professionals.
Employee Acquisition. Our recruitment efforts are central to our ability to
provide outstanding customer service to our clients. Our recruiting initiatives
include a significant employee referral program, direct recruitment, use of
third party vendors, Internet recruitment tools and campus recruitment. We
believe the uniqueness of our technology and our depth in our industries, as
well as our dynamic corporate culture, will continue to allow us to attract high
caliber employees.
Professional Development. We believe that providing our professionals with
challenging client assignments in conjunction with our more formal learning
initiatives, together with access to developing technologies, keeps our
employees on the cutting edge of technology. Our new employee programs allow new
hires to assimilate quickly into the Convergent culture and make an immediate
impact on our clients.
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<PAGE> 51
Each of our professionals has a formal development plan that is reviewed
annually. This plan includes both technical and management development learning
to ensure that we are developing the future management of our company.
Culture. We have a fast paced, entrepreneurial, intellectual culture which
reflects the core values of our founders. This continues to be very attractive
to the high caliber technical talent we seek. Our incentive programs tie
directly to achievement of annual individual and team objectives as well as to
corporate financial goals.
As of December 31, 1999, we had a total of 243 employees, including 167
technical professional services personnel and 76 marketing, sales and general
administration personnel. None of our employees are represented by labor unions,
and we consider our employee relations to be good.
INTELLECTUAL PROPERTY
Our success depends upon our proprietary components, frameworks,
methodologies and other intellectual property rights. We rely upon a combination
of trade secret, nondisclosure and other contractual arrangements, and copyright
and trademark laws, to protect our proprietary rights. None of our business
processes, applications or solutions are patented. We require all personnel to
enter into confidentiality agreements. We also generally require that our
consultants and clients enter into confidentiality agreements and we limit
access to and distribution of our proprietary information. If we fail to
adequately protect our intellectual property rights and proprietary information
or if we become involved in litigation relating to our intellectual property
rights and proprietary technology, our business could be harmed. Any actions we
take may be inadequate to protect our intellectual proprietary rights and other
companies may develop technologies that are similar or superior to our
proprietary technology.
Our business generally involves the development of software applications
for specific client engagements. We also develop software application
frameworks. It is our strategy to retain significant ownership and marketing
rights to these software applications and application frameworks and to
incorporate any modifications to these frameworks into our repeatable solutions
package, which we then market and adapt through further customization for future
client projects. Although we believe that our products and services do not
infringe on the intellectual property rights of others and that we have all
rights needed to use the intellectual property employed in our business, we
could become subject to claims alleging infringement of third party intellectual
property rights in the future. Any intellectual property infringement claims
could subject us to costly litigation and may require us to pay damages and
develop non-infringing intellectual property or acquire licenses to the related
intellectual property, potentially at substantial cost.
PROPERTY/FACILITIES
We currently lease approximately 73,000 square feet of space at our
headquarters in Englewood, Colorado under a lease that expires in September,
2009. We also maintain sales offices in Boston, Massachusetts; London, England
and Brisbane, Australia. We believe that we will be able to obtain additional
space on an as-needed basis at commercially reasonable rates.
LITIGATION
We are not a party to any lawsuit or proceeding that, in the opinion of our
management, is likely to harm our business.
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<PAGE> 52
MANAGEMENT
The following table sets forth our directors, executive officers, their
ages and the positions held by them with us as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Glenn E. Montgomery, Jr.(1)............... 48 Chairman, Chief Executive Officer and
President
Scott M. Schley(2)........................ 42 Executive Vice President, Finance,
Treasurer and Director
John A. Ramseur........................... 60 Executive Vice President, Corporate
Development
Larry J. Engelken......................... 50 Executive Vice President, Global Sales and
Secretary
Mark Shirman.............................. 41 Executive Vice President and Chief
Technology Officer
Bryan R. Mileger.......................... 39 Chief Financial Officer
Robert Sharpe(1)(2)....................... 56 Director
Jerry Murdock(1).......................... 41 Director
John W. Blend III(2)...................... 54 Director
</TABLE>
- ---------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
GLENN E. MONTGOMERY, JR., a founding partner of Convergent Group, has been
the Chairman of our Board of Directors and our President and Chief Executive
Officer since 1994. He had been President and Chief Executive Officer of
Convergent Group's predecessor, UGC Consulting, since 1985. Prior to joining UGC
Consulting, he served from 1982 to 1985 as an executive consultant with Kellogg
Corporation, an engineering management consulting firm. From 1977 to 1982, Mr.
Montgomery served as a projects director with MSE Corporation, a consulting and
engineering company, providing consulting, project planning, and management
expertise to GIS and land-related information system projects. Mr. Montgomery
holds both an M.S.E.S. degree in technology assessment from the School of
Environmental Affairs and a B.A. in computer mapping and geography from Indiana
University.
SCOTT M. SCHLEY has been Executive Vice President of Finance of Convergent
Group since February 2000, Treasurer since 1994 and a director since August
1999. From 1994 to February 2000, Mr. Schley also served as Chief Financial
Officer of Convergent Group. Prior to joining Convergent Group, he served as
Chief Financial Officer and Executive Vice President of Operations for the John
Madden Company, a commercial real estate developer, which he joined after
spending five years with a national public accounting firm. He holds a B.S. in
business administration and accounting from Colorado State University.
JOHN A. RAMSEUR has been Executive Vice President of Corporate Development
of Convergent Group since 1998, and is responsible for the development and
implementation of corporate growth, expansion and marketing strategies. Mr.
Ramseur joined Convergent Group in 1989 to lead a long-term consulting
assignment for IBM. He left in 1993 to become President of Smallworld, North
America, a software company, and after their initial public offering in 1997 he
returned to Convergent Group. He served as Chief Marketing Officer of Synercom
Technology, a software company, from 1983 until their initial public offering in
1986. Prior to joining Synercom, Mr. Ramseur was President of Utility Data
Corporation, a data services company.
LARRY J. ENGELKEN, a founding partner of Convergent Group, has been our
Executive Vice President -- Global Sales since 1997, and is responsible for
executive leadership of our sales, account development and account management
activities. Prior to founding Convergent Group in 1985, Mr. Engelken worked at
two global engineering design and construction services firms, as well as being
a Director and Executive Vice President of EGT, Inc., a data conversion services
and GIS application
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<PAGE> 53
software company. He is past president of the Geospatial Information &
Technology Association (GITA). Mr. Engelken holds a B.S. degree in electrical
engineering from Kansas State University.
MARK SHIRMAN has been our Chief Technical Officer since October 1999. Prior
to joining Convergent Group, he was responsible for the Customer Relationship
Management and Interactive Web Services Solutions practices of Cambridge
Technology Partners. Before joining Cambridge Technology Partners in 1997, Mr.
Shirman served as Vice President of BSG, a global systems integration company,
where he managed product development and marketing. Prior to joining BSG in
1995, Mr. Shirman founded Innovative Information Systems, Inc., a client/server
integrator specializing in application development, network systems and
mainframe alternatives, and served as its Chief Executive Officer. Previously,
Mr. Shirman was with Andersen Consulting, where he served as a consultant. Mr.
Shirman holds an M.B.A. in finance from American University and a B.A. in
economics from Brandeis University.
BRYAN R. MILEGER joined Convergent Group in January 2000 and has been our
Chief Financial Officer since February 2000. Prior to joining Convergent Group,
he served as Director of Corporate Acquisitions and Alliances with Electronic
Data Systems Corporation. Mr. Mileger has worked in various capacities with
Electronic Data Systems during the past fifteen years, including in its Treasury
Department. Mr. Mileger holds an M.B.A. from Baylor University and a B.B.A. in
accounting from Abilene Christian University.
ROBERT SHARPE has been a director of Convergent Group since May 1998. In
1999, he retired from Electronic Data Systems Corporation, where he served in
various capacities from 1972 until his retirement, most recently as Corporate
Vice President responsible for EDS' corporate global pursuit team. Prior to his
position with the global pursuit team, Mr. Sharpe was in charge of North
American and international business development for EDS. Mr. Sharpe was named
Corporate Vice President in 1982, and during his tenure with EDS he also managed
the Industrial Division, Finance and Industrial Group, General Motors Operations
Group and Financial and Commercial Group. Mr. Sharpe has a B.S. in marketing and
management from the University of Illinois.
JERRY MURDOCK has been a director of Convergent Group since August, 1999.
He co-founded InSight Capital Partners in 1995 and is a general partner of the
firm. Mr. Murdock was formerly the managing general partner of the Aspen
Technology Group, a consulting firm which he founded in 1987. He was a
consultant to E.M. Warburg Pincus from 1989 to 1995. Mr. Murdock is a director
of Quest Software, Click Interactive, Hologix, MediaPassage, STC and
WarrantyCheck.com. He graduated from San Diego State University with a B.A. in
political science.
JOHN W. BLEND III has been a director of Convergent Group since August
1999. He currently consults with InSight Capital Partners and serves on the
boards of directors of a number of utility related technology companies. From
1985 to 1997, Mr. Blend served as President of Worldwide Sales and Marketing and
Director for Indus International, an enterprise asset management solutions
company. Mr. Blend has a B.A. in social sciences from Muhlenberg College.
Officers of Convergent Group serve at the discretion of the board of
directors and hold office until their successors are duly elected and qualified
or until their earlier resignation or removal. There are no family relationships
among any of our directors or executive officers.
DIRECTORS' TERMS
Upon completion of this offering, our board of directors will be divided
into three classes that serve staggered three-year terms, as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION BOARD MEMBER
- ----- ---------- ------------
<S> <C> <C>
Class I...................................... 2001 Scott M. Schley
Class II..................................... 2002 John Blend III, Robert Sharpe
Class III.................................... 2003 Glenn E. Montgomery, Jr.,
Jerry Murdock
</TABLE>
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<PAGE> 54
As a result, approximately one-third of our board of directors will be
elected each year. Each director will hold office until the appropriate annual
meeting of stockholders, as determined by the year of the director's election to
the board of directors, and until his or her successor has been duly elected and
qualified.
Pursuant to our Stockholders' Agreement, dated as of August 13, 1999, our
board of directors consists of five directors, two of whom, Messrs. Montgomery
and Schley, were designated and approved by a majority of the holders of our
common stock ("Company Shareholder Directors"); two of whom, Messrs. Murdock and
Blend, were designated and approved by 75% of the investors in our 1999
recapitalization ("Investor Directors"); and one of whom, Mr. Sharpe, was
designated and approved by the Company Shareholder Directors and the Investor
Directors. The Stockholders' Agreement will terminate upon the consummation of
this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has a compensation committee and an audit committee.
The compensation committee evaluates our compensation policies, determines
compensation for our executive officers and administers our stock option plans.
The members of the compensation committee are Glenn E. Montgomery, Jr., Robert
Sharpe and Jerry Murdock. The audit committee provides assistance to the board
in fulfilling its legal and fiduciary obligations in matters involving our
accounting, auditing, financial reporting, internal control and legal compliance
functions. The audit committee overseas the audit efforts of our independent
accountants, and takes those actions it may deem necessary to satisfy itself
that the auditors are independent of management. Prior to this offering, the
audit committee consisted of John Blend III, Robert Sharpe and Scott M. Schley.
Effective upon consummation of this offering, the audit committee will consist
of .
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for serving as directors. We
pay all reasonable expenses incurred by our directors, including legal and
travel expenses, in connection with the performance of their duties as members
of our board of directors, including expenses incurred as a result of attending
meetings of the board of directors and of any committees thereof. However, in
its discretion, the board of directors in the future may determine to pay
directors a fixed fee for serving as a director and/or a fixed fee for
attendance at each meeting of the board of directors or a committee of the
board. Directors are also eligible to participate in our stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to our recapitalization in August 1999, the compensation committee
consisted of Mr. Montgomery and a former shareholder of our company. Since the
recapitalization, the compensation committee has been comprised of Messrs.
Montgomery, Murdock and Sharpe, and has been responsible for executive
compensation decisions. Mr. Montgomery is the President and Chief Executive
Officer of our Company, and Mr. Murdock is a general partner of InSight Capital
Partners III, L.P. which, together with its affiliates, is our largest single
stockholder. No executive officer of the Company has served as a director or
member of the compensation committee of any other entity whose executive
officers served as a director or member of our compensation committee.
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<PAGE> 55
EXECUTIVE COMPENSATION
The following table sets forth, in accordance with the rules of the
Securities and Exchange Commission, information for the fiscal year ended
December 31, 1999 concerning compensation paid to our Chief Executive Officer
and our four other most highly compensated executive officers whose salary and
bonus exceeded $100,000 in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
1999 COMPENSATION --------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS/SAR(#) COMPENSATION
--------------------------- -------- -------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Glenn E. Montgomery, Jr...... $256,580 $416,496 $1,482,360(2) 755,419(7) $1,305,383(3)(4)
Chairman, Chief Executive
Officer and President
Larry J. Engelken............ 256,580 422,821 1,482,360(2) -- 813,383(3)
Executive Vice President,
Global Sales
Mark L. Epstein.............. 256,580 422,821 1,482,360(2) -- 813,383(3)
Executive Vice President
Scott M. Schley.............. 154,250 62,400 536,827(2) -- 246,000(4)
Executive Vice President,
Finance and Treasurer(5)
John A. Ramseur.............. 126,280 50,000 76,471(6) 336,142(7) --
Executive Vice President,
Corporate Development
</TABLE>
- ---------------
(1) The value of perquisites and other personal benefits is not included in the
amounts disclosed because it did not exceed for any officer in the table
above the lesser of either $50,000 or 10% of the total annual salary and
bonus reported for the officer.
(2) Reflects the value of common stock granted to the named executive officer in
connection with the recapitalization.
(3) Reflects $813,383 for termination of the named officer's employment
agreement at time of recapitalization.
(4) Reflects $492,000 in the case of Mr. Montgomery and $246,000 in the case of
Mr. Schley and represents a finance fee paid in connection with the
recapitalization.
(5) Mr. Schley also served as Chief Financial Officer during 1999.
(6) Reflects the value of common stock granted to Mr. Ramseur prior to the
recapitalization and the value of common stock granted to Mr. Ramseur in
connection with the recapitalization.
(7) Mr. Ramseur's options were granted prior to the recapitalization and
exercised in connection with the recapitalization. Mr. Montgomery's options
were granted subsequent to the recapitalization.
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<PAGE> 56
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999
The following tables set forth information concerning grants to purchase
shares of our common stock to each of the officers named in the summary
compensation table above during the year ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------
NAME GRANTED 1999 SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Glenn E. Montgomery, Jr. ................ 755,419(1) 16.8 0.092 12/30/09 -- --
Larry J. Engelken........................ -- -- -- -- -- --
Mark L. Epstein.......................... -- -- -- -- -- --
Scott M. Schley.......................... -- -- -- -- -- --
John A. Ramseur(2)....................... 304,403 7.5 0.026 1/19/09 -- --
31,739 8/6/09
</TABLE>
- ---------------
(1) All options were immediately vested. Mr. Montgomery exercised these options
in January, 2000.
(2) All options which were granted prior to the recapitalization were exercised
in connection with the recapitalization. Mr. Ramseur sold 50% of the shares
he received on exercise in the recapitalization.
(3) These amounts represent hypothetical gains that could be achieved if the
respective options are exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration dates, based upon an assumed initial public offering price
of $13.00 per share. These assumptions are not intended to forecast future
appreciation of our stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of our common stock and
overall market conditions. The potential realizable value computation does
not take into account federal or state income tax consequences of option
exercises or sales of appreciated stock.
OPTION VALUES AS OF DECEMBER 31, 1999
The following table sets forth information concerning option exercises by
each of the officers named in the above summary compensation table.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
SHARES FISCAL YEAR-END YEAR-END(2)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn E. Montgomery,
Jr. .................. -- -- 755,419(1) -- -- --
Larry J. Engelken....... -- -- -- -- -- --
Mark L. Epstein......... -- -- -- -- -- --
Scott M. Schley......... -- -- -- -- -- --
John A. Ramseur......... 336,142(3) $76,471 -- -- -- --
</TABLE>
- ---------------
(1) Mr. Montgomery exercised these options in January, 2000.
(2) Based on an assumed initial public offering price of $13.00 per share, less
the exercise price, multiplied by the number of shares underlying the
option.
(3) Options were exercised in January and August.
STOCK OPTION PLANS
The board of directors adopted, and our stockholders approved, our 1999
stock option plan. The plan provides for the grant of (i) options that qualify
as incentive stock options within the meaning of Section 422(a) of the Internal
Revenue Code of 1986, as amended, to specific employees and (ii) nonqualified
stock options to specific employees (including directors and officers who are
our
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<PAGE> 57
employees), directors and consultants. The total number of shares of Common
Stock for which options may be granted under the stock option plan is 6,421,070
shares. As of March 31, 2000, options to purchase 4,595,156 shares were
outstanding and 1,075,365 shares had been issued upon exercise of options issued
under the plan. The stock option plan is administered by our compensation
committee, which determines to whom options are granted, the exercise prices,
number and other terms and conditions of exercise. The exercise price of
incentive stock options granted under the plan must be at least equal to the
fair market value of the shares on the date of grant, except that the exercise
price of any incentive stock option granted to any participant who owns stock
possessing more than 10% of the total combined voting power of our outstanding
capital stock must be at least equal to 110% of the fair market value of the
shares on the date of grant. The term of each incentive stock option granted
pursuant to the plan cannot exceed ten years, except that the term of any
incentive stock option granted to a participant who owns stock possessing more
than 10% of the total combined voting power of our outstanding capital stock or
any option granted to a non-employee director cannot exceed five years. The
exercise price of nonqualified stock options granted under the plan must not be
less than the par value of the shares subject to the option. No option granted
under the plan is transferable by the optionee other than by will or the laws of
descent and distribution and each option is exercisable during the lifetime of
the optionee only by the optionee. Options under the plan must either be
exercised during the term of the participant's employment with us, or during the
three-month period after the participant's date of termination if the
termination is other than for cause, unless the compensation committee extends
this period. All vesting of options ceases upon termination of employment, and
options are exercisable by a terminated employee only to the extent the options
were exercisable on the date of termination.
401(K) PLAN
Our 401(k) Plan is a defined contribution plan covering all full time
employees age 21 or older, and the plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974. Each year participants may
contribute up to 15% of their pretax annual compensation, up to a maximum of
$10,500. We match employee contributions dollar for dollar on the first 4% of
each employee's contribution and $0.50 on each dollar of the next 2%
contributed. Additional special amounts based on a percentage of compensation
and other discretionary amounts may be contributed at the option of our board of
directors. Contributions are subject to limitations specified by federal law.
The amounts of our contributions over the past five years are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1995..................................................... $232,000
1996..................................................... $198,000
1997..................................................... $397,000
1998..................................................... $656,000
1999..................................................... $878,000
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Montgomery is employed under an Employment Agreement that expires on
December 31, 2002, pursuant to which he was entitled to receive $200,000 in base
salary on an annual basis commencing August 15, 1999. Mr. Montgomery's base
salary for 2000 is $225,000, with an annual increase of $25,000 each year
thereafter. Mr. Montgomery received a performance bonus under his current
employment agreement for the period commencing August 15, 1999 through December
31, 1999 equal to $35,375. He is eligible to receive a maximum annual
performance bonus of up to $750,000 in 2000, $800,000 in 2001 and $825,000 in
2002, contingent upon our ability to exceed specific revenue, bookings and
EBITDA targets established by our board of directors. The bonus amount is
contingent upon the extent to which we meet or exceed the financial targets, and
in order for Mr. Montgomery to receive the maximum bonus amounts, we must exceed
the financial targets by 30%. Up to $333,333 of Mr. Montgomery's annual bonus
for these years is payable in the form of immediately exercisable stock options,
with an exercise price equal to 25% of the fair market value of our common stock
as of December 31 of that year. The
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<PAGE> 58
remainder of Mr. Montgomery's bonus is payable in cash. If Mr. Montgomery
terminates his employment with good reason, or if we terminate his employment
after a change of control, we will be required to purchase all shares of our
common stock owned by Mr. Montgomery at the time of his termination at their
then fair market value.
Mr. Engelken and Mr. Epstein are each employed under an Employment
Agreement that expires on December 31, 2002, pursuant to which each was entitled
to receive $200,000 in base salary on an annual basis commencing August 15,
1999. Each executive's base salary in 2000 is $210,000, and will increase 5% per
year over the previous year's salary each year thereafter. Each executive is
also eligible to receive an incentive bonus, the amount of which is targeted at
50% of each executive's base salary. Two-thirds of the incentive bonus is based
upon our attainment of targeted revenue goals, and one-third of the incentive
bonus is based upon our attainment of targeted margin goals. We must achieve
more than 90% of the targeted revenues or targeted margins, whichever is being
tested during the period in question, for a bonus to be paid with respect to
that component. To the extent either bonus amount exceeds 100% of that
component's target, one-third of the excess will be payable in cash, and
two-thirds will be payable by the issuance of Nonqualified Stock Options at a
per share exercise price equal to 25% of the fair market value of our common
stock as of December 31 of that year. Messrs. Engelken and Epstein each received
a bonus under their current employment agreements for the period commencing
August 15, 1999 through December 31, 1999 of $41,700.
Mr. Schley is employed under an Employment Agreement that expires on
December 31, 2000, pursuant to which he was entitled to receive $168,000 in base
salary on an annual basis commencing August 15, 1999. Mr. Schley received
$63,000 in 1999 under this agreement. Mr. Schley's base salary in 2000 is
$176,400, and will increase 5% per year over the previous year's salary each
year thereafter. Mr. Schley is eligible to receive an incentive bonus targeted
at 50% of his base salary. Two-thirds of the incentive bonus is based upon our
attainment of targeted EBITDA goals and one-third of the incentive bonus is
based upon our attainment of targeted margin goals. We must achieve more than
90% of the targeted revenues or targeted margins, whichever is being tested
during the period in question, for a bonus to be paid with respect to that
component. To the extent either bonus amount exceeds 100% of that component's
target, one-third of the excess will be payable in cash and two-thirds will be
payable by the issuance of Nonqualified Stock Options, at a per share exercise
price equal to 25% of the fair market value of our common stock as of December
31 of that year. Mr. Schley received a bonus for 1999 under his current
employment agreement of $62,400.
Mr. Mileger is employed under an Employment Agreement that expires on
January 31, 2003, pursuant to which he is entitled to receive $150,000 in base
salary in 2000. Mr. Mileger's salary will increase to $162,500 upon the date of
his relocation to Denver, Colorado. In addition, Mr. Mileger received a $100,000
advance against his incentive bonus earned for 2000. The amount of the advance
will be offset against the amount of his incentive bonus, if any, earned in
2000. The advance is payable in eleven monthly installments, provided Mr.
Mileger remains employed by us during that period. Mr. Mileger is eligible to
receive an incentive bonus targeted at 100% of his base salary. Payment of the
bonus is dependent upon the attainment of specific performance goals established
by Mr. Mileger and us. We must achieve 90% of these performance goals, and Mr.
Mileger must remain employed by us as of the last day of the year, in order for
Mr. Mileger to be eligible to receive the bonus payment.
Mr. Shirman is employed under an Employment Agreement that expires on
December 31, 2002, pursuant to which he currently receives an annual base salary
of $200,000. In addition to his base salary, Mr. Shirman received a $180,000
signing bonus, payable in equal monthly installments over the first 12 months of
his employment, provided Mr. Shirman remains employed by us during that period.
Mr. Shirman is also entitled to receive a cost of living adjustment. Commencing
October 1, 2000, Mr. Shirman will be eligible to receive an incentive bonus
based upon our attainment of specific performance goals established by Mr.
Shirman and us. Mr. Shirman was also granted options to purchase 394,708 shares
of our common stock at a per share exercise price of $0.092, of which 113,313
options were immediately exercisable. Mr. Shirman's unvested options will vest
based on his continued employment with us and our achievement of specific
performance goals. Mr. Shirman may, in his discretion, allocate
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<PAGE> 59
options to purchase an additional 57,017 shares of common stock among himself
and particular employees who report directly to him.
CERTAIN TRANSACTIONS
1999 RECAPITALIZATION
On August 13, 1999 we consummated a recapitalization pursuant to an
agreement among us, some of our then existing stockholders and investors led by
InSight Capital Partners III, L.P. and including UBS Capital II LLC and
affiliates of Goldman, Sachs & Co. In connection with the recapitalization, the
investors acquired an approximately 63% controlling interest in us through the
purchase of shares of a new series of our voting convertible participating
preferred stock for a total purchase price of approximately $45.5 million. As
part of the recapitalization:
- we entered into a $25.0 million revolving line of credit with Fleet
National Bank, of which $22.0 million was borrowed in order to finance
the recapitalization;
- all shares of our then outstanding preferred stock and all shares of
common stock owned by our two largest non-employee stockholders were
purchased for a total purchase price of approximately $44.3 million;
- our employee stockholders, including the persons named in the summary
compensation table, received cash payments totaling $11.8 million in
respect of the purchase of a portion of their equity interest in us;
- we made cash payments totaling approximately $5.4 million to members of
our senior management, including some of the persons named in the summary
compensation table, in connection with the termination of their former
employment agreements, as fees in connection with the recapitalization
and to satisfy previously deferred bonus obligations to them;
- we issued 10,516,424 shares of our common stock and options to purchase
694,506 shares of our common stock, at an exercise price of $0.092 per
share, to specific employees, including the persons named in the summary
compensation table, in consideration for their continued employment with
us; and
- we loaned $2.0 million to our Chief Executive Officer.
The following table sets forth the sources and uses of funds for the
Recapitalization.
SOURCES AND USES
(in thousands)
<TABLE>
<S> <C>
SOURCES:
Investor proceeds......................................... $45,546
Line of credit borrowings................................. 22,000
-------
Total sources..................................... $67,546
=======
USES:
Retirement of preferred shareholder and two largest
non-employee common shareholders....................... $44,265
Buyout of employment agreements........................... 2,440
Legal and other finance fees.............................. 1,356
Fees paid to employees.................................... 738
Payment of previously deferred bonuses.................... 2,236
Payments to employee stockholders......................... 11,766
Loan to Chief Executive Officer........................... 2,000
-------
Total uses........................................ $64,801
=======
Net proceeds...................................... $ 2,745
=======
</TABLE>
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Under the recapitalization agreement, we agreed to indemnify the investors,
in the form of cash, additional shares of our stock, or a combination of both,
for breaches of representations, warranties and covenants we made to them in
connection with their purchase of our capital stock, including representations
and warranties regarding our financial condition, our liabilities and our client
contracts, up to a maximum of $1.5 million in cash and $3.0 million in Series A
Preferred stock, valued at $1.08 per share. Most of the representations and
warranties under the recapitalization agreement survive until the first
anniversary of the recapitalization. The obligation to indemnify the investors
against environmental claims remains in effect until the seventh anniversary of
the closing of the recapitalization; the obligations to indemnify the investors
against tax-related and ERISA claims remain in effect until the expiration of
all applicable statutes of limitation; and the obligation to indemnify the
investors against claims made in connection with representations and warranties
relating to specific fundamental corporate matters, such as our organization,
our subsidiaries, our outstanding stock and specific corporate approvals,
remains in effect indefinitely. Also in connection with the recapitalization,
our continuing stockholders agreed to elect two designees of the investors,
currently Mr. John Blend III and Mr. Jerry Murdock, to serve on our board of
directors. This obligation to elect the designees of the investors will
terminate upon the closing of this offering.
INSIGHT CAPITAL PARTNERS TRANSACTION FEE
We agreed to pay InSight Capital Partners a one-time fee equal to one
percent (1%) of our market capitalization in our initial public offering, which
is payable in full upon the consummation of the public offering. Based on the
number of shares of common stock expected to be outstanding upon consummation of
this offering and assuming an initial public offering price of $13.00 per share,
the fee payable to InSight Capital Partners will be approximately $5.7 million.
In addition, we agreed to pay InSight Capital Partners a management fee
equal to $500,000 per year, for management and strategic advice rendered by
InSight Capital Partners throughout the year. As of December 31, 1999, we have
paid InSight $187,500 for their management and strategic advice. We will be
obligated to pay a pro-rata portion of the fee during 2000 until the
consummation of this offering, at which time our obligation to pay the fee will
terminate.
LOAN TO GLENN E. MONTGOMERY, JR.
On August 13, 1999, we extended a $2,000,000 loan to Glenn E. Montgomery,
Jr., evidenced by a promissory note. The interest rate on the loan is 5.9% per
annum, and Mr. Montgomery is required to make payments of principal and interest
to us in four equal installments of $652,685.27 on or before each of July 1,
2003, January 1, 2004, July 1, 2004 and August 13, 2004. Mr. Montgomery may
prepay the outstanding principal and accrued interest on the loan at any time
without penalty. If we experience a major capital event, including an initial
public offering, the entire unpaid principal amount and all accrued interest
under the loan shall immediately become due and payable. Mr. Montgomery will
repay this loan in connection with the consummation of the offering.
The loan to Mr. Montgomery is non-recourse. To secure the loan, Mr.
Montgomery executed a Stock Pledge Agreement whereby he pledged to us all shares
of our common stock then owned by him. In addition, Mr. Montgomery's obligations
under the promissory note were initially guaranteed on a non-recourse basis by
GMJM Stock Partnership, Ltd. GMJM's obligations under the guaranty are secured
by a pledge to us of all shares of our common stock owned by GMJM. The GMJM
guaranty and pledge were released in January 2000 in connection with the sale of
the shares owned by GMJM. In connection with the release of the GMJM guaranty
and pledge, Mr. Montgomery pledged additional shares of our common stock that he
acquired subsequent to the date of his original pledge.
1999/2000 ISSUANCE OF RESTRICTED STOCK TO CERTAIN DIRECTORS
On October 29, 1999 we issued 377,710 shares of common stock to each of
Robert Sharpe and John Blend III, members of our board of directors. The shares
vest at the rate of 47,213.5 shares per calendar
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quarter, effective on the last day of each quarter, commencing September 30,
1999. If either director's service as a member of our board is terminated,
either for cause or voluntarily by the director, all unvested shares are
immediately forfeited back to us. In the event of a termination of either
director's service on the board for any other reason, all unvested shares will
immediately vest.
STOCK SALE BY GLENN E. MONTGOMERY, JR.
Between January 15, 2000 and February 14, 2000, Glenn E. Montgomery, Jr.
sold 755,420 shares of preferred and common stock to three separate investor
groups. Total aggregate consideration for the transactions amounted to $6.0
million, or approximately $8.00 per share.
TERMINATION OF CONSULTING AGREEMENT
On November 19, 1999, the Company acquired 100% of the outstanding common
stock of an entity wholly owned by a former individual shareholder of the
Company for the sole purpose of terminating an existing consulting agreement
with the individual shareholder. Among other things, the consulting agreement,
which had a remaining term of approximately five years, obligated us to pay a
minimum monthly consulting fee of $14,000, quarterly incentive payments of
$25,000 and a finance fee equal to 8% of the gross proceeds received by us from
a major capital event, less all fees, discounts and commissions paid to any
investment bankers, underwriters, brokers and/or dealers associated with the
transaction, but with the fee equal to at least 2% of the gross proceeds. The
outstanding capital stock was acquired by us for $3,920,000 in cash and was
expensed during 1999.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides specific information regarding the beneficial
ownership of our common stock as of March 31, 2000 and as adjusted to reflect
the sale of the shares of our common stock offered in this offering, by:
- each person or entity known by us to beneficially own 5% or more of our
common stock;
- each of our directors;
- each executive officer named in the summary compensation table;
- all executive officers and directors as a group; and
- each selling stockholder.
Unless otherwise indicated, the address of each person named in the table
below is c/o Convergent Group Corporation, 6399 South Fiddler's Green Circle,
Suite 600, Englewood, Colorado 80111. The amounts and percentages of common
stock beneficially owned are reported on the basis of regulations of the
Securities and Exchange Commission governing the determination of beneficial
ownership of securities. Under the rules of the Commission, a person is deemed
to be a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of the
security, or "investment power," which includes the power to dispose of or to
direct the disposition of the security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person may be deemed
to be a beneficial owner of securities as to which that person has no economic
interest. The information set forth in the following table is based on the
number of shares of Common Stock outstanding as of March 31, 2000, assuming the
conversion of all shares of our preferred stock into common stock upon
completion of this offering. Except as set forth in Note 11 below, the table
assumes that the underwriters' over-allotment option has not been exercised and
excludes any shares purchased in this offering by the respective beneficial
owner.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE OFFERING
-----------------------------------------------------
COMMON STOCK BENEFICIAL
UNDERLYING OWNERSHIP
OPTIONS AFTER OFFERING
COMMON STOCK EXERCISABLE --------------
NAME OF BENEFICIAL OWNER OUTSTANDING(1) WITHIN 60 DAYS TOTAL PERCENT PERCENT
- ------------------------ -------------- -------------- ---------- ------- --------------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Insight Capital Partners(2)..... 7,960,053 -- 7,960,053 21.9% 18.1%
UBS Capital II LLC(3).................................... 7,960,053 -- 7,960,053 21.9% 18.1%
Entities affiliated with GS Private Equity Partners(4)... 2,304,189 -- 2,304,189 6.3% 5.2%
Entities associated with Wexford Management LLC(5)....... 2,304,220 -- 2,304,220 6.3% 5.2%
Glenn E. Montgomery, Jr.................................. 3,275,093 -- 3,275,093 9.0% 7.4%(11)
Scott M. Schley.......................................... 847,427 -- 847,427 2.2% 1.9%
Mark L. Epstein(6)....................................... 3,275,093 -- 3,275,093 9.0% 7.4%
Larry J. Engelken(7)..................................... 2,879,394 -- 2,879,394 7.9% 6.5%
John A. Ramseur.......................................... 388,017 -- 388,017 1.1% 1.0%
Robert Sharpe(8)......................................... 764,382 -- 764,382 2.1% 1.7%(11)
John Blend III(9)........................................ 8,337,763 -- 8,337,763 22.9% 18.9%(11)
Jerry Murdock(9)......................................... 7,960,053 -- 7,960,053 21.9% 18.1%
All executive officers and directors as a group (9
persons)(10)........................................... 16,605,389 -- 16,605,389 45.9% 37.7%(11)
</TABLE>
- ---------------
(1) Assuming the conversion of all outstanding shares of Series A Preferred
Stock into Common Stock, on a fully diluted basis.
(2) Consists of 5,696,190 shares held by Insight Capital Partners III, L.P.,
1,411,047 shares held by Insight Capital Partners III (Cayman), L.P., and
852,816 shares held by Insight Capital Partners III (Co-Investors), L.P.
The general partner of each of these entities is InSight Venture Associates
III, LLC. The managing members of InSight Venture Associates III, LLC are
Jeff Horing and Jerry Murdock. Each of InSight Venture Associates III, LLC
and Messrs. Horing and Murdock may be deemed the beneficial owners of the
shares of our common stock owned by each of these entities. The address of
Insight Capital Partners III, L.P. and Insight Capital Partners
(Co-Investors), L.P. is 527 Madison Avenue, 10th Floor, New York, New York
10022. The address
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of Insight Capital Partners (Cayman) III, L.P. is c/o W.S. Walker &
Company, Walker House, P.O. Box 265GT, Mary Street, Georgetown, Grand
Cayman, Cayman Islands.
(3) The address of UBS Capital II LLC is 299 Park Avenue, New York, New York
10171. UBS Capital II LLC is an indirectly wholly owned subsidiary of UBS
AG. UBS AG may be deemed to be the beneficial owner of the shares of our
common stock owned by UBS Capital III LLC, a financial services company
organized under the laws of Switzerland.
(4) Consists of 788,784 shares held by GS Private Equity Partners II, L.P.,
408,459 shares held by GS Private Equity Partners II Offshore, L.P.,
826,757 shares held by GS Private Equity Partners III, L.P., 192,737 shares
held by GS Private Equity Partners III Offshore, L.P. and 87,451 shares
held by NBK/GS Private Equity Partners, L.P. GS PEP II Advisors, L.L.C., GS
PEP II Offshore Advisors, Inc., GS PEP III Advisors, L.L.C., GS PEP III
Offshore Advisors, Inc., and GS PEP Offshore Advisors (NBK), Inc.,
indirectly wholly owned subsidiaries of The Goldman Sachs Group, Inc. ("GS
Group"), are the general partners of, respectively, GS Private Equity
Partners II, L.P., GS Private Equity Partners II Offshore, L.P., GS Private
Equity Partners III, L.P., GS Private Equity Partners III Offshore, L.P.
and NBK/GS Private Equity Partners, L.P. (together, the "Limited
Partnerships"). Goldman Sachs & Co. ("Goldman Sachs") and GS Group may be
deemed to beneficially own common stock through the Limited Partnerships.
Goldman Sachs and GS Group each disclaims beneficial ownership of common
stock beneficially owned by the Limited Partnerships to the extent of
partnership interests in the Limited Partnerships held by persons other
than Goldman Sachs, GS Group or their affiliates. The address for each
entity listed in this footnote 4 is as follows: One New York Plaza, New
York, New York 10004.
(5) Consists of 1,382,532 shares held by WI Software Investors LLC and 921,688
shares held by Imprimis SB LP. The managing member of WI Software Investors
LLC is Wexford Management LLC. The general partner of Imprimis SB LP is
Imprimis GP LLC, the managing member of which is Wexford Management LLC The
address for each entity listed in this footnote 5 is 411 West Putnam
Avenue, Greenwich, Connecticut 06830.
(6) Shares held by a trust.
(7) Shares held by Mr. Engelken, his wife Holly Storm-Engelken and six trusts.
(8) Shares held by two trusts for the benefit of Mr. Sharpe's children of which
Mr. Sharpe is the trustee.
(9) Includes the shares held by entities affiliated with InSight Capital
Partners. The address of Messrs. Blend and Murdock is c/o Insight Capital
Partners, 527 Madison Avenue, 10th Floor, New York, New York 10022. Messrs.
Blend and Murdock are partners of Insight Capital Partners and each
disclaims beneficial ownership of the shares held by Insight Capital
Partners except to the extent of their respective pecuniary interests.
(10) Includes all shares held by entities affiliated with specific directors as
described in note (9) above.
(11) If the underwriters' over-allotment option to purchase up to 1,162,500
additional shares is exercised in full, our officers and directors will
sell an aggregate of 1,016,000 outstanding shares as follows: Mr.
Montgomery, 586,000 shares; Mr. Blend, 100,000 shares; and Mr. Sharpe,
406,000 shares. The following table presents these persons' beneficial
ownership after the offering and the beneficial ownership of all executive
officers and directors as a group, assuming the underwriters' over-
allotment option is exercised in full:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NAME AFTER OFFERING
- ---- --------------------
<S> <C>
Mr. Montgomery.............................................. 6.1%
Mr. Blend................................................... 18.7%
Mr. Sharpe.................................................. 1.0%
All executive officers and directors as a group (9
persons).................................................. 35.1%
</TABLE>
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our capital stock will consist of
125,000,000 shares of common stock, $0.001 par value per share, and 75,000,000
shares of preferred stock, $0.001 par value per share. As of March 31, 2000, and
giving effect to the conversion of all outstanding shares of our preferred stock
into common stock upon the closing of this offering, there were outstanding
36,315,502 shares of common stock held by 170 stockholders of record. In
addition, there were outstanding options to purchase an aggregate of 4,595,156
shares of common stock.
The following description of our capital stock, provisions of our restated
certificate of incorporation and our amended bylaws and specific provisions of
Delaware law are summaries thereof and are qualified in their entirety by
reference to the Delaware General Corporation Law, and our restated certificate
of incorporation and our amended bylaws. Copies of our restated certificate of
incorporation and amended bylaws have been filed with the Commission as exhibits
to our registration statement, of which this prospectus forms a part.
COMMON STOCK
The holders of our common stock are entitled to dividends as our board of
directors may declare from time to time from funds legally available therefor,
subject to the preferential rights of the holders of our preferred stock, if
any. The holders of our common stock are entitled to one vote per share on any
matter to be voted upon by stockholders. Our restated certificate of
incorporation does not provide for cumulative voting in connection with the
election of directors, and, accordingly, holders of more than 50% of the shares
voting will be able to elect all of the directors. No holder of our common stock
will have any preemptive right to subscribe for any shares of capital stock
issued in the future.
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of our affairs, the holders of our common stock are entitled to share ratably in
all assets remaining after payment to creditors and subject to prior
distribution rights of our preferred stock, if any. All of the outstanding
shares of common stock are, and the shares offered by us will be, fully paid and
non-assessable.
PREFERRED STOCK
As of the closing of this offering, no shares of our preferred stock will
be outstanding. Under our restated certificate of incorporation, our board of
directors, without further action by our stockholders, will be authorized to
issue shares of preferred stock in one or more classes or series. The board may
fix the rights, preferences and privileges of each class or series of preferred
stock, along with any limitations or restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences of each class or series of preferred stock. The preferred stock
could have voting or conversion rights that could adversely affect the voting
power or other rights of holders of our common stock. The issuance of preferred
stock could also have the effect, under some circumstances, of delaying,
deferring or preventing a change of control of Convergent Group. We currently
have no plans to issue any shares of preferred stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales,
and other transactions resulting in a financial benefit to the "interested
stockholder." Subject to specific exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within the past
three years did own, 15% of the corporation's voting stock.
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OTHER CHARTER AND BY-LAW PROVISIONS
Some provisions of our restated certificate of incorporation and amended
bylaws could have anti-takeover effects. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
corporate policies formulated by our board of directors. In addition, these
provisions also are intended to ensure that our board of directors will have
sufficient time to act in what the board of directors believes to be in the best
interests of us and our stockholders. These provisions also are designed to
reduce our vulnerability to an unsolicited proposal for our takeover that does
not contemplate the acquisition of all of our outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of Convergent
Group. The provisions are also intended to discourage some tactics that may be
used in proxy fights. However, these provisions could delay or frustrate the
removal of incumbent directors or the assumption of control of us by the holder
of a large block of common stock, and could also discourage or make more
difficult a merger, tender offer, or proxy contest, even if the event would be
favorable to the interest of our stockholders.
Classified Board of Directors
Our restated certificate of incorporation will provide for our board of
directors to be divided into three classes of directors, with each class as
nearly equal in number as possible, serving staggered three-year terms, other
than directors who may be elected by holders of any preferred stock we may issue
in the future. As a result, approximately one-third of our board of directors
will be elected each year. The classified board provision will promote the
continuity and stability of our board of directors and our business strategies
and policies as determined by our board of directors. The classified board
provision could have the effect of discouraging a third party from making an
unsolicited tender offer or otherwise attempting to obtain control of us without
the approval of our board of directors. In addition, the classified board
provision could delay stockholders who do not like the policies of our board of
directors from electing a majority of our board of directors for two years.
No Stockholder Action by Written Consent; Special Meetings
Our restated certificate of incorporation will provide that stockholder
action can only be taken at an annual or special meeting of shareholders and
prohibits shareholder action by written consent in lieu of meeting. Our amended
bylaws provide that special meetings of shareholders may be called only by our
board of directors or our Chairman or Chief Executive Officer. Our stockholders
are not permitted to call a special meeting of stockholders or to require that
our board of directors call a special meeting.
Advance Notice Requirements for Shareholder Proposals and Director Nominees
Our amended bylaws will establish an advance notice procedure for our
stockholders to make nominations of candidates for election as directors or to
bring other business before an annual meeting of our stockholders. The
stockholder notice procedure provides that only persons who are nominated by, or
at the direction of, our board of directors or by a stockholder who has given
timely written notice to our Secretary prior to the meeting at which directors
are to be elected will be eligible for election as our directors. The
stockholder notice procedure also provides that at an annual meeting only
business properly brought before the meeting by, or at the direction of, our
board of directors or by a stockholder who has given timely written notice to
our Secretary of that stockholder's intention to bring the business before the
meeting. Under the stockholder notice procedure, if a stockholder desires to
submit a proposal or nominate persons for election as directors at an annual
meeting, the stockholder must submit written notice not less than 90 days nor
more than 120 days prior to the first anniversary of the previous year's annual
meeting. In addition, under the stockholder notice procedure, a stockholder's
notice proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain
specified information. If the chairman of a meeting determines that business was
not properly brought before the meeting in accordance with the stockholder
notice procedure, the business shall not be discussed or transacted.
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Number of Directors; Removal; Filling Vacancies
Our restated certificate of incorporation and amended bylaws will provide
that our board of directors will consist of not less than 3 nor more than 15
directors, other than directors elected by holders of our preferred stock, the
exact number to be fixed from time to time by resolution adopted by our
directors. Further, subject to the rights of the holders of any series of our
preferred stock, if any, our restated certificate of incorporation and amended
bylaws will authorize our board of directors to elect additional directors under
specified circumstances and fill any vacancies that occur in our board of
directors by reason of death, resignation, removal, or otherwise. A director so
elected by our board of directors to fill a vacancy or a newly created
directorship holds office until the next election of the class for which the
director has been chosen and until his successor is elected and qualified.
Subject to the rights of the holders of any series of our preferred stock, if
any, our restated certificate of incorporation and amended bylaws will also
provide that directors may be removed only for cause and only by the affirmative
vote of holders of 66 2/3% of the voting power of the then outstanding shares of
stock entitled to vote generally in the election of directors, voting together
as a single class. The effect of these provisions is to preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of our board of directors by filling the vacancies created by a
director's removal with its own nominees.
RESTATED CERTIFICATE OF INCORPORATION
The provisions of our restated certificate of incorporation that would have
anti-takeover effects as described above will be subject to amendment,
alteration, repeal, or recession by the affirmative vote of the holders of not
less than two-thirds (66 2/3%) of the outstanding shares of voting securities.
This requirement will make it more difficult for stockholders to make changes to
the provisions in our restated certificate of incorporation which could have
anti-takeover effects by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting securities from
amending these provisions of our restated certificate of incorporation.
AMENDED BYLAWS
Our restated certificate of incorporation will provide that our amended
bylaws are subject to adoption, amendment, alteration, repeal, or recession
either by our board of directors without the assent or vote of our stockholders,
or by the affirmative vote of the holders of not less than two-thirds (66 2/3%)
of the outstanding shares of voting securities. This provision makes it more
difficult for stockholders to make changes in our amended bylaws by allowing the
holders of a minority of the voting securities to prevent the holders of a
majority of voting securities from amending our amended bylaws.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation includes a provision that
eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or to our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
We have obtained directors' and officers' insurance for our directors,
officers and some employees for specified liabilities.
62
<PAGE> 67
The limitation of liability and indemnification provisions in our amended
and restated certificate of incorporation and amended bylaws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty. They may also have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though an action of
this kind, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. However, we believe that these
indemnification provisions are necessary to attract and retain qualified
directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Norwest Bank
Minnesota, N.A.
63
<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market or the perception that these sales could occur could adversely affect
prevailing market prices of our common stock and could also adversely affect our
ability to raise capital at a time and on terms favorable to us.
Upon completion of this offering, we will have outstanding a total of
44,065,502 shares of our common stock. Of these shares, all of the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are held by our
affiliates as that term is defined in Rule 144 under the Securities Act. The
remaining 36,315,502 shares of common stock held by existing stockholders are
restricted securities as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. These rules are summarized below.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
33,633,415 After 180 days from the date of this prospectus (subject to
volume limitations)
5,345,705 Upon the filing of a registration statement to register
shares of common stock issuable upon the exercise of options
granted under our stock option plans.
2,682,087 At various times after 180 days from the date of this
prospectus.
</TABLE>
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders have agreed, subject to
specific exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
common stock or any options or warrants to purchase any shares of common stock,
or any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or later acquired directly by those
holders or with respect to which they have the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc., for a period of
180 days from the date of this prospectus. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release all or any portion of securities subject to these agreements not to sell
shares. When determining whether or not to release shares from the lock-up
agreements, FleetBoston Robertson Stephens Inc. will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at that
time. FleetBoston Robertson Stephens Inc. does not currently anticipate that
registration rights of stockholders or its position in the common stock will be
a factor in determining whether or not to release shares from the lock-up
agreements. There are no existing agreements between the representatives of the
underwriters and any of our stockholders providing consent to the sale of shares
prior to the expiration of the above period, and we are not currently aware of
any officers, directors or current stockholders who intend to ask for consent to
offer, sell or otherwise dispose of any common stock within the lock-up period.
64
<PAGE> 69
RULE 144
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) including an affiliate, who has
beneficially owned shares of our common stock for at least one year can sell
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding
(approximately 440,655 shares immediately after this offering); or
- the average weekly trading volume in our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of public information about us. In
addition, under Rule 144(k), a person who is not one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, can sell those shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees, directors, consultants or
advisors who purchase shares from us in connection with a compensatory stock
option plan or other written agreement are eligible to resell these shares 90
days after the date of this offering in reliance on Rule 144, without compliance
with specific restrictions contained in Rule 144, including the holding period.
However, the holders of our outstanding options have also executed lock-up
agreements as discussed above.
After this offering, we intend to register an aggregate of 5,345,705 shares
of common stock which may be issued under our stock option plan. Shares issued
upon exercise of options after the effective date of the registration statement
on Form S-8 will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements noted above.
REGISTRATION RIGHTS
Following the offering, holders of 20,989,344 shares of our common stock
will be entitled to request an unlimited number of demand registrations of these
shares of common stock under the Securities Act, provided that holders of a
majority of the shares of common stock then outstanding make the request. We are
not currently aware of any stockholders who intend to exercise any of their
registration rights. Commencing 180 days after the consummation of this
offering, holders of 34,439,149 shares of our common stock, including the
foregoing shares, will have specified piggyback registration rights in the event
we intend to register shares of our common stock under the Securities Act. In
addition, at any time after we have qualified for a registration pursuant to
Form S-3, a majority of holders of these shares shall have the right to request
an unlimited number of registrations of their common stock, subject to specific
conditions and limitations. If and whenever we are under an obligation to effect
the filing and maintenance of a registration statement, we are required to use
our best efforts to effect the registration, subject to specific conditions and
limitations. We are required to pay most of the expenses related to these
registrations, excluding underwriting commissions and discounts.
65
<PAGE> 70
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Wit SoundView Corporation, have entered into an underwriting
agreement with us and the selling stockholders to purchase the number of shares
of common stock listed opposite their respective names below. The underwriters
are obligated to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens, Inc. .......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Wit SoundView Corporation...................................
---------
Total............................................. 7,750,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of our common stock to the public at the public offering price
located on the cover page of this prospectus and to specific dealers at that
price less a concession of not in excess of $ per share, of which $ may
be reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
representatives. No reduction in this price will change the amount of proceeds
to be received by us and the selling stockholders as indicated on the cover page
of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. The selling stockholders have granted to the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to 1,092,000 outstanding shares of common stock
and we have granted to the underwriters an option to purchase up to 70,500
additional shares of common stock to cover over-allotments, if any, at the same
price per share as we will receive for the 7,750,000 shares that the
underwriters have agreed to purchase. To the extent that the underwriters
exercise these options, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of these additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the 7,750,000 shares offered by this prospectus.
If purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. The selling stockholders and
Convergent Group will be obligated, under these options, to sell shares to the
extent the options are exercised. In the event the overallotment options are not
exercised in full, the underwriters will exercise the options from the selling
stockholders before exercising the option from us. The underwriters may exercise
the options only to cover over-allotments made in connection with the sale of
the 7,750,000 shares of our common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment options.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price......................... $ $ $
Underwriting discounts and commissions................
Proceeds, before expenses, to us......................
Proceeds, before expenses, to selling stockholders....
</TABLE>
66
<PAGE> 71
The expenses of the offering, other than underwriting discounts and
commissions, payable by us are estimated at $ . FleetBoston Robertson
Stephens Inc. expects to deliver the shares of common stock to purchasers on
, 2000.
Directed Share Program. The underwriters have reserved up to five percent
of the common stock offered for sale in this offering, at the initial public
offering price, for directors, officers, employees, business associates and
persons otherwise connected to Convergent Group. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered in this offering.
Internet Distribution. A prospectus in electronic format is being made
available on an Internet Web site maintained by Wit SoundView's affiliate, Wit
Capital Corporation. In addition, other dealers purchasing shares from Wit
SoundView in this offering have agreed to make a prospectus in electronic format
available on Web sites maintained by each of these dealers. Other than the
prospectus in electronic format the information on Wit Capital's Web site and
any information contained on any other Web site maintained by Wit Capital is not
part of the prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any underwriter in
its capacity as underwriter and should not be relied upon by investors.
Indemnity. The underwriting agreement contains covenants of indemnity
between the underwriters, us and the selling stockholders against specific civil
liabilities, including liabilities under the Securities Act, and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Agreements Not to Sell Shares. All of our officers, directors and
stockholders have agreed, subject to limited exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or later acquired directly by those holders or with respect to which they have
the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc., for a period of 180 days from the date of this
prospectus. However, FleetBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release all or any portion of
securities subject to these agreements not to sell shares. There are no existing
agreements between the representatives of the underwriters and any of our
stockholders providing consent to the sale of shares prior to the expiration of
the above period.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to specific exceptions
(a) consent to the disposition of any shares held by stockholders subject to
agreements not to sell shares prior to the expiration of the period set forth
above or (b) issue, sell, contract to sell, or otherwise dispose of, any shares
of common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance of
common stock upon the exercise of outstanding options, and the issuance of
options under existing stock option and incentive plans, provided the options do
not vest prior to the expiration of the 180-day period. See "Shares Eligible for
Future Sale."
Listing. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "CVGP".
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus has been determined through
negotiations among us, the selling stockholders and the representatives. Among
the factors considered in these negotiations were prevailing market conditions,
our financial information, market valuations of other companies that we and the
representatives believed to be comparable to us,
67
<PAGE> 72
estimates of our business potential, the present state of our development and
other factors deemed relevant.
Stabilization. The representatives have advised us that, under Regulation M
under the Securities and Exchange Act of 1934, some participants in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by the
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
the underwriter or syndicate member. The representatives have advised us that
these transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by O'Sullivan Graev & Karabell, LLP, New York, New York and for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. An investment partnership of O'Sullivan Graev & Karabell, LLP
is a limited partner of InSight Capital Partners III (Co-Investors), L.P., one
of our stockholders.
EXPERTS
The consolidated financial statements of Convergent Group Corporation as of
December 31, 1998 and 1999 and for each of the years in the three year period
ended December 31, 1999 included in this prospectus have been included in
reliance upon the report of Grant Thornton, LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including exhibits and
schedules) with the SEC. This prospectus, which forms a part of that
registration statement, does not contain all of the information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. With respect to references made in
this prospectus to any contract or other document, these references are not
necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement at the SEC's public reference room
in Washington, D.C., and at the SEC's regional offices in Chicago, Illinois and
New York, New York. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings and
the registration statement can also be reviewed by accessing the SEC's Web site
at http://www.sec.gov. As a result of this offering, we will become subject to
the information and reporting requirements of the Securities Exchange Act and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC.
68
<PAGE> 73
CONVERGENT GROUP CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit).............................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-8
</TABLE>
F-1
<PAGE> 74
To the Board of Directors and Stockholders of
Convergent Group Corporation
When the reverse stock split referred to in Note A7 of the Notes to
Consolidated Financial Statements has been consummated, we will be in a position
to render the following report.
Grant Thornton LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Convergent
Group Corporation as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Convergent
Group Corporation and subsidiaries as of December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Denver, Colorado
February 8, 2000, (except for Note J, as to which
the date is February 16, 2000)
F-2
<PAGE> 75
CONVERGENT GROUP CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
PRO FORMA
1998 1999 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 4,958 $ 1,596 $ 1,596
Accounts receivable (net of allowance for doubtful
accounts of $156 and $43, respectively)................. 4,578 9,181 9,181
Unbilled revenues......................................... 3,269 6,351 6,351
Other..................................................... 226 417 417
-------- -------- --------
13,031 17,545 17,545
Deferred tax asset........................................ 1,964 3,400 3,400
Prepaid expenses and other................................ 221 578 578
-------- -------- --------
Total current assets................................ 15,216 21,523 21,523
PROPERTY AND EQUIPMENT, AT COST (net of accumulated
depreciation and amortization of $4,152 and $4,963,
respectively)............................................. 2,725 3,102 3,102
LOAN RECEIVABLE FROM RELATED PARTY.......................... -- 2,046 2,046
OTHER ASSETS................................................ 36 36 36
-------- -------- --------
Total assets........................................ $ 17,977 $ 26,707 $ 26,707
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,015 $ 2,346 $ 2,346
Note payable.............................................. 500 40 40
Deferred revenue.......................................... 5,463 2,182 2,182
Accrued liability for anticipated contract costs.......... 1,648 1,949 1,949
Accrued compensation and related expense.................. 3,592 2,128 2,128
Accrued project related costs............................. 2,191 5,619 5,619
Other accrued expenses.................................... 297 1,327 1,327
-------- -------- --------
Total current liabilities........................... 15,706 15,591 15,591
NON-CURRENT LIABILITIES:
Accrued liability for anticipated contract costs.......... 1,108 171 171
Accrued compensation and related expenses................. 1,076 227 227
Long-term loan (net of deferred acquisition costs)........ -- 21,753 21,753
-------- -------- --------
Total liabilities................................... 17,890 37,742 37,742
MANDATORILY REDEEMABLE PREFERRED STOCK ($0.10 par value
with a liquidation preference of $40,541)............... 40,541 -- --
Series A Convertible Exchangeable (5,725 and -0- shares
authorized, issued and outstanding)................... -- -- --
Series B Exchangeable (39,000 and -0- shares authorized;
34,816 and -0- shares issued
and outstanding)...................................... -- -- --
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock ($.001 par value;
75,000,000 shares authorized; -0- and 41,978,689
shares issued and outstanding, liquidation preference
$34,000) zero shares outstanding on a pro forma
basis................................................. -- 42 --
Class A common stock ($0.001 par value; 12,870,480 and
-0- shares authorized; 9,193,200 and -0- shares issued
and outstanding)...................................... 9 -- --
Class B common stock ($0.001 par value; 668,340 and -0-
shares authorized; -0-shares issued and
outstanding).......................................... -- -- --
Common stock ($0.001 par value; 125,000,000 shares
authorized; 5,991,750, and 13,749,322 shares issued
and outstanding, 34,738,666 shares outstanding on a
pro forma basis)...................................... 6 14 35
Additional paid-in capital.............................. 6,881 46,878 46,899
Deferred compensation................................... (22) (5,397) (5,397)
Accumulated deficit..................................... (47,632) (52,882) (52,882)
Accumulated other comprehensive income.................. 304 310 310
-------- -------- --------
Total stockholders' equity (deficit)................ (40,454) (11,035) (11,035)
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)......................................... $ 17,977 $ 26,707 $ 26,707
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 76
CONVERGENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Integration, consulting and other services................ $ 21,517 $ 28,957 $ 41,029
Subcontractor and other revenue........................... 19,339 18,458 25,581
----------- ----------- -----------
Total revenues..................................... 40,856 47,415 66,610
COST OF REVENUES:
Cost of integration, consulting and other services
(exclusive of $70 [in 1999] reported below as employee
stock compensation expense)............................. 17,326 17,564 22,296
Cost of subcontractor and other revenue................... 13,010 13,959 20,205
----------- ----------- -----------
Total cost of revenue.............................. 30,336 31,523 42,501
----------- ----------- -----------
Gross profit....................................... 10,520 15,892 24,109
EXPENSES:
Selling, General and Administrative Expenses (exclusive of
$2,161 in 1999 reported below as employee stock
compensation expense)................................... 11,574 12,123 16,855
Recapitalization Costs.................................... -- -- 7,098
Employee Stock Compensation Expense....................... 8 12 2,231
Consulting Agreement Termination Costs.................... -- -- 3,920
Loss from Disposal of Assets.............................. -- 93 --
Research and Development.................................. 173 -- --
Gain from Restructuring................................... (1,218) (95) --
----------- ----------- -----------
10,537 12,133 30,104
----------- ----------- -----------
Operating income (loss)............................ (17) 3,759 (5,995)
OTHER INCOME (EXPENSE):
Interest income........................................... 82 176 176
Interest expense.......................................... (1,170) (119) (778)
----------- ----------- -----------
Total other income (expense)....................... (1,088) 57 (602)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... (1,105) 3,816 (6,597)
INCOME TAX BENEFIT.......................................... -- 1,861 1,347
----------- ----------- -----------
NET INCOME (LOSS)........................................... (1,105) 5,677 (5,250)
PREFERRED STOCK ADJUSTMENTS................................. -- -- 20,816
----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS.......... $ (1,105) $ 5,677 $ 15,566
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE............................ $ (0.07) $ 0.38 $ 1.09
----------- ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE ASSUMING DILUTION.......... $ (0.07) $ 0.24 $ 0.55
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 16,234,348 15,135,368 14,310,546
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION....... 16,234,348 23,771,852 28,279,342
----------- ----------- -----------
PRO FORMA BASIC EARNINGS PER SHARE (unaudited).............. $ 0.57
===========
PRO FORMA DILUTED EARNINGS PER SHARE (unaudited)............ $ 0.55
===========
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING USED IN THE
CALCULATION OF BASIC EARNINGS PER SHARE (unaudited)....... 27,424,410
===========
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING USED IN THE
CALCULATION OF DILUTED EARNINGS PER SHARE (unaudited)..... 28,279,342
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 77
CONVERGENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
NEW SERIES A CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1997............... -- $-- 9,193,200 $ 9 5,229,092 $ 5 5,583,801 $ 6
Net loss.................................. -- -- -- -- -- -- -- --
Foreign currency translation
adjustments............................. -- -- -- -- -- -- -- --
Comprehensive loss........................ -- -- -- -- -- -- -- --
Class B common stock acquired upon
disposition of subsidiary............... -- -- -- -- (5,229,092) (5) -- --
Exercise of stock options................. -- -- -- -- -- -- 19,071 --
Issuance of common stock for services..... -- -- -- -- -- -- 307,723 --
---------- --- ---------- --- ---------- --- ---------- ---
BALANCE AS OF DECEMBER 31, 1997............. -- -- 9,193,200 9 -- -- 5,910,595 6
Net income................................ -- -- -- -- -- -- -- --
Foreign currency translation
adjustments............................. -- -- -- -- -- -- -- --
Comprehensive income...................... -- -- -- -- -- -- -- --
Purchase of common stock.................. -- -- -- -- -- -- (3,188) --
Issuance of common stock for services..... -- -- -- -- -- -- 80,400 --
Exercise of stock options................. -- -- -- -- -- -- 3,943 --
Issuance of employee options.............. -- -- -- -- -- -- -- --
Purchase of option to reacquire stock..... -- -- -- -- -- -- -- --
---------- --- ---------- --- ---------- --- ---------- ---
BALANCE AS OF DECEMBER 31, 1998............. -- -- 9,193,200 9 -- -- 5,991,750 6
Net loss.................................. -- -- -- -- -- -- -- --
Foreign currency translation
adjustments............................. -- -- -- -- -- -- -- --
Comprehensive loss........................ -- -- -- -- -- -- -- --
Purchase of common stock.................. -- -- -- -- -- -- (1,738,364) (2)
Exercise of stock options................. -- -- -- -- -- -- 2,030,083 2
Issuance of common stock for services..... -- -- -- -- -- -- 1,151,994 1
Issuance of convertible series A preferred
stock net of issuance costs of $687..... 41,978,689 42 -- -- -- -- -- --
Convert preferred A to class B common
stock................................... -- -- -- -- 1,042,500 1 -- --
Purchase of common stock.................. -- -- (9,193,200) (9) (1,042,500) (1) -- --
Deferred compensation on stock grants and
options................................. -- -- -- -- -- -- 755,420 1
Stock option compensation expense......... -- -- -- -- -- -- -- --
Settlement of redeemable preferred at less
than redemption value................... -- -- -- -- -- -- -- --
Distribution to common stockholders....... -- -- -- -- -- -- -- --
Issuance of common stock for services..... -- -- -- -- -- -- 5,558,439 6
---------- --- ---------- --- ---------- --- ---------- ---
BALANCE AS OF DECEMBER 31, 1999............. 41,978,689 $42 -- $-- -- $-- 13,749,322 $14
========== === ========== === ========== === ========== ===
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
DEFERRED PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
COMPENSATION CAPITAL DEFICIT INCOME INCOME
------------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1, 1997............... $ (22) $ 7,000 $(52,204) $292
Net loss.................................. -- -- (1,105) -- $(1,105)
Foreign currency translation
adjustments............................. -- -- -- (11) (11)
-------
Comprehensive loss........................ -- -- -- -- (1,116)
-------
Class B common stock acquired upon
disposition of subsidiary............... -- (126) -- --
Exercise of stock options................. -- -- -- --
Issuance of common stock for services..... -- 8 -- --
------- -------- -------- ----
BALANCE AS OF DECEMBER 31, 1997............. (22) 6,882 (53,309) 281
Net income................................ -- -- 5,677 -- 5,677
Foreign currency translation
adjustments............................. -- -- -- 23 23
-------
Comprehensive income...................... -- -- -- -- 5,700
-------
Purchase of common stock.................. -- (1) -- --
Issuance of common stock for services..... -- 2 -- --
Exercise of stock options................. -- 1 -- --
Issuance of employee options.............. -- 12 -- --
Purchase of option to reacquire stock..... -- (15) -- --
------- -------- -------- ----
BALANCE AS OF DECEMBER 31, 1998............. (22) 6,881 (47,632) 304
Net loss.................................. -- -- (5,250) -- (5,250)
Foreign currency translation
adjustments............................. -- -- -- 6 6
-------
Comprehensive loss........................ -- -- -- -- (5,244)
-------
Purchase of common stock.................. -- (1,468) -- --
Exercise of stock options................. -- 106 -- --
Issuance of common stock for services..... 22 103 -- --
Issuance of convertible series A preferred
stock net of issuance costs of $687..... -- 44,817 -- --
Convert preferred A to class B common
stock................................... -- 5,724 -- --
Purchase of common stock.................. -- (30,255) -- --
Deferred compensation on stock grants and
options................................. (6,090) 6,089 -- --
Stock option compensation expense......... 693 -- -- --
Settlement of redeemable preferred at less
than redemption value................... -- 20,816 -- --
Distribution to common stockholders....... -- (7,341) -- --
Issuance of common stock for services..... -- 1,406 -- --
------- -------- -------- ----
BALANCE AS OF DECEMBER 31, 1999............. $(5,397) $ 46,878 $(52,882) $310
======= ======== ======== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 78
CONVERGENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ( loss).......................................... $(1,105) $ 5,677 $ (5,250)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,350 1,235 1,407
Deferred income taxes..................................... -- (1,964) (1,437)
Provision for bad debts (recovery)........................ 45 (542) (113)
Gain from CGAP dissolution................................ (792) -- --
Gain from restructuring................................... (773) (95) --
Loss on disposal of fixed assets.......................... 637 93 --
Stock and options issued as compensation.................. 8 12 2,231
Changes in operating assets and liabilities:
Receivables and unbilled revenues...................... 3,447 48 (7,571)
Prepaid expenses and other assets...................... 469 555 (548)
Accounts payable and accrued expenses.................. (1,084) 28 2,476
Accrual for anticipated contract costs................. 1,749 (573) (636)
Accrual for restructuring.............................. (2,719) (147) --
Unearned revenue and customer deposits................. 1,477 (446) (3,281)
------- ------- --------
Net cash provided by (used in) operating
activities...................................... 2,709 3,881 (12,722)
INVESTING ACTIVITIES
Purchase of property and equipment........................ (555) (1,025) (1,761)
FINANCING ACTIVITIES
Repayment of note payable................................. -- -- (500)
Note receivable from a shareholder........................ -- -- (2,046)
Issuance of stock......................................... -- 2 --
Acquisition of options to repurchase stock................ -- (15) --
Borrowing line of credit.................................. -- -- 1,000
Paydown line of credit.................................... (1,000) -- (1,000)
Borrowing on revolving credit loan agreements............. -- -- 24,000
Payments on revolving credit loan agreements.............. -- -- (2,000)
Payments on debt obligations.............................. (806) -- --
Deferred loan acquisition costs........................... -- -- (270)
Purchase of common stock.................................. -- -- (1,430)
Distribution to common stockholders....................... -- -- (7,341)
Exercise of stock options................................. -- -- 108
Purchase of redeemable preferred stock and class A common
stock.................................................. -- -- (44,265)
Issuance of convertible preferred stock net of issuance
costs of $687.......................................... -- -- 44,859
------- ------- --------
Net cash provided by (used in) financing
activities...................................... (1,806) (13) 11,115
------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (11) 23 6
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 337 2,866 (3,362)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 1,755 2,092 4,958
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,092 $ 4,958 $ 1,596
======= ======= ========
</TABLE>
F-6
<PAGE> 79
CONVERGENT GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 109 $ 119 $ 559
======= ======= ========
NONCASH ACTIVITIES:
Issuance of note payable in exchange for software
licenses............................................... $ -- $ 500 $ --
======= ======= ========
Issuance of note payable in exchange for stock
repurchase............................................. $ -- $ -- $ 40
======= ======= ========
Conversion of notes payable into Series A Preferred Stock
as a result of the restructuring agreement............. $ -- $(4,725) $ --
======= ======= ========
Dissolution of CGAP
Fair value of tangible and intangible assets returned
to CGAP.............................................. $ 5,280 $ -- $ --
Relief of liabilities related to CGAP.................. (5,940) -- --
Cancellation of Class B Common Stock................... (13) -- --
Reduction of additional paid-in capital................ (119) -- --
------- ------- --------
$ (792) $ -- $ --
======= ======= ========
Settlement of accounts receivable as a result of the
restructuring agreement................................ $ 268 $ -- $ --
Reduction of notes payable as a result of the
restructuring agreement................................ (1,041) -- --
------- ------- --------
$ (773) $ -- $ --
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 80
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Organization and Purpose
Convergent Group Corporation (the Company) was incorporated on April 9,
1994, in the state of Delaware. On the incorporation date, the Company acquired
all of the outstanding preferred and common stock of Graphic Data Systems
Corporation (GDS) and Utility Graphics Consultants Corporation (UGC). On
February 5, 1996, the Company, through a newly formed, wholly-owned subsidiary,
Convergent Group Asia Pacific Pty. Ltd. (CGAP), acquired the business and
related net assets of ARC Systems Pty. Ltd. (ARC Systems), an Australian Limited
Company. CGAP was subsequently disposed of in April 1997 (see Note M).
The Company provides professional services that enable its utility and
local government clients to implement Internet-based eBusiness solutions. The
Company combines the use of existing and emerging digital technologies with its
business expertise in the utility and local government sectors to deliver
solutions that address its clients' mission-critical business problems. These
eBusiness transformation solutions help clients integrate data from various
isolated sources to create a single, Web-based point of entry through which
internal decision-makers, business partners, suppliers, customers and
constituents can access business information on a real-time basis. The Company's
solutions help its clients increase revenues, reduce costs, improve customer
services, ensure service reliability, improve resource management and exploit
their information assets.
The Board of Directors has filed a registration statement with the SEC that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed public offering. In conjunction with a qualified
public offering, all outstanding preferred stock automatically converts into
shares of the Company's common stock on a 0.5 for one basis. The effect of the
conversion has been reflected in the accompanying pro forma balance sheet as if
the conversion had occurred as of December 31, 1999.
2. Recapitalization
On August 13, 1999 pursuant to a Recapitalization Agreement between the
Company and certain institutional investors, the Company acquired all of its
then outstanding shares of redeemable Series A and Series B Convertible
Exchangeable Preferred Stock and all of it Class A Common Stock for an aggregate
of $44,265,000. As part of the recapitalization, the Company issued 41,978,689
shares of Convertible Participating Preferred Stock, par value $0.001, to the
institutional investors for $44,859,000 net of issuance costs. All classes of
stock have been canceled and are no longer authorized except for common stock
and Convertible Participating Preferred Stock.
As part of the recapitalization the Company recorded, to reflect the
substance of the transaction, a distribution of $7,341,000 to Common
shareholders of record on August 13, 1999, redemption of shares in the amount of
$156,000, cash compensation of $4,276,000 and the issuance of 5,558,439 net
shares of common stock to employees for services.
The Company incurred a total of $13,249,000 in expenses associated with the
recapitalization, including recapitalization costs, employee stock compensation
expense, and consulting agreement termination costs, all of which were either
noncash items or were funded from the new investor proceeds. Additionally, the
Company recognized $20,816,000 as income available to common shareholders as a
result of the redemption of the redeemable preferred stock at less than the
redemption value.
F-8
<PAGE> 81
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
4. Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates prevailing during the period. Translation adjustments
resulting from translating the accounts of the Company's foreign subsidiaries
from the functional currency to U.S. dollars are accumulated in a separate
component of stockholders' equity. Exchange gains (losses) resulting from
foreign currency transactions are included in the consolidated statement of
operations. The Company recorded transaction exchange losses of $(55,000),
$(128,000), and $(21,000) for the years ended December 31, 1997, 1998 and 1999,
respectively.
5. Depreciation and Amortization of Property and Equipment
Depreciation of property and equipment is provided on the straight-line
basis over the estimated useful life of three to seven years. Leasehold
improvements are amortized over the life of the related lease.
6. Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid cash investments with an original maturity of three months or less
to be cash equivalents.
7. Common Stock Split
On January 2, 1997, all classes of Common Stock were split 470 for one,
with par value remaining at $0.01 per share. On August 13, 1999, the Company
recorded a Common Stock split on a 7.8 for one basis. On , the
Company effected a reverse split of its common stock on a one for two basis. All
share amounts have been restated to retroactively reflect the stock splits.
8. Revenue Recognition
Revenue earned through systems integration services, data conversion
services, and/or software licenses and hardware products is recognized on the
percentage of completion method using the output method of accounting in
accordance with SOP 81-1. The Company accounts for all of the above components
as part of its contracts and does not account for components separately. Systems
integration revenue is measured based on integration costs incurred to date as
compared to total estimated costs. Output measures for other revenue components
are based on various milestones which are met through delivery and acceptance.
Acceptance for conversion services consists of acceptance of the subcontractor's
work by the Company and/or the customer. Acceptance of software is predicated on
the successful testing of the software and in some cases written confirmation
from the customer. Acceptance for hardware products is determined at the time of
delivery to the customer. Cost of revenue is based on recognizing costs as a
percentage of revenue to provide a consistent gross margin throughout the life
of the contract. When management believes the cost of completing a contract will
exceed contract revenue the full amount of the loss is immediately recognized.
The Company has a history of making dependable estimates of the extent of
progress towards completion, contract revenue, and contract costs on its
long-term contracts. However, due to uncertainties inherent in the estimation
process, actual results could differ from those estimates.
F-9
<PAGE> 82
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Software and hardware maintenance under customer support agreements are
recorded as unearned maintenance fees and recognized as revenue ratably over a
twelve month period. The standard duration of software and hardware maintenance
under customer support agreements is twelve months, renewable annually.
9. Concentration of Credit Risk
The Company sells services and products to customers primarily in the
United States with continuing maintenance and support services with established
customers in the United Kingdom through April 2000. The Company performs ongoing
credit evaluations of customers and generally does not require collateral.
Receivables generally are due within 30 days from invoice date. Primarily as a
result of the restructuring (see Note M) the Company realized credit losses
outside of North America of $614,000 in 1997. Ongoing credit losses in North
America during 1997, 1998, and 1999, which have not been significant, have been
within management's expectations. At December 31, 1999, three of the Company's
customers had outstanding balances that accounted for approximately 38% of total
accounts receivable.
The Company has no balance billed but not paid by its customers under
retainage provisions, billed or unbilled amounts representing claims or other
similar items subject to uncertainty related to their ultimate realization, or
billed or unbilled amounts collectible after one year. Amounts representing the
recognized sales value of performance that had not been billed and were not
billable to customers at December 31, 1998 and 1999 were $2,585,000 and
$4,716,000, respectively.
The Company's unbilled receivable accounts represent contracted work
performed or costs incurred, including expected profits, which are invoiced to
customers pursuant to the terms of the customer's contract, generally within ten
days of month end.
The allowance for doubtful accounts was $698,000, $156,000 and $43,000 at
December 31, 1997, 1998 and 1999, respectively.
10. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
11. Estimated Fair Value Information
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosure
about Fair Value of Financial Instruments, requires disclosure of the estimated
fair value of an entity's financial instrument assets and liabilities, as
defined, regardless of whether recognized in the financial statements of the
reporting entity. The fair value information does not purport to represent the
aggregate net fair value of the Company.
The estimated fair value of the Company's cash and cash equivalents,
accounts receivable and payable and short-term notes payable approximates the
carrying amounts at December 31, 1998 and 1999 due principally to their
short-term maturities. Loan receivable from related party has an estimated fair
value which approximates the carrying value due to the anticipated short-term
duration of the loan. The estimated fair value of the long-term loan
approximates carrying value as the interest rate is considered to approximate
the market rate.
F-10
<PAGE> 83
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes that it is not practical to estimate a fair market
value different from the redeemable cumulative preferred stock's carrying value
of $40,541,000 at December 31, 1998, as this security has numerous features
unique to this security as described in Note H.
12. External Marketing and Advertising Costs
The Company expenses external marketing and advertising costs as incurred.
These expenses were approximately $415,000, $638,000, and $1,103,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
13. Income Taxes
The Company provides for income tax expense in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income
Taxes. Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
14. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components.
15. Reclassifications
Certain financial statement reclassifications have been made in 1997 and
1998 to conform to presentations used in 1999.
16. Recent Accounting Pronouncements
There have been no recent accounting pronouncements that have had or are
expected to have a material effect on the Company's financial position or
results of operations.
17. Earnings Per Share
The Company computes earnings per share in accordance with SFAS No. 128,
Earnings per Share (SFAS 128). Under the provisions of SFAS No. 128, basic and
diluted net loss per share is computed by dividing the net income or loss
available to common stockholders for the period by the weighted average number
of shares of Common Stock outstanding during the period. The calculation of
diluted net income or loss per share excludes potential common shares if the
effect is antidilutive. Potential common shares are composed of Common Stock
issuable upon the exercise of stock options and upon conversion of Series A and
Series B mandatorily Redeemable Preferred Stock and Series A Convertible
Preferred Stock.
F-11
<PAGE> 84
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Earnings (loss) from continuing operations..... $ (1,105) $ 5,677 $ (5,250)
Preferred stock adjustments.................... -- -- 20,816
---------- ---------- ----------
Numerator for basic earnings (loss) per share
and earnings (loss) per share assuming
dilution -- income (loss) available to
common shareholders......................... $ (1,105) $ 5,677 $ 15,566
========== ========== ==========
Denominator:
Denominator for basic earnings per
share-weighted average shares............... 16,234,348 15,135,368 14,310,546
Potential dilutive common shares -- employee
stock options and conversion of preferred
stock....................................... -- 8,636,484 13,968,796
---------- ---------- ----------
Denominator for diluted earnings (loss) per
share -- adjusted weighted-average shares
and assumed conversions..................... 16,234,348 23,771,852 28,279,342
========== ========== ==========
Basic earnings (loss) from continuing
operations per common share................. $ (0.07) $ 0.38 $ 1.09
========== ========== ==========
Earnings (loss) from continuing operations per
common share -- assuming dilution........... $ (0.07) $ 0.24 $ 0.55
========== ========== ==========
</TABLE>
The following table sets forth the computation of the Company's unaudited
pro forma basic and diluted earnings per share. Pro forma basic and diluted
earnings per share is computed by assuming the conversion of all convertible
participating preferred stock into common stock as if such shares were
outstanding from their respective date of issuance.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Numerator:
Income available to common shareholders (in thousands).... $ 15,566
===========
Denominator:
Weighted average number of common shares.................. 14,310,546
Assumed conversion of Series A convertible preferred
stock.................................................. 13,113,864
-----------
Denominator for basic earnings per share -- weighted
average................................................ 27,424,410
Potential dilutive common shares -- employee stock
options................................................ 854,932
-----------
Denominator for diluted earnings per share -- weighted
average................................................ 28,279,342
===========
Pro forma basic earnings per share.......................... $ 0.57
===========
Pro forma diluted earnings per share........................ $ 0.55
===========
</TABLE>
F-12
<PAGE> 85
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
taxes are provided based upon the tax rate at which items of income and expense
are expected to be settled in the Company's tax return.
The provision (benefit) for income taxes included the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................... $ -- $ 94 $ 90
State................................................. -- 9 --
------- ------- -------
-- 103 90
------- ------- -------
Deferred
Federal............................................... -- (1,793) (1,309)
State................................................. -- (171) (128)
------- ------- -------
-- (1,964) (1,437)
------- ------- -------
Total
Federal............................................... -- (1,699) (1,219)
State................................................. -- (162) (128)
------- ------- -------
$ -- $(1,861) $(1,347)
======= ======= =======
</TABLE>
A reconciliation between the expected federal income tax expense computed
by applying the Federal Statutory rate to income before income taxes and the
actual benefit from taxes on income for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory
rate.................................................. $ (431) $ 1,488 $ (789)
Change in valuation reserve............................. 1,475 (3,367) (379)
Change in prior year estimate........................... (747) -- --
Other................................................... (297) 18 (179)
------- ------- -------
$ -- $(1,861) $(1,347)
======= ======= =======
</TABLE>
F-13
<PAGE> 86
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards:
Domestic........................................... $ 11,739 $ 10,414 $ 12,922
International...................................... 2,874 3,142 2,937
Deferred income...................................... 12 -- --
Liability for anticipated contract costs............. 37 274 196
Organization costs................................... 21 2 --
Book over tax depreciation and amortization
domestic........................................... 2,105 2,043 1,873
Book over tax depreciation international............. 148 -- --
Restructuring accrual:
Domestic........................................... 6 -- --
International...................................... 1,931 1,931 1,931
Executive bonuses.................................... 1,231 1,047 27
Miscellaneous accruals and other..................... 378 226 250
-------- -------- --------
Total deferred tax assets.................. 20,482 19,079 20,136
Valuation allowance for deferred tax assets.......... (20,482) (17,115) (16,736)
-------- -------- --------
Net deferred tax assets/liabilities.................. $ -- $ 1,964 $ 3,400
======== ======== ========
</TABLE>
The domestic income tax net operating loss carryforwards of approximately
$33,134,000 resulting from operations, if not utilized, will expire as follows
(in thousands):
<TABLE>
<S> <C>
2008....................................................... 1,323
2009....................................................... 6,253
2010....................................................... 807
2011....................................................... 9,702
2012....................................................... 8,775
2019....................................................... 6,274
-------
$33,134
=======
</TABLE>
Certain changes in stock ownership can result in a tax law limitation on
the amount of net operating loss that can be utilized each year. The Company
determined it has undergone such an ownership change as defined under Section
382 of the Internal Revenue Code. As a result, utilization of net operating
losses will be limited to approximately $3,800,000 per year. The international
income tax net operating loss carryforward, primarily resulting from the
Company's operations in the United Kingdom, of approximately $7,000,000 will
carry forward indefinitely, if not utilized. Realization of the United Kingdom
net loss carryforwards are subject to the generation of future operating profits
in the United Kingdom. Payments on income taxes during the year ended December
31, 1999 were immaterial.
F-14
<PAGE> 87
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software.............................. $ 5,072 $ 6,178
Furniture and equipment..................................... 1,231 1,648
Leasehold improvements...................................... 574 239
------- -------
6,877 8,065
Less accumulated depreciation and amortization.............. (4,152) (4,963)
------- -------
$ 2,725 $ 3,102
======= =======
</TABLE>
The cost of computer software as defined in SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, is
immaterial.
NOTE D -- DEFINED CONTRIBUTION PLANS
The Company maintains a defined contribution plan (the Plan) intended to
qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended.
All regular, full-time United States employees, as defined in the Plan,
including officers and directors who are also employees of the subsidiaries, are
eligible to participate in the Plan. The Company may make discretionary matching
contributions to the Plan. For the year ended December 31, 1997, eligible
employees were entitled to a 1.75% effective match of qualified wages through
May 1997 and a 5.0% effective match of qualified wages for the balance of the
year and for the years ended December 31, 1999 and 1998. The total contributions
by the Company to the Plan on behalf of participating employees were
approximately $397,000, $656,000 and $878,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
NOTE E -- COMMITMENTS
The Company leases office facilities and equipment under noncancelable
operating lease agreements. Rent expense was approximately $1,150,000,
$1,114,000, and $1,522,000 for the years ended December 31, 1997, 1998 and 1999
respectively. During 1998, the Company decided not to exercise its option to
renew the existing lease of the Company's headquarters and, in September 1999,
signed a new office lease agreement for approximately 73,000 square feet of
office space to house the Company's headquarters and operations which began
September 1999. The lease agreement has a term of 10 years with additional
options for extension and provides options to lease additional space. The
Company has an obligation to rent additional office space of at least 12,000
square feet but limited to 20,000 square feet at the current facility on or
before October 1, 2000. The Company expects to meet its minimum obligation for
additional office space.
Future minimum rental commitments relating to these leases are as follows
(in thousands):
<TABLE>
<S> <C>
2000...................................................... $ 2,145
2001...................................................... 2,084
2002...................................................... 2,003
2003...................................................... 1,937
2004...................................................... 1,973
Thereafter................................................ 9,828
-------
$19,970
=======
</TABLE>
F-15
<PAGE> 88
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- BANK LINE OF CREDIT
At December 31, 1998, the Company had a three-year Credit and Security
Agreement with a financial institution, providing the Company with secured
borrowings of up to $3,000,000, none of which was outstanding at December 31,
1998. During 1999, the Credit and Security Agreement was replaced with a
Revolving Credit Loan Agreement described in Note G.
NOTE G -- LONG-TERM DEBT
On August 12, 1999, the Company entered into a four-year Revolving Credit
Loan Agreement (Agreement) with a financial institution, providing the Company
with borrowings of up to $25,000,000, $22,000,000 of which was outstanding at
December 31, 1999. The proceeds were used, principally, to acquire certain
redeemable preferred stock and the Class A common stock in the recapitalization.
Borrowings under the Agreement are secured by all of the assets of the Company.
At the Company's election, interest on borrowings is based on either the London
Interbank Rate plus 2.5% or the prime rate plus 0.75%. At December 31, 1999, the
Company elected a 180-day LIBOR base on $20,000,000 and prime rate on the
remainder of the outstanding balance. The effective interest rate on borrowings
at December 31, 1999 is 8.45%. The Company is subject to certain financial
ratios, including minimum interest coverage, debt service and current asset
ratios and limitations on additional debt pursuant to the Agreement which are
adjusted periodically based on the financial performance of the Company. At
December 31, 1999, the Company was in compliance with all such covenants.
NOTE H -- MANDATORILY REDEEMABLE PREFERRED STOCK
Prior to redemption (Note A2), holders of the Company's Series A
Convertible Exchangeable Preferred Stock had the right to convert shares of the
Series A Convertible Exchangeable Preferred Stock into Class B Common Stock upon
notice to the Company.
The holders of Preferred Stock were entitled to receive annual dividends at
the rate of 3% of the Preferred Stock issue price for Series A Convertible
Exchangeable Preferred Stock and 5% of the Preferred Stock issue price for
Series B Exchangeable Preferred Stock. The dividends were payable to the extent
of available cash (as defined in the Company's Certificate of Designations) in
arrears on June 30 for each year beginning June 30, 1998, and continuing until
the preferred shares have been redeemed, converted to Common Stock, or exchanged
for a note. The amount of any specified dividend in excess of available cash, as
defined, was forgiven and was not cumulative. For purposes of dividend payments
and mandatory redemptions of preferred stock, available cash is defined as cash
in excess of $5 million. There were no dividends payable for the measurement
periods ending December 31, 1998 and 1997, as cash did not exceed the available
cash threshold as defined in the Agreement.
The Company's outstanding Preferred Stock at December 31, 1998 had an
aggregate liquidation preference of $40,541,000 over the Company's Common Stock
and had no voting rights relating to the election of the Company's Board of
Directors. Redemption of the outstanding Preferred Stock was required to begin
by the Company on June 30, 2001, and continue on each June 30 thereafter until
all shares of Preferred Stock had been redeemed, provided that no shares of
Series A Convertible Exchangeable Preferred Stock were redeemed, whether by
mandatory redemption or by optional redemption, until all outstanding shares of
Series B Exchangeable Preferred Stock were redeemed or otherwise acquired by the
Company and canceled.
F-16
<PAGE> 89
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The annual aggregate scheduled share redemption commitment at December 31,
1998 was as follows (in thousands):
<TABLE>
<S> <C>
2001...................................................... $ 3,000
2002...................................................... 3,000
Thereafter................................................ 34,541
-------
$40,541
=======
</TABLE>
In 1998, the Company entered into a Restructuring Agreement (the Agreement)
with the preferred stockholder, certain Company officers and directors, and
certain creditors.
The principal attributes of the Agreement were to provide for the
conversion of $4,725,000 of debt owed to the preferred stockholder to 4,725
shares of Series A Preferred Stock and to mutually release claims and
liabilities arising from events up through the date of the Agreement among all
parties.
NOTE I -- CONVERTIBLE PARTICIPATING PREFERRED STOCK
In its Restated Certificate of Incorporation dated August 13, 1999, the
Company authorized 75 million shares of preferred stock, $0.001 par value per
share, designated as Series A Convertible Participating Preferred Stock
(Convertible Preferred). The Convertible Preferred carries a liquidation
preference of approximately $34 million and participates on an as converted
basis with Common Stock on voting and dividend rights. The Convertible Preferred
may be converted to Common Stock on a .5 share for one share basis at the
election of the holder which provide antidilutive conversion features. The
Convertible Preferred is mandatorily convertible to Common Stock of the Company
upon the consummation of the first underwritten public offering for the account
of the Company pursuant to a registration statement filed under the Securities
Act of 1933, as amended with aggregate proceeds (net of underwriting discounts
and commissions) to the Company of not less than $25,000,000.
NOTE J -- STOCK OPTION PLAN
The Company's Board of Directors has adopted the Convergent Group
Corporation 1999 Stock Option Plan (the 1999 Plan) which provides for the
issuance of options to purchase up to 6,421,070 shares of the Company's Common
Stock to any employee at the discretion of the Board of Directors. For the
period ended December 31, 1999, the Company granted options to purchase
3,888,114 shares of Common Stock under the 1999 Plan to employees, of which
1,057,588 vested immediately and the remainder vest either 20% on the grant date
anniversary each year for five years or ratably on the grant date anniversary
over three years.
On December 20, 1996, the Company's Board of Directors adopted the
Convergent Group Corporation 1996 Stock Option Plan (the 1996 Plan), which
provided for the issuance of options to purchase up to 1,278,958 shares of the
Company's Common Stock to any employee at the discretion of the Board of
Directors. During the years ended December 31, 1997, 1998 and 1999, the Company
granted options to purchase 479,682, 497,748, and 609,920 shares of common stock
under the 1996 Plan to employees, of which 141,716, 135,422 and -0- vested
immediately, and the remainder vest 20% on the grant date anniversary each year
for five years. All options granted had an exercise price of $0.03 per share and
ten-year terms. All options outstanding under the 1996 Plan became immediately
exercisable upon the change of control (as defined in the 1996 Plan) and were
exercised on or before August 13, 1999, and converted to Common Stock.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock
F-17
<PAGE> 90
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options. The Options generally have a term of 10 years when issued and vest over
three to five years. Had compensation cost for the Plan been determined based on
the fair value of the Options at the grant date consistent with the method of
Statement of Financial Accounting Standards 123, Accounting for Stock-Based
Compensation, the Company's net income (loss) and basic and diluted earnings
(loss) per common share would have been (in thousands except share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Net income (loss) available to common shareholder
As reported.............................................. $(1,105) $5,677 $15,566
Pro forma................................................ $(1,105) $5,677 $15,689
Basic earnings (loss) per common share
As reported.............................................. $ (0.07) $ 0.38 $ 1.09
Pro forma................................................ $ (0.07) $ 0.38 $ 1.10
Diluted earnings (loss) per share
As reported.............................................. $ (0.07) $ 0.24 $ 0.55
Pro forma................................................ $ (0.07) $ 0.24 $ 0.56
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions for grants used in 1997, 1998 and 1999: no expected dividends;
expected volatility of 0%; risk-free interest rate of 6%; and expected lives of
five years.
The following table summarizes the activity of the Company's 1999 Stock
Option Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1999........................... -- $ --
Granted.................................................. 3,888,414 0.092
Exercised................................................ (302,168) 0.092
Canceled................................................. (35,300) 0.092
---------- ------
Outstanding at December 31, 1999......................... 3,550,946 $0.092
---------- ------
Total Exercisable at December 31, 1999................... 3,550,946 $0.092
========== ======
(Weighted average fair value of options granted during 1999 was $0.72)
</TABLE>
F-18
<PAGE> 91
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity of the Company's 1996 Stock
Option Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
<S> <C> <C>
OUTSTANDING AT JANUARY 1, 1997.............................. 356,094 $0.02
Granted................................................... 479,682 0.02
Exercised................................................. (19,071) 0.02
Canceled.................................................. (59,220) 0.02
---------- -----
OUTSTANDING AT DECEMBER 31, 1997............................ 757,485 $0.02
---------- -----
Total exercisable at December 31, 1997...................... 301,694 $0.02
========== =====
(Weighted average fair value of options granted during 1997 was $0.02)
Outstanding at January 1, 1998............................ 757,485 $0.02
Granted................................................... 497,748 0.02
Exercised................................................. (3,943) 0.02
Canceled.................................................. (52,926) 0.02
---------- -----
OUTSTANDING AT DECEMBER 31, 1998............................ 1,198,364 0.02
---------- -----
Total exercisable at December 31, 1998...................... 492,525 $0.02
========== =====
(Weighted average fair value of options granted during 1998 was $0.06)
Outstanding at January 1, 1999............................ 1,198,364 $0.02
Granted................................................... 609,920 0.14
Exercised................................................. (1,727,915) 0.04
Canceled.................................................. (80,369) 0.02
---------- -----
OUTSTANDING AT DECEMBER 31, 1999............................ -- $ --
========== =====
</TABLE>
The following information applies to stock options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF OPTIONS WEIGHTED AVERAGE REMAINING
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
- --------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$0.092 3,550,946 $0.092 8.76
</TABLE>
The following information applies to options exercisable at December 31,
1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OPTIONS EXERCISE PRICE
- ----- --------- --------------
<S> <C> <C>
$0.092.. 3,550,946 $0.092
</TABLE>
The Company recorded compensation expense of $693,470 in 1999 related to
stock options issued at prices below fair market value. Compensation expense of
$5,252,611 will be recognized in future periods as these options vest over 3 to
5 years or on the occurrence of certain future events.
In accordance with the Plan agreement, these options may be exercised prior
to vesting. However, unvested shares are returnable to the Company upon
termination of employment at the exercise price.
NOTE K -- EMPLOYMENT AGREEMENTS WITH OFFICERS
At the formation of Convergent Group Corporation, certain Company officers
entered into long-term employment contracts. The contracts were for a period of
ten years and, among other things, provide for
F-19
<PAGE> 92
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
base salaries, minimum annual bonuses subject to the Company's financial
performance as determined by the Compensation Committee, other special benefits,
and the prohibition of the officer owning or working for a competitive entity
for a period of three years after termination of the officer's employment with
the Company.
On August 13, 1999, pursuant to the Recapitalization Agreement between
Convergent Group Corporation and certain investors in the Company's new Series A
Convertible Participating Preferred Stock, the long-term employment contracts
were terminated for $2,440,000. The Company then entered into long-term
employment contracts with certain Company officers. The contracts are for a
period of four years and provide for base salaries and minimum annual bonuses.
At December 31, 1998 and 1999, $1,384,000 and $127,000, respectively is
included in accrued compensation and related expenses for bonuses to such
officers related to performance for the year then ended.
NOTE L -- ACCRUED LIABILITY FOR ANTICIPATED CONTRACT COSTS
The accrued liability for anticipated contract costs consists of accruals
for goods and services to be provided with regard to contracts where components
of the contracts result in varying profit margins during the contract
performance period and in accordance with the percentage of completion method of
accounting, costs associated with future performance are accrued to reflect such
margins at the overall expected margin at the completion of the contract. The
long-term portion of the accrual represents costs that the Company expects to
incur beyond the subsequent fiscal year.
NOTE M -- RESTRUCTURING COSTS
In December 1996, the Company adopted a plan to phase out GDS software
research and development and focus on the delivery of system integration and
consulting services.
As a result of the decision to phase out any further investments in GDS
software research and development, certain assets including purchased software,
property and equipment, inventory, accounts receivable and goodwill became
impaired. The Company also became obligated under the terms of existing
contracts to perform substantial services to migrate several customers to other
software platforms. The Company also had contractual obligations under existing
leases for space no longer used in operations as a result of the restructuring,
and for employee termination and other costs directly attributable to the
restructuring.
At December 31, 1997 an accrual of approximately $957,000 remained on the
Company's financial statements to allow fulfillment of its obligations resulting
from the restructuring. At December 31, 1998, the Company had fulfilled all
contractual obligations to customers as a result of the restructuring and
reversed the remaining accrual of approximately $95,000.
In April 1997, the Company sold to Informatix assets associated with the
GDS product development business. Certain employees involved with product
development also transferred to Informatix. Payment terms for the $1,750,000
sale were $1,000,000 at closing, $500,000 due December 31, 1997, and $250,000
due December 31, 1998. The Company realized a gain on the sale of GDS software
and fixed assets to Informatix of approximately $1,500,000, representing the net
difference between the carrying value of the assets sold and the expected
proceeds of the sale. The likelihood of this transaction was almost certain when
the restructuring accrual was recorded in 1996, and this recovery was included
in the original accrual. Consequently, when the transaction occurred during
1997, the proceeds from the sale to Informatix were netted against the accrual
for restructuring costs. As of December 31, 1998 all amounts had been collected.
F-20
<PAGE> 93
CONVERGENT GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In a transaction concurrent with the asset sale, the Company and Informatix
entered into an ongoing maintenance agreement. For a three-year term, Informatix
will provide software development, support and maintenance services necessary to
support the ongoing customer maintenance support services. In exchange for such
services, the Company will pay $100,000 per month for the first year and $65,000
per month for the final two years of the agreement. The three year maintenance
agreement with Informatix was accounted for on a monthly basis over the three
year term of the agreement (the agreement expires on April 30, 2000). Each
month, maintenance revenue was recorded from the customers with whom the Company
had ongoing maintenance contracts and maintenance expense was recorded based on
payment made or due to Informatix for that month ($100,000 for the first two
years and $65,000 for the final two years). With this agreement in place, the
Company continued to provide first line customer maintenance support, but had
effectively out-sourced the remaining maintenance to which it has committed. The
Company subsequently agreed to transfer first line maintenance support to
Informatix effective April 2000.
On February 5, 1996, the Company merged with the business and related net
assets of ARC Systems through a newly formed, wholly owned subsidiary, CGAP, an
Australian company.
Discontinuance of the GDS product development business eliminated the
strategic benefits of the merger with CGAP. As a result, in April 1997, the
merger was reversed with no future obligation to the Company.
NOTE N -- MAJOR CUSTOMERS
A significant portion of the Company's business resulted from contracts
with major customers. Major customers accounted for approximately 12%, 13% and
27% of the Company's total revenue for the year ended December 31, 1997, 10%,
15%, and 20% for the year ended December 31, 1998 and 9%, 9%, and 18% for the
year ended December 31, 1999.
NOTE O -- RELATED PARTY TRANSACTIONS
During August 1999 as part of the recapitalization, the Company loaned
$2,000,000 to an officer of the Company, secured by a Stock Pledge Agreement and
Guarantee Agreement. The nonrecourse loan carries an interest rate of 5.9% and
is payable in four equal installments beginning July 1, 2003. However, if the
Company experiences a major capital event, such as a sale of all or
substantially all of its assets, a merger, or an initial public offering, the
entire unpaid principal amount and all accrued interest become immediately due
and payable.
As part of its recapitalization, the Company entered into an agreement with
one of its institutional investors providing for an annual management fee of
$500,000 for management and strategic advice. In addition, the agreement
provides for payment of a fee equal to 1% of the implied equity value of the
Company in a transaction which results in either a sale of the Company which is
approved by the holders of more than 50% of the then outstanding stock of the
Company or a public offering. The agreement terminates upon the earlier of an
initial public offering in which the Company raises net proceeds of at least $25
million or at such time as the shares held by the investor falls below certain
thresholds.
On November 19, 1999, the Company acquired 100% of the outstanding common
stock of an entity wholly owned by a former individual shareholder of the
Company for the sole purpose of terminating an existing Consulting Agreement
with the individual shareholder. Among other things, the Consulting Agreement,
which had a remaining term of approximately five years, obligated the Company to
minimum monthly consulting fees of $14,000, quarterly incentive payments of
$25,000, and a finance fee equal to 8% of the net proceeds received by the
Company from a major capital event. The outstanding common stock was acquired by
the Company for $3,920,000 in cash and was expensed during 1999.
F-21
<PAGE> 94
[CONVERGENT GROUP LOGO]
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
for the SEC and NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 32,941
--------
NASD filing fee............................................. $ 12,978
--------
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer agent fees......................................... *
Miscellaneous fees and expenses............................. *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors,
officers and specific other persons in terms sufficiently broad to permit
indemnification under particular circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act").
The Registrant's restated certificate of incorporation and amended by-laws
provide that, to the fullest extent permitted by the laws of the state of
Delaware, no director will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Furthermore, the Registrant's restated certificate of incorporation provides
that, except as prohibited by law, each of the Registrant's directors and
officers is entitled to be indemnified by the Registrant against all expenses
and liability incurred in connection with any legal proceeding brought against
him or her by virtue of his or her position as a director or officer. This right
to indemnification may extend to a person serving as an employee or other
representative of the Registrant or a subsidiary of the Registrant. A person
entitled to indemnification is entitled to have the Registrant advance to him or
her the expenses of a legal proceeding brought against him or her.
These provisions of the restated certificate of incorporation and the
amended by-laws do not eliminate the fiduciary duties of the directors and
officers of the Registrant, and in appropriate circumstances, equitable remedies
such as injunctive or other forms of relief will remain available under Delaware
law. In addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Registrant for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations of
law, and for dividends or approval of stock repurchases or redemption's that are
unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
The Delaware General Corporation Law also allows the Registrant to purchase
insurance covering the Registrant's directors and officers against liability
asserted against them in their capacity as directors and officers. The
Underwriting Agreement also provides for the indemnification of officers,
directors and controlling persons of the Registrant against specific
liabilities.
II-1
<PAGE> 96
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Common Stock and Preferred Stock. Set forth in chronological order is
information regarding shares of common stock and preferred stock issued and
options granted by the Registrant since January 1997. All share numbers have
been adjusted to reflect a 470 for 1 stock split effected in October, 1997; a
7.83 for 1 stock split effected in August, 1999; and a 1-for-2 reverse stock
split effected immediately prior to the completion of this offering. Further
included is the consideration, if any, received by the Registrant for such
shares and options and information relating to the section of the Securities Act
of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
1. In June, 1997, the Registrant issued 98,097 shares of common stock to an
employee upon exercise of an option for an aggregate purchase price of $2,505.
2. In October, 1997, the Registrant issued 19,085 shares of common stock to
an employee upon exercise of an option for an aggregate purchase price of $488.
3. In January, 1998, the Registrant issued 4,725 shares of Series A
Preferred Stock to Electronic Data Systems Corporation in satisfaction of
obligations owed to them totaling $4,725,000.
4. In January, 1998, the Registrant issued 83,906 shares of common stock as
a stock grant to an employee.
5. In March, 1998, the Registrant issued 763 shares of common stock to an
employee upon exercise of an option for an aggregate purchase price of $20.
6. In May, 1998, the Registrant issued 1,957 shares of common stock to an
employee upon exercise of an option for an aggregate purchase price of $50.
7. In January, 1999, the Registrant issued 304,402 shares of common stock
to an employee upon exercise of an option for an aggregate purchase price of
$7,775.
8. In February, 1999, the Registrant issued 391,500 shares of common stock
as a stock grant to two trusts for the benefit of the children of a director.
9. In March, 1999, the Registrant issued 39,150 shares of common stock as a
stock grant to an employee.
10. In August, 1999, the Registrant issued 255,407 shares of common stock
as a stock grant to an employee.
11. In August, 1999, the Registrant issued 1,420,751 shares of common stock
to 67 employees upon exercise of options for an aggregate purchase price of
$36,290.
12. In August 1999, the Registrant issued 32,530,778 shares of New Series A
Preferred Stock to 13 investors for $1.08 per share, for an aggregate purchase
price of $35,294,767.51.
13. In August 1999, the Registrant issued 9,447,911 shares of New Series A
Preferred Stock to certain existing shareholders and employees in exchange for
9,447,911 shares of common stock.
14. In August 1999, the Registrant issued 10,138,720 shares of common stock
as a stock grant to certain existing shareholders and employees.
15. Between August 14, 1999 and December 31, 1999, the Registrant issued
302,168 shares of common stock to three employees upon exercise of options for
an aggregate purchase price of $27,799.
16. In September, 1999, the Registrant issued 377,710 shares of common
stock as a stock grant to four employees.
17. In October, 1999, the Registrant issued 755,420 shares of common stock
as a stock grant to a director and to two trusts for the benefit of the children
of a director.
II-2
<PAGE> 97
18. Between January 1, 2000 and March 31, 2000, the Registrant issued
773,197 shares of common stock to 150 employees upon exercise of options for an
aggregate exercise price of $71,134.
19. In January and February 2000, the Registrant issued 509,012 shares of
New Series A Preferred Stock to GMJM Stock Partnership, Ltd. in exchange for
254,506 shares of common stock.
Options. The Registrant from time to time has granted stock options to
employees, directors and consultants. The following table sets forth certain
information regarding such grants.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
January 1, 1997 to December 31, 1997........................ 480,049 $0.026
January 1, 1998 to December 31, 1998........................ 498,129 $0.026
January 1, 1999 to August 13, 1999.......................... 617,485 $0.026
August 14, 1999 to December 31, 1999........................ 3,888,414 $0.092
January 1, 2000 to March 31, 2000........................... 1,044,210 $0.092-6.76
</TABLE>
All of the above-described issuances were exempt from registration (i)
pursuant to Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder, as transactions not involving a public offering or (ii) Rule 701
promulgated under the Securities Act or (iii) as transactions not involving a
sale of securities. No underwriters were involved in connection with the sales
of securities referred to in this Item 15.
II-3
<PAGE> 98
ITEM 16(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 -- Form of Underwriting Agreement.*
3.1 -- Restated Certificate of Incorporation of the Registrant.
3.1A -- Certificate of Amendment to Certificate of
Incorporation.*
3.2 -- Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.**
3.3 -- By-Laws of the Registrant, including all amendments
thereto.
3.4 -- Amended By-Laws of the Registrant, to be effective upon
the closing of this offering.**
4.1 -- Specimen common stock certificate.*
4.2 -- Credit Agreement with Fleet Bank.
5 -- Opinion of O'Sullivan Graev & Karabell, LLP.*
10.1 -- Recapitalization Agreement, dated as of August 13, 1999,
by and among the Registrant, certain shareholders of the
Registrant, Scott M. Schley as the Shareholder's
representative, InSight Capital Partners III, L.P. as the
Investor's representative and the Investors party
thereto.
10.2 -- Stock Purchase and Redemption Agreement, dated as of
August 13, 1999, by and among the Registrant, certain
shareholders of the Registrant, Scott M. Schley as the
shareholder's representative, InSight Capital Partners
III, L.P. as the Investor's representative and the
Investors party thereto.
10.3 -- 1999 Stock Option Plan, including Amendment No. 1
thereto.
10.4 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Glenn E. Montgomery, Jr..
10.5 -- Registration Rights Agreement, dated as of August 13,
1999 by and among the Registrant, the Investors and the
continuing shareholders of the Registrant.
10.6 -- Stock Pledge Agreement, dated as of August 13, 1999, by
and between Glenn E. Montgomery, Jr. and the Registrant.
10.7 -- Agreement, dated as of August 13, 1999, by Glenn E.
Montgomery, Jr., GMJM Stock Partnership, Ltd., InSight
Capital Partners III, L.P. and the Registrant.
10.8 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Mark L. Epstein.
10.9 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Larry J. Engelken.
10.10 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Scott M. Schley.
10.11 -- Employment Agreement, dated as of October 11, 1999,
between the Registrant and Mark Shirman, including
Amendment No. 1 thereto.
10.12 -- Employment Agreement, dated as of January 7, 2000,
between the Registrant and Bryan R. Mileger.
10.13 -- Restricted Stock Agreement, dated as of October 29, 1999,
between the Registrant and John Blend.
10.14 -- Restricted Stock Agreement, dated as of October 29, 1999,
between the Registrant and Robert Sharpe.
10.15 -- Form of Agreement used between the Registrant and its
clients.
</TABLE>
II-4
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.16 -- Office Lease, dated August 28, 1998, between the
Registrant and Fiddler's Green Center for real property
located at 6399 South Fiddler's Green Circle, Suite 600,
Englewood, CO 80111.
10.17 -- Service Agreement, dated as of July 10, 1997, between the
Registrant and Cinergy Corp.**
10.18 -- Service Agreement, dated as of August 21, 1996, between
the Registrant and Alliant Energy Corporation (f/k/a IES
Industries Inc.)**
10.19 -- Service Agreement, dated as of September 15, 1997,
between the Registrant and Citizens Utilities Company**
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Grant Thornton, LLP.**
23.2 -- Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5).*
24 -- Powers of Attorney (included on signature pages).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
ITEM 16(b). EXHIBITS AND FINANCIAL STATEMENTS
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 100
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of New
York, State of New York, on April 12, 2000.
CONVERGENT GROUP CORPORATION
By:/s/ GLENN E. MONTGOMERY, JR.
----------------------------------
Glenn E. Montgomery, Jr.
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Acts of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GLENN E. MONTGOMERY, JR.* Chairman of the Board and Chief April 12, 2000
- ----------------------------------------------------- Executive Officer (Principal
Glenn E. Montgomery, Jr. Executive Officer)
/s/ BRYAN R. MILEGER* Chief Financial Officer April 12, 2000
- ----------------------------------------------------- (Principal Financial Officer
Bryan R. Mileger and Principal Accounting
Officer)
/s/ SCOTT M. SCHLEY Executive Vice President of April 12, 2000
- ----------------------------------------------------- Finance, Treasurer and
Scott M. Schley Director
/s/ ROBERT SHARPE* Director April 12, 2000
- -----------------------------------------------------
Robert Sharpe
/s/ JOHN W. BLEND* Director April 12, 2000
- -----------------------------------------------------
John W. Blend III
/s/ JERRY MURDOCK* Director April 12, 2000
- -----------------------------------------------------
Jerry Murdock
*By: /s/ SCOTT M. SCHLEY
------------------------------------------------
Scott M. Schley
Attorney-in-fact
</TABLE>
II-7
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1 -- Form of Underwriting Agreement.*
3.1 -- Restated Certificate of Incorporation of the Registrant.
3.1A -- Certificate of Amendment to Certificate of
Incorporation.*
3.2 -- Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.**
3.3 -- By-Laws of the Registrant, including all amendments
thereto.
3.4 -- Amended By-Laws of the Registrant, to be effective upon
the closing of this offering.**
4.1 -- Specimen common stock certificate. *
4.2 -- Credit Agreement with Fleet Bank.
5 -- Opinion of O'Sullivan Graev & Karabell, LLP.*
10.1 -- Recapitalization Agreement, dated as of August 13, 1999,
by and among the Registrant, certain shareholders of the
Registrant, Scott M. Schley as the Shareholder's
representative, InSight Capital Partners III, L.P. as the
Investor's representative and the Investors party
thereto.
10.2 -- Stock Purchase and Redemption Agreement, dated as of
August 13, 1999, by and among the Registrant, certain
shareholders of the Registrant, Scott M. Schley as the
shareholder's representative, InSight Capital Partners
III, L.P. as the Investor's representative and the
Investors party thereto.
10.3 -- 1999 Stock Option Plan, including Amendment No. 1
thereto.
10.4 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Glenn E. Montgomery, Jr..
10.5 -- Registration Rights Agreement, dated as of August 13,
1999 by and among the Registrant, the Investors and the
continuing shareholders of the Registrant.
10.6 -- Stock Pledge Agreement, dated as of August 13, 1999, by
and between Glenn E. Montgomery, Jr. and the Registrant.
10.7 -- Agreement, dated as of August 13, 1999, by Glenn E.
Montgomery, Jr., GMJM Stock Partnership, Ltd., InSight
Capital Partners III, L.P. and the Registrant.
10.8 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Mark L. Epstein.
10.9 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Larry J. Engelken.
10.10 -- Employment Agreement, dated as of August 13, 1999,
between the Registrant and Scott M. Schley.
10.11 -- Employment Agreement, dated as of October 11, 1999,
between the Registrant and Mark Shirman, including
Amendment No. 1 thereto.
10.12 -- Employment Agreement, dated as of January 7, 2000,
between the Registrant and Bryan R. Mileger.
10.13 -- Restricted Stock Agreement, dated as of October 29, 1999,
between the Registrant and John Blend.
10.14 -- Restricted Stock Agreement, dated as of October 29, 1999,
between the Registrant and Robert Sharpe.
10.15 -- Form of Agreement used between the Registrant and its
clients.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.16 -- Office Lease, dated August 28, 1998, between the
Registrant and Fiddler's Green Center for real property
located at 6399 South Fiddler's Green Circle, Suite 600,
Englewood, CO 80111.
10.17 -- Service Agreement, dated as of July 10, 1997, between the
Registrant and Cinergy Corp.**
10.18 -- Service Agreement, dated as of August 21, 1996, between
the Registrant and Alliant Energy Corporation (f/k/a IES
Industries Inc.)**
10.19 -- Service Agreement, dated as of September 15, 1997,
between the Registrant and Citizens Utilities Company**
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Grant Thornton, LLP.**
23.2 -- Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5).*
24 -- Powers of Attorney (included on signature pages).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CONVERGENT GROUP CORPORATION
ARTICLE I
The name of the corporation is Convergent Group Corporation (the
"Corporation").
ARTICLE II
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended ("Delaware Law") and to possess and exercise all of the powers and
privileges granted by such law and any other law of the State of Delaware.
ARTICLE III
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 200,000,000 consisting of (a)
125,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), and (b) 75,000,000 shares of Preferred Stock, par value $.001 per share
(the "Preferred Stock").
The Board of Directors is hereby empowered to authorize by resolution
or resolutions from time to time the issuance of one or more classes or series
of Preferred Stock and to fix the designations, powers, preferences and
relative, participating, optional and other rights, if any, and the
qualifications, limitations and restrictions thereof, if any, including, without
limitation, the number of shares constituting each such class or series,
dividend rights, conversion rights, redemption privileges, voting powers, full
or limited or no voting powers, and liquidation preferences, and to increase or
decrease the size of any such class or series (but not below the number of
shares of any class or series of Preferred Stock then outstanding) to the extent
permitted by Delaware Law. Without limiting the generality of the foregoing, the
resolution or resolutions providing for the establishment of any class or series
of Preferred Stock may, to the extent permitted by law, provide that such class
or series shall be superior to, rank equally with or be junior to the Preferred
Stock of any other class or series. Except as otherwise expressly provided in
the resolution or resolutions providing for the establishment of any class or
<PAGE> 2
series of Preferred Stock, no vote of the holders of shares of Preferred Stock
or Common Stock shall be a prerequisite to the issuance of any shares of any
class or series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation.
ARTICLE IV
(i) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors consisting of not less
than three or nor more than 15 directors, the exact number of directors to be
determined from time to time solely by resolution adopted by the affirmative
vote of a majority of the entire Board of Directors.
(ii) The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Each director shall serve for a term ending on
the date of the third annual meeting of stockholders next following the annual
meeting at which such director was elected, provided that directors initially
designated as Class I directors shall serve for a term ending on the date of the
2001 annual meeting, directors initially designated as Class II directors shall
serve for a term ending on the date of the 2002 annual meeting, and directors
initially designated as Class III directors shall serve for a term ending on the
date of the 2003 annual meeting. Notwithstanding the foregoing, each director
shall hold office until such director's successor shall have been duly elected
and qualified or until such director's earlier death, resignation or removal. In
the event of any change in the number of directors, the Board of Directors shall
apportion any newly created directorship among, or reduce the number of
directorships in, such class or classes as shall equalize, as nearly as
possible, the number of directors in each class. In no event will a decrease in
the number of directors shorten the term of any director.
(iii) The names and mailing addresses of the persons who are
to serve initially as directors of each class are:
Name Mailing Address
Class 1 Scott Schley Convergent Group Corporation
399 South Fiddler's Green Circle, Suite 600
Englewood, CO 80111
Class II John Blend III c/o Insight Capital Partners
527 Madison Avenue, 10th Floor
New York, NY 10022
Robert Sharpe
-2-
<PAGE> 3
Name Mailing Address
Class III Jerry Murdock c/o Insight Capital Partners
527 Madison Avenue, 10th Floor
New York, NY 10022
Glenn E. Convergent Group Corporation
Montgomery, Jr. 6399 South Fiddler's Green Circle, Suite 600
Englewood, CO 80111
(iv) There shall be no cumulative voting in the election of
directors. Election of directors need not be by written ballot unless the bylaws
of the Corporation so provide.
(v) Vacancies on the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the number of directors may be filled solely by a majority of
the directors then in office (although less than a quorum) or by the sole
remaining director, and each director so elected shall hold office for a term
that shall coincide with the term of the Class to which such director shall have
been elected.
(vi) No director may be removed from office by the
stockholders except for cause with the affirmative vote of the holders of not
less than 66 2/3% of the total voting power of all outstanding securities of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class.
(vii) Notwithstanding the foregoing, whenever the holders of
one or more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE III applicable thereto, and such
directors so elected shall not be subject to the provisions of this ARTICLE IV
unless otherwise provided therein.
ARTICLE V
The Board of Directors shall have the power to adopt, amend or repeal
the bylaws of the Corporation by the majority vote of the directors then in
office. The stockholders may adopt, amend or repeal the bylaws only with the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
-3-
<PAGE> 4
ARTICLE VI
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of stockholders at an
annual or special meeting duly noticed and called in accordance with Delaware
Law as amended from time to time, and may not be taken by written consent of
stockholders without a meeting.
ARTICLE VII
Special meetings of the stockholders may be called by the Board of
Directors or the Chairman of the Board of Directors, the Chief Executive Officer
or the President of the Corporation and may not be called by any other person.
Notwithstanding the foregoing, whenever holders of one or more classes or series
of Preferred Stock shall have the right, voting separately as a class or series,
to elect directors, such holders may call, pursuant to the terms of the
resolution or resolutions adopted by the Board of Directors pursuant to ARTICLE
III hereto, special meetings of holders of such Preferred Stock.
ARTICLE VIII
(i) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, to the fullest extent permitted by Delaware Law.
(ii) (a) Each person (and the heirs, executors or
administrators of such person) who was or is a party or is threatened to be made
a party to, or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, partnership, joint venture, limited liability
company, trust or other enterprise, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by Delaware Law; provided,
however, that except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any such person (or the heirs,
executors or administrators of such person) in connection with any action, suit
or proceeding (or part thereof) initiated by such person unless such action,
suit or proceeding (or part thereof) was authorized or consented to by the Board
of Directors. The right to indemnification conferred in this ARTICLE VIII shall
also include the right to be paid by the Corporation the expenses incurred in
connection with any such proceeding in advance of its final disposition to the
fullest extent authorized by Delaware Law. The right to indemnification
conferred in this ARTICLE VIII shall be a contract right.
(b) The Corporation may, by action of its Board of
Directors, provide indemnification to such of the officers, employees and agents
of the Corporation and such other persons serving at the request of the
Corporation as officers, employees and agents of another
-4-
<PAGE> 5
corporation, partnership, joint venture, limited liability company, trust or
other enterprise to such extent as is permitted by Delaware Law and the Board of
Directors shall determine to be appropriate.
(iii) The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, limited liability company, trust or other enterprise
against any expense, liability or loss incurred by such person in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under Delaware Law.
(iv) The rights and authority conferred in this ARTICLE VIII
shall not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(v) Neither the amendment nor repeal of this ARTICLE VIII, nor
the adoption of any provision of this Certificate of Incorporation or the bylaws
of the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE VIII
in respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
ARTICLE IX
The Board of Directors is hereby authorized to create and issue,
whether or not in connection with the issuance and sale of any of its stock or
other securities or property, rights entitling the holders thereof to purchase
from the Corporation shares of stock or other securities of the Corporation or
any other corporation. The times at which and the terms upon which such rights
are to be issued shall be determined by the Board of Directors and set forth in
the contracts or instruments that evidence such rights. The authority of the
Board of Directors with respect to such rights shall include, but not be limited
to, determination of the following:
(i) the initial purchase price per share or other unit of the
stock or other securities or property to be purchased upon exercise of
such rights;
(ii) provisions relating to the times at which and the
circumstances under which such rights may be exercised or sold or
otherwise transferred, either together with or separately from, any
other stock or securities of the Corporation;
(iii) provisions which adjust the number or exercise price of
such rights, or amount or nature of the stock or other securities or
property receivable upon exercise of such rights, in the event of a
combination, split or recapitalization of any stock of the Corporation,
a change in ownership of the Corporation's stock or other securities or
a reorganization, merger, consolidation, sale of assets or other
occurrence relating to the Corporation or any stock of the Corporation,
and provisions restricting the ability of the
-5-
<PAGE> 6
Corporation to enter into any such transaction absent an assumption by
the other party or parties thereof of the obligations of the
Corporation under such rights;
(iv) provisions which deny the holder of a specified
percentage of the outstanding stock or other securities of the
Corporation the right to exercise such rights and/or cause the rights
held by such holder to become void;
(v) provisions which permit the Corporation to redeem such
rights; and
(vi) the appointment of a rights agent with respect to such
rights.
ARTICLE X
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
Corporation's registered agent at such address is The Corporation Trust Company.
ARTICLE XI
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers or trustees in dissolution appointed
for the Corporation under the provisions of Delaware Law, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
matter as the said court directs. If a majority in number representing 3/4 in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Corporation, as the case may be, and also on the Corporation.
ARTICLE XII
The Corporation reserves the right to amend this Certificate of
Incorporation in any manner permitted by the Delaware Law and all rights and
powers conferred upon stockholders, directors and officers herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in ARTICLES IV, V, VI, VII, VIII and IX and this ARTICLE XII may not be
repealed or amended in any respect, and no other
-6-
<PAGE> 7
provision may be adopted, amended or repealed which would have the effect of
modifying or permitting the circumvention of the provisions set forth in
ARTICLES IV, V, VI, VII, VIII and IX and this ARTICLE XII unless such action is
approved by the affirmative vote of the holders of not less than 66 2/3% of the
total voting power of all outstanding securities of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
* * * * * *
-7-
<PAGE> 1
EXHIBIT 3.4
================================================================================
CONVERGENT GROUP CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
---------------------------
AMENDED BY-LAWS
---------------------------
AS ADOPTED ON _______, 2000
EFFECTIVE AS PROVIDED IN SECTION 6.6
================================================================================
<PAGE> 2
AMENDED BY-LAWS
OF
CONVERGENT GROUP CORPORATION
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE.
The registered office of Convergent Group Corporation (the "Corporation")
in the State of Delaware shall be at 1209 Orange Street, City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
1.2 OTHER OFFICES.
The Corporation may also have an office or offices at any other place or
places within or outside the State of Delaware as the Board of Directors (the
"Board") may from time to time determine or the business of the Corporation may
require.
1.3 BOOKS.
The books of the Corporation may be kept within or without of the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
2.1 TIME AND PLACE OF MEETINGS.
All meetings of stockholders shall be held at such place, either within or
without of the State of Delaware, on such date and at such time as may be
determined from time to time by the Board of Directors (or the Chairman of the
Board of Directors in the absence of a designation by the Board of Directors).
2.2 ANNUAL MEETINGS.
Annual meetings of the stockholders, commencing with the year 2001, shall
be held for the election of directors and for the transaction of such other
business as may properly come before the meeting.
1
<PAGE> 3
2.3 SPECIAL MEETINGS.
Special meetings of the stockholders for any purpose or purposes may be
called by the Board, the Chairman of the Board of Directors, the Chief Executive
Officer or the President and may not be called by any other person.
Notwithstanding the foregoing, whenever holders of one or more classes or series
of Preferred Stock shall have the right, voting separately as a class or series,
to elect directors, such holders may call special meetings of such holders
pursuant to the terms of the certificate of designation for such classes or
series.
2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVERS OF NOTICE.
(a) Except as otherwise provided by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended ("Delaware
Law"), the Certificate of Incorporation of the Corporation (the "Certificate")
or these By-laws, notice of each annual or special meeting of the stockholders
shall be given to each stockholder of record entitled to vote at such meeting
not less than 10 nor more than 60 days before the day on which the meeting is to
be held, by delivering written notice thereof to such stockholder personally, or
by mailing a copy of such notice, postage prepaid, directly to the stockholder
at such stockholder's address as it appears in the records of the Corporation,
or by transmitting such notice thereof at such address by telegraph, cable or
other telephonic transmission. Every such notice shall state the place, the date
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called. Unless these By-laws otherwise
require, when a meeting is adjourned to another time or place (whether or not a
quorum is present), notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. Notwithstanding the
foregoing, if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting not less than 10 nor more than 60 days before the day on
which the meeting is to be held.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise provided in these By-laws, neither the business to
be transacted at, nor the purpose of, any meeting of the stockholders need be
specified in any such notice or waiver of notice. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
2.5 QUORUM.
Unless otherwise provided by the Certificate or these By-laws and subject
to Delaware Law, at each meeting of stockholders the holders of a majority of
the issued and outstanding shares of capital stock of the Corporation entitled
to vote at such meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business.
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2.6 ORGANIZATION.
Unless otherwise determined by the Board, at each meeting of the
stockholders, the Chairman of the Board, if one shall have been elected, (or in
his absence or if one shall not have been elected, the Chief Executive Officer,
or in his absence or if one shall not have been elected, the President) shall
act as chairman of the meeting. The Secretary (or in his absence or inability to
act, the person whom the chairman of the meeting shall appoint secretary of the
meeting) shall act as secretary of the meeting and keep the minutes thereof.
2.7 ORDER OF BUSINESS.
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting.
2.8 VOTING.
(a) Unless otherwise provided in the Certificate of Incorporation and
subject to Delaware Law, each stockholder shall be entitled to one vote in
person or by proxy for each outstanding share of capital stock of the
Corporation held by such stockholder. Any shares of capital stock of the
Corporation held by the Corporation shall have no voting rights. Persons holding
stock in a fiduciary capacity shall be entitled to vote the shares so held. A
person whose stock is pledged shall be entitled to vote, unless in the transfer
by the pledgor on the books of the Corporation, such person has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or such
pledgee's proxy may represent such stock and vote thereon. If shares or other
securities having voting power stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the Secretary
of the Corporation shall be given written notice to the contrary and furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
(i) if only one votes, such person's act binds all;
(ii) if more than one votes, the act of the majority so voting
binds all; and
(iii) if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by
Delaware Law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 2.8 shall
be a majority or even-split in interest. The Corporation shall not vote directly
or indirectly any share of its own capital stock.
(b) Unless otherwise provided in Delaware Law, the Certificate of
Incorporation or these By-laws, in all matters other than the election of
directors, the affirmative vote of a majority of the shares of capital stock of
the Corporation present, in person or by proxy, at a meeting of stockholders and
entitled to vote on the subject matter shall be the act of the
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stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or by proxy at the meeting and entitled to vote on the
election of directors.
(c) Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
(d) Without limiting the manner in which a stockholder may authorize
another person or persons to act for such stockholder as proxy pursuant to
subsection (c) of this Section 2.8, the following shall constitute a valid means
by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another
person or persons to act for such stockholder as proxy. Execution may be
accomplished by the stockholder or such stockholder's authorized officer,
director, employee or agent signing such writing or causing such person's
signature to be affixed to such writing by any reasonable means including,
but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to act
for such stockholder as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram, cablegram or
other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(e) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (d)
of this Section 2.8 may be substituted or used in lieu of the original writing
or transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.9 INSPECTORS OF ELECTIONS.
Preceding any meeting of the stockholders, the Board by resolution or the
Chairman of the Board or the Chief Executive Officer shall appoint one or more
persons to act as inspectors at the meeting and make a written report thereof.
The Corporation may designate one or more alternate inspectors to replace any
inspector who fails to act. In the event no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of the duties of an inspector, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of such inspector's ability. The inspectors shall:
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(a) ascertain the number of shares outstanding and the voting
power of each,
(b) determine the shares represented at a meeting and the
validity of proxies and ballots,
(c) count all votes and ballots,
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
and
(e) certify their determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector(s) may appoint or retain other persons or entities
to assist the inspectors in the performance of the duties of inspector.
In determining the shares represented and the validity and
counting of proxies and ballots, the inspector shall be limited to an
examination of the proxies, any envelopes submitted with those proxies, any
information provided in accordance with Section 2.8 of these By-laws, ballots
and the regular books and records of the Corporation. The inspector may consider
other reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers or their nominees or a
similar person which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspector considers other reliable information for the limited
purpose permitted by this paragraph, the inspector, at the time of his or her
certification pursuant to subsection (e) of this Section 2.9, shall specify the
precise information considered, the person or persons from whom the information
was obtained, when this information was obtained, the means by which the
information was obtained, and the basis for the inspector's belief that such
information is accurate and reliable.
2.10 OPENING AND CLOSING OF POLLS.
The date and time of the opening and closing of the polls for each matter
to be voted upon at a stockholder meeting shall be announced at the meeting. The
inspector of the election shall be prohibited from accepting any ballots,
proxies or votes or any revocations thereof or changes thereto after the closing
of the polls, unless the Court of Chancery upon application by a stockholder
shall determine otherwise.
2.11 LIST OF STOCKHOLDERS.
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote thereat, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any
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purpose germane to any such meeting, during ordinary business hours, for a
period of at least 10 days prior to such meeting, either at a place within the
city where such meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. Such list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.12 ACTION BY CONSENT.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of stockholders at an
annual or special meeting duly noticed and called in accordance with Delaware
Law and may not be taken by written consent of stockholders without a meeting.
2.13 NOMINATION OF DIRECTORS.
Only persons who are nominated in accordance with the procedures set forth
in these By-laws shall be eligible to serve as directors. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders (a) by or at the direction of the Board of Directors or
(b) by any stockholder of the Corporation who is a stockholder of record at the
time of giving of notice provided for in this Section 2.13, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice procedures set forth in this Section 2.13. Such nominations,
other than those made by or at the direction of the Board of Directors, must be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 90
days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "1934 Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
stockholder, (ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nominations are to be made by such stockholder. At the request of the
Board of Directors, any person nominated by the Board of Directors for election
as a director shall furnish to the secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-law. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 2.13, a stockholder
shall
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also comply with all applicable requirements of the 1934 Act, and the rules and
regulations thereunder with respect to the matters set forth in this Section
2.13.
2.14 NOTICE OF BUSINESS.
At any meeting of the stockholders, only such business shall be conducted
as shall have been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of the notice provided for in this
Section 2.14, who shall be entitled to vote at such meeting and who complies
with the notice procedures set forth in this Section 2.14. For business to be
properly brought before a stockholder meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
90 days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the meeting (a) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business business and a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business by such
stockholder. Notwithstanding anything in the By-laws to the contrary, no
business shall be conducted at a stockholder meeting except in accordance with
the procedures set forth in this Section 2.14. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of the By-laws, and if he should so determine, he shall so declare to
the meeting any such business not properly brought before the meeting shall not
be transacted. Notwithstanding the foregoing provisions of this Section 2.14, a
stockholder shall also comply with all applicable requirements of the 1934 Act,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 2.14.
ARTICLE III
BOARD OF DIRECTORS
3.1 GENERAL POWERS.
Except as otherwise provided by Delaware Law or the Certificate, the
business, property and affairs of the Corporation shall be managed by or under
the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate directed or required to be exercised or done by the stockholders.
3.2 NUMBER, CLASSES AND TERM OF OFFICE.
The Board of Directors shall consist of not less than three nor more than
fifteen directors, with the exact number of directors to be determined from time
to time solely by resolution adopted by the affirmative vote of a majority of
the entire Board of Directors. The directors shall
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be divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Except as
otherwise provided in the Certificate of Incorporation, each director shall
serve for a term ending on the date of the third annual meeting of stockholders
next following the annual meeting at which such director was elected.
Notwithstanding the foregoing, each director shall hold office until such
director's successor shall have been duly elected and qualified or until such
director's earlier death, resignation or removal. Directors need not be
stockholders.
3.3 RESIGNATION.
Any director may resign at any time by giving written notice to the Board
or the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein or, if the time be not specified, upon receipt thereof;
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
3.4 VACANCIES.
Unless otherwise provided in the Certificate of Incorporation, vacancies on
the Board of Directors resulting from death, resignation, removal or otherwise
and newly created directorships resulting from any increase in the number of
directors may be filled solely by a majority of the directors then in office
(although less than a quorum) or by the sole remaining director. Each director
so elected shall hold office for a term that shall coincide with the term of the
Class to which such director shall have been elected. If there are no directors
in office, then an election of directors may be held in accordance with Delaware
Law. Unless otherwise provided in the Certificate of Incorporation, when one or
more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in the filling of the other
vacancies.
3.5 REMOVAL.
No director may be removed from office by the stockholders except for cause
with the affirmative vote of the holders of not less than 66 2/3% of the total
voting power of all outstanding securities of the Corporation then entitled to
vote generally in the election of directors, voting together as a single class.
3.6 COMPENSATION.
Unless otherwise restricted by the Certificate of Incorporation or these
By-laws, the Board of Directors shall have authority to fix the compensation of
directors, including fees and reimbursement of expenses.
3.7 MEETINGS AND CONDUCT THEREOF
(a) Time and Place of Meetings. The Board may hold its meetings at
such place or places within or outside the State of Delaware, and at such times,
as may from time to time be determined by the Board (or the Chairman of the
Board in the absence of a determination by the Board).
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(b) Annual Meetings. As soon as practicable after each annual meeting
of stockholders, the Board shall meet for the purpose of organization, the
election of officers and the transaction of other business, on the same day and
at the same place where such annual meeting shall be held unless it shall have
transacted all such business by written consent pursuant to Section 3.8 of this
Article III. Notice of such meeting need not be given. In the event such annual
meeting is not so held, the annual meeting of the Board of Directors may be held
at such place either within or without the State of Delaware, on such date and
at such time as shall be specified in a notice thereof given as hereinafter
provided in Section 3.7(d) of this Article III or in a waiver of notice thereof
signed by any director who chooses to waive the requirement of notice.
(c) Regular Meetings. After the place and time of regular meetings of
the Board of Directors shall have been determined and notice thereof shall have
been once given to each member of the Board of Directors, regular meetings may
be held without further notice being given.
(d) Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board and shall be called by the Chairman of
the Board or the Secretary on the written request of three directors. Notice of
special meetings of the Board of Directors shall be given to each director at
least two days before the date of the meeting in such manner as is determined by
the Board of Directors or may be given on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate under the
circumstances.
(e) Waiver of Notice. A written waiver of any notice signed by the
person entitled thereto, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of directors need
be specified in any such notice or waiver of notice.
(f) Quorum and Manner of Acting. Unless the Certificate of
Incorporation or these By-laws require a greater number, a majority of the total
number of directors then in office shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and the affirmative vote of a majority of those directors present
at any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board. When a meeting is adjourned to
another time or place (whether or not a quorum is present), notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Board of Directors may transact any business which might have been transacted at
the original meeting. If a quorum shall not be present at any meeting of the
Board of Directors the directors present thereat may adjourn the meeting, from
time to time, without other than announcement at the meeting, until a quorum
shall be present.
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(g) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman of the Board, if any;
(ii) the President (if a director); or
(iii) any director designated by a majority of the directors
present.
The Secretary or, in the case of his absence, an Assistant Secretary, if an
Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
3.8 DIRECTORS' CONSENT IN LIEU OF MEETING.
Unless otherwise restricted by the Certificate of Incorporation or these
By-laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
3.9 ACTION BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS
EQUIPMENT.
Unless otherwise restricted by the Certificate of Incorporation or these
By-laws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board or such committee,
as the case may be, by means of conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting.
3.10 COMMITTEES.
The Board of Directors may designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matter: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by Delaware Law to be submitted to the stockholders for approval or
(ii) adopting, amending or repealing any bylaw of the Corporation. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required.
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3.11 PREFERRED DIRECTORS.
Notwithstanding anything else contained herein, whenever the holders of one
or more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filing of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolutions applicable thereto adopted by
the Board of Directors pursuant to the Certificate of Incorporation, and such
directors so elected shall not be subject to the provisions of Sections 3.2, 3.4
and 3.5 of this Article III unless otherwise provided therein.
3.12 INTERESTED DIRECTORS.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction, or solely
because any such director's or officer's votes are counted for such purpose if
(i) the material facts as to the director's or officer's relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
4.1 PRINCIPAL OFFICERS.
The principal officers of the Corporation shall be a Chairman of the Board,
if one is appointed by the Board (and any references to the Chairman of the
Board shall not apply if a Chairman has not been appointed), a Chief Executive
Officer, a President, one or more Vice Presidents, a Treasurer, and a Secretary
who shall have the duty, among other things, to record the proceedings of the
meetings of stockholders and directors in a book kept for that purpose. The
Corporation may also have such other principal officers, including one or more
controllers, as the Board may in its discretion appoint. One person may hold the
offices and perform the duties of any two or more of said offices, except that
no one person shall hold the offices and perform the duties of Chief Executive
Officer or President and Secretary. The officers of the
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Corporation need not be stockholders of the Corporation, nor, except in the case
of the Chairman of the Board, need such officers be directors of the
Corporation.
4.2 AUTHORITY AND DUTIES.
The officers, of the Corporation shall have such powers and perform such
incident to each of their respective offices and such other duties as may be
provided in these By-laws or as may from time to time be conferred upon or
assigned to them by the Board
4.3 SUBORDINATE OFFICERS.
In addition to the principal officers enumerated in Section 4.1 of this
Article IV, the Corporation may have such other subordinate officers, agents and
employees as the Board may deem necessary, including one or more Assistant
Secretaries, one or more Assistant Treasurers and one or more Assistant
Controllers, each of whom shall hold office for such period, have such authority
and perform such duties as the Board, the Chairman or the President may from
time to time determine. The Board may delegate to any principal officer the
power to appoint and define the authority and duties of, or remove, any such
officers, agents or employees.
4.4 TERM OF OFFICE, RESIGNATION, REMOVAL AND REMUNERATION.
The principal officers of the Corporation shall be elected annually by the
Board at the annual meeting thereof, or at such other times as the Board of
Directors shall deem appropriate. Each such officer shall hold office until such
officer's successor has been elected or appointed and qualified or until his
earlier death or resignation or removal. The remuneration of all officers of the
Corporation shall be fixed from time to time by the Board of Directors unless
otherwise delegated by the Board to a particular committee of the Board. Any
vacancy in any office shall be filled in such manner as the Board shall
determine. The Board may require any officer to give security for the faithful
performance of his duties.
Any officer may resign at any time by giving written notice to the Board,
the Chairman of the Board, the President or the Secretary. Such resignation
shall take effect at the time specified therein or, if the time be not
specified, at the time of receipt of notice thereof; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Except as otherwise permitted by Section 4.3 of this Article IV, any
officer may be removed, with or without cause, at any time, by resolution
adopted by the Board of Directors.
4.5 THE CHAIRMAN OF THE BOARD.
The Chairman of the Board shall give counsel and advice to the Board and
the officers of the Corporation on all subjects concerning the welfare of the
Corporation and the conduct of its business and shall perform such other duties
as the Board may from time to time determine. The Chairman of the Board shall
preside at meetings of the Board and of the stockholders at which he is present.
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4.6 THE PRESIDENT AND THE CHIEF EXECUTIVE OFFICER.
Unless otherwise determined by the Board, the President shall be the chief
executive officer of the Corporation. The President (or in the event the Board
separately appoints a Chief Executive Officer, the person appointed as such
Chief Executive Officer) shall have supervision, direction and control of the
business and affairs of the Corporation subject to the control of the Board and
shall see that all orders and resolutions of the Board are carried into effect.
The President (or in the event the Board separately appoints a Chief Executive
Officer, the person appointed as such Chief Executive Officer) shall from time
to time make such reports of the affairs of the Corporation as the Board of
Directors may require and shall perform such other duties as the Board may from
time to time determine.
If the Board has separately appointed a Chief Executive Officer and a
President, in the absence or disability of the Chief Executive Officer, the
President, unless otherwise determined by the Board, shall have the authority,
and shall perform the duties, of the Chief Executive Officer.
4.7 THE SECRETARY.
If requested by the Board of Directors or the Chairman of the Board, the
Secretary shall, to the extent practicable, attend meetings of the Board and
meetings of the stockholders. The Secretary shall record all votes and the
minutes of all proceedings in a book to be kept for that purpose. The Secretary
may give, or cause to be given, notice of all meetings of the stockholders and
of the Board, and all other notices required by law or by these By-laws. The
Secretary shall keep in safe custody the seal of the Corporation and affix the
same to any duly authorized instrument requiring it and, when so affixed, it
shall be attested by his signature or by the signature of the Treasurer or, if
appointed, an Assistant Secretary or an Assistant Treasurer. The Secretary shall
keep in safe custody the certificate books and stockholder records and such
other books and records as the Board may direct, and shall perform all other
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Board, the Chairman of the Board or the Chief
Executive Officer.
4.8 THE TREASURER.
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board or the Chief Executive Officer, taking proper vouchers for
such disbursements, shall render to the Chairman of the Board, the Chief
Executive Officer and directors, at the regular meetings of the Board or
whenever they may request it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation and shall perform all other
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Board, the Chairman of the Board or the Chief
Executive Officer.
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ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1 EXECUTION OF DOCUMENTS.
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation.
5.2 DEPOSITS.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
5.3 PROXIES WITH RESPECT TO STOCK OR OTHER SECURITIES OF OTHER CORPORATIONS.
The Chief Executive Officer, the President or any other officer of the
Corporation designated by the Board shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights which the Corporation may have
as the holder of stock or other securities in any other corporation, and to vote
or consent with respect to such stock or securities. Such designated officers
may instruct the person or persons so appointed as to the manner of exercising
such powers and rights, and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, such written proxies, powers of attorney or other instruments
as they may deem necessary or proper in order that the Corporation may exercise
its powers and rights.
ARTICLE VI
GENERAL PROVISIONS
6.1 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD; BENEFICIAL OWNERS.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall be not more than 60 nor less than 10
days before the date of such meeting. If no record date is fixed by the Board,
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of
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stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
(c) The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
6.2 DIVIDENDS.
Subject to limitations contained in Delaware Law and the Certificate of
Incorporation, the Board of Directors may declare and pay dividends upon the
shares of capital stock of the Corporation, which dividends may be paid either
in cash, in property or in shares of the capital stock of the Corporation.
6.3 FISCAL YEAR.
The fiscal year of the Corporation shall commence on January 1 and end on
December 31 of each year.
6.4 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
6.5 AMENDMENTS.
These By-laws or any of them, may be altered, amended or repealed, or new
By-laws may be made, by the stockholders entitled to vote thereon at any annual
or special meeting thereof or by the Board of Directors.
6.6 EFFECTIVE DATE.
These By-laws shall become effective currently with the effectiveness of
the Corporation's Amended and Restated Certificate of Incorporation approved by
the Board of Directors and the stockholders of the Corporation in connection
with the Corporation's initial
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public offering of shares of its Common Stock and filed with the Secretary of
State of the State of Delaware on _____________, 2000.
* * * * *
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Cinergy Services, Inc.
Convergent Group Corporation Professional Services Agreement
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EXHIBIT 10.17
MASTER AGREEMENT
BETWEEN
CINERGY SERVICES, INC.
AND
CONVERGENT GROUP CORPORATION
(CVG REFERENCE NO. U159)
This AGREEMENT (hereinafter referred to as "Agreement") is made and
entered into on July 10, 1997 (the "Effective Date"), by and between Cinergy
Services, Inc., a Delaware corporation with a place of business at 1000 East
Main St., Plainfield, IN 46168 (hereinafter referred to as "CSI"), and
Convergent Group Corporation a Delaware corporation with a place of business at
6200 South Syracuse Way, Suite 200, Englewood, Colorado 80111 (hereinafter
referred to as "CONVERGENT") (collectively hereinafter referred to as
"Parties").
WHEREAS, CSI desires to develop and implement the integration of various
strategic systems and applications of its Energy Delivery Business Unit to
support its corporate business objectives; and
WHEREAS, CONVERGENT represents that it is capable of providing to CSI the
consulting, procurement, and other services necessary for accomplishing such
integration.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
receipt and sufficiency of which are hereby acknowledged, with said
consideration binding the Parties, the Parties agree as follows:
1. STATEMENT OF SERVICES - SCOPE OF WORK
1.1 CONVERGENT shall procure for CSI Hardware manufactured by third parties
hereto (hereinafter referred to as "Hardware"), the licensing and maintenance of
Third-Party Application Software and Operating System Software (hereinafter
referred to as "Software"), and associated documentation (hereinafter referred
to as "Documentation"), as well as provide professional technical and management
consulting services to CSI for Custom Software and Custom Application Software
systems as well as provide technical services related thereto, all as further
defined in this Agreement and Schedules A through I ("Schedules"), which are
attached hereto and incorporated herein by this reference (hereinafter referred
to as "Work").
1.2 All Work shall be performed in accordance with sound and generally accepted
professional practices and industry standards by professional, managerial and
administrative personnel fully qualified in the respective professional
disciplines required.
1.3 CONVERGENT shall have the complete professional, managerial or technical
responsibility for the validity, accuracy and reliability of the Work performed.
1.4 CONVERGENT agrees to provide CSI with Hardware, Third-Party Software, Custom
Software, Documentation, and technical and management consulting services as
required to manage the development and implementation of strategic systems and
applications to support CSI's
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corporate business objectives. These systems will be implemented in phases in
accordance with the requirements of Schedule A - Scope of Work attached hereto
and incorporated herein by this reference.
1.5 CONVERGENT will be the general project manager for its personnel and
subcontractors in support of Energy Delivery Systems Integration Program (EDSIP)
which is under CSI oversight. CONVERGENT's Scope of Work includes the Energy
Delivery Asset System (EDAS), Smallworld Systems, Inc. Software; Trouble
Call/Outage Management System (TC/COM), Configured Energy Systems, Inc. (CES)
software; Oracle Software; Digital Equipment Corporation (DEC) server hardware;
EDAS record creation; as well as hardware and software maintenance. CONVERGENT
will be CSI's integration consultant responsible for advising CSI on the
management, implementation, and integration strategies related to the deployment
of the Work Management System (WMS); The Indus Group, Inc.; Resource
Allocation/Computer Aided Dispatch (RA/CAD), Utility Partners, Inc.;
Distribution Planning System (DPS), ABB, Inc. software, which are under separate
contract with CSI. CSI shall ensure their contractors cooperate with and follow
CONVERGENT's direction to meet the agreed upon Schedule H - Project Schedule in
support of the integrated system solution.
2. SOLE AGREEMENT
2.1 This Agreement and the Schedules hereto constitute the entire agreement and
understanding of the Parties with respect to the subject matter hereof and
supersede and replace all prior agreements and understandings, whether oral or
written.
2.2 This Agreement may be amended or modified only by a Change Order in writing
and duly executed by both Parties.
3. CONVERGENT EMPLOYEES
3.1 CONVERGENT personnel shall be and will remain at all times, during this
Agreement, employees of CONVERGENT. CSI shall not be responsible for any
payments due CONVERGENT employees on account of, or in connection with, this
Agreement.
3.2 CONVERGENT employees assisting CSI under this Agreement ("Project
Personnel") who are found, in CSI's sole opinion, to be unsatisfactory for
services to be performed hereunder, shall be removed by CONVERGENT immediately
upon receipt of written notice from CSI. Such employee shall be replaced with
another CONVERGENT employee satisfactory to CSI as soon as possible.
4. PATENTS AND INVENTIONS
4.1 Deliverable Products and other materials furnished by CONVERGENT
4.1.1 CONVERGENT has developed numerous proven proprietary materials which
provide the methodologies for the development of the Deliverable Products.
CSI agrees that CONVERGENT shall own all such products, materials, and
methodologies and that CSI shall have or obtain no rights in such
proprietary products, materials, and methodologies except pursuant to a
separate written agreement executed by the Parties. CSI understands that
CONVERGENT proprietary costs analysis and strategic planning models and
facilities database models and designs or certain software products may be
used under this Agreement and CSI agrees not to exhibit, distribute, or
otherwise disclose any such proprietary methods and materials to external or
third parties without prior approval in
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writing from CONVERGENT. CONVERGENT shall continue to market, distribute,
make derivative works from and sell similar work to other companies without
further notice to nor consent from CSI. Nothing in this Agreement shall
restrict or prohibit CONVERGENT's right to use concepts, techniques, and
know-how used or developed in the course of performing these technical and
management services.
4.1.2 CONVERGENT shall be the owner of copyright or other intellectual
property rights in such Deliverable Products. CONVERGENT grants to CSI a
perpetual unrestricted, royalty-free, nonexclusive license to reproduce and
use, for CSI's internal purposes only, any materials developed for CSI
related to this Agreement, not including Third-Party Software Licenses. CSI
agrees not to exhibit, distribute, or otherwise disclose any proprietary
software, methods, or materials to external or third parties without prior
approval in writing from CONVERGENT.
4.1.4 The CONVERGENT grant of a License for CSI to use the Custom Software
includes the right of any CSI affiliate or wholly-owned subsidiary of the
parent CSI corporation to use the Custom Software for CSI internal business
purposes only, and CSI and its affiliates and wholly-owned subsidiaries
agree not to exhibit, distribute, or otherwise disclose any of the
proprietary Software, methods, or materials to third parties without prior
approval in writing by CONVERGENT.
4.2 All Third-Party Software licenses will be executed between CSI and the
Third-Party Software vendors. Grants of licenses for all Third-Party Software
licenses will be transferred from the Third-Party to CSI in accordance with a
mutually acceptable license agreement.
5. PRICING
5.1 The Total Price for the Work is $26,181,378.00, which is comprised of a
Fixed Price component as defined in Schedule B - Fixed-Price Payments and an
Estimated Price component as defined in Schedule C - Billing Terms for Estimated
Work, and it includes the price of the Previous Work.
5.2 The Estimated Price component is $11,031,378.00. The Estimated Price
component, as defined in Schedule C - Billing Terms for Estimate Work, includes
all estimated Incidental Expenses (billed to CSI at cost plus a three and
one-half percent (3 1/2%) administrative fee), Custom Software Applications,
system integration development, Hardware, and Third-Party Software. Incidental
Expenses shall include, without limitation, reasonable amounts for the
following: air transportation, auto rental, rail transportation, cabs, lodging
and meals, express air shipments, data transmittal, telephone calls, and copying
costs. The description of the tasks associated with the estimated Work effort is
contained in Schedule A -Scope of Work, and the billing terms for the estimated
cost and fees are contained in Schedule C - Billing Terms for Estimated Work.
5.3 The Fixed Price component is $15,150,000.00 and includes the delivery of
technical and management consulting services and EDAS database creation. The
description of the tasks associated with the Fixed Price component is contained
in Schedule A - Scope of Work, and the billing schedule for the Fixed Price
component is contained in Schedule B - Fixed-Price Payments.
5.4 The costs and fees set forth in Schedule B - Fixed-Price Payments and
Schedule C - Billing Terms for Estimated Work are exclusive of the following and
CSI agrees to:
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5.4.1 enter into an Agreement Change Order for any mutually agreed upon
change of Schedule A - Scope of Work and/or the costs and fees set forth in
Schedule B - Fixed-Price Payments and Schedule C - Billing Terms for
Estimated Work, in accordance with Clause 11.1.2 of this Agreement.
5.4.2 all taxes, however designated, paid or payable by hereunder, exclusive
of taxes based on the net income of CONVERGENT. If any charges under this
Agreement are exempt from sales or use tax liability, CSI shall provide to
CONVERGENT, upon execution of this Agreement, evidence of tax exemption
acceptable to the relevant taxing authority.
5.5 The Parties agree that there are no monies in the Total Price for the Work
for incentives associated with the successful completion of this project.
However, a mutual incentive structure may be funded and defined in Schedule E -
Project Incentive Plan within 60 days after execution of this Agreement unless a
different Schedule is mutually agreed upon.
6. PAYMENT
6.1 The Fixed Price component payment schedule is contained in Schedule B -
Fixed-Price Payments, which is attached hereto and incorporated herein by this
reference. The Estimated Price component billing terms are delineated in
Schedule C - Billing Terms for Estimated Work, which is attached hereto and
incorporated herein by this reference. Acceptance of deliverables contained in
Schedule A - Scope of Work will be in accordance with Schedule I - Deliverable
Acceptance Procedures.
6.2 In the event that an invoice remains unpaid for thirty (30) days after the
date it is received by CSI, CONVERGENT may charge CSI interest at the rate of 1
1/2 percent per month on the unpaid balance of said invoice from date of its
receipt by CSI.
6.3 All invoices will be addressed to:
Cinergy Services, Inc.
Attn: Gary Wayne Patterson
1000 East Main St.
Plainfield, IN 46168
6.4 CSI will make payments using Electronic Funds Transfers using the bank and
account information contained in Schedule G - Electronic Funds Transfer.
7. TERM; TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until the earlier of
(a) the Work to be performed hereunder is completed or (b) termination, as
provided below.
7.2 Termination for Cause
7.2.1 If either Party shall at any time commit any material breach of any
covenant, or warranty under this Agreement, and (i) shall fail to cure such
breach within thirty (30) days of written notice of such breach or (ii) if
it is not cured within thirty (30) days of written notice, shall fail to
diligently commence to cure it within thirty (30) days of notice, the
defaulted Party may at its option and in addition to any other remedies to
which it is entitled, terminate this Agreement by written notice.
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Convergent Group Corporation Professional Services Agreement
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7.2.2 Except as may be prohibited by the U. S. bankruptcy laws, in the event
of either Party's insolvency or inability to pay debts as they become due,
voluntary or involuntary bankruptcy proceedings by or against a Party
hereto, or appointment of a receiver or assignee for the benefit of
creditors, the other Party may terminate this Agreement by written notice.
7.2.3 CONVERGENT shall have the right to terminate this Agreement by written
notice to CSI upon CSI's failure to pay CONVERGENT any undisputed amount due
hereunder within sixty (60) days after such amount was due and payable. Any
disputed amounts shall be resolved in accordance with Section 32, Alternate
Dispute Resolution (ADR), herein.
7.3 Termination for Convenience
7.3.1 CSI shall have the right to terminate this Agreement at any time for
CSI's convenience provided that CONVERGENT is given (i) thirty (30) working
days written notice by certified mail, return receipt requested of CSI's
intent to terminate including the termination effective date and (ii) an
opportunity for consultation with CSI prior to the termination effective
date. Upon receiving notice of termination, CONVERGENT shall discontinue the
Work on the date and to the extent specified in the notice and place no
further orders for subservices except as needed to continue any portion of
the Work which was not terminated. CONVERGENT shall also make every
reasonable effort to cancel, upon terms satisfactory to CSI, all orders or
subcontracts related to the terminated Work.
7.3.2 If this Agreement is terminated by CSI for convenience after
CONVERGENT has commenced any Work, mobilization, or other off-site
activities under this Agreement, CONVERGENT will be paid for all Work
performed prior to the date of termination and its actual and reasonable
incurred costs and legally committed accrued costs from date of termination,
including reasonable demobilization and project costs associated with
vacating the site, determined in accordance with generally accepted
accounting principles consistently applied.
7.4 All license rights granted but not paid in full by CSI shall cease upon any
termination of this Agreement. Within fifteen (15) days after termination of the
license rights granted herein, or termination of this Agreement for any reason,
CSI agrees to certify to CONVERGENT in writing that the original and all copies
of the Software and Documentation, in any form, have been destroyed.
8. CONFIDENTIALITY OF INFORMATION
8.1 The Parties acknowledge that in the course of this Agreement they will have
access to, and/or will be in possession of, Confidential Information of the
other. "Confidential Information" shall mean information regarded by the
disclosing Party as confidential, including, but not limited to, information
relating to its past, present, or future research, development, or business
affairs; future project purchases; any proprietary products, materials, or
methodologies; all items prepared for and submitted to the receiving Party in
connection with Work performed under this Agreement, including drafts and
associated material; and any other information marked or, in the case of
information verbally disclosed, verbally designated as confidential at the time
of disclosure by the disclosing Party and is reduced to a written summary marked
in accordance with the verbal disclosure and delivered to the other Party within
thirty (30) days after disclosure.
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Convergent Group Corporation Professional Services Agreement
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8.2 Each Party shall hold in confidence, in the same manner as it holds its own
Confidential Information of like kind, all Confidential Information of the other
to which it may have access hereunder. Access to Confidential Information shall
be restricted to those of each Party's personnel, subcontractors and other
agents with a need to know and engaged in a permitted use. Both Parties agree
that their respective personnel, subcontractors, agents, and representatives who
are given access to Confidential Information relating to this Agreement will be
made aware of this Article and will understand that they are bound by this
Article. Deliverable products marked confidential shall neither be exhibited nor
distributed in any way to parties external to this Agreement, or to personnel,
subcontractors, consultants, and agents not engaged in the performance of this
Agreement.
8.3 The foregoing shall not prohibit or limit either Party's use of information
including, but not limited to, ideas, concepts, know-how, techniques, and
methodologies which (i) are or become generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by the receiving Party hereunder or its agents, representatives, or
advisors), (ii) is or becomes available to it on a nonconfidential basis from a
source other than the disclosing Party or its affiliates, advisors, agents, or
representatives, provided that such source is not and was not bound by a
confidentiality agreement with or other obligation of secrecy to the disclosing
Party, (iii) has already been or is hereafter independently acquired or
developed by it without violating any confidentiality agreement or other
obligation of secrecy to the disclosing Party, or (iv) is required by law or
regulation to be disclosed, provided, however, that it shall give the disclosing
Party reasonable advance notice of such requirement so that the disclosing Party
may seek appropriate legal relief against such disclosure.
8.4 The Parties hereto agree and acknowledge that any such Confidential
Information shall be considered for all purposes confidential and privileged
information under any local, state, or federal law and such Confidential
Information shall not be released pursuant to any local, state, or federal act,
law, or statute concerning "freedom of information."
8.5 This section shall survive termination or expiration of this Agreement for
any reason for a period of five (5) years.
8.6 CSI acknowledges and agrees that the provisions of this section are
essential to CONVERGENT and are reasonable and necessary to protect the
legitimate interests of CONVERGENT and that the damages sustained by CONVERGENT
as a result of a breach of the agreements contained herein will subject
CONVERGENT to immediate, irreparable harm and damage, the amount of which,
although substantial, could not be reasonably ascertainable, and that recovery
of damages at law will not be an adequate remedy. Therefore, CSI agrees that
CONVERGENT, in addition to any other remedy it may have under this Agreement or
at law, shall be entitled to seek injunctive and other equitable relief to
prevent or curtail any breach of any provision of this section. CSI waives any
right to the posting of a bond in the event of an issuance of a temporary
restraining order, preliminary injunction, or permanent injunction upon the
issuance of said order by a court of competent jurisdiction.
8.7 Upon expiration or termination of this Agreement for any reason, both
Parties shall return to the other Party any Confidential Information or
proprietary information belonging to the other Party which is in its possession
or certify in writing by an officer of the corporation that such Confidential
Information has been destroyed, except that CONVERGENT shall be entitled to
retain a duplicate set of any configuration and/or customized Software delivered
by CONVERGENT in connection with this Agreement. This section shall survive
expiration or termination of this Agreement for any reason.
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9. EQUAL EMPLOYMENT
In performing the technical and management services hereunder, CONVERGENT agrees
to comply with all applicable local, state, and federal laws, regulations, and
orders relating to fair and equal employment opportunity practices and policies.
10. NON-SOLICITATION OF EMPLOYEES
10.1 The Parties agree that they will not, during the term of this Agreement and
for a period continuing for 24 months after the expiration or termination of
this Agreement, for any reason, directly or indirectly, solicit, influence,
entice, or encourage any person who is then or had been within one (1) year of
such action an employee to cease his or her relationship with that Party, or
otherwise interfere with, disrupt, or attempt to disrupt any past, present, or
prospective relationship, contractual or otherwise, between the other Party and
any of its employees.
10.2 The Parties further agree that they will not, during the term of this
Agreement and for a period continuing for 24 months thereafter, hire or attempt
to hire, whether as an employee, consultant, or otherwise, any person who was
employed by the other Party at any time during the term of this Agreement.
10.3 Both Parties acknowledge and agree that the provisions of this section are
essential to them and are reasonable and necessary to protect the legitimate
interests of each Party and that the damages sustained by either Party as a
result of a breach of the agreements contained herein will subject them to
immediate, irreparable harm and damage, the amount of which, although
substantial, could not be reasonably ascertainable, and that recovery of damages
at law will not be an adequate remedy. Therefore, the Parties agree that, in
addition to any other remedy they may have under this Agreement or at law, each
shall be entitled to seek injunctive and other equitable relief to prevent or
curtail any breach of any provision of this section. Both Parties waive any
right to the posting of a bond in the event of an issuance of a temporary
restraining order, preliminary injunction, or permanent injunction upon the
issuance of said order by a court of competent jurisdiction.
10.4 This section shall survive termination or expiration of this Agreement for
any reason.
10.5 If the scope of any restriction contained in this section is too broad to
permit enforcement of such restriction to its fullest extent, then such
restriction shall be enforced to the maximum extent permitted by law and each
Party hereby consents and agrees that the scope may be judicially modified in
any proceeding brought to enforce such restriction.
10.6 This section shall not be applicable to retirees or persons involuntarily
separated or involuntarily redeployed.
11. SPECIAL CONDITIONS
11.1 If the project scope of Work is requested by CSI to be increased or changed
in such a manner as to require additional labor or expenses, and CONVERGENT
agrees to such changes, the Parties will adjust both scope and cost and fees, or
other affected terms through written amendment to this Agreement.
11.2 CSI and CONVERGENT reserve the right to subsequently amend this Agreement
to include services in addition to those specified in the attached Schedules and
outside the scope of Schedule D - Project Assumptions. Compensation for
additional services or products will be as
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agreed by CSI and CONVERGENT and may be incorporated as Change Orders to this
Agreement. All Work to be accomplished will be defined in written Change Orders
approved by the Parties in accordance with the Change Order process defined in
Schedule F - Change Order Procedure. The Change Orders will define the
objectives to be addressed, the scope of services to be provided, the products
to be delivered, the schedule to be met, special considerations (as appropriate)
and a Change Order price estimate or fixed fee. CONVERGENT will be reimbursed as
provided in the Change Order.
11.3 CONVERGENT's project team members will have the opportunity and authority
to contact personnel at CSI directly in the performance of technical consulting
duties.
12. ADDRESSES OF PARTIES TO AGREEMENT
12.1 All correspondence, contracts, and communications between the Parties to
this Agreement should be made to the following:
Cinergy Services, Inc.
1000 East Main St.
Plainfield, IN 46168
Attn: Gary Wayne Patterson
Telephone: (317) 838-2155
Facsimile: (317) 838-1985
Convergent Group Corporation
6200 South Syracuse Way, Suite 200
Englewood, CO 80111
Attn: Terry L. Yaryan
Telephone: (303) 741-8400
Facsimile: (303) 741-8401
12.2 All notices required or permitted hereunder shall be sufficient if given in
writing and if delivered personally, by overnight courier, or by certified mail,
return receipt requested, postage prepaid, addressed to CONVERGENT or CSI, as
the case may be, at the addresses set forth above or at such other address as
such Party shall have designated in the manner provided in this section. Notice
shall be deemed given on the date of receipt, in the case of personal delivery,
or on the delivery or refusal date, as specified on the return receipt, in the
case of overnight courier or certified mail.
13. CONVERGENT TRAINING
Subject to a mutually agreed to schedule, CONVERGENT will provide training to
CSI in the use of CONVERGENT software listed in Schedule A - Scope of Work. The
extent of such training, number of CSI personnel to be trained, location of such
training, and the appropriate price are reflected in the Schedules.
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14. HARDWARE DELIVERY/INSTALLATION
14.1 Some Hardware will initially be delivered to CONVERGENT to be used for
planning and development efforts. During the period that the Hardware is located
at the CONVERGENT facility, Risk of Loss shall be with CONVERGENT and CONVERGENT
is authorized by CSI to install, maintain, and request warranty remedies from
the Third-Party Hardware manufacturer during the period it is located at
CONVERGENT's facility.
14.2 Risk of Loss to Hardware and Software shall pass to CSI when CONVERGENT no
longer has physical control of the equipment. Subject to manufacturer
warranties, the Hardware and Software will be deemed accepted when used by
CONVERGENT (if initially delivered to CONVERGENT) or by CSI (if initially
delivered to CSI installation site) in the ordinary course of business.
15. HARDWARE MAINTENANCE
CONVERGENT will procure Hardware maintenance for CSI. The terms of the Hardware
maintenance will be in accordance with mutually agreed upon maintenance
provisions.
16. SOFTWARE MAINTENANCE
16.1 CONVERGENT will procure Third-Party Software maintenance during the term of
this Agreement based upon a mutually agreed upon schedule of costs and fees
between CSI and CONVERGENT. The terms of the Third-Party Software maintenance
will be in accordance with mutually agreed upon maintenance provisions.
16.2 CONVERGENT will provide Custom Application Software maintenance in
accordance with a mutually agreed to schedule of costs and fees between CSI and
CONVERGENT during the term this Agreement. The terms of the Custom Software
maintenance will be in accordance with mutually agreed upon maintenance
provisions to be added at a later date.
17. WARRANTY AND DISCLAIMER
17.1 CONVERGENT warrants that for ninety (90) days after the Installation Date
(i) any Hardware which is procured for CSI by CONVERGENT will be free from
defects in materials and workmanship, (ii) any Third-Party Software which is
procured for CSI by CONVERGENT will perform substantially in compliance with the
Documentation provided by CONVERGENT, (iii) all Custom Software provided by
CONVERGENT will perform substantially in compliance with the Documentation
provided by CONVERGENT, and (iv) the system integration will meet the
requirements contemplated by the Scope of Work, if any, as demonstrated by the
successful completion of the mutually agreed upon acceptance test.
17.2 YEAR 2000 COMPLIANCE REPRESENTATIONS AND WARRANTY
17.2.1 CONVERGENT represents and warrants that the Custom Software provided
by CONVERGENT is designed to be used prior to, during, and after calendar
year 2000 AD, and that the software will operate during each such time
period without error relating to date data, specifically including any
error relating to, or the product of, date data which represent or
reference different centuries or more than one century.
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17.2.2 Without limiting the generality of the foregoing, CONVERGENT further
represents and warrants that:
(i) the software will not abnormally end or provide invalid or
incorrect results as a result of date data, specifically including
date data which represent or reference different centuries or more
than one century;
(ii) the software has been designed to ensure year 2000
compatibility, including, but not limited to, date data century
recognition, calculations which accommodate same century and
multi-century formulas and date values, and date data interface
values that reflect the applicable century;
(iii) the software includes "year 2000 capabilities." For the
purposes of this Agreement, "year 2000 capabilities" means the
software:
(a) will manage and manipulate data involving dates, including
single century formulas and multi-century formulas, and will
not cause an abnormally ending scenario within the application
or generate incorrect values or invalid results involving such
dates; and
(b) provides that all date-related user interface
functionalities and data fields include the indication of
century; and
(c) provides that all date-related data interface
functionalities include the indication of century.
17.2.3 The term "Year 2000 Compliance Representations and Warranty" shall
mean, collectively, the representations and warranties set forth in this
paragraph 17.2.
17.2.4 The Year 2000 Compliance Representations and Warranty period shall
begin as of the date of the License Agreement and end on the date the
software has operated without a breach of the Year 2000 Compliance
Representations and Warranty for a consecutive 14-month period subsequent
to January 1, 2000.
17.2.5 Any provisions of the License Agreement which tend to limit or
eliminate the liability of either Party, including any warranty provisions
of the License Agreement, shall not be applicable to the Year 2000
Compliance Representations and Warranty.
17.2.6 In the event that CSI is entitled to modify the software pursuant to
the License Agreement, CSI agrees that it shall not modify the software in
any manner which would affect the performance of the software in such a
manner as to cause it to fail to meet the Year 2000 Compliance
Representations and Warranty. There shall be no liability on the part of
CONVERGENT for any failure of the software to conform to the Year 2000
Compliance Representations and Warranty to the extent that any such failure
is directly attributable to a modification of the software by CSI.
17.2.7 In the event of any conflict or apparent conflict between the terms
and conditions of other articles of the License Agreement and the terms and
conditions of this Year 2000 Compliance Article, the terms and conditions
of this Year 2000 Compliance Article shall control. Except to the extent
otherwise set forth herein, the terms and conditions of the License
Agreement shall remain in full force and effect.
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17.2.8 This Year 2000 Compliance Article and the License Agreement shall
not be assigned by CONVERGENT without the prior written consent of CSI.
17.3 Year 2000 compliance warranties obtained by CONVERGENT from third parties
providing Third-Party Software will be assigned to CSI in the license
agreements.
17.4 CONVERGENT MAKES NO OTHER WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT BY WAY OF LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
HARDWARE, SOFTWARE, DOCUMENTATION, TECHNICAL INFORMATION, AND TECHNICAL
ASSISTANCE PROVIDED BY CONVERGENT PURSUANT TO THIS AGREEMENT.
18. LIMIT OF LIABILITY
Both Parties' liability with respect to Work provided under this Agreement shall
be limited to claims directly attributable only to the failure of each Party's
agents or employees to exercise the degree of skill and performance normally
exercised by duly qualified persons performing similar functions. The amount of
liability for each Party shall not exceed the total amount of this Agreement. IN
NO EVENT SHALL EITHER PARTY, ITS EMPLOYEES OR AGENTS BE LIABLE FOR LOSS OF
EARNINGS, LOSS OF PROFITS, LOSS OF INTEREST, JUDGMENTS, AWARDS, OR CONTRIBUTION
THERETO, OR ANY OTHER SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGE, HOWEVER
CAUSED.
19. NEGLIGENCE
Each Party shall be responsible for willful misconduct and negligent acts or
omissions of its agents and employees. Each Party shall indemnify, hold
harmless, and defend the other from and against all liabilities for bodily
injury and property damage to the extent caused by the willful or negligent act
or omission of the indemnifying Party or its agents or employees. This section
shall survive expiration or termination of this Agreement for any reason.
20. LIMITATION OF REMEDIES
20.1 CONVERGENT's entire liability and CSI's exclusive remedy in respect to Work
provided under this Agreement with the exception of the indemnity provision in
Section 21, shall be that CONVERGENT will, pursuant to applicable maintenance
provisions, restore the Hardware to working order if it should fail due to
defects in materials and workmanship and correct the Third-Party Software or
Custom Software provided by CONVERGENT if it should fail to substantially
conform to the Documentation provided by CONVERGENT, during the period in which
CONVERGENT is providing maintenance services in accordance with Sections 15 and
16 herein. However, if CONVERGENT is unable to cure such defects, as CSI's
exclusive remedy, CONVERGENT will grant CSI a refund for the Hardware and/or
Third-Party Software and/or Custom Software involved, based upon its straight
line depreciated value over the life of the product as determined by CONVERGENT
and accept its return.
20.2 CONVERGENT's entire liability for damages for any cause whatsoever, and
regardless of the form of action, shall be limited to CSI's actual direct
damages not to exceed the amount paid to CONVERGENT under this Agreement for the
specific item that caused the damage or that is the
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subject matter of, or is directly related to, the cause of action. This
limitation is not applicable to claims for patent, copyright, and trade secret
infringement which claims are covered by Section 21.
20.3 IN NO EVENT SHALL CSI, CONVERGENT, THEIR OFFICERS, AGENTS, AND EMPLOYEES BE
LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.
21. PATENTS, TRADEMARKS AND TRADE SECRET INFRINGEMENT INDEMNITY
21.1 CONVERGENT shall defend, at its expense, any action brought against CSI to
the extent that it is based upon a claim that any Hardware, Custom Software, or
Documentation infringes a patent, copyright, or violates any Third-Party trade
secret or proprietary right and shall pay all costs and damages finally awarded
against CSI, provided that CONVERGENT is given prompt written notice of such
claim and is given information, reasonable assistance, and sole authority to
defend or settle the claim.
21.2 If any such action is brought, or in CONVERGENT's opinion is likely to be
brought, then CONVERGENT may at its election (i) obtain for CSI the right to
continue using the Hardware, Custom Software, or Documentation; (ii) replace or
modify such so that it becomes noninfringing; or (iii) if such remedies are not
reasonably available, accept CSI's return of the Hardware, Custom Software, or
Documentation, and grant CSI a refund for the Hardware, Custom Software or
Documentation involved, based upon its straight line depreciated value over the
life of the product as determined by CONVERGENT including CSI's expenses and
costs in defending such action, providing CSI follows the requirements of this
section and such costs are authorized by CONVERGENT.
21.3 CONVERGENT shall have no obligation under this section if the alleged
infringement or violation is based upon the use of the Hardware, Custom
Software, or Documentation in combination with other hardware, software, or
documentation not furnished by CONVERGENT or if such claim arises from
CONVERGENT compliance with CSI's designs, specifications, or instructions, or
from CSI's modification of the Hardware, Custom Software, or Documentation.
21.4 CONVERGENT shall have no liability for infringement of patents, copyrights,
or violation of trade secrets or proprietary rights except as expressly provided
in this section.
22. GOVERNING LAW
This Agreement will be governed by the laws of the State of Indiana, without
regard to the conflicts of laws principles of such state.
23. ENFORCEMENT EXPENSES
In the event of a breach or threatened breach of any term or provision of this
Agreement, the nonbreaching Party shall be entitled to all of its remedies
available at law or in equity and in addition shall be entitled to be reimbursed
for all of its costs and expenses in enforcing this Agreement, including, but
not limited to, reasonable attorneys' fees. This section shall survive
expiration or termination of this Agreement for any reason.
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24. SCHEDULES
The following Schedules are attached hereto, form a part hereof, and are
incorporated herein by this reference:
Schedule A: Scope of Work
Schedule B: Fixed-Price Payments
Schedule C: Billing Terms for Estimated Work
Schedule D: Project Assumptions
Schedule E: Project Incentive Plan
Schedule F: Change Order Procedure
Schedule G: Electronic Funds Transfer
Schedule H: Project Schedule
Schedule I: Deliverable Acceptance Procedures
25. CAPTIONS AND HEADINGS
The captions and headings herein are for convenience only and in no way shall be
used in the interpretation or construction of this Agreement.
26. WAIVER OF COMPLIANCE
Any failure by any Party hereto to enforce at any time any term or condition of
this Agreement shall not be considered a waiver of that Party's right to later
enforce each and every term and condition hereof.
27. ASSIGNMENT; BINDING EFFECT
This Agreement may not be assigned by either Party hereto without the prior
written consent of the other Party which shall not be unreasonably withheld.
This Agreement shall be binding upon and inure to the benefit of each of the
Parties and its respective successors and permitted assigns.
28. DELAYS
Any loss, damage, or delay in, or failure of, performance by either Party shall
not constitute a default hereunder or be a ground for termination of this
Agreement, or give rise to any claims for damage against either Party if such
loss, damage, delay, or failure is attributable in whole or in part to any cause
beyond the control of the other Party. These causes include, but are not limited
to, acts or omissions of the claiming Party causing delay, acts of God or the
public enemy, compliance with any order, decree, or request of any governmental
authority, fires, floods, explosions, accidents, riots, strikes, labor
difficulties, or other concerted acts of workmen, or any other cause not within
the reasonable control of the other Party. In the event of the occurrence of any
such delay, the time for the performance by the other Party of its Work shall be
extended for a period of time equivalent to the time attributable to such delay.
29. SEVERABILITY
If any provision of this Agreement or the application thereof to any Party or
circumstance shall be declared invalid, illegal, or unenforceable, the remainder
of this Agreement shall be valid and enforceable to the extent permitted by
applicable law. In such event, the Parties shall use their best efforts to
replace the invalid or unenforceable provision with a provision that, to the
extent
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permitted by applicable law, achieves the purposes intended under the invalid or
unenforceable provision.
30. INSURANCE
30.1 During the term of this Agreement, CONVERGENT shall provide and maintain at
its expense the following kinds of insurance with limits of liability as set
forth below:
<TABLE>
<CAPTION>
Insurance Limits of Liability
--------- -------------------
<S> <C>
Workman's Compensation Statutory
Commercial General Liability $2,000,000
Automobile Liability $1,000,000
Excess Liability $10,000,000
</TABLE>
30.2 CONVERGENT agrees to provide CSI with a certificate of insurance evidencing
the coverages required above and stating the policy numbers and inception and
expiration dates of all policies. This certificate of insurance shall also
provide for 10 days prior notice to CSI in the event of cancellation of the
policy. Said certificate shall be furnished to CSI prior to the commencement of
any Work under this Agreement.
31. INDEPENDENT CONTRACTOR STATUS
The Parties to this Agreement are independent contractors, and none of the
provisions of this Agreement shall be interpreted or deemed to create any
relationship between such Parties other than that of independent contractors.
Nothing contained in this Agreement shall be construed to create a relationship
of employer and employees, master and servant, principal and agent, or
co-venturers between CSI and CONVERGENT, between CSI and any employee of
CONVERGENT, or between CONVERGENT and any employee of CSI. CSI shall have no
right to control or direct the details, manner, or means by which CONVERGENT
performs the technical and management consulting services hereunder, provided
that such technical and management consulting services shall be performed to
CSI's reasonable satisfaction. In performing such services, CONVERGENT shall
have no control over or management authority with respect to CSI or its
operations.
32. RIGHT OF AUDIT
CONVERGENT records for expenses incurred and records of time charged by
individuals to the project shall be open to inspection by CSI during normal
business hours during the duration of this Agreement.
33. ALTERNATE DISPUTE RESOLUTION (ADR)
33.1 If a dispute arises between the Parties relating to this Agreement, the
Parties agree to use the following procedure prior to either Party pursuing
other available remedies:
(a) A meeting shall be held promptly between the Parties, attended by
individuals with decision-making authority regarding the dispute, to
attempt in good faith to negotiate a resolution of the dispute.
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(b) If, within thirty (30) days after such meeting, the Parties have not
succeeded in negotiating a resolution of the dispute, they will
jointly appoint a mutually acceptable neutral person not affiliated
with either of the Parties (the "Neutral") to act as a mediator. If
the Parties are unable to agree on the Neutral within twenty (20)
days, they shall seek assistance in such regard from the CPR Institute
for Dispute Resolutions ("CPR"). The fees of the Neutral and all other
common fees and expenses shall be shared equally by the Parties.
(c) The mediation may proceed in accordance with CPR's Model Procedure for
Mediation of Business disputes, or the Parties may mutually establish
their own procedure.
(d) The Parties shall pursue mediation in good faith and in a timely
manner. In the event the mediation does not result in resolution of
the dispute within sixty (60) days, then, upon seven (7) days written
notice to the other Party, either Party may suggest another form of
ADR, e.g., a mini-trial or summary jury trial, or may pursue other
available remedies.
33.2 All ADR proceedings shall be strictly confidential and used solely for the
purposes of settlement. Any materials prepared by one Party for the ADR
proceedings shall not be used as evidence by the other Party in any subsequent
litigation; provided, however, the underlying facts supporting such materials
may be subject to discovery.
33.3 Each Party shall, except as otherwise provided herein, be responsible for
its expenses, including legal fees, incurred in the course of any arbitration
proceedings. The fees of the Neutral arbitrator shall be divided evenly between
the Parties.
33.4 CONVERGENT shall carry on and be paid for the technical and management
services not in dispute and maintain the estimated schedule for Services during
any arbitration or litigation proceedings, unless otherwise agreed by CONVERGENT
or CSI in writing.
33.5 Each Party fully understands its specific obligations under ADR provisions
of the Agreement. Neither Party considers such obligations to be vague or in any
way unenforceable, and neither Party will contend to the contrary at any future
time or in any future proceedings.
33.6 PPIf CSI issues a purchase order, memorandum or other instruments covering
the goods or services provided under this Agreement, it is agreed that such
document is for CSI's internal purposes only unless it is accepted in writing by
CONVERGENT, in which case all terms and conditions contained therein which are
additional to or inconsistent with this Agreement shall be of no force and
effect. The Agreement shall not be varied other than by an instrument in writing
of subsequent date hereto, executed by the duly authorized representatives of
both Parties. The Agreement shall be construed in accordance with, and its
performance governed by the laws of the State of Iowa excluding its laws on
conflict of law.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.
CINERGY SERVICES, INC. CONVERGENT GROUP CORPORATION
By: /s/ LARRY E. THOMAS By: /s/ GLENN E. MONTGOMERY
------------------------------- -----------------------------
Name: Larry E. Thomas Name: Glenn E. Montgomery
-----------------------------
Title: President - Energy Delivery Title: CEO
----------------------------
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EXHIBIT 10.18
AGREEMENT
BETWEEN
IES INDUSTRIES INC.
AND
CONVERGENT GROUP CORPORATION
(REFERENCE NO. 109)
This Agreement ("Agreement") is made and entered into by and between IES
Industries Inc., its authorized agents, employees, assigns, subsidiaries and
successors (CLIENT) and Convergent Group Corporation (CONSULTANT), and includes
as required the sale and maintenance of hardware manufactured by third parties
hereto ("Hardware"), the licensing and maintenance of third-party application
Software and operating system Software ("Software"), Custom Software generated
by CONSULTANT ("Custom Software"), certain associated documentation
("Documentation") and professional consultant services, required to provide
technical and management consulting expertise to CLIENT for custom application
software and custom application software systems as well as provide technical
services related thereto as more particularly set forth in the Schedules
attached hereto and incorporated herein by this reference (collectively
"Consultant Services").
1. SCOPE OF WORK: CONSULTANT agrees to provide CLIENT with Hardware, Software,
Custom Software, Documentation and Services as required to manage the
development and implementation of strategic systems and applications to support
CLIENT's corporate business objectives. These systems will be implemented in
phases in accordance with the requirements of Schedule A - Scope of Work
attached hereto and incorporated herein by this reference.
2. COSTS AND FEES: The total price for the implementation of Strategic Systems
and Applications for the Vision IMPACT project to support the CLIENT's business
objectives is $14,333,627 which is comprised of a Fixed Price Component as
defined in Schedule B and an Estimated component as defined in Schedule C.
2.1 The estimated costs and fees are $5,070,340. These costs and fees
include all estimated expenses for the project (expenses will be
billed to CLIENT at cost plus a 3 1/2 percent administrative fee),
application and system integration development. The description of the
tasks associated with the estimated work effort is contained in
Schedule A - Scope of Work and the billing terms for the estimated
cost and fees are contained in Schedule C - Billing Terms for
Estimated Work.
2.2 The Firm Fixed cost and fees are $9,263,287 and include the delivery
of an integrated AM/FM/GIS, Work Management, Distribution Management,
Mobile Data Terminal, Conversion and the procurement of third-party
Software. The description of the tasks associated with fixed work
effort is contained in Schedule A - Scope of Work and the billing
schedule for the fixed costs and fees is contained in Schedule B -
Fixed Price Payments.
2.3 The cost and fees set forth in Schedule B and Schedule C are exclusive
of the following and CLIENT agrees to:
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2.3.1 enter into a contract amendment for any CLIENT-directed change
of scope in accordance with clauses 8.1 and 8.2 of this
Agreement.
2.3.2 all taxes, however designated, paid or payable by hereunder,
exclusive of taxes based on the net income of CONSULTANT. If any
charges under this Agreement are exempt from sales or use tax
liability, CLIENT shall provide to CONSULTANT, upon execution of
this Agreement, evidence of tax exemption acceptable to the
relevant taxing authority.
3. PAYMENT TERMS: The Firm Fixed Cost and Fees payment schedule is contained in
Schedule B which is attached hereto and incorporated herein by this reference.
The Estimated Cost and Fees billing terms are delineated in Schedule C which is
attached hereto and incorporated herein by this reference.
In the event that an invoice, or any undisputed portion of an invoice,
remains unpaid for 30 days after the date it is delivered to CLIENT the
CONSULTANT shall charge CLIENT interest at the rate of one percent per month or
at the maximum rate permitted by law, whichever is less, on the unpaid balance
of said invoice from the date of its delivery to CLIENT.
All invoices will be addressed to: Express Address:
IES Utilities Inc. IES Utilities Inc.
P.O. Box 351 200 First Street SE
Cedar Rapids, IA 52406-0351 Cedar Rapids, IA 52401
Attn: Joe Harnish, Project Manager
The CLIENT will make payments using Electronic Funds Transfers using the
bank and account information contained in Schedule D - Electronic Funds
Transfer.
4. CONSULTANT EMPLOYEES: CONSULTANT personnel shall be and will remain at all
times, during this Agreement, employees of CONSULTANT. CLIENT shall not be
responsible for any payments due CONSULTANT employees on account of, or in
connection with, this Agreement.
CONSULTANT employees assisting CLIENT under this Agreement who are found,
in CLIENT's sole opinion, to be unsatisfactory for services to be performed
hereunder, shall be removed by CONSULTANT immediately upon receipt of written
notice from CLIENT. Such employee shall be replaced with another CONSULTANT
employee satisfactory to CLIENT as soon as possible.
5. NON-SOLICITATION OF EMPLOYEES: CLIENT agrees that CLIENT will not, during the
term of this Agreement and for a period continuing for 12 months after the
expiration or termination of this Agreement for any reason, directly or
indirectly solicit, influence, entice or encourage any person who is then or had
been within one (1) year of such action an employee of CONSULTANT to cease his
or her relationship with, or otherwise interfere with, disrupt or attempt to
disrupt any past, present or prospective relationship, contractual or otherwise,
between CONSULTANT and any of its employees.
CLIENT further agrees that CLIENT will not, during the term of this
Agreement and for a period continuing for 12 months thereafter, hire or attempt
to hire, whether as an employee, consultant or otherwise any person who was
employed by CONSULTANT at any time during the term of this Agreement.
CONSULTANT agrees that these terms are reciprocal with respect to
solicitation of CLIENT employees.
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This Section shall survive termination or expiration of this Agreement for
any reason.
If the scope of any restrictions contained in this Section is too broad to
permit enforcement of such restriction to its fullest extent, then such
restriction shall be enforced to the maximum extent permitted by law and CLIENT
hereby consents and agrees that the scope may be judicially modified in any
proceeding brought to enforce such restriction.
6. INSURANCE: During the term of this Agreement CONSULTANT shall provide and
maintain at its own expense the following kinds of insurance with limits of
liability as set forth below:
Insurance Limits of Liability
Workmen's Compensation Statutory
Commercial General Liability $ 2,000,000
Automobile Liability $ 1,000,000
Excess Liability $10,000,000
CONSULTANT has provided CLIENT with a certificate of insurance evidencing
the coverages required above and stating the policy numbers and inception and
expiration dates of all policies which is included as Schedule E - Certificate
of Insurance. This certificate of insurance shall also provide for 10-days prior
notice to the CLIENT in the event of cancellation of the policy.
7. INDEPENDENT CONTRACTOR STATUS: The parties to this Agreement are independent
contractors, and none of the provisions of this Agreement shall be interpreted
or deemed to create any relationship between such parties other than that of
independent contractors. Nothing contained in this Agreement shall be construed
to create a relationship of employer and employee, master and servant, principal
and agent, or coventurers between CLIENT and CONSULTANT or between CLIENT and
any employee of CONSULTANT, or between CONSULTANT and any employee of CLIENT.
CLIENT shall have no right to control or direct the details, manner, or means by
which CONSULTANT performs the services hereunder, provided that such services
shall be performed to the mutually agreed upon specifications contained in the
Schedules. In performing such services, CONSULTANT shall have no control over
the management authority with respect to the CLIENT or its operations.
8. SPECIAL CONDITIONS: The following conditions are incorporated into the
understandings associated with this Agreement:
8.1 If the project scope of work is requested to be increased or changed
by CLIENT in such a manner as to require additional labor or expenses,
and CONSULTANT agrees to such changes, the parties will adjust both
scope and costs and fees through a written amendment to this
Agreement. Before the CONSULTANT performs any work outside the
currently approved scope of work, the CONSULTANT must first receive
written approval for a scope of work change from the CLIENT or
otherwise waive any right for compensation for the work, unless the
parties can mutually agree upon an equitable adjustment.
8.2 CLIENT and CONSULTANT reserve the right to subsequently amend this
Agreement to include additional services or associated products.
Compensation for additional services or products will be as agreed by
CLIENT and CONSULTANT and may be incorporated as Addenda to this
Agreement. All work to be accomplished will be defined in written
change
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orders approved by the parties. The change orders will define the
objectives to be addressed, the scope of services to be provided, the
products to be delivered, the schedule to be met, special
considerations (as appropriate), and a change order cost and fee
estimate. The CONSULTANT will be reimbursed for expenses as provided
in the change order.
8.3 CONSULTANT's project team members will have the opportunity and
authority to contact personnel at CLIENT directly in the performance
of technical consulting duties.
8.4 Other terms and conditions may be added to this Agreement in the
future by mutual written consent of both parties.
8.5 The parties will utilize a "zero-based" contingency method for changes
where the CLIENT can request additional work while reducing the dollar
equivalent from elsewhere in the Scope of Work. However, the CLIENT
retains the option of increasing the contract firm fixed cost and
fees. Any changes to the Scope of Work must be authorized in writing
by the CLIENT's Project Manager.
9. EQUAL EMPLOYMENT: In performing the services hereunder, CONSULTANT agrees to
comply with all applicable local, state, and federal laws, regulations, and
orders relating to fair and equal employment opportunity practices and policies.
10. LICENSE AND SOFTWARE PROTECTION: Both CONSULTANT and CLIENT have developed
numerous proven proprietary materials which provide the methodologies for the
development of the Deliverables as delineated in Exhibit A - Scope of Work. The
use of these materials contributes to the cost-effectiveness of the project.
Both parties agree that the CONSULTANT and CLIENT shall own all such products,
materials, and methodologies that have been developed by that party, and that
CONSULTANT and CLIENT shall have or obtain no rights in such proprietary
products, materials, and methodologies of the other party, except pursuant to a
separate written agreement executed by the parties. The CONSULTANT and CLIENT
shall have the right to market, distribute, make derivative works from and sell
similar work to other companies without further notice to nor consent from the
other party. Nothing in this Agreement shall restrict or prohibit CONSULTANT's
or CLIENT's right to use concepts, techniques, and know-how used or developed in
the course of performing these services.
CONSULTANT's work for CLIENT will include, among other things, customizing
CONSULTANT's code and proprietary methodologies as well as Third-Party Code.
CONSULTANT shall be the owner and retain exclusive copyrights of all deliverable
products created in connection with this Agreement and the media on which such
deliverable products are presented. CONSULTANT shall deliver to CLIENT the
Source Code and deliverable products in accordance with Section 2 of this
Agreement. CONSULTANT grants to CLIENT and all of its affiliates a perpetual
unrestricted, royalty-free license to reproduce and use, for Customer's internal
purposes only, any materials developed for CLIENT related to this Agreement, not
including Third-Party Software Licenses. CLIENT agrees not to exhibit,
distribute, or otherwise disclose any proprietary software, methods, or
materials to external or third parties without the prior approval in writing
from CONSULTANT.
CLIENT shall be the Owner and retain exclusive copyrights of all products
created by CLIENT in connection with this Agreement and the media on which such
products are presented. CLIENT grants to CONSULTANT a perpetual unrestricted,
royalty-free license to reproduce and use such products for CLIENT's internal
business purposes only.
All third-party Software licenses will be executed between the CLIENT and
the third-party Software vendor. Grants of licenses for all third-party Software
licenses will be transferred from the third party to the CLIENT in accordance
with a mutually acceptable license agreement.
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11. TRAINING: Subject to a mutually agreed to schedule, CONSULTANT will provide
training to the CLIENT in the use of the CONSULTANT Software listed in Schedule
A. The extent of such training, number of CLIENT personnel to be trained,
location of such training, and the appropriate costs and fees are reflected in
the Schedules.
12. HARDWARE MAINTENANCE. CONSULTANT may provide Hardware Maintenance to CLIENT.
The terms of the Hardware Maintenance will be in accordance with mutually agreed
upon Maintenance provisions.
13. CORE APPLICATION SOFTWARE MAINTENANCE: CONSULTANT will provide Software
maintenance to CLIENT after installation for two years; thereafter, maintenance
may be provided in a mutually agreed upon schedule and costs and fees between
CLIENT and CONSULTANT. The terms of the Software Maintenance will be in
accordance with mutually agreed upon maintenance provisions to be added at a
later date.
13.1 CUSTOM SOFTWARE MAINTENANCE. CONSULTANT will provide custom
application software maintenance after date of acceptance for two
years; thereafter, maintenance shall be provided in a mutually agreed
to schedule and costs and fees between CLIENT and CONSULTANT. The
terms of the Software Maintenance will be in accordance with mutually
agreed upon maintenance provisions to be added at a later date.
14. WARRANTY AND DISCLAIMER: CONSULTANT warrants that for 90 days after the
Installation Date (i) any Hardware which is procured for CLIENT by CONSULTANT
will be free from defects in materials and workmanship, (ii) any Software which
is procured for CLIENT by CONSULTANT will perform substantially in compliance
with the Documentation provided by CONSULTANT and (iii) the system integration
will meet the requirements contemplated by the Scope of Work, if any, as
demonstrated by the successful completion of the mutually agreed upon acceptance
criteria.
CONSULTANT MAKES NO OTHER WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT BY WAY OF LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
HARDWARE, SOFTWARE, DOCUMENTATION, TECHNICAL INFORMATION, AND TECHNICAL
ASSISTANCE PROVIDED BY CONSULTANT PURSUANT TO THIS AGREEMENT.
15. LIMIT OF LIABILITY: CONSULTANT's liability in respect to services and
materials provided under this Agreement shall be limited to claims directly
attributable only to the failure of CONSULTANT's agents or employees to exercise
the degree of skill and performance normally exercised by duly qualified persons
performing similar functions. The amount of CONSULTANT's liability shall not
exceed $10,000,000. IN NO EVENT SHALL CONSULTANT, ITS EMPLOYEES, OFFICERS, OR
AGENTS BE LIABLE FOR LOSS OF EARNINGS, LOSS OF PROFITS, LOSS OF INTEREST, , OR
ANY OTHER SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGE, HOWEVER CAUSED.
16. NEGLIGENCE: Each party shall be responsible for willful misconduct and
negligent acts or omissions of its agents and employees. Each party shall
indemnify, hold harmless, and defend the other from and against all liabilities
for bodily injury and property damage caused by the willful or negligent act or
omission of the indemnifying party or its agents or employees. This Section
shall survive termination or expiration of this Agreement for any reason.
17. LIMITATION OF REMEDIES: CONSULTANT's entire liability and the CLIENT's
exclusive remedy, in respect to services and materials provided under this
Agreement with the exception of the Indemnity Agreement in paragraph 18, shall
be that CONSULTANT will, pursuant to applicable maintenance provisions, restore
the Hardware to working order if it should fail due to defects in materials and
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workmanship and correct the Application Software if it should fail to
substantially conform to the Documentation provided by CONSULTANT, during the
period in which CONSULTANT is providing maintenance services in accordance with
Sections 13 and 14 herein. However, if CONSULTANT is unable to cure such
defects, as CLIENT's exclusive remedy, CONSULTANT will grant CLIENT a refund for
the Hardware and/or Application Software involved, based upon its five-year
straight line depreciated value over the life of the product.
17.1 Under this Section 17, CONSULTANT's entire liability for damages for
any cause whatsoever, and regardless of the form of action, shall be
limited to CLIENT's actual direct damages not to exceed the amount
paid to CONSULTANT under this Agreement for the specific item that
caused the damage or that is the subject matter of, or is directly
related to, the cause of action. This limitation is not applicable to
claims for patent, copyright and trade secret infringement which
claims are covered by Section 18.
18. PATENTS, TRADEMARKS AND TRADE SECRET INFRINGEMENT INDEMNITY: CONSULTANT
shall defend, at its expense, any action brought against CLIENT to the extent
that it is based upon a claim that any Hardware, Software, or Documentation
infringes a patent, copyright, or violates any third party trade secret or
proprietary right and shall pay all costs and damages finally awarded against
CLIENT, provided that CONSULTANT is given prompt written notice of such claim
and is given information, reasonable assistance, and sole authority to defend or
settle the claim.
18.1 If any such action is brought, or in CONSULTANT's opinion is likely to
be brought, then CONSULTANT may at its election (i) obtain for CLIENT
the right to continue using the Hardware, Software, or Documentation;
(ii) replace or modify such so that it becomes noninfringing; or,
(iii) if such remedies are not reasonably available, accept CLIENT's
return of the Hardware, Software, or Documentation, and grant CLIENT a
refund for the Hardware, Software, or Documentation involved.
18.2 CONSULTANT shall have no obligation under this Section if the alleged
infringement or violation is based upon the use of the Hardware,
Software or Documentation in combination with other hardware,
software, or documentation not furnished by CONSULTANT or if such
claim arises from CONSULTANT's compliance with CLIENT's designs,
specifications, or instructions, or from CLIENT's modification of the
Hardware, Software, or Documentation.
18.3 CONSULTANT shall have no liability for infringement of patents,
copyrights, or violation of trade secrets or proprietary rights except
as expressly provided in this Section.
19. TERMINATION: If either party shall at any time commit any material breach of
any covenant, or warranty under this Agreement (other than a breach of Section
9), and (i) shall fail to cure such breach within thirty (30) days of written
notice of such breach or (ii) if it is not curable within thirty (30) days of
written notice, shall fail to diligently commence to cure it within thirty (30)
days of notice, the defaulted party may at its option and in addition to any
other remedies to which it is entitled, terminate this Agreement by written
notice.
19.1 Except as may be prohibited by the U.S. bankruptcy laws, in the event
of either party's insolvency or inability to pay debts as they become
due, voluntary or involuntary bankruptcy proceedings by or against a
party hereto, or appointment of a receiver or assignee for the benefit
of creditors, the other party may terminate this Agreement by written
notice.
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19.2 CONSULTANT reserves the right to terminate this Agreement upon written
notice to CLIENT if CLIENT fails to make full payment of any invoice
or portion of any invoice not in dispute within seventy (70) days from
date of invoice.
19.3 All license rights granted for which CLIENT has not paid in full shall
cease upon any termination or cancellation of this Agreement. Within
fifteen (15) days after termination of the license rights granted
herein, or termination or cancellation of this Agreement for any
reason, CLIENT agrees to certify to CONSULTANT in writing that the
original and all copies of the Software and Documentation, in any
form, have been destroyed.
19.4 This Agreement may be terminated in whole or in part by the CLIENT for
the CLIENT's convenience, provided that the CONSULTANT is given 1) not
less than thirty (30) days written notice by certified mail, return
receipt requested, of the CLIENT's intent to terminate and 2) an
opportunity for consultation with the CLIENT prior to termination. If
this Agreement is terminated for convenience, CONSULTANT will be paid
its actual incurred fees and legally committed accrued costs,
determined in accordance with generally accepted accounting principles
consistently applied, provided that if compensation under this
Agreement is on a Time and Materials basis, CONSULTANT will be
compensated at the current CONSULTANT established billing rates for
the time spent and materials purchased (or committed to be purchased)
as of the date of termination plus any time reasonably required to
demobilize CONSULTANT's services and the Time and Material charges
associated with the termination expenses and collection thereof.
20. RISK OF LOSS. Should Hardware and/or Software initially be delivered to
CONSULTANT to be used for configuration testing and development efforts the Risk
of Loss during said period shall be with CONSULTANT and CONSULTANT as authorized
by CLIENT to install, maintain, and request warranty remedies from the
third-party Hardware or Software manufacturer during the period it is located at
CONSULTANT's facility. Risk of Loss to Hardware and Software shall pass to
CLIENT upon delivery of same to the CLIENT's installation site.
21. AUDIT REVIEW. CLIENT or its designated representative shall have access to
CONSULTANT's records maintained pursuant to this Agreement at the CLIENT's
premises or at CONSULTANT's regular place of business during normal business
hours to review, audit, and verify any information connected with this Agreement
required by CLIENT to determine the costs associated with non-fixed price Work
or cancellation of Work in progress, or to evaluate and monitor quality
assurance programs. CLIENT shall not have a right to audit in connection with
cost associated with (1) the firm portion of any fixed price Work, except for
cancellation of Work in progress or (2) CONSULTANT's published commercial rate
schedule or any agreed-upon rates for Time and Materials Work.
Copies of any material shall be made for CLIENT at its request and
reasonable costs of reproduction shall be borne by CLIENT. Access to
CONSULTANT's records for the above audit purposes or for technical review
purposes relative to CONSULTANT's performance of the Work under this Agreement
shall be granted to CLIENT for three (3) years after acceptance of the Work or
cancellation of the Agreement.
22. CONFIDENTIALITY OF INFORMATION: The parties acknowledge that in the course
of this Agreement they will have access to, and/or will be in possession of,
Confidential Information of the other. "Confidential Information" shall mean
information regarded by that party as confidential, including, but not limited
to, information relating to its past, present, or future research, development,
or business affairs; future project purchases; any proprietary products,
materials, or methodologies; all items prepared for and submitted to CLIENT in
connection with work performed under this Agreement, including drafts
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and associated material; and any other information marked or, in the case of
information verbally disclosed, verbally designated as confidential at the time
of disclosure by that party.
22.1 Each party shall hold in confidence, in the same manner as it holds
its own confidential information of like kind, all Confidential
Information of the other to which it may have access hereunder. Access
to Confidential Information shall be restricted to those of each
party's personnel with a need to know and engaged in a permitted use..
CLIENT acknowledges that it is essential that CONSULTANT maintain its
business advantage with respect to competitors or would-be
competitors. For this reason, CLIENT shall not engage any third-party
contractor to perform any services for CLIENT which would involve such
contractor receiving any confidential information involve such
contractor using any licensed software provided to CLIENT under this
Agreement, unless such contractor shall have been approved in writing
by CONSULTANT in its sole and absolute discretion.
22.2 The foregoing shall not prohibit or limit either party's use of
information including, but not limited to, ideas, concepts, know-how,
techniques, and methodologies which (i) are or become generally
available to and known by the public (other than as a result of an
unpermitted disclosure directly or indirectly by the receiving party
hereunder or its agents, representatives, or advisors), (ii) are or
becomes available to it on a nonconfidential basis from a source other
than the furnishing party or its affiliates, advisors, agents, or
representatives, provided that such source is not and was not bound by
a confidentiality agreement with or other obligation of secrecy to the
furnishing party, (iii) has already been or is hereafter independently
acquired or developed by it without violating any confidentiality
agreement or other obligation of secrecy to the furnishing party, or
(iv) is required by law or regulation to be disclosed, provided,
however, that it shall give the furnishing party reasonable advance
notice of such requirement so that the furnishing party may seek
appropriate legal relief against such disclosure.
22.3 The parties hereto agree and acknowledge that any such Confidential
Information shall be considered for all purposes confidential and
privileged information under any local, state, or federal law and such
Confidential Information shall not be released pursuant to any local,
state or federal act, law or statute concerning "freedom of
information."
22.4 This Section shall survive termination or expiration of this Agreement
for any reason.
22.5 CLIENT acknowledges and agrees that the provisions of this Section are
essential to CONSULTANT and are reasonable and necessary to protect
the legitimate interest of CONSULTANT and that the damages sustained
by CONSULTANT as a result of a breach of the agreements contained
herein will subject CONSULTANT to immediate, irreparable harm and
damage, the amount of which, although substantial, could not be
reasonably ascertainable, and that recovery of damages at law will not
be an adequate remedy. Therefore, CLIENT agrees that CONSULTANT, in
addition to any other remedy it may have under this Agreement or at
law, shall be entitled to seek injunctive and other equitable relief,
to prevent or curtail any breach of any provision of this Section.
CONSULTANT agrees that prior to the initiation of any legal action,
including without limitation, injunctive and other equitable relief,
CONSULTANT will work with CLIENT to attempt to resolve any suspected
breaches in confidentiality. In the event that a breach of
confidentiality is determined to have occurred, CLIENT will have ten
(10) days to cure such breach of confidentiality prior to CONSULTANT's
initiation of legal action. CLIENT waives any right to the posting of
a bond in the event of an issuance of a
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temporary restraining order, preliminary injunction, upon the issuance
of said order by a court of competent jurisdiction.
22.6 All copyright and other intellectual property rights shall belong to
CONSULTANT. CONSULTANT shall be entitled to retain a duplicate set of
such deliverable products for its files.
23. RETURN OF INFORMATION: Upon termination or expiration of this Agreement for
any reason, both parties shall return any confidential information or
proprietary information belonging to the other party which is in their
possession, except that CONSULTANT shall be entitled to retain a duplicate set
of any deliverable products created in connection with this Agreement.
24. GOVERNING LAW: This Agreement will be governed by the laws of the State of
Iowa without regard to the conflicts of law principles of such state.
25. ENFORCEMENT EXPENSES: In the event of a breach or threatened breach of any
term or provision of this Agreement, the nonbreaching party shall be entitled to
all of its remedies available at law or in equity and in addition shall be
entitled to be reimbursed for all of its costs and expenses in enforcing this
Agreement, including, but not limited to, reasonable attorney's fees. This
Section shall survive termination or expiration of this Agreement for any
reason.
26. CAPTIONS AND HEADINGS: The captions and headings herein are for convenience
only and in no way shall be used in the interpretation or construction of this
Agreement.
27. WAIVER OF COMPLIANCE: Any failure by any party hereto to enforce at any time
any term or condition of this Agreement shall not be considered a waiver of that
party's right to later enforce each and every term and condition hereof.
28. NOTICES: Any notice required or permitted to be made or given to either
party hereto will be sufficiently made or given on the date of receipt or on the
refusal date as specified on the return receipt in the case of overnight courier
or certified mail, if sent to such party at its address set forth below, or such
other address as it shall designate by written notice to the other party. Notice
shall be deemed given on the date of delivery in the case of personal delivery.
IES UTILITIES INC. Express Delivery Address
IES Utilities Inc. IES Utilities Inc.
P.O. Box 351 200 First Street SE
Cedar Rapids, IA 52406-0351 Cedar Rapids, IA 52401
Attn: Harold Rehrauer, Vice President, Field Operations
Telephone: (319) 398-7227
Facsimile: (319) 398-7680
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Convergent Group Corporation
6200 South Syracuse Way, Suite 200
Englewood, CO 80111
Attn: Mr. Barry J. Kemble, Executive Vice President
Telephone: (303) 741-8400
Facsimile: (303) 741-8401
All notices required or permitted hereunder shall be sufficient if given in
writing and if delivered personally, by overnight courier, or by certified mail,
return receipt requested, postage prepaid, addressed to the CONSULTANT or
CLIENT, as the case may be, at the addresses set forth above or at such other
address as such party shall have designated in the manner provided in this
Section. Notice shall be deemed given upon receipt, in the case of personal
delivery, or on the delivery or refusal date, as specified on the return
receipt, in the case of overnight courier or certified mail.
29. SEVERABILITY: If any provision of this Agreement or the application thereof
to any party or circumstance shall be declared invalid, illegal, or
unenforceable, the remainder of this Agreement shall be valid and enforceable to
the extent permitted by applicable law. In such event, the parties shall use
their best efforts to replace the invalid or unenforceable provision with
provision that, to the extent permitted by applicable law, achieves the purposes
intended under the invalid or unenforceable provision.
30. DISPUTE RESOLUTION ARBITRATION: Any and all disputes arising out of or in
connection with the execution, interpretation, performance, nonperformance, of
this Agreement or any other certificate, agreement, or other instrument between,
involving, or affecting the parties (including the validity, scope, and
enforceability of this arbitration agreement) shall be solely and finally
settled by a single arbitrator in accordance with the Commercial Rules of the
American Arbitration Association (the "Rules"); provided, however, that in the
event of conflict between the Rules and the terms of this Agreement, the terms
of this Agreement shall govern. The place of arbitration shall be Cedar Rapids,
Iowa, and the law applicable to the arbitration procedure shall be the Federal
Arbitration Act (9 USC P2). To commence arbitration of any such dispute, the
party desiring arbitration shall notify the other party in writing in accordance
with the Rules. In the event that the parties fail to agree on the selection of
an arbitrator within fifteen (15) days after the delivery of such notice, the
arbitrator shall be selected by the American Arbitration Association upon the
request of either party.
The parties agree that the award of the arbitrator shall (1) be the sole
and exclusive remedy between them regarding any claims, counterclaims, or issues
presented to the arbitrator; (2) be final and subject to no judicial review; and
(3) be made and shall promptly be payable in U.S. dollars free of any tax,
deduction, or offset. The parties further agree that any costs, fees, or taxes
incident to enforcing the award shall, to the maximum extent permitted by law,
be charged against the party resisting such enforcement. The parties hereto
agree that judgment on the arbitration award will be nonbinding.
Each party shall, except as otherwise provided herein, be responsible for
its own expenses, including legal fees, incurred in the course of any
arbitration proceedings. The fees of the arbitrator shall be divided evenly
between the parties.
CONSULTANT shall carry on and be paid for the services not in dispute and
maintain the schedule for services during any arbitration or litigation
proceedings, unless otherwise agreed by CONSULTANT and CLIENT in writing.
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31. SCHEDULES: The Schedules attached hereto form a part of and are incorporated
herein by this reference.
Schedule A: Scope of Work
Schedule B Fixed Price Payments
Schedule C Billing Terms for Estimated Work
Schedule D Electronic Funds Transfer
Schedule E Certificate of Insurance
Schedule F Project Baseline Schedule
32. GENERAL: This Agreement, and any license granted therein, may not be
assigned or transferred by CLIENT in whole or in part, either voluntarily or by
operation of law, without the prior written consent of the CONSULTANT.
32.1 Prior to delivery, CONSULTANT reserves the right, at no additional
charge to CLIENT, to make substitutions and modifications in the
design and/or specifications of Hardware, Software or Documentation
provided hereunder; provided that such substitutions or modifications
do not materially and adversely affect performance or function and
CONSULTANT obtains CLIENT agreement to the substitution prior to the
substitution taking place.
32.2 It is understood that at times unavoidable delays result from causes
which may reasonably be presumed to be beyond the control of
CONSULTANT, such as: Acts of providence, floods, fortuitous events,
unavoidable (from the standpoint of CLIENT) accidents, riots, strikes,
and lock outs. Should the progress of the Work (including delivery of
equipment, goods and materials) be or seem to be delayed at any time
for such causes, CONSULTANT shall at once notify CLIENT in writing of
the occurrence, in order that a record of the same may be made. Should
it be decided by CLIENT that the delay was unavoidable, a
corresponding extension of time for the completion of the Work may be
allowed by CLIENT not to exceed the actual number of days such
unavoidable delays accrued, but it is distinctly understood that
should CONSULTANT fail or neglect to notify CLIENT as above provided,
such omission shall be construed as a waiver of all claims and rights
to extension of time for the completion of the Work on account of such
delays. Both parties shall in good faith use such effort as is
reasonable under all the circumstances known to that party at the time
to remove or remedy the cause(s) and mitigate the damages.
32.3 The parties have agreed that this contract may be amended at a future
date to include an incentive compensation provision.
32.4 Neither party shall issue any news release, public announcements, or
advertisements of any portion of the content of this Agreement without
the other party reviewing such announcement prior to such release.
32.5 No action, regardless of form, may be brought by either party after
the Iowa Statute of Limitations on such action has expired.
32.6 CLIENT agrees that it will not export outside of the United States of
America any Hardware, Software or Documentation provided hereunder
without the express written prior consent of CONSULTANT.
32.7 Time is of the essence in this contract.
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32.8 This Agreement and the Schedules hereto constitute the entire
agreement between the parties and shall supersede all proposals or
prior agreements, oral or written, and all other communications
between the parties relating to the subject matter of this Agreement.
If CLIENT issues a purchase order, memorandum or other instruments
covering the goods or services provided under this Agreement, it is
agreed that such document is for CLIENT's internal purposes only
unless it is accepted in writing by CONSULTANT, in which case all
terms and conditions contained therein which are additional to or
inconsistent with this Agreement shall be of no force and effect. The
Agreement shall not be varied other than by an instrument in writing
of subsequent date hereto, executed by the duly authorized
representatives of both parties. The Agreement shall be construed in
accordance with, and its performance governed by the laws of the State
of Iowa excluding its laws on conflict of law.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
21st day of August 1996.
IES INDUSTRIES INC.
By: /s/ LEE LIU
------------------------------------------
Name: Lee Liu
Title: Chairman of the Board, President & Chief Executive Officer
Address: 200 First Street SE
City: Cedar Rapids State: IA Zip Code: 52401
CONVERGENT GROUP CORPORATION
By: /s/ GLENN E. MONTGOMERY
--------------------------------------------(Authorized Signature)
Name: Glenn E. Montgomery
Title: CEO
Address: 6200 S. Syracuse Way, Ste. 222
City: Englewood State: CO Zip Code: 80111
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EXHIBIT 10.18
SCHEDULE A: SCOPE OF WORK
The scope of work for IES Industries Inc. and its subsidiary IES Utilities,
hereinafter called IES, is to support the IES Vision IMPACT project. The scope
presented herein discusses the tasks that will be used to manage the development
and implementation of strategic systems and applications to support IES'
corporate business objectives. Work Management System (WMS), Distribution
Management System (DMS), Automated Mapping/Facilities Management/Geographic
Information System (AM/FM/GIS), and Computer Aided Dispatch/Mobile Data Terminal
(CAD/MDT) applications will be developed in synchronization with a fast-track
network conversion to support IES' need for full production Rapid Response, T &
D Planning, Maintenance, and Construction systems. Integration with gas and
electric network analysis software, in support of System Planning, is also
included as a project deliverable. The systems will be implemented in phases
that include a demonstrable Proof-of-Concept capabilities phase to verify the
systems' usefulness and functionality, a core functionality production phase to
roll out core system functionality, and an extended functionality phase to
provide additional non-core functionality. Convergent Group proposes a scope of
work consisting of the following 13 major tasks and assumption section.
TASK 1: PROJECT MANAGEMENT AND SYSTEMS INTEGRATION CONSULTING
- --------------------------------------------------------------------------------
Convergent Group will perform the role of owner's representative and General
Project Manager and Integration Consultant on IES' System Integration project.
Convergent Group will begin by finalizing the detailed project work plan and the
project work schedule with the IES Project Manager and subcontractors.
Convergent Group will assist in establishing individual start-up assignments,
participation requirements, and project control/review/approval procedures.
Along with the IES Project Manager, Convergent Group will refine monthly the
detailed project implementation schedule that will serve as a guide for the
remainder of the project planning and work completion process.
Convergent Group will provide ongoing project management and coordination,
including vendor coordination and management, day-to-day support, scheduling of
project meetings with the Project Team or vendors, status reports, and other
project management/support activities. Convergent Group will share
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IES CONVERGENT GROUP A-1
Vision IMPACT Project
<PAGE> 14
SCHEDULE A: SCOPE OF WORK
project plan and schedule updates with the IES Project Team on a regular basis
to support internal project management efforts.
Task 1 will include the following activities to support deliverables:
o Define Denver to Cedar Rapids communications link requirements
o Start-up assignments
o Participation requirements
o Vendor accounting and billing
o Project coordination and management
o Vendor coordination and management
o Maintenance of project work plans and schedule
o Ongoing professional assistance
o Biweekly progress reports and monthly review meetings with the IES
Project Team
o Quarterly executive review meetings with IES and vendor senior
management
DELIVERABLE PRODUCTS FOR TASK 1
o Kickoff meeting
o Biweekly and monthly status reports
o Quarterly project sponsor status briefings
o Ongoing project management support
o Ongoing vendor management
o Monthly project schedule updates
o Requirements for Denver to Cedar Rapids communications link
TASK 2: EMPLOYEE COMMUNICATIONS
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Convergent Group's experience with large systems integration projects has shown
that user community involvement early in the process is key to employee
acceptance and to the ultimate success of the project. Our communications
professionals will meet with IES to develop the Employee Communications Program,
which will include the following activities.
o CONDUCT INTERVIEWS AND RESEARCH
Convergent Group will interview selected members of the IES Project Team, the
Manager of Communications, and the Manager of Human Resources to ascertain
communications requirements during the project. Convergent Group will also
evaluate current
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A-2 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 15
SCHEDULE A: SCOPE OF WORK
IES communications vehicles for appropriate use in conveying
information about Vision IMPACT to target audiences.
o FORM COMMUNICATIONS TEAM
Convergent Group will work with IES to identify a Communications Team
of two key IES representatives, including a representative of the IES
Communications Department and a designated member of the Project Team,
to work with Convergent Group and to facilitate the Vision IMPACT
project's ongoing employee communications activities.
o DEVELOP EMPLOYEE COMMUNICATIONS PROGRAM
Using the information gathered during the previous subtasks, Convergent
Group will develop an Employee Communications Program for the duration
of the Vision IMPACT project. Included in the program will be key
project messages, target audiences, specific communications vehicles
and tactical activities, a timeline, and an evaluation component.
o MANAGE IMPLEMENTATION OF EMPLOYEE COMMUNICATIONS PROGRAM
Upon IES approval of the program, Convergent Group will manage and
advise the IES Communications Team on program implementation. The IES
team will perform all internal activities associated with the program
implementation. Convergent Group will convene on-site for monthly
meetings with the IES Communications Team to discuss ongoing program
strategy. Convergent Group will provide action item reports from these
monthly meetings and quarterly status reports of the Employee
Communications Program.
DELIVERABLE PRODUCTS FOR TASK 2
o Employee Communications Program Report
o Employee Communications Program implementation management and
advisement
o Monthly meetings
o Quarterly status reports
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IES CONVERGENT GROUP A-3
Vision IMPACT Project
<PAGE> 16
SCHEDULE A: SCOPE OF WORK
TASK 3: MANAGEMENT OF HARDWARE PROCUREMENT
- --------------------------------------------------------------------------------
Convergent Group will define the minimum detailed hardware requirements and
specifications for all hardware to support each phase of development and
rollout. Convergent Group will work closely with IES to comply with the existing
IES hardware infrastructure and standards. Hardware vendor contracts will be
negotiated and executed by IES. IES will work closely with Convergent Group to
optimize the use of currently existing hardware and vendor purchase agreements;
to support effective delivery and configuration; and to establish an effective
parallel hardware configuration at Convergent Group office for efficient system
development and trouble shooting.
DELIVERABLE PRODUCTS FOR TASK 3
o Hardware configuration specifications for each phase of system
TASK 4: MANAGEMENT OF SOFTWARE PROCUREMENT
- --------------------------------------------------------------------------------
Convergent Group will define the detailed software licensing requirements and
specifications to support each phase of development and rollout, draft and
implement all software vendor contracts and purchase orders, and purchase the
AM/FM/GIS, CAD/MDT, DMS, and WMS software as specified in the Strategic
Implementation Plan. Convergent Group will work closely with IES to comply with
existing IES software standards. Software vendor contracts negotiated by
Convergent Group will include license acquisition, implementation services (if
required), and maintenance. Convergent Group will work closely with IES to
optimize the use of currently existing software and vendor purchase agreements
for RDBMS and OS software.
DELIVERABLE PRODUCTS FOR TASK 4
o Configuration specifications for each phase of system
o Vendor contract negotiations and management
o Software license agreements
o Software maintenance agreement
TASK 5: DATA MODELING
- --------------------------------------------------------------------------------
The data modeling task will consist of all activities required to design and
implement a data model to support the IES Vision IMPACT project. The data
designs for each core application that
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A-4 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 17
SCHEDULE A: SCOPE OF WORK
are part of the Convergent Group integrated product suite, except AM/FM/GIS,
are expected to vary little from the core product specifications in order to
keep implementation costs and schedule times to a minimum and to meet the
proposed schedule. Convergent Group and IES will work diligently to adapt to the
core product models, where possible, to accommodate the IES business process.
The task is divided into three basic groups of activities: conceptual/logical
data modeling, physical data modeling, and global system architecting.
o CONCEPTUAL/LOGICAL DATA MODELING
The combined conceptual/logical (herein referred to as logical)
database design provides one data model that will address functionality
across the entire Vision IMPACT product suite, and it describes the
overall logical structure of an organization's data, independent of the
specific database platform. Convergent Group's data modeling
methodology defines the logical model as including the entities, the
relationships between the entities, and the descriptions and primary
keys for the entities. The logical database model (LDM) builds upon
these relationships to create attribute, domain, annotation, and
spatial placement specifications (if applicable); to determine
integrity constraints; to map to applications; and to document data
privileges and responsibilities. Convergent Group and IES need to work
diligently at adapting to the core product logical models. In fully
developing the LDM, Convergent Group will perform the following
activities to support the deliverables:
- Review and refine IES integrated system requirements
- Review product database designs for applicability
- Collect IES symbology specifications
- Review draft LDM with IES
o PHYSICAL DATA MODELING
Convergent Group will provide a detailed physical database model (PDM)
by transforming the LDM into a physical representation of the data
specifying table and column names, data types, file and record formats,
and indices as required by IES' platform. The PDM will identify the
relationships and constraints to be maintained by the database and
those to be implemented in selected applications.
Convergent Group will generate a draft PDM and conduct an on-site
workshop with the IES Project Team to comprehensively
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IES CONVERGENT GROUP A-5
Vision IMPACT Project
<PAGE> 18
SCHEDULE A: SCOPE OF WORK
review the PDM. The final PDM will be supplied to IES in a mutually
acceptable format to accommodate long-term data model maintenance.
o GLOBAL SYSTEM ARCHITECTURE
As part of the global system architecture design, Convergent Group will
define the design and architecture of the proposed hardware and
software technologies (to support the integrated suite only). Workshops
and teleconferences will be utilized as necessary to complete the
global architecting, Tasks include the following:
- Refine current business process/integrated system model
- Resolve process model issues identified during the SIP workshop
- Define data distribution requirements
- Define security requirements
- Refine system architecture
- Develop the data communications plan, including:
- Local communications requirements
- Remote access requirements
- Outside access requirements
- Infrastructure plan
- Finalize configuration design document
As part of developing a map of the system architecture illustrating the
physical connectivity between components, Convergent Group will
identify hardware/software components, develop a computer system
network diagram, and develop a logical architecture diagram
illustrating functionality.
DELIVERABLE PRODUCTS FOR TASK 5
o Workshop to refine mapping of integrated suite applications to
processes
o Draft LDM for integrated suite
o Final logical database model
o Physical database model
o Physical model review workshop
o Global system architecture document
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A-6 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 19
SCHEDULE A: SCOPE OF WORK
TASK 6: DEVELOPMENT OF VISION IMPACT ASSET DATABASE
- --------------------------------------------------------------------------------
Convergent Group will construct the IES Vision IMPACT project asset database by
managing and coordinating the IES Vision IMPACT project full implementation data
conversion activities. For the geographical data, activities will range from
developing a conversion plan with IES to delivering the completed,
quality-assured production data delivery as specified in the Strategic
Implementation Plan. For the data to support other systems, Convergent Group
will assist IES in designing the data and managing the creation of the data in
accordance with schedule requirements. Data will consist of employees,
contractors, materials, standard designs, work type definitions, and other
nongraphic data required to support the applications. All data conversion and
creation will be implemented in a pilot and production phase. The pilot phase is
used to identify any problems or oversights in the data model, data sources, and
conversion process in supporting the IES business process.
The following activities apply to AM/FM/GIS data only.
o DEVELOP DETAILED CONVERSION SPECIFICATION
Convergent Group will begin by detailing a plan to serve as a guideline
during all conversion activities. Items that will be addressed in the
plan and subsequent specification include the following;
- Acquisition of landbase data sets from external agencies or new digital
orthophotography to augment existing landbase data in densely populated
areas. This is assumed to be an area of up to 320 square miles with a
landbase acquisition cost of $180,000 included in the fixed fee.
- Field inventory plan
- Data source matrix
- Accuracy requirements
- Deliverable products
- Schedule for data conversion
- Optimal data conversion methodology and strategy
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IES CONVERGENT GROUP A-7
Vision IMPACT Project
<PAGE> 20
SCHEDULE A: SCOPE OF WORK
o DEVELOP SYMBOLOGY, ANNOTATION, AND PLACEMENT SPECIFICATIONS
As a part of the conversion specification, Convergent Group will
develop graphic symbology, annotation, and placement specifications
based on the hybrid North Zone/South Zone symbol set that has already
been developed at IES. Further refinement of the hybrid symbol set may
require considerable input and assistance from IES mapping experts. The
symbol set will be produced in accordance with the physical data model
(PDM) developed under Task 5.
O DEVELOP SCRUB AND CONTROL PROCEDURES
Convergent Group will develop a Scrub and Control Procedures Manual
(documentation and data preparation prior to conversion), outlining the
scrub requirements for the integrated system pilot project.
IES will be responsible for performing the necessary data scrub.
o DEVELOP QUALITY ASSURANCE/QUALITY CONTROL (QA/QC) PROCEDURES
Convergent Group will develop a detailed Data Conversion Acceptance
Testing Procedures Document. This document will serve as a handbook for
staff performing the actual acceptance testing. The document will also
communicate to the data conversion contractor the procedures being used
by IES to ensure quality data conversion. The document will evolve to
match changes in data conversion procedures and specifications and will
include specific sections for landbase and facilities data types.
Convergent Group will also identify critical and non-critical error
types and acceptance and rejection criteria for visual inspection of
delivered conversion products. Convergent Group will review the QA
procedures with the Project Team and work with the Team to manually
check data to assure quality.
O DEVELOP QA/QC SOFTWARE
Convergent Group will develop software to support the QA/QC testing.
The software will perform checks to ensure the converted data's
conformance to valid values, ranges of values, and data types. This
software will be developed under the development release methodology
discussed in Task 8.
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A-8 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 21
SCHEDULE A: SCOPE OF WORK
o CONDUCT QA/QC TESTING ON DELIVERED DATA
Convergent Group will take delivery of the converted data for the
project, log and track data deliveries, and conduct quality
assurance/acceptance testing on the delivered data in accordance with
IES' Data Conversion Acceptance Testing Procedures. Convergent Group
will perform both manual and simple workstation procedures during the
project for QA/QC checking of delivered digital graphic data and
nongraphic (attribute) data. Convergent Group will ensure all converted
data is loaded correctly into IES' database.
For the pilot, Convergent Group will perform quality checks on 100
percent of the data. Subsequent to the pilot, Convergent Group will
employ a statistical sampling method to check the data at a mutually
acceptable sampling level. Acceptance or rejection will be based on a
sample of the data rather than checking 100 percent.
Quality assurance and acceptance testing will be conducted on both the
landbase and facilities data including the data that is migrated from
CableCad. Convergent Group will document in matrix format every
decision and assumption used in the QA/QC process for each data
element.
Subsequent to performing the QA testing on the first delivery of data,
Convergent Group will conduct an on-site meeting at IES with the
conversion contractor to discuss the results of the initial testing and
provide guidance for the conversion of the remaining data. This meeting
will serve as an opportunity for IES staff to give approval on the
conversion process and the hardcopy appearance of the maps.
Though Convergent Group will work diligently to assure delivery of a
quality AM/FM/GIS database, the responsibility for final data review
and approval lies with the experts at IES who are most familiar with
the facilities information, Additionally, IES must understand that the
conversion process will not fix incorrect data; the process will,
however, work toward achieving the accurate transfer of source data
into the target AM/FM/GIS database.
o CONVERT LAND AND FACILITIES
Convergent Group will contract with the necessary contractor(s) to
provide the land and facilities conversion of IES' pilot and full
production areas. Convergent Group will manage the conversion
contractor(s) to assure successful delivery within the allotted time,
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IES CONVERGENT GROUP A-9
Vision IMPACT Project
<PAGE> 22
SCHEDULE A: SCOPE OF WORK
as well as to provide QA/QC data checking. Convergent Group will
monitor and evaluate the conversion contractor's processes and
procedures to ensure compliance with the conversion specifications.
o CONDUCT CONTRACT NEGOTIATIONS WITH CONTRACTORS
Convergent Group representatives will conduct contract negotiations
with the conversion contractor(s). This process will ensure that IES'
requirements are fully addressed in the contracts/specification
documents.
o REVISE PROPOSED PROCEDURES IMPLEMENTED DURING PILOT
After the pilot conversion, Convergent Group will update/finalize all
of the proposed procedures implemented during the pilot, including the
scrub, QA/QC, and data delivery procedures. Convergent Group will also,
as a development release in Task 9, create more complex data integrity
software specifications and develop the QA software to be used at the
workstation by Convergent Group and IES when performing QA/QC tests as
specified in the conversion specification.
o PROVIDE ONGOING CONVERSION CONTRACTOR MANAGEMENT AND DATA DELIVERY
Convergent Group will continue to provide all conversion contractor
management and coordinate data delivery, acceptance, and QA/QC of data
with the IES Project Team as specified in the conversion specification.
Convergent Group will not make data available for production use at IES
until it has passed QA/QC checks by Convergent Group and IES QA/QC
staffs.
For the non-AM/FM/GIS data required to support the other products in
the integrated suite (e.g., compatible units for WMS), Convergent Group
will assist in designing the data where applicable and managing the
data creation to keep the project on schedule. IES project team
expertise and staff will be required to create and maintain the data.
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A-10 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 23
SCHEDULE A: SCOPE OF WORK
DELIVERABLE PRODUCTS FOR TASK 6 (APPLIES TO AM/FM/GIS DATA)
o Data conversion specification including:
- Field data collection specification (if necessary)
- Symbology, annotation, and placement specification
o Scrub and Control Procedures Manual (pilot and production)
o Data Conversion Acceptance Testing Procedures Document (pilot and
production)
o QA/QC software (development release under Task 8)
o Manual and automated data quality assurance checks on 100 percent of
pilot data
o Manual and automated data quality assurance checks on samples of
production-area data
o Pilot data installations on IES' system
o Production data installations on IES' system
o Contracts negotiation and implementation
o Ongoing conversion contractor management
o Converted pilot land and facilities network
o Converted production land and facilities network
o Management of nongeographic data creation activities (e.g., compatible
units for WMS)
TASK 7: DATA MIGRATION
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Convergent Group will migrate all current CableCad data into the data model
defined in Task 5 on the GDS platform. This data migration will be performed
based on a Convergent Group developed detailed plan for migrating the existing
graphic and nongraphic AM/FM/GIS data in CableCad format to the Convergent Group
suite of applications.
DELIVERABLES PRODUCTS FOR TASK 7
o Data migration plan
o Assist IES in developing the CableCad retirement plan
o Current CableCad data migrated to new data model on GDS platform
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IES CONVERGENT GROUP A-11
Vision IMPACT Project
<PAGE> 24
SCHEDULE A: SCOPE OF WORK
TASK 8: PROOF-OF-CONCEPT CORE PRODUCT CONFIGURATION AND INTEGRATION
- --------------------------------------------------------------------------------
The Proof-of-Concept (POC) core product configuration and integration task will
perform all the activities associated with making POC product and integration
functionality available to IES users for review. Development in this phase will
consist mainly of product configuration and minor customization as well as some
integration functionality. Product customization must be kept to a minimum to
meet the project schedule. The functionality provided will be considered
pre-production state; production state functionality will be delivered in Task
9. POC applications and integration will provide the core functionality, or a
subset of all functionality of the integrated suite, that will work on most data
or business scenarios. The characteristic that makes this development POC level
functionality is that most, but not all, business or data scenarios will be
handled appropriately by the functionality developed by this task. The
applications will be completed, or "productionized," during Task 9. Key goals of
the POC system are to rapidly provide user input into the capability of the
application to support the IES business process and to identify unique IES
business scenarios or data instances that need to be addressed by the
application as well as accommodate the input of IES-created data such as
standard designs.
o DEVELOPMENT RELEASES
The process by which Convergent Group and IES will prioritize and
define the functionality to be delivered in the POC phase will be
through the use of development releases. Development releases are
small-scale scopes of work for applications or modules within
applications. They are a necessity to rapid implementation because they
do not require that all detailed specifications be done before
beginning development. Development releases also allow greater
development flexibility in prioritizing application development by
incorporating user feedback and modifications during the development
process before a great deal of development dollars are spent on low
priority functionality. Based on Convergent Group experience, the
development pool of dollars ESTIMATED to be adequate to fund all
required development activities is established and drawn upon by IES
for applications development and integration. This allows IES to
evaluate all incremental development from a cost-benefit standpoint.
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A-12 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 25
SCHEDULE A: SCOPE OF WORK
o DEVELOPMENT PROCESS
All development, whether it be configuration, customization,
applications development, or integration as a part of Tasks 8, 9, or
10, will be performed or managed by Convergent Group and will follow
the same process as described below:
1. Convergent Group and IES will draft a development release specifying
the scope, design, and fixed fee of the development to be delivered,
2. IES will authorize construction to proceed.
3. Code development will begin.
4. IES will review prototype development with Convergent Group in a one-
to two-day workshop (typically 1 to 3 months after code development
begins).
5. Application code development will continue based on IES review.
6. Convergent Group will perform code testing (unit testing) and system
level testing prior to delivery. This will assure that the application
performs to the test criteria specified in the development release
document.
7. Application will be delivered to IES for testing and acceptance (Task
12).
The POC development will also result in modifications and enhancements
to the applications and integration that will be developed as a part of
Task 9 development releases.
o POC FUNCTIONALITY EXPECTED TO BE AVAILABLE IN THIS PHASE
While the functionality delivered is ultimately determined by IES
through development release authorizations, the specific applications
and integration that would be reasonably expected to be developed for
the POC phase would include the following functionality at a POC level.
Some of these functions may overlap, and certain components must reside
in multiple places. In cases where functionality is denoted as a sample
subset, one or two samples will be provided.
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IES CONVERGENT GROUP A-13
Vision IMPACT Project
<PAGE> 26
SCHEDULE A: SCOPE OF WORK
AM/FM/GIS (POC)
Automated Mapping (POC)
o Landbase Maintenance
o Facilities Maintenance
o Standard Map Creation (sample subset - expanded in subsequent phase)
o Ad Hoc Map Creation
o Appended Image Viewing
Facilities Queries (POC)
o Query and Locating
o Standard Report Generation (sample subset - expanded in subsequent
phase)
Work Design (POC)
o Job Design
o As-Built Information Posting
o Construction Print Generation
QC Tools (POC)
o Data Integrity Checks (sample subset - expanded in subsequent phase)
DMS (POC)
Outage Management (POC)
o Outage Analysis
o Add, Change, and Merge Outages
o Outage Reports/Graphics (sample subset)
o Outage Status
o Outage Notification/Callback Lists
Distribution Operations (POC)
o Identify Key/Critical Customers
o Abnormal Configuration Display
CAD/MDT (POC)
Order Scheduling and Planning (POC)
o Workload Resource Analysis
o Appointment Scheduling/Tracking
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A-14 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 27
SCHEDULE A: SCOPE OF WORK
Dispatching (POC)
o Order Dispatch
o Workload View/Adjustment
o Field Status
Order Management (PQC)
o Job Summary
o Order Detail
o Order Status
o Order Completion/Amendment
Communications (POC)
o Public RF network (to be provided by IES)
WMS (POC)
Work Initiation (POC)
o Work Order Creation
o Work Requirements
Work Estimating (POC)
o Job Cost Estimating
o Bill of Materials Generation
Work Scheduling (POC)
o Workload Planning
o Work Request Scheduling
Work Tracking (POC)
o Job Status Query/Display
Work Closing (POC)
o As-Built Information Posting
o Completion Audit
o Unitization
INTEGRATION (POC)
o CIS to AM/FM/GIS
o Call Center to CAD (work request information-nonoutage)
o Call Center to DMS (outage customer ID)
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IES CONVERGENT GROUP A-15
Vision IMPACT Project
<PAGE> 28
SCHEDULE A: SCOPE OF WORK
o DMS to Call Center (outage status)
o WMS to AM/FM/GIS (work requests and status)
o AM/FM/GIS to WMS (design data)
o AM/FM/GIS to WMS (as-built data)
o CAD to DMS (crew assigned/location)
o CAD to WMS (new work request for design-if managed in both systems)
o WMS to MMIS (material needs)
o MMIS to WMS (material items lists and costs)
o AM/FM/GIS to DMS (landbase and facilities)
o CAD to Call Center (scheduling opportunities)
DELIVERABLE PRODUCTS FOR TASK 8
o POC phase development releases for all applications and integration
(refer to the schedule for estimated completion dates)
o POC-level core products configuration for AM/FM/GIS, DMS, CAD, WMS
(refer to the schedule for estimated completion dates)
o POC-level minimal core product customization for AM/FM/GIS, DMS, CAD,
WMS (refer to the schedule for estimated completion dates)
o POC-level highest priority application development for AM/FM/GIS, DMS,
CAD, WMS (refer to the schedule for estimated completion dates)
o POC-level integration (refer to the schedule for estimated completion
dates)
TASK 9: POC PRODUCT AND INTEGRATION REFINEMENTS FOR PRODUCTION USE
- --------------------------------------------------------------------------------
The POC product and integration refinements for the production use phase will
take all IES requested development performed in Task 8 to a production state,
Based on the feedback provided by users from their use of the POC level
functionality, IES and Convergent Group will work together to define and
Convergent Group will draft the development releases associated with refining,
enhancing, and "productionizing" previous application and integration
development.
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A-16 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 29
SCHEDULE A: SCOPE OF WORK
o DEVELOPMENT RELEASES
As described in Task 8 in greater detail, the process by which
Convergent Group and IES will prioritize and define the modifications,
enhancements, or "productionizing" requirements for production use of
the system will be through the use of development releases.
o DEVELOPMENT PROCESS
All development included in this task will be performed or managed by
Convergent Group and will follow the process as described in Task 8.
Based on Convergent Group experience, the production development will
probably result in application enhancements and totally new
functionality that could be developed as a part of Task 10 development
releases.
o FUNCTIONALITY EXPECTED TO BE AVAILABLE IN THIS PHASE
While the functionality delivered is ultimately determined by
development release authorizations by IES, the specific applications
and integration that would be reasonably expected to be developed for
the production phase are expected to include the same functionality
provided by Task 8, except that the functionality would be completed,
or productionized in Task 9. Thus, the list of functionality would be
the same as described in Task 8.
DELIVERABLE PRODUCTS FOR TASK 9
o Production phase development releases for all applications and
integration (refer to the schedule for estimated completion dates)
o Production-level core products configuration refinements for AM/FM/GIS,
DMS, CAD, WMS (refer to the schedule for estimated completion dates)
o Production-level core product customization refinements for AM/FM/GIS,
DMS, CAD, WMS (refer to the schedule for estimated completion dates)
o Production-level application development for AM/FM/GIS, DMS, CAD, WMS
(refer to the schedule for estimated completion dates)
o Production-level integration with gas and electric network analysis
software (refer to the schedule for estimated completion dates)
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IES CONVERGENT GROUP A-17
Vision IMPACT Project
<PAGE> 30
SCHEDULE A: SCOPE OF WORK
o Production-level integration (refer to the schedule for estimated
completion dates)
TASK 10: EXTENDED PRODUCTION AND INTEGRATION FUNCTIONALITY DEVELOPMENT
- --------------------------------------------------------------------------------
The extended production and integration functionality development results from
user interaction with the core production system and noncore functionality that
typically involves special interfaces with other legacy systems. Once users get
accustomed to the information available to them as a result of the integrated
suite, they become a source for new application ideas to enhance their personal
performance and drive the extended development phases.
o DEVELOPMENT RELEASES
As described in Task 8 in greater detail, the process by which
Convergent Group and IES will prioritize and define the functionality
to be delivered in the extended functionality phase will be through the
use of development releases.
o DEVELOPMENT PROCESS
All development will be performed or managed by Convergent Group and
will follow the same process as described in Task 8. The extended
development may result in other functionality development that will
have to be evaluated against the development pool funds that remain
available.
o FUNCTIONALITY EXPECTED TO BE AVAILABLE IN THIS PHASE
While the functionality delivered is ultimately determined by
development release authorizations by IES, the specific product
application enhancements developed for the extended phase are more
difficult to predict and will be defined as the implementation
proceeds. Additional application and integration refinements and
development are expected to include the following (some may be provided
via core product software upgrades):
ADDITIONAL AM/FM/GIS
Facilities Queries
o Historical As-Built Drawing Review
o Network Analysis Data Preparation
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A-18 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 31
SCHEDULE A: SCOPE OF WORK
Work Design
o Map Redlining and Annotation
o Standard Design Maintenance
ADDITIONAL DMS
Distribution Operations
o Emergency Switching Analysis
o Planned Switching Operations
ADDITIONAL CAD/MDT
Order Scheduling and Planning
o Automated Route Building
Dispatching
o Geographic Display
Administration
o Time/Attendance Reporting
Communications
o Intelligent Queuing/Inquiry
o Messaging
o Field Data Download/Upload
ADDITIONAL INTEGRATION REFINEMENTS AND DEVELOPMENT
o Mobile GIS to AM/FM/GIS (as-built changes)
o MDT or GIS to AM/FM/GIS (inspection results)
o SCADA to DMS (status information)
o AM/FM/GIS to Maintenance Planning (reliability information)
o AM/FM/GIS to Forecasting and Planning (gas and electric distribution
model and load flow information)
o MDT to WMS (work status)
o WMS to MMIS (material needs)
o WMS to Prop Acct (property unit information)
o AM/FM/GIS to MDT (landbase background)
o HRIS to CADWMS (resources and costs)
o CAD to Call Center (scheduling opportunities)
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IES CONVERGENT GROUP A-19
Vision IMPACT Project
<PAGE> 32
SCHEDULE A: SCOPE OF WORK
DELIVERABLE PRODUCTS FOR TASK 10
o Extended phase development releases for all applications and
integration (refer to the schedule for estimated completion dates)
o Extended product enhancements for AM/FM, DMS, CAD, WMS (refer to the
schedule for estimated completion dates)
o Extended application development for AM/FM/GIS, DMS, CAD, WMS (refer to
the schedule for estimated completion dates)
o Extended integration (refer to the schedule for estimated completion
dates)
TASK 11: SYSTEM INTEGRATION MANAGEMENT
- --------------------------------------------------------------------------------
The system integration management task includes activities associated with
development system administration, software and project specific UNIX hardware
configuration management, and keeping the Denver and Cedar Rapids systems
mirroring each other. IES owns all hardware, which will be returned to Cedar
Rapids as the project ramps down. At IES' option, enough hardware to enable
long-term software maintenance and support by Convergent Group will remain in
Denver and any such hardware will be used for the benefit of IES. Additionally,
Convergent Group strongly suggests that IES create test environments on-site in
Cedar Rapids for the integrated suite components to facilitate software
upgrades.
DELIVERABLE PRODUCTS FOR TASK 11
o Establish a staging facility in Denver
o Manage the setup, installation, and maintenance of the communications
link between Denver and Cedar Rapids
o Site preparations
o UNIX hardware configuration/reconfiguration and system testing
o UNIX applications and product software installation and configuration
o Assist IES in setting up software distribution plan for Intel devices
o Conduct incremental software deliveries for UNIX platform and a
prototype INTEL unit, i.e., deployment of INTEL software to all INTEL
units is not included.
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A-20 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 33
SCHEDULE A: SCOPE OF WORK
TASK 12: SYSTEM TESTING/ACCEPTANCE COORDINATION
- --------------------------------------------------------------------------------
Convergent Group will use a strategy in executing this task that ensures IES'
staff fully understands all systems. The IES' Project Team assists in the design
and performs the actual testing of the applications under the guidance of
Convergent Group. Convergent Group believes it is critical for IES to be
involved in the development and approve the test plans written by Convergent
Group for two reasons: (1) internal development will provide IES with a means
for transferring the technology to the IES Project Team and users and (2) IES
involvement will begin to build a foundation of application and system knowledge
to maintain first-level internal system support functions and to complement
software maintenance agreements. IES will assist in the design and development
of the criteria for approval to ensure that those aspects most important to IES
are tested.
Convergent Group will use the staging facility in its Englewood, Colorado
offices to install all vendor and Convergent Group-developed software for
application and integrated suite testing. Convergent Group staff will test all
applications software modules to ensure compliance with the development release
specifications and test plans. This testing will be done prior to installation
at IES' facilities where final mainframe integration and user acceptance testing
will be conducted by IES
An IES business process-oriented test plan will be developed by Convergent
Group. The test plan will be based on the development releases for testing and
measuring the success criteria for each application or system. IES users or
members of the Project Team will perform these tests under the guidance of
Convergent Group and approve the release expeditiously according to the project
plan. Feedback will be divided into functionality fixes and modifications.
Fixes, defined as code that did not work according to development release
specification, will be returned to development for the appropriate code
debugging. Modifications, defined as changes or enhancements to working
functionality, will be evaluated by IES for inclusion in future development
releases of Tasks 9 or 10. If the code was to be fixed and is fixed, the
application will be reinstalled and the tests will be performed again for
approval by IES. This approach helps to ensure that the development process is
user driven and that IES is satisfied with the final result.
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP A-21
Vision IMPACT Project
<PAGE> 34
SCHEDULE A: SCOPE OF WORK
DELIVERABLE PRODUCTS FOR TASK 12
o Assistance to IES in designing and testing applications and system
integration
o Process-oriented user test plans
o IES user application acceptance tests setup and monitoring
o Documentation of application fixes and modifications for return to
development or future IES' development release approval
TASK 13: CUSTOM APPLICATIONS TRAINING
- --------------------------------------------------------------------------------
Convergent Group will provide functionality demonstrations of the Convergent
Group configuration, refinement, and integration development. Along with the
functionality demonstrations, Convergent Group will provide a "cheat sheet" that
explains any specific changes to the core product use that may affect a user.
Additionally, Convergent Group will provide guidance to IES when developing
training schedules for the pilot, production, and extended phase functionality
based on the training matrix provided in the Strategic Implementation Plan.
Convergent Group will also provide guidance to the Project Team regarding the
need for additional background and prerequisite training available from third
parties (AND IS NOT INCLUDED IN THIS SCOPE OF WORK) that will serve as the
fundamental user training for each core product and would be required prior to
all Convergent Group functionality demonstrations for each phase (except the
overview training).
DELIVERABLE PRODUCTS FOR TASK 13
o Training schedules and plans
o Prerequisite training requirements
o Functionality review sessions to include:
- Overview review on CAD, AM/FM/GIS, DMS, WMS
- POC functionality demonstration review on CAD, AM/FM/GIS, DMS,
WMS
- Production functionality demonstration on CAD, AM/FM/GIS, DMS,
WMS
- Extended functionality demonstration on CAD, AM/FM/GIS, DMS,
WMS
- System support and maintenance training
- --------------------------------------------------------------------------------
A-22 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 35
SCHEDULE A: SCOPE OF WORK
IES VISION IMPACT PROJECT ASSUMPTIONS
Convergent Group is committed to delivering the IES Vision IMPACT project Scope
of Work for the fees, both fixed and estimated as defined in schedules B and C.
The following assumptions form the basis of the schedules A, B and C.
1. For purposes of schedules A, B, and C, IES has designated Electronic
Data Systems Corporation (EDS) as its authorized agent.
2. In partnering with IES to provide overall price savings (as reflected
in Schedule B, "Fixed-Price Payments"), licensed software and
maintenance will be purchased from Convergent Group through vendors
specified in Schedule B.
3. Price includes only the iterations mutually deemed necessary for the
expeditious completion of deliverables contained in Schedule A, "Scope
of Work" The Project Managers shall mutually agree on the time required
to review each deliverable and the time for deliverable acceptance. The
review and acceptance time periods will vary according to task and
deliverable. Iterations beyond those described in the Scope of Work
will require time and material prices (per schedule to be provided) or
a corresponding dollar reduction in work on other tasks.
4. IES will provide the resources (as defined in the Strategic
Implementation Plan) required to perform all IES information specific
data preparation and conversion scrub activities. Such resources will
have appropriate skills and authority to complete the work and resolve
conflicts among source documents. Work assigned to IES must be
completed on schedule and to specification.
5. IFS will assign sufficient personnel resources to complete its Work
Plan obligations in a timely manner in accordance with the mutually
agreed to project baseline schedule. Such resources will have
appropriate skills and authority to complete the work. If such tasks
are not completed according to the schedule, the parties will mutually
agree to a schedule and/or scope adjustment.
6. Project fees for labor and materials are based upon IES' utilization of
Hewlett-Packard UNIX hardware, Graphic Data Systems Corporation (GDS
Corp.) as the AM/FM/GIS vendor, Configured Energy Systems (CES) as the
Outage Management
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP A-23
Vision IMPACT Project
<PAGE> 36
SCHEDULE A: SCOPE OF WORK
vendor, Severn-Trent as the Work Management vendor, MDSI as the CAD/MDT
vendor, and ORACLE as the relational database management system (RDBMS)
for the integrated suite.
7. IES is responsible for the UNIX and PC hardware purchases and/or
upgrades, and PC installation for the AM/FM/GIS, WMS, and CAD/MDT
clients. Convergent Group is responsible for the configuration of
project UNIX-based hardware and defining the configuration of the PC
hardware. IES is responsible for any required telecommunications
network upgrades.
8. The total project is projected to take place over an approximately
24-month period beginning on the contract date. In the event that IES
extends the schedule due to business strategy changes, increases to
scope, etc., applicable fixed fee task items will be addressed via
change orders. Any delays caused by Convergent Group may impact the
timely payment of the $200,000 final fixed fee payment.
9. Interfaces to legacy systems are assumed to be implemented through
"shadow" tables on DB2 on IES' mainframe to position these new
interfaces for future upgrades to the legacy systems and delivering
them initially in a price-effective manner. This is to say, the
interfaces will read and write from DB2 tables on the mainframe via
TCP/IP, and the legacy systems will read and write from those same
tables to transfer data to the internal modules of those systems
(unless mutually agreed to otherwise). Convergent Group will work with
the IES' Information Technology (IT) staff on delivering efficient
interfaces as defined in Section 1, "Integration," of the Strategic
Implementation Plan.
10. IES will provide programming resources to perform necessary
modifications to mainframe legacy systems. Hardware and software that
will perform the gateway function to the IES' mainframe will be
provided by IES subsequent to system architecture discussions between
Convergent Group and IES IT personnel.
11. Convergent Group assumes that the project work performed in Cedar
Rapids will be performed at IES' site. The design and build efforts
generally will be conducted at Convergent Group offices in Englewood,
Colorado. Staging and detailed functional testing will be performed at
Convergent Group offices in Englewood. User testing assistance, rollout
assistance, and training will be performed in Englewood or Cedar Rapids
at mutually agreed-upon sites. IES will allow Convergent Group to
- --------------------------------------------------------------------------------
A-24 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 37
SCHEDULE A: SCOPE OF WORK
develop on IES' hardware and project software at Convergent Group's
offices for subsequent delivery to IES. It is required that Convergent
Group and IES establish a telecommunications link between the two
offices to maximize development efficiencies.
12. IES will provide office space and facilities to Convergent Group
personnel on-site at IES offices to perform various aspects of the
implementation.
13. Pricing is based upon Scope of Work commencement on or about July 1,
1996, and completion in 2 years
14. An additional price of approximately $8 per customer will be charged in
the event that IES adds customers, within its current IES service
territory, to the conversion project in excess of 340,000 electric
customers and 180,000 gas customers. Prices may be higher for customers
acquired through annexation or merger due to differences in source
documents and available landbase data.
15. The price of items and tasks not covered in the contract price include
the following(1)
o IES and IES/EDS internal team labor and expenses
o Middleware to communicate between mainframe and Vision IMPACT
Project applications, i.e., AM/FM/GIS, WMS, DMS, and CAD/MDT
(per assumption 8).
o Intel-based PC upgrades and field devices - including MDT PCs
and GPS hardware.
o End-user and/or specialized technical training classes. (Note:
"Train-the-trainer" classes are included in the project scope
as Task 13).
o ORACLE software licenses. These can be optionally provided
through Convergent Group.
o Gas and electric engineering analysis software packages. These
can be optionally provided through Convergent Group.
o UNIX hardware and associated maintenance. These can be
optionally provided through Convergent Group.
- ------------------------
(1) These prices were estimated as part of the Strategic Implementation Plan and
have been given to IES for budget planning purposes. Note: IES will provide
hardware, ORACLE, and middleware licenses to Convergent Group on-site in Denver
as necessary to support development and integration tasks.
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP A-25
Vision IMPACT Project
<PAGE> 38
SCHEDULE A: SCOPE OF WORK
16. The price of items and tasks not covered in the contract price includes
the following. These prices were not estimated as part of the Strategic
Implementation Plan per IES direction to exclude them from the project
prices.
o Public radio frequency (RF) monthly usage fees
o Potential upgrades to the IES private RF infrastructure
o Internal telecommunication upgrades, if required, to support
the new application suite
17. Communication tools such as presentation foils, slides, or videos are
not covered specifically in the fee for Task 2. These can optionally be
provided by Convergent Group.
18 Expenses for IES trips are not included.
19. Key Convergent Group project resources, listed below, will not be
reassigned to similar duties on other accounts during the life of the
project without the mutual agreement of both parties. Key IES project
resources, listed below, will not be reassigned during the life of the
project without mutual agreement of both parties.
o Mr. Terry Yaryan, Convergent Group Project Director
(Approximately 30 percent)
o Mr. Andy Gay, Convergent Group Project Manager
o Mr. Jeremy Bisset, Convergent Group Technical Director
o Ms. Dundeana Langer, IES Project Director (Part-time as
required)
o Mr. Joe Harnish, IES Project Manager
o Mr. Kevin Wagner, EDS IT Coordinator
- --------------------------------------------------------------------------------
A-26 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 39
SCHEDULE B: FIXED-PRICE PAYMENTS
The total fixed fee for services and third-party software for the IES Vision
IMPACT project as defined in Schedule A, is $9,263,287, which is comprised of
$200,000 for the final fixed fee payment, $3,267,043 for services, $3,747,924
for conversion, and $2,048,320 for software, as further described below.
FINAL FIXED FEE PAYMENT
A $200,000 final fixed fee payment is due upon IES approval of project
completion in accordance with mutually agreed upon acceptance criteria.
SERVICES
Convergent Group will provide the services associated with the delivery of an
integrated AM/FM/GIS, Work Management, Distribution Management, and Mobile Data
Terminal system for the IES Vision IMPACT Project. These services are defined in
Schedule A, Scope of Work, and consist of the following:
o Mobilization Fee
o Task 1 - Project Management and Systems Integration Consulting
o Task 2 - Employee Communications
o Task 3 - Management of Hardware Procurement
o Task 4 - Management of Software Procurement
o Task 5 - Data Modeling
o Task 11 - System Integration Management
o Task 12 - System Testing/Acceptance Coordination
o Task 13 - Custom Application Training
The fixed fee for services over the designated 2-year time period of the project
will be $3,267,043, less the $225,000 mobilization fee previously authorized as
Amendment 1 to the IES Strategic Implementation Plan contract. The remaining fee
of $3,042,043 will be invoiced monthly according to the following schedule:
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP B-1
Vision IMPACT Project
<PAGE> 40
SCHEDULE B: FIXED-PRICE PAYMENTS
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
January $121,453 $ 49,469
February $121,453 $ 49,469
March $121,453 $ 49,469
April $121,453 $ 49,469
May $121,453 $ 49,469
June $225,000 $121,453 $ 49,470
July $215,633 $121,453
August $215,633 $121,453
September $215,633 $121,453
October $215,633 $121,453
November $215,633 $121,453
December $215,633 $115,447
</TABLE>
Note: The June $225,000 mobilization fee was paid in
Amendment 1 to contract U101.
CONVERSION
Conversion consists of the following tasks as described in Schedule A, Scope of
Work.
o Task 6 - Development of Vision IMPACT Asset Database
o Task 7 - Data Migration
The fixed fee for data conversion is $3,747,924 and will be billed on a percent
complete basis as data is delivered to IES and accepted by IES within a mutually
agreed data QA/QC acceptance criteria. The following table depicts the
anticipated invoice timing for IES budget planning purposes. A start-up fee of
$400,000 as indicated in the following table is required to mobilize Convergent
Group and conversion vendor resources prior to production data delivery. Actual
billing after mobilization will be based on the percent of data delivered, i.e.,
measured by number of transformers and/or customers. The following table
provides a budgetary forecast of anticipated conversion charges.
- --------------------------------------------------------------------------------
B-2 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 41
SCHEDULE B: FIXED-PRICE PAYMENTS
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
January $ 400,000 $ 114,512
February $ 40,000 $ 114,512
March $ 40,000 $ 114,512
April $ 114,512 $ 74,512
May $ 114,512 $ 0
June $ 417,723 $ 0
July $ 0 $ 417,723
August $ 0 $ 417,723
September $ 0 $ 417,723
October $ 0 $ 417,723
November $ 0 $ 417,723
December $ 0 $ 114,514
</TABLE>
SOFTWARE
The fixed fee for third-party software is $2,048,320 as follows.
Convergent Group is providing the following fixed discounted pricing for the
third-party software of the integrated suite described as follows:
o GDS
The group license components of GDS software for the AM/FM/GIS component of
the integrated suite will be as follows:
- - 3 development licenses
- - 23 full-function licenses
- - 52 view/analyze licenses
- - 161 view only stand-alone licenses
The discounted price for the entire group of licenses will be $633,500. Any
further licenses purchased for IES will be provided at a price with a continuing
40 percent discount applied to the then current list prices.
During the term of this Vision IMPACT development contract, should IES require a
somewhat different mix of specific licenses as defined above and in the IES
Strategic Implementation Plan, a credit equal to 40 percent of the then current
list price of any specific license can be applied toward the discounted price of
another license from these same types.
o CES
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP B-3
Vision IMPACT Project
<PAGE> 42
SCHEDULE B: FIXED-PRICE PAYMENTS
The discounted site license of the CES software for the DMS component of the
integrated suite at IES will be $500,000 including the following modules to
serve a single DDC and one emergency backup site in accordance with the
Strategic Implementation Plan:
- - InterSys
- - Operator's Workspace
- - TroubleMan
- - CrewMan
- - SwitchMan
- - Additional CES supporting software, e.g., XRT, Builder Xcessory, C++
Compiler, is also included
Should an additional operating IES DDC site be required to serve IES for the IES
Utilities service territory (in accordance with the scope of the IES Vision
IMPACT project, and be authorized via change orders, the additional license fee
would be provided at a discounted fee of $285,000 if provided during the time
period of this contract.
o MDSI
The discounted site license of the MDSI software for the CAD/MDT component of
the integrated suite at IES providing up to 250 mobile users will be $464,820.
o Severn-Trent
The discounted site license of the Severn-Trent STORMS software for the WMS
component of the integrated suite to serve IES for the IES Utilities Service
Territory in accordance with the scope of IES Vision IMPACT Project will be
$450,000.
All software will be procured and invoiced in its entirety during 1996 to obtain
the above discount prices. These payments are in addition to the payment
schedule for Fixed Price Services.
The following table provides a budgetary forecast of anticipated software
license charges.
<TABLE>
<CAPTION>
Software Purchase Date Price
- -------- ------------- --------
<S> <C> <C>
MDSI August 1996 $464,820
Severn-Trent September 1996 $450,000
GDS October 1996 $633,500
CES November 1996 $500,000
</TABLE>
- --------------------------------------------------------------------------------
B-4 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 43
EXHIBIT 10.18
SCHEDULE C: BILLING TERMS FOR ESTIMATED WORK
The total of the estimated payments for the IES Vision IMPACT Project as defined
in Schedule A is $5,070,340 as described below. All payments included in this
schedule are in addition to the fees outlined in Schedule B, "Fixed-Price
Payments."
EXPENSES
All payments included in this schedule are in addition to the payments in
Schedule B, "Fixed-Price Payments." Convergent Group expenses associated with
the support of activities within the Vision IMPACT project will be invoiced
monthly at cost plus a 3.5 percent administrative fee as they are incurred.
These expenses include, but are not limited to, airfare, lodging, car rental,
food, parking, copies, postage, faxes, and long-distance telephone charges
(including Denver to Cedar Rapids communications link telephone charges and
hardware if IES has Convergent Group provide). Expenses may be billed directly
to IES if mutually convenient. Expenses will be reported monthly by person and
category. Estimated total project expenses are $600,000.
APPLICATION AND SYSTEM INTEGRATION DEVELOPMENT
Application and system integration development services provided by Convergent
Group will be invoiced according to the following payment schedule for each
development release as documented in the following tasks in Schedule A, "Scope
of Work":
o Task 8 - Proof of Concept Core Product Configuration and Integration
o Task 9 - POC Product and Integration Refinements for Production Use
o Task 10 - Extended Production and Integration Functionality Development
The payment schedule for each development release will be as follows:
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP C-1
Vision IMPACT Project
<PAGE> 44
SCHEDULE C: BILLING TERMS FOR ESTIMATED WORK
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PERCENT OF TOTAL DEVELOPMENT POINT DURING DEVELOPMENT THAT
RELEASE VALUE INVOICED AMOUNT WILL BE INVOICED
- -----------------------------------------------------------------------------------
<S> <C>
20% Written authorization by IES provided
20% Calendar midpoint between
authorization and prototype review
20% Prototype review workshop
20% Development delivered for IES testing
20% Written development acceptance by IES
- -----------------------------------------------------------------------------------
</TABLE>
As development releases are authorized and fixed price fees are established for
each individual release, these amounts will be deducted from the remaining
Application and System Integration Development pool of dollars. The amount
allocated to this pool of dollars is estimated at $3,318,210 (as detailed in the
tables that follow) based on the Strategic Implementation Plan developed by IES
and Convergent Group.
- --------------------------------------------------------------------------------
C-2 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 45
SCHEDULE C: BILLING TERMS FOR ESTIMATED WORK
TABLE 1 INTERFACES
<TABLE>
<CAPTION>
INTEGRATION DEV. RELEASES FROM-TO NAME 1996 1997 1998 TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Middleware Set-up $ 30,000 $ 0 $ 0 $ 30,000
Call Center to CAD (new work request info-non outage) $ 57,750 $ 74,813 $ 0 $ 132,562
Call Center to DMS-(outage customer ID) $ 0 $ 39,375 $ 0 $ 39,375
WMS to GIS (work requests and status) $ 0 $ 31,500 $ 0 $ 31,500
GIS to WMS (design data) $ 0 $ 45,675 $ 49,613 $ 95,288
GIS to WMS (as built data) $ 0 $ 23,625 $ 0 $ 23,625
Mobile GIS to GIS (as built changes) $ 0 $ 0 $ 38,588 $ 38,588
MDT or Mobile GIS to GIS or planned Inspection $ 0 $ 0 $ 49,613 $ 49,613
SCADA to DMS (status info) $ 0 $ 56,700 $ 39,690 $ 96,390
MDT to DMS (optional - field operations status) $ 0 $ 0 $ 0 $ 0
DMS to GIS (facility reliability history) $ 0 $ 15,750 $ 0 $ 15,750
GIS to Maintenance Planning (reliability info) $ 0 $ 0 $ 24,806 $ 24,806
GIS to GIS Analysis (dist. Model & load flow info) $ 0 $ 86,625 $ 33,075 $ 119,700
DMS to CAD (Optional-PO location for troubleman) $ 0 $ 0 $ 0 $ 0
DMS to CAD (new construction work) $ 0 $ 47,250 $ 0 $ 47,250
CAD to DMS (crew assigned/location) $ 0 $ 47,250 $ 0 $ 47,250
CAD to WMS (new work request for design-if managed in both) $ 0 $ 31,500 $ 0 $ 31,500
MDT to WMS (work status) $ 0 $ 31,500 $ 0 $ 31,500
WMS to MMIS (material needs) $ 0 $ 23,625 $ 0 $ 23,625
MMIS to WMS (material items lists and costs) $ 0 $ 31,500 $ 0 $ 31,500
WMS to Prop Acct (property unit info) $ 0 $ 23,625 $ 0 $ 23,625
GIS to MDT (landbase background) $ 0 $ 28,350 $ 19,845 $ 48,195
GIS to DMS (landbase and facilities $ 0 $ 81,900 $ 0 $ 81,900
HRIS to CAD/WMS (resources and costs) $ 0 $ 23,625 $ 0 $ 23,625
HRIS to WMS (optional-actual reported hours to work orders) $ 0 $ 0 $ 0 $ 0
CAD to Call Center (work request status) $ 0 $ 28,350 $ 33,075 $ 61,425
DMS to Call Center (outage status) $ 0 $ 55,125 $ 0 $ 55,125
DMS to SCADA (optional-switch operations) $ 0 $ 0 $ 0 $ 0
Network Analysis to GIS (optional-analysis results) $ 0 $ 0 $ 0 $ 0
CIS to GIS (premise) $ 0 $ 39,375 $ 0 $ 39,375
---------- ---------- ---------- ----------
Interfaces Total $ 87,750 $ 867,038 $ 288,304 $1,243,091
========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP C-3
Vision IMPACT Project
<PAGE> 46
SCHEDULE C: BILLING TERMS FOR ESTIMATED WORK
TABLE 2 APPLICATIONS
<TABLE>
<CAPTION>
APPLICATIONS/DEVELOPMENT RELEASES 1996 1997 1998 TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
GIS $ 205,500 $ 756,000 $ 83,790 $1,045,290
Core Product Configuration $ 144,000 $ 31,500 $ 0 $ 175,500
Core Product Refinement $ 0 $ 37,800 $ 0 $ 37,800
Standard Mapping $ 0 $ 75,600 $ 19,845 $ 95,445
Standard Reports $ 0 $ 80,850 $ 14,333 $ 95,183
Data Integrity $ 0 $ 94,500 $ 0 $ 94,500
Work Design Sketch $ 0 $ 118,125 $ 0 $ 118,125
Work Posting of As-builts $ 0 $ 63,000 $ 0 $ 63,000
Schematic Management $ 0 $ 94,500 $ 0 $ 94,500
Network Analysis Data Preparation $ 15,000 $ 23,100 $ 16,538 $ 54,638
Data Query/locate $ 46,500 $ 29,925 $ 13,230 $ 89,655
Maintenance Planning $ 0 $ 12,600 $ 19,845 $ 32,445
Migration from CableCad $ 0 $ 94,500 $ 0 $ 94,500
$ 0 $ 0 $ 0 $ 0
DMS $ 0 $ 301,500 $ 9,923 $ 911,423
Core Product Configuration $ 0 $ 207,000 $ 0 $ 207,000
Core Product Refinement $ 0 $ 94,500 $ 0 $ 94,500
Extended Product Funtionality $ 0 $ 0 $ 9,923 $ 9,923
$ 0 $ 0 $ 0
MDT $ 123,000 $ 107,100 $ 33,075 $ 263,175
Core Product Configuration $ 123,000 $ 75,600 $ 0 $ 198,600
Core Product Refinement $ 0 $ 31,500 $ 0 $ 31,500
Extended Product Funtionality $ 0 $ 0 $ 33,075 $ 33,075
$ 0 $ 0 $ 0 $ 0
WMS $ 148,500 $ 182,700 $ 124,031 $ 455,231
Core Product Configuration $ 148,500 $ 25,200 $ 0 $ 173,700
Core Product Refinement $ 0 $ 157,500 $ 0 $ 157,500
Extended Product Funtionality $ 0 $ 0 $ 124,031 $ 124,031
$ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ----------
Applications Total $ 477,000 $1,347,300 $ 250,819 $2,075,119
========== ========== ========== ==========
</TABLE>
Taken individually, some of the development releases may exceed their estimated
cost while others may be combined and developed at a lower cost. The total
dollar allocations are adequate to cover the applications and interfaces as
currently envisioned by Convergent Group and IES. Convergent Group will provide,
as part of its invoices, an update of the pool of dollars allocated to
development and the remaining unallocated dollars.
Any development release pool dollars remaining at the end of the project will be
left unspent and kept by IES. If the cumulative value of the authorized
development releases exceeds the development pool, a change order will be
required for the extra amount.
- --------------------------------------------------------------------------------
C-4 CONVERGENT GROUP IES
Vision IMPACT Project
<PAGE> 47
SCHEDULE C: BILLING TERMS FOR ESTIMATED WORK
SOFTWARE MAINTENANCE
Software maintenance will be provided for a minimum period of two years as
described below. All software maintenance will be consolidated under a single,
separate agreement and the effective dates will be synchronized to January 1,
payable on that date of each year except for maintenance on custom applications
and interfaces. The warranty period for all software is 90 days. The annual fee
for core product maintenance for the two years minimum maintenance will be
according to the following schedule:
o GDS - 15 percent of license price to IES Utilities ($95,025/yr.)
o CES - 20 percent of license price to IES Utilities ($100,000/yr.)
o MDSI - 15 percent of license price to IES Utilities ($69,723/yr.)
o Severn-Trent - 15 percent of license to IES Utilities ($67,500/yr.)
The total fee for third-party software maintenance for the two years is
$664,496.
The annual fee for custom applications and interfaces maintenance for the two
years minimum maintenance will be according to the following schedule:
o Custom Applications and Interfaces - Maintenance fees will be 10
percent of the combined application and interface "accepted" cumulative
development release fees. Software upgrades will be provided, at a
minimum, in accordance with the maintenance requirements of the
third-party software providers. These applications and interface
maintenance fees are in addition to the above core product maintenance
fees and will be adjusted and payable quarterly during the life of the
contract so as to be synchronized at the end of the contract term.
These are estimated to be $162,545 in 1997 and $325,089 in 1998 for a
total of $487,634.
- --------------------------------------------------------------------------------
IES CONVERGENT GROUP C-5
Vision IMPACT Project
<PAGE> 48
EXHIBIT 10.18
SCHEDULE D
ELECTRONIC FUNDS TRANSFER
Instructions for transmitting funds to Convergent Group Corporation via wire
transfer:
Wire to: UMB Columbine Bank
6900 E. Hampden Avenue
Englewood, CO 80224
ABA# 107001067
For Credit to: Convergent Group Corporation
Operating Account
6200 S. Syracuse Way, #200
Englewood, CO 80111
Acct.# 7170565404
If you have questions, please contact UMB Bank - Columbine Branch directly at
(303) 758-2501.
The persons to contact are Shelly Robbins or Marion Legett in the Wire Transfer
Department.
Convergent Group Corporation contact is the Controller at (303) 741-8400.
<PAGE> 49
SCHEDULE F PROJECT NAME: IES VISION IMPACT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME SCHED START SCHED FIN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 PROJECT ORGANIZATION AND MANAGEMENT 06/24/96 07/31/98
1.0 Kickoff meeting 06/26/96 08/19/96
1.1 Status reports (bi-weekly) 06/24/96 05/22/98
1.2 Establish issue tracking schema 07/19/96 08/01/96
1.3 Establish project plan maintenance schema 07/19/96 08/01/96
1.4 Project Sponsor Status Briefings 07/01/96 04/06/98
1.5 Ongoing Program management support 06/26/96 07/31/98
2 EMPLOYEE COMMUNICATIONS PROGRAM 06/26/96 02/11/98
3 HARDWARE PROCUREMENT 06/24/96 09/09/97
4 SOFTWARE PROCUREMENT 07/11/96 09/06/96
5 DATA MODELING 07/03/96 01/09/97
5.0 Conceptual/Logical Modeling 07/03/96 10/10/96
5.1 Physical Database Modeling 10/04/96 01/09/97
5.2 Global Architecting 07/15/96 11/07/96
5.2.0 Further requirements gathering 07/15/96 11/07/96
5.2.1 Hardware configuration 07/19/96 08/15/96
5.2.2 Develop UNIX and PC configuration standards 07/19/96 08/15/96
5.2.3 Identify data distribution requirements 10/04/96 10/17/96
5.2.4 Distribution of attributes 10/18/96 10/31/96
5.2.5 Identify fragmentation candidates 10/18/96 10/31/96
5.2.6 Identify participating candidates 10/18/96 10/31/96
5.2.7 Identify replication candidates 10/18/96 10/31/96
5.2.8 Acceptance of the Global Architecture Design 11/01/96 11/07/96
6 DATA CONVERSION 07/17/96 05/18/98
6.0 Pilot Project 07/17/96 06/19/97
6.0.0 Develop Draft Data Source Matrix 07/17/96 09/16/96
6.0.1 Conversion Kickoff Workshop 09/09/96 09/19/96
6.0.2 Symbology Development 09/12/96 02/28/97
6.0.3 Data Scrub Procedures 01/10/97 02/13/97
6.0.5 Conversion Specification 02/10/97 04/01/97
6.0.6 Conduct Contract Negotiations 04/02/97 04/15/97
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J J A S O N D J F M A M J J A S O N D
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 PROJECT ORGANIZATION AND MANAGEMENT
1.0 Kickoff meeting
1.1 Status reports (bi-weekly)
1.2 Establish issue tracking schema
1.3 Establish project plan maintenance schema
1.4 Project Sponsor Status Briefings
1.5 Ongoing Program management support
2 EMPLOYEE COMMUNICATIONS PROGRAM
3 HARDWARE PROCUREMENT
4 SOFTWARE PROCUREMENT
5 DATA MODELING
5.0 Conceptual/Logical Modeling
5.1 Physical Database Modeling
5.2 Global Architecting
[BAR CHART]
5.2.0 Further requirements gathering
5.2.1 Hardware configuration
5.2.2 Develop UNIX and PC configuration standards
5.2.3 Identify data distribution requirements
5.2.4 Distribution of attributes
5.2.5 Identify fragmentation candidates
5.2.6 Identify participating candidates
5.2.7 Identify replication candidates
5.2.8 Acceptance of the Global Architecture Design
6 DATA CONVERSION
6.0 Pilot Project
6.0.0 Develop Draft Data Source Matrix
6.0.1 Conversion Kickoff Workshop
6.0.2 Symbology Development
6.0.3 Data Scrub Procedures
6.0.5 Conversion Specification
6.0.6 Conduct Contract Negotiations
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J F M A M J J A S
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1 PROJECT ORGANIZATION AND MANAGEMENT
1.0 Kickoff meeting
1.1 Status reports (bi-weekly)
1.2 Establish issue tracking schema
1.3 Establish project plan maintenance schema
1.4 Project Sponsor Status Briefings
1.5 Ongoing Program management support
2 EMPLOYEE COMMUNICATIONS PROGRAM
3 HARDWARE PROCUREMENT
4 SOFTWARE PROCUREMENT
5 DATA MODELING
5.0 Conceptual/Logical Modeling
5.1 Physical Database Modeling
5.2 Global Architecting
[BAR CHART]
5.2.0 Further requirements gathering
5.2.1 Hardware configuration
5.2.2 Develop UNIX and PC configuration standards
5.2.3 Identify data distribution requirements
5.2.4 Distribution of attributes
5.2.5 Identify fragmentation candidates
5.2.6 Identify participating candidates
5.2.7 Identify replication candidates
5.2.8 Acceptance of the Global Architecture Design
6 DATA CONVERSION
6.0 Pilot Project
6.0.0 Develop Draft Data Source Matrix
6.0.1 Conversion Kickoff Workshop
6.0.2 Symbology Development
6.0.3 Data Scrub Procedures
6.0.5 Conversion Specification
6.0.6 Conduct Contract Negotiations
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1996
- ----------------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME SCHED START SCHED FIN J J A S O N D
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.0.7 Conduct Pilot Conversion 04/01/97 05/29/97
6.0.8 QA/QC 04/17/97 06/05/97
6.0.9 Pilot Review 06/06/97 06/19/97
6.0.10 Digitize Sample Circuitry to Support DMS 01/10/97 01/23/97
6.1 Full Conversion Project 06/17/97 05/18/98
6.1.0 Field-verify landbase accuracy 06/17/97 06/30/97
6.1.1 Determine Strategy for Improved Landbase 07/01/97 07/03/97
6.1.2 Field Data Capture Reqs. Workshop 07/07/97 07/11/97
6.1.3 Conduct Area Conversion (1) 07/03/97 10/06/97
6.1.4 Conduct Other Area Conversions 09/30/97 05/18/98
6.1.6 Manage Other Area Conversions 09/30/97 05/18/98
6.1.5 Full Conversion complete 05/18/98 05/18/98
7 DATA MIGRATION 11/26/96 06/04/97
7.0 Develop AM/FM/GIS migration specifications 11/26/96 12/23/96
7.1 Develop TLM data migration strategy 12/10/96 12/23/96
7.2 Review migration strategies with IES and Conversion Contract 12/26/96 12/27/96
7.3 Migrate TLM data to AM/FM/GIS database 12/30/96 03/03/97
7.4 Conduct AM/FM/GIS data migration 04/23/97 06/04/97
[BAR CHART]
8 CORE PRODUCT CONFIGURATION DEV. REL. 09/24/96 07/07/97
8.0 CAD/MDT Dev. Releases (POC) 09/24/96 02/07/97
8.0.0 Core Product Configuration 09/24/96 12/18/96
8.0.1 Core Product Customization 12/19/96 02/07/97
8.0.2 CAD/MDT POC system available 02/07/97 02/07/97
8.1 AM/FM/GIS Dev. Releases (POC) 11/11/96 05/02/97
8.1.0 Core Product Configuration 11/11/96 02/07/97
8.1.1 Core Product Customization 01/10/97 05/02/97
8.1.2 AM/FM/GIS POC system available 05/02/97 05/02/97
8.2 DMS Dev. Releases (POC) 03/07/97 07/03/97
8.2.0 Core Product Configuration 03/07/97 04/24/97
8.2.1 Core Product Customization 04/25/97 06/12/97
8.2.2 DMS POC system available 06/12/97 06/12/97
8.2.3 Configure with test data 06/13/97 07/03/97
8.3 WMS Dev. Releases (POC) 11/11/96 05/16/97
8.3.0 Core Product Configuration 11/11/96 01/24/97
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J F M A M J J A S O N D J F M A M J J A S
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.0.7 Conduct Pilot Conversion
6.0.8 QA/QC
6.0.9 Pilot Review
6.0.10 Digitize Sample Circuitry to Support DMS
6.1 Full Conversion Project
6.1.0 Field-verify landbase accuracy
6.1.1 Determine Strategy for Improved Landbase
6.1.2 Field Data Capture Reqs. Workshop
6.1.3 Conduct Area Conversion (1)
6.1.4 Conduct Other Area Conversions
6.1.6 Manage Other Area Conversions
6.1.5 Full Conversion complete
7 DATA MIGRATION
7.0 Develop AM/FM/GIS migration specifications
7.1 Develop TLM data migration strategy
7.2 Review migration strategies with IES and Conversion Contract
7.3 Migrate TLM data to AM/FM/GIS database
7.4 Conduct AM/FM/GIS data migration
[BAR CHART]
8 CORE PRODUCT CONFIGURATION DEV. REL.
8.0 CAD/MDT Dev. Releases (POC)
8.0.0 Core Product Configuration
8.0.1 Core Product Customization
8.0.2 CAD/MDT POC system available
8.1 AM/FM/GIS Dev. Releases (POC)
8.1.0 Core Product Configuration
8.1.1 Core Product Customization
8.1.2 AM/FM/GIS POC system available
8.2 DMS Dev. Releases (POC)
8.2.0 Core Product Configuration
8.2.1 Core Product Customization
8.2.2 DMS POC system available
8.2.3 Configure with test data
8.3 WMS Dev. Releases (POC)
8.3.0 Core Product Configuration
</TABLE>
PAGE# 2 OF 5
<PAGE> 51
SCHEDULE F PROJECT NAME: IES VISION IMPACT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME SCHED START SCHED FIN
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8.3.1 Core Product Customization 01/27/97 04/11/97
8.3.2 POC (CU's, MU's, standard designs) data creation 02/10/97 05/16/97
8.3.3 WMS POC system available 05/16/97 05/16/97
8.4 Integration Dev. Releases (POC) 10/18/96 07/07/97
8.4.0 Middleware Set-up 10/18/96 12/02/96
8.4.1 CIS Interfaces 12/03/96 07/07/97
8.4.1.0 Conduct CIS Interface workshop 12/03/96 12/04/96
8.4.1.1 CIS to AM/FM/GIS 12/05/96 02/17/97
8.4.1.2 IES SME participate in development 12/05/96 12/11/96
8.4.1.3 Call Center to CAD (new work request info-non outage) 12/05/96 02/17/97
8.4.1.4 IES SME participate in development 12/05/96 12/11/96
8.4.1.5 Call Center to DMS (outage customer ID) 03/07/97 05/30/97
8.4.1.6 IES SME participate in development 03/07/97 03/13/97
8.4.1.7 CAD to Call Center (scheduling opportunities) 12/19/96 03/03/97
8.4.1.8 IES SME participate in development 12/19/96 12/27/96
8.4.0.9 DMS to Call Center (outage status) 04/25/97 07/07/97
8.4.1.10 IES SME participate in development 04/25/97 05/01/97
8.4.2 WMS Interfaces 02/06/97 06/23/97
8.4.2.0 Conduct WMS Interface workshop 02/06/97 02/07/97
8.4.2.1 WMS to AM/FM/GIS (work requests and status) 02/10/97 04/18/97
8.4.2.2 AM/FM/GIS to WMS (design data) 03/10/97 05/16/97
8.4.2.3 AM/FM/GIS to WMS (as built data) 03/10/97 05/16/97
8.4.2.4 CAD to WMS (new work request for design-if managed in both) 02/10/97 04/18/97
8.4.2.5 WMS to MMIS (material needs) 04/14/97 06/23/97
8.4.2.6 MMIS to WMS (material items lists and costs) 04/14/97 06/23/97
8.4.2.7 WMS to Prop Acct (property unit info) 04/14/97 06/23/97
8.4.3 CAD to DMS (crew assigned/location) 03/07/97 05/15/97
8.4.4 AM/FM/GIS to DMS (landbase and facilities) 01/24/97 03/06/97
9 CORE PRODUCTION SYSTEM REFINEMENTS DEV. REL. 05/16/97 04/08/98
9.0 MDT Dev. Rel. (core production) 05/16/97 08/11/97
9.1 AM/FM/GIS Dev. Rel. (core production) 05/19/97 01/07/98
9.2 DMS Dev. Rel. (core production) 07/08/97 10/28/97
9.3 WMS Dev. Rel. (core production) 05/19/97 11/12/97
9.4 Integration Dev. Rel. (core production) 08/12/97 04/08/98
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J J A S O N D J F M A M J J A S O N D
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8.3.1 Core Product Customization
8.3.2 POC (CU's, MU's, standard designs) data creation
8.3.3 WMS POC system available
8.4 Integration Dev. Releases (POC)
8.4.0 Middleware Set-up
8.4.1 CIS Interfaces
8.4.1.0 Conduct CIS Interface workshop
8.4.1.1 CIS to AM/FM/GIS [BAR CHART]
8.4.1.2 IES SME participate in development
8.4.1.3 Call Center to CAD (new work request info-non outage)
8.4.1.4 IES SME participate in development
8.4.1.5 Call Center to DMS (outage customer ID)
8.4.1.6 IES SME participate in development
8.4.1.7 CAD to Call Center (scheduling opportunities)
8.4.1.8 IES SME participate in development
8.4.0.9 DMS to Call Center (outage status)
8.4.1.10 IES SME participate in development
8.4.2 WMS Interfaces
8.4.2.0 Conduct WMS Interface workshop
8.4.2.1 WMS to AM/FM/GIS (work requests and status)
8.4.2.2 AM/FM/GIS to WMS (design data)
8.4.2.3 AM/FM/GIS to WMS (as built data)
8.4.2.4 CAD to WMS (new work request for design-if managed in both)
8.4.2.5 WMS to MMIS (material needs)
8.4.2.6 MMIS to WMS (material items lists and costs)
8.4.2.7 WMS to Prop Acct (property unit info)
8.4.3 CAD to DMS (crew assigned/location)
8.4.4 AM/FM/GIS to DMS (landbase and facilities)
9 CORE PRODUCTION SYSTEM REFINEMENTS DEV. REL.
9.0 MDT Dev. Rel. (core production)
9.1 AM/FM/GIS Dev. Rel. (core production)
9.2 DMS Dev. Rel. (core production)
9.3 WMS Dev. Rel. (core production)
9.4 Integration Dev. Rel. (core production)
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J F M A M J J A S
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
8.3.1 Core Product Customization
8.3.2 POC (CU's, MU's, standard designs) data creation
8.3.3 WMS POC system available
8.4 Integration Dev. Releases (POC)
8.4.0 Middleware Set-up
8.4.1 CIS Interfaces
8.4.1.0 Conduct CIS Interface workshop
8.4.1.1 CIS to AM/FM/GIS [BAR CHART]
8.4.1.2 IES SME participate in development
8.4.1.3 Call Center to CAD (new work request info-non outage)
8.4.1.4 IES SME participate in development
8.4.1.5 Call Center to DMS (outage customer ID)
8.4.1.6 IES SME participate in development
8.4.1.7 CAD to Call Center (scheduling opportunities)
8.4.1.8 IES SME participate in development
8.4.0.9 DMS to Call Center (outage status)
8.4.1.10 IES SME participate in development
8.4.2 WMS Interfaces
8.4.2.0 Conduct WMS Interface workshop
8.4.2.1 WMS to AM/FM/GIS (work requests and status)
8.4.2.2 AM/FM/GIS to WMS (design data)
8.4.2.3 AM/FM/GIS to WMS (as built data)
8.4.2.4 CAD to WMS (new work request for design-if managed in both)
8.4.2.5 WMS to MMIS (material needs)
8.4.2.6 MMIS to WMS (material items lists and costs)
8.4.2.7 WMS to Prop Acct (property unit info)
8.4.3 CAD to DMS (crew assigned/location)
8.4.4 AM/FM/GIS to DMS (landbase and facilities)
9 CORE PRODUCTION SYSTEM REFINEMENTS DEV. REL.
9.0 MDT Dev. Rel. (core production)
9.1 AM/FM/GIS Dev. Rel. (core production)
9.2 DMS Dev. Rel. (core production)
9.3 WMS Dev. Rel. (core production)
9.4 Integration Dev. Rel. (core production)
</TABLE>
PAGE# 3 OF 5
<PAGE> 52
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME SCHED START SCHED FIN
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9.5 Conduct integrated production system test 01/08/98 01/28/98
10 EXTENDED FUNCTIONALITY DEV. RELEASES 02/05/98 07/31/98
10.0 MDT Dev. Rel. (extended functionality) 04/09/98 05/20/98
10.1 AM/FM/GIS Dev. Rel. (extended functionality) 02/05/98 07/10/98
10.2 DMS Dev. Rel. (extended functionality) 02/11/98 05/19/98
10.3 WMS Dev. Rel. (extended functionality) 02/26/98 04/29/98
10.4 Integration Dev. Rel. (Extended functionality) 04/02/98 07/31/98
11 SYSTEM INTEGRATION MANAGEMENT 11/11/96 03/24/97
11.0 Convergent Group Staging 11/11/96 11/26/96
11.1 Communication Link Setup/Install 11/27/96 01/24/97
11.2 Site preparations 11/27/96 12/10/96
11.3 Hardware installation/configuration 12/11/96 12/17/96
11.4 Core software installation/configuration 12/03/96 03/24/97
11.5 Develop software distribution plan 12/05/96 12/18/96
11.6 Test software distribution plan 12/19/96 01/06/97
11.7 Conduct Incremental Installations (TBD) 03/24/97 03/24/97
12 SYSTEM INTEGRATION TESTING (PROCESS ORIENTED) 06/13/97 02/04/98
12.0 Develop production test plan 06/13/97 06/13/97
12.1 Conduct systems testing with IES 01/08/98 02/04/98
12.1.0 Execute test scripts 01/08/98 01/21/98
12.1.1 Address discrepancies/issues 01/22/98 02/04/98
12.2 Integrated system approval 02/04/98 02/04/98
13 TRAINING 12/18/96 01/12/98
13.0 Develop training plan/schedule 06/16/97 09/09/97
13.1 Conduct training 12/18/96 01/12/98
13.1.0 System level training (OS, RDBMS) 12/18/96 12/26/96
13.1.1 Core POC system training 02/10/97 06/24/97
13.1.2 Core production System training 08/12/97 01/12/98
13.1.3 System software maintenance training 06/25/97 06/26/97
14 DELIVERABLE MILESTONES 02/07/97 05/18/98
14.0 Resource Coordinators begin using CAD 02/07/97 02/07/97
14.1 Build CU's, MU's, Standard Designs 02/10/97 02/10/97
14.2 Begin Automated Work Initiation & Tracking 02/10/97 02/10/97
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J J A S O N D J F M A M J J A S O N D
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9.5 Conduct integrated production system test
10 EXTENDED FUNCTIONALITY DEV. RELEASES
10.0 MDT Dev. Rel. (extended functionality)
10.1 AM/FM/GIS Dev. Rel. (extended functionality)
10.2 DMS Dev. Rel. (extended functionality)
10.3 WMS Dev. Rel. (extended functionality)
10.4 Integration Dev. Rel. (Extended functionality
11 SYSTEM INTEGRATION MANAGEMENT
11.0 Convergent Group Staging
11.1 Communication Link Setup/Install
11.2 Site preparations
11.3 Hardware installation/configuration
11.4 Core software installation/configuration
11.5 Develop software distribution plan
11.6 Test software distribution plan
11.7 Conduct Incremental Installations (TBD)
[BAR CHART]
12 SYSTEM INTEGRATION TESTING (PROCESS ORIENTED)
12.0 Develop production test plan
12.1 Conduct systems testing with IES
12.1.0 Execute test scripts
12.1.1 Address discrepancies/issues
12.2 Integrated system approval
13 TRAINING
13.0 Develop training plan/schedule
13.1 Conduct training
13.1.0 System level training (OS, RDBMS)
13.1.1 Core POC system training
13.1.2 Core production System training
13.1.3 System software maintenance training
14 DELIVERABLE MILESTONES
14.0 Resource Coordinators begin using CAD
14.1 Build CU's, MU's, Standard Designs
14.2 Begin Automated Work Initiation & Tracking
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------
WBS CODE TASK NAME J F M A M J J A S
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
9.5 Conduct integrated production system test
10 EXTENDED FUNCTIONALITY DEV. RELEASES
10.0 MDT Dev. Rel. (extended functionality)
10.1 AM/FM/GIS Dev. Rel. (extended functionality)
10.2 DMS Dev. Rel. (extended functionality)
10.3 WMS Dev. Rel. (extended functionality)
10.4 Integration Dev. Rel. (Extended functionality
11 SYSTEM INTEGRATION MANAGEMENT
11.0 Convergent Group Staging
11.1 Communication Link Setup/Install
11.2 Site preparations
11.3 Hardware installation/configuration
11.4 Core software installation/configuration
11.5 Develop software distribution plan
11.6 Test software distribution plan
11.7 Conduct Incremental Installations (TBD)
[BAR CHART]
12 SYSTEM INTEGRATION TESTING (PROCESS ORIENTED)
12.0 Develop production test plan
12.1 Conduct systems testing with IES
12.1.0 Execute test scripts
12.1.1 Address discrepancies/issues
12.2 Integrated system approval
13 TRAINING
13.0 Develop training plan/schedule
13.1 Conduct training
13.1.0 System level training (OS, RDBMS)
13.1.1 Core POC system training
13.1.2 Core production System training
13.1.3 System software maintenance training
14 DELIVERABLE MILESTONES
14.0 Resource Coordinators begin using CAD
14.1 Build CU's, MU's, Standard Designs
14.2 Begin Automated Work Initiation & Tracking
</TABLE>
PAGE# 4 OF 5
<PAGE> 53
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1996
- ----------------------------------------------------------------------------------------
WDS CODE TASK NAME SCHED START SCHED FIN J J A S O N D
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14.3 Work Order Design Available 05/16/97 O5/16/97
14.4 Begin Distribution Opns Training 06/12/97 06/12/97
4.5 DMS Available for DDC 07/03/97 07/03/97
[BAR CHART]
14.6 Outage Analysis Available 06/12/97 06/12/97
14.7 Service Territory Converted 05/18/98 05/18/98
14.8 Production integration completed 01/07/98 01/07/98
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
WDS CODE TASK NAME SCHED START SCHED FIN J F M A M J J A S O N D J F M A M J J A S
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14.3 Work Order Design Available 05/16/97 O5/16/97
14.4 Begin Distribution Opns Training 06/12/97 06/12/97
4.5 DMS Available for DDC 07/03/97 07/03/97
[BAR CHART]
14.6 Outage Analysis Available 06/12/97 06/12/97
14.7 Service Territory Converted 05/18/98 05/18/98
14.8 Production integration completed 01/07/98 01/07/98
</TABLE>
PAGE# 5 OF 5
<PAGE> 1
Citizens Utilities Company
Convergent Group Corporation Professional Services Agreement
- --------------------------------------------------------------------------------
EXHIBIT 10.19
AGREEMENT
BETWEEN
CITIZENS UTILITIES COMPANY
AND
CONVERGENT GROUP CORPORATION
(CVG REFERENCE NO. U181)
This AGREEMENT (hereinafter referred to as "Agreement") is made and
entered into on _____________, 1997, by and between Citizens Utilities Company
(hereinafter referred to as "CLIENT"), located at High Ridge Park, Stamford, CT
06905-1390, and Convergent Group Corporation (hereinafter referred to as
"CONSULTANT"), located at 6200 S. Syracuse Way, Englewood, CO 80111, for the
sale of hardware manufactured by third parties hereto (hereinafter referred to
as "Hardware"), the licensing and maintenance of Third-Party Application
Software and Operating System Software (hereinafter referred to as "Software"),
associated documentation (hereinafter referred to as "Documentation"), and
professional Consultant Services required to provide technical and management
consulting expertise to CLIENT for custom application software and custom
application software systems as well as provide technical services related
thereto as defined in Attachments, attached hereto and incorporated herein by
this reference.
In consideration of the covenants and agreements contained herein and
other good and valuable consideration, the sufficiency of which is hereby
mutually acknowledged, the parties hereto agree as follows:
1. STATEMENT OF SERVICES - SCOPE OF WORK
1.1 CONSULTANT agrees to provide CLIENT with professional services of
CONSULTANT's staff to perform management and technical consulting tasks for the
implementation of the DESIGN GIS Project in accordance with Attachment A - Scope
of Work, which is attached hereto and incorporated herein by this reference.
1.2 All work shall be performed in accordance with sound and generally
accepted professional practices and industry standards by professional,
managerial and administrative personnel fully qualified in the respective
professional disciplines required.
Proprietary and Confidential Convergent Group/FGM1074F
-1-
<PAGE> 2
Citizens Utilities Company
Convergent Group Corporation Professional Services Agreement
- --------------------------------------------------------------------------------
2. SOLE AGREEMENT
2.1 This Agreement and the Attachments hereto constitute the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes and replaces all prior agreements and understandings, whether oral or
written. Additional agreements in writing between the parties, such as proposals
from CONSULTANT and written acceptances by CLIENT, may be attached as
Attachments to this Agreement in order to specifically define CONSULTANT's
participation on individual projects for which CLIENT shall engage CONSULTANT to
provide such services which agreements shall be herein incorporated and made a
part hereof by this reference. This Agreement may not be changed or terminated
verbally by, or on behalf of, either party.
3. CONSULTANT EMPLOYEES
3.1 CONSULTANT personnel shall be and will remain at all times, during this
Agreement, employees of CONSULTANT. CLIENT shall not be responsible for any
payments due CONSULTANT employees on account of, or in connection with, this
Agreement.
3.2 CONSULTANT employees assisting CLIENT under this Agreement who are found,
in CLIENT's sole opinion, to be unsatisfactory for services to be performed
hereunder, shall be removed by CONSULTANT immediately upon receipt of written
notice from CLIENT. Such employee shall be replaced with another CONSULTANT
employee satisfactory to CLIENT as soon as possible.
4. PATENTS AND INVENTIONS
4.1 The CONSULTANT has developed numerous proven proprietary materials which
provide the methodologies for the development of the Deliverables. The use of
these materials contributes to the cost-effectiveness of CONSULTANT services.
CLIENT agrees that CONSULTANT shall own all such products, materials, and
methodologies and that CLIENT shall have or obtain no rights in such proprietary
products, materials, and methodologies except pursuant to a separate written
agreement executed by the parties. CLIENT understands that CONSULTANT
proprietary costs analysis and strategic planning models and facilities database
models and designs or certain software products may be used under this Agreement
and CLIENT agrees not to exhibit, distribute, or otherwise disclose any such
proprietary methods and materials to external or third parties without the prior
approval in writing from CONSULTANT. The CONSULTANT shall continue to market,
distribute, make derivative works from and sell similar work to other companies
without further notice to nor consent from CLIENT. Nothing in this Agreement
shall restrict or prohibit CONSULTANT's right to use concepts, techniques, and
know-how used or developed in the course of performing these services.
4.2 CONSULTANT shall be the owner of copyright or other intellectual property
rights in such Deliverable Products. CONSULTANT grants to CLIENT a perpetual
unrestricted, royalty-free license to reproduce and use, for CLIENT's internal
purposes only, any materials developed for CLIENT related to this Agreement, not
including Third-Party Software Licenses. CLIENT
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agrees not to exhibit, distribute, or otherwise disclose any proprietary
software, methods, or materials to external or third parties without the prior
approval in writing from CONSULTANT. This section shall survive termination or
expiration of this Agreement for any reason.
4.3 All Third-Party Software licenses will be executed between the CLIENT and
the Third-Party Software vendor. Grants of licenses for all Third-Party Software
licenses will be transferred from the Third-Party to the CLIENT in accordance
with a mutually acceptable license agreement.
5. TOTAL COST AND FEES
5.1 The total price for the implementation of project to support the CLIENT's
business objectives is $17,806,739.00 which is comprised of a Fixed Price
component as defined in Attachment B - Fixed Price Payments and an Estimated
component as defined in Attachment C - Billing Terms for Estimated Work.
5.2 The Firm Fixed price is $7,346,739.00 and includes the delivery of
Services and Land and Facility Data Conversion. The description of the tasks
associated with fixed work effort is contained in Attachment A - Scope of Work
and the billing schedule for the fixed costs and fees is contained in Attachment
B - Fixed Price Payments.
5.3 The total estimated costs and fees are $10,460,000.00. These costs and
fees include all estimated expenses for the project (expenses will be billed to
CLIENT at cost plus a three and one-half percent (3 1/2%) administrative fee),
custom applications, system integration development, Hardware and Third-Party
Software as further defined in Attachment C - Billing Terms for Estimated Work.
Incidental Expenses shall include, without limitation, the following: air
transportation, auto rental, rail transportation, cabs, reasonable lodging and
meals, express air shipments, data transmittal, telephone calls, and copying
costs. The description of the tasks associated with the estimated work effort is
contained in Attachment A - Scope of Work and the billing terms for the
estimated cost and fees are contained in Attachment C - Billing Terms for
Estimated Work.
5.4 The cost and fees set forth in Attachment B - Fixed Price Payments and
Attachment C - Billing Terms for Estimated Work are exclusive of the following
and CLIENT agrees to:
5.4.1 enter into a contract amendment for any CLIENT-directed change of
scope in accordance with Clause 11.1.2 of this Agreement.
5.4.2 all taxes, however designated, paid or payable by hereunder,
exclusive of taxes based on the net income of CONSULTANT. If any
charges under this Agreement are exempt from sales or use tax
liability, CLIENT shall provide to CONSULTANT, upon execution of
this Agreement, evidence of tax exemption acceptable to the
relevant taxing authority.
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6. PAYMENT
6.1 The Firm Fixed Price payment schedule is contained in Attachment B -
Fixed Price Payments which is attached hereto and incorporated herein by this
reference. The Estimated Cost and Fees billing terms are delineated in
Attachment C - Billing Terms for Estimated Work which is attached hereto and
incorporated herein by this reference.
6.2 In the event that an invoice remains unpaid for thirty (30) days after
the date it is delivered to CLIENT, the CONSULTANT shall charge CLIENT interest
at the rate of 1 1/2 percent per month on the unpaid balance of said invoice
from date of its delivery to CLIENT.
6.3 All invoices will be addressed to:
Mr. Karl Weber
Louisiana Gas Service Co.
1233 Westbank Expressway
P.O. Box 433
Harvey, LA 70059
6.4 CLIENT will make payments using Electronic Funds Transfers using the bank
and account information contained in Attachment F - Electronic Funds Transfer.
7. TERM; TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until the earlier of
(a) the services to be performed hereunder are completed or (b) earlier
termination, as provided below.
7.2 Termination for Default. If either party shall at any time commit any
material breach of any covenant, or warranty under this Agreement, and (i) shall
fail to cure such breach within thirty (30) days of written notice of such
breach or (ii) if it is not curable within thirty (30) days of written notice,
shall fail to diligently commence to cure it within thirty (30) days of notice,
the defaulted party may at its option and in addition to any other remedies to
which it is entitled, terminate this Agreement by written notice.
7.3 Except as may be prohibited by the U.S. bankruptcy laws, in the event of
either party's insolvency or inability to pay debts as they become due,
voluntary or involuntary bankruptcy proceedings by or against a party hereto, or
appointment of a receiver or assignee for the benefit of creditors, the other
party may terminate this Agreement by written notice.
7.4 CONSULTANT shall have the right to terminate this Agreement by written
notice to CLIENT upon CLIENT's failure to pay CONSULTANT any nondisputed amount
due hereunder within sixty (60) days after such amount was due and payable. Any
disputed amounts shall be resolved in accordance with Section 32, Dispute
Resolution Arbitration herein.
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7.5 If this Agreement is terminated after CONSULTANT has commenced any work,
mobilization, or other off-site activities under this Agreement, CONSULTANT will
be paid for all outstanding invoices and its actual incurred costs and legally
committed accrued costs from date of termination, including reasonable
demobilization and project costs associated with vacating the site, determined
in accordance with generally accepted accounting principles consistently
applied..
7.6 All license rights granted shall cease upon any termination or
cancellation of this Agreement. Within fifteen (15) days after termination of
the license rights granted herein, or termination or cancellation of this
Agreement for any reason, CLIENT agrees to certify to CONSULTANT in writing that
the original and all copies of the Software and Documentation, in any form, have
been destroyed.
8. CONFIDENTIALITY OF INFORMATION
8.1 The parties acknowledge that in the course of this Agreement they will
have access to, and/or will be in possession of, Confidential Information of the
other. "Confidential Information" shall mean information regarded by that party
as confidential, including, but not limited to, information relating to its
past, present, or future research, development, or business affairs; future
project purchases; any proprietary products, materials, or methodologies; all
items prepared for and submitted to CLIENT in connection with work performed
under this Agreement, including drafts and associated material; and any other
information marked or, in the case of information verbally disclosed, verbally
designated as confidential at the time of disclosure by that party.
8.2 Each party shall hold in confidence, in the same manner as it holds its
own confidential information of like kind, all Confidential Information of the
other to which it may have access hereunder. Access to Confidential Information
shall be restricted to those of the disclosing party's personnel, subcontractors
and other agents with a need to know and engaged in a permitted use.
CONSULTANT's deliverable products marked confidential shall neither be exhibited
nor distributed in any way to parties external to CLIENT, CLIENT's personnel,
subcontractors, and agents (including, but not limited to, Cinergy consultants)
not engaged in the performance of this Agreement.
8.3 The foregoing shall not prohibit or limit either party's use of
information including, but not limited to, ideas, concepts, know-how,
techniques, and methodologies which (i) are or become generally available to and
known by the public (other than as a result of an unpermitted disclosure
directly or indirectly by the receiving party hereunder or its agents,
representatives, or advisors), (ii) is or becomes available to it on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors, agents, or representatives, provided that such source is
not and was not bound by a confidentiality agreement with or other obligation of
secrecy to the furnishing party, (iii) has already been or is hereafter
independently acquired or developed by it without violating any confidentiality
agreement or other obligation of secrecy to the furnishing party, or (iv) is
required by law or regulation to be disclosed, provided, however,
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that it shall give the furnishing party reasonable advance notice of such
requirement so that the furnishing party may seek appropriate legal relief
against such disclosure.
8.4 The parties hereto agree and acknowledge that any such Confidential
Information shall be considered for all purposes confidential and privileged
information under any local, state, or federal law and such Confidential
Information shall not be released pursuant to any local, state, or federal act,
law, or statute concerning "freedom of information."
8.5 This section shall survive termination or expiration of this Agreement
for any reason for a period of five (5) years.
8.6 Each Party acknowledges and agrees that the provisions of this section
are essential to both CONSULTANT and CLIENT and are reasonable and necessary to
protect the legitimate interests of both Parties and that the damages sustained
by either Party as a result of a breach of the agreements contained herein will
subject the damaged Party to immediate, irreparable harm and damage, the amount
of which, although substantial, could not be reasonably ascertainable, and that
recovery of damages at law will not be an adequate remedy. Therefore, both
Parties agree that the damaged Party, in addition to any other remedy it may
have under this Agreement or at law, shall be entitled to injunctive and other
equitable relief to prevent or curtail any breach of any provision of this
section. The breaching Party waives any right to the posting of a bond in the
event of an issuance of a temporary restraining order, preliminary injunction,
or permanent injunction upon the issuance of said order by a court of competent
jurisdiction.
8.7 Upon termination or expiration of this Agreement for any reason, both
Parties shall return to the other Party any confidential information or
proprietary information belonging to the other Party which is in their
possession, except that CONSULTANT shall be entitled to retain a duplicate set
of any configuration and/or customized Software delivered by CONSULTANT in
connection with this Agreement. This section shall survive termination or
expiration of this Agreement for any reason.
9. EQUAL EMPLOYMENT
9.1 In performing the services hereunder, CONSULTANT agrees to comply with
all applicable local, state, and federal laws, regulations, and orders relating
to fair and equal employment opportunity practices and policies.
10. NON-SOLICITATION OF CONSULTANT OR CLIENT EMPLOYEES
10.1 The Parties agree that neither Party will during the term of this
Agreement and for a period continuing for 24 months after the expiration or
termination of this Agreement, for any reason, directly or indirectly solicit,
influence, entice, or encourage any person who is then or had been within one
(1) year of such action an employee of the other Party to cease his or her
relationship with his or her employer, or otherwise interfere with, disrupt, or
attempt to disrupt any past, present, or prospective relationship, contractual
or otherwise, between the other Party and any of its employees.
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10.2 CLIENT and CONSULTANT further agree that neither Party will not, during
the term of this Agreement and for a period continuing for 24 months thereafter,
hire or attempt to hire, whether as an employee, consultant, or otherwise, any
person who was employed by the other Party at any time during the term of this
Agreement.
10.3 Each Party acknowledges and agrees that the provisions of this section
are essential to both CONSULTANT and CLIENT and are reasonable and necessary to
protect the legitimate interests of both Parties and that the damages sustained
by either Party as a result of a breach of the agreements contained herein will
subject the damaged Party to immediate, irreparable harm and damage, the amount
of which, although substantial, could not be reasonably ascertainable, and that
recovery of damages at law will not be an adequate remedy. Therefore, both
Parties agree that the damaged Party, in addition to any other remedy it may
have under this Agreement or at law, shall be entitled to injunctive and other
equitable relief to prevent or curtail any breach of any provision of this
section. The breaching Party waives any right to the posting of a bond in the
event of an issuance of a temporary restraining order, preliminary injunction,
or permanent injunction upon the issuance of said order by a court of competent
jurisdiction.
10.4 This section shall survive termination or expiration of this Agreement
for any reason.
10.5 If the scope of any restriction contained in this section is too broad to
permit enforcement of such restriction to its fullest extent, then such
restriction shall be enforced to the maximum extent permitted by law and CLIENT
hereby consents and agrees that the scope may be judicially modified in any
proceeding brought to enforce such restriction.
11. SPECIAL CONDITIONS
11.1 The following conditions are incorporated into the understandings
associated with this Agreement:
11.1.1 If the project scope of work is requested to be increased or
changed by CLIENT in such a manner as to require additional labor or
expenses, and CONSULTANT agrees to such changes, the parties will adjust
both scope and cost and fees, or other affected terms through written
amendment to this Agreement.
11.1.2 CLIENT and CONSULTANT reserve the right to subsequently amend this
Agreement to include additional services or associated products.
Compensation for additional services or products will be as agreed by
CLIENT and CONSULTANT and may be incorporated as Attachments to this
Agreement in accordance with Attachment E - Change Order Procedure. All
work to be accomplished will be defined in written change orders approved
by the parties. The change orders will define the objectives to be
addressed, the scope of services to be provided, the products to be
delivered, the schedule to be met, special considerations (as
appropriate) and a change order price estimate or fixed fee. The
CONSULTANT will be reimbursed as provided in the change order.
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11.1.3 CONSULTANT's project team members will have the opportunity and
authority to contact personnel at CLIENT directly in the performance of
technical consulting duties.
12. ADDRESSES OF PARTIES TO AGREEMENT
12.1 All correspondence, contracts, and communications between the parties to
this Agreement should be made to the following:
Louisiana Gas Service Co.
1233 Westbank Expressway
P.O. Box 433
Harvey, LA 70059
Attn: Karl Weber
Telephone: (504) 374-7476
Facsimile: (504) 374-7679
Convergent Group Corporation
6200 South Syracuse Way, Suite 200
Englewood, CO 80111
Attn: David J. Stewart
Telephone: (303) 741-8400
Facsimile: (303) 741-8401
12.2 All notices required or permitted hereunder shall be sufficient if given
in writing and if delivered personally, by overnight courier, or by certified
mail, return receipt requested, postage prepaid, addressed to the CONSULTANT or
CLIENT, as the case may be, at the addresses set forth above or at such other
address as such party shall have designated in the manner provided in this
section. Notice shall be deemed given on the date of receipt, in the case of
personal delivery, or on the delivery or refusal date, as specified on the
return receipt, in the case of overnight courier or certified mail.
13. CONSULTANT TRAINING
13.1 Subject to a mutually agreed to schedule, CONSULTANT will provide
training to the CLIENT in the use of the CONSULTANT Software listed in
Attachment A - Scope of Work. The extent of such training, number of CLIENT
personnel to be trained, location of such training, and the appropriate price
are reflected in the Attachments.
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14. HARDWARE DELIVERY/INSTALLATION
14.1 Some Hardware will initially be delivered to CONSULTANT to be used for
planning and development efforts. During the period that the Hardware is located
at CONSULTANT's facility, Risk of Loss shall be with CONSULTANT and CONSULTANT
is authorized by CLIENT to install, maintain, and request warranty remedies from
the Third-Party Hardware manufacturer during the period it is located at
CONSULTANT's facility.
14.2 Risk of Loss to Hardware and Software shall pass to CLIENT upon delivery
of same to CLIENT's installation site. Subject to manufacturer warranties, the
Hardware and Software will be deemed accepted when used by CONSULTANT (if
initially delivered to CONSULTANT) or by CLIENT (if initially delivered to
CLIENT installation site) in the ordinary course of business.
15. HARDWARE MAINTENANCE
15.1 CONSULTANT may provide Hardware Maintenance to CLIENT. The terms of the
Hardware Maintenance will be in accordance with mutually agreed upon Maintenance
provisions.
16. SOFTWARE MAINTENANCE
16.1 CONSULTANT will procure Third-Party Software Maintenance through the end
of this Agreement based upon a mutually agreed upon schedule of costs and fees
between CLIENT and CONSULTANT. Third-Party Software Maintenance will be adjusted
quarterly until all Third-Party Software Maintenance is totally synchronized at
the end of the contract. CONSULTANT will provide one (1) additional year of
Third-Party Software Maintenance to CLIENT upon the completion of the contract.
The terms of the Third-Party Software Maintenance will be in accordance with
mutually agreed upon maintenance provisions.
16.2 Custom Software Maintenance. CONSULTANT will provide custom application
software maintenance after the acceptance of each Development Release through
the completion of this Agreement. During the contract period of performance
maintenance for the Development Releases will be adjusted semi-annually until
maintenance is totally synchronized at contract completion. CONSULTANT will
provide customer software maintenance for one (1) additional year after contract
completion. Thereafter, maintenance shall be provided in a mutually agreed to
schedule of costs and fees between CLIENT and CONSULTANT. The terms of the
Software Maintenance will be in accordance with mutually agreed upon maintenance
provisions to be added at a later date.
17. WARRANTY AND DISCLAIMER
17.1 CONSULTANT warrants that for ninety (90) days after the Installation Date
(i) any Hardware which is procured for CLIENT by CONSULTANT will be free from
defects in materials and workmanship (ii) any Third-Party Software which is
procured for CLIENT by CONSULTANT will perform substantially in compliance with
the Documentation provided by
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CONSULTANT for ninety (90) days after the Installation Date, and (iii) the
system integration will meet the requirements contemplated by the Scope of Work,
if any, as demonstrated by the successful completion of the mutually agreed upon
acceptance criteria.
17.2 CONSULTANT MAKES NO OTHER WARRANTIES OF ANY KIND EITHER EXPRESS OR
IMPLIED, INCLUDING, BUT NOT BY WAY OF LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
HARDWARE, SOFTWARE, DOCUMENTATION, TECHNICAL INFORMATION, AND TECHNICAL
ASSISTANCE PROVIDED BY CONSULTANT PURSUANT TO THIS AGREEMENT.
18. LIMIT OF LIABILITY
18.1 CONSULTANT's liability in respect to services provided under this
Agreement shall be limited to claims directly attributable only to the failure
of CONSULTANT's agents or employees to exercise the degree of skill and
performance normally exercised by duly qualified persons performing similar
functions. The amount of CONSULTANT's liability shall not exceed the total
amount of this Agreement. IN NO EVENT SHALL CONSULTANT, ITS EMPLOYEES OR AGENTS
BE LIABLE FOR LOSS OF EARNINGS, LOSS OF PROFITS, LOSS OF INTEREST, JUDGMENTS,
AWARDS, OR CONTRIBUTION THERETO, OR ANY OTHER SPECIAL, INDIRECT, OR
CONSEQUENTIAL DAMAGE, HOWEVER CAUSED.
19. NEGLIGENCE
19.1 Each party shall be responsible for willful misconduct and negligent acts
or omissions of its agents and employees. Each party shall indemnify, hold
harmless, and defend the other from and against all liabilities for bodily
injury and property damage caused by the willful or negligent act or omission of
the indemnifying party or its agents or employees. This section shall survive
termination or expiration of this Agreement for any reason.
20. LIMITATION OF REMEDIES
20.1 CONSULTANT's entire liability and the CLIENT's exclusive remedy in
respect to services and materials provided under this Agreement with the
exception of the Indemnity Agreement in Section 21, shall be that CONSULTANT
will, pursuant to applicable maintenance provisions, restore the Hardware to
working order if it should fail due to defects in materials and workmanship and
correct the Third-Party or Custom Software if it should fail to substantially
conform to the Documentation provided by CONSULTANT, during the period in which
CONSULTANT is providing maintenance services in accordance with Sections 15 and
16 herein. However, if CONSULTANT is unable to cure such defects, as CLIENT's
exclusive remedy, CONSULTANT will grant CLIENT a refund for the Hardware and/or
Third-Party or Custom Software involved, based upon its straight line
depreciated value over the life of the product as determined jointly by CLIENT
and CONSULTANT and accept its return.
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20.2 CONSULTANT's entire liability for damages for any cause whatsoever, and
regardless of the form of action, shall be limited to CLIENT's actual direct
damages not to exceed the amount paid to CONSULTANT under this Agreement for the
specific item that caused the damage or that is the subject matter of, or is
directly related to, the cause of action. This limitation is not applicable to
claims for patent, copyright, and trade secret infringement which claims are
covered by Section 21.
20.3 IN NO EVENT SHALL CONSULTANT, ITS OFFICERS, AGENTS, AND EMPLOYEES BE
LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST PROFITS,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.
21. PATENTS, TRADEMARKS AND TRADE SECRET INFRINGEMENT INDEMNITY
21.1 CONSULTANT shall defend, at its expense, any action brought against
CLIENT to the extent that it is based upon a claim that any Hardware, Software,
or Documentation infringes a patent, copyright, or violates any Third-Party
trade secret or proprietary right and shall pay all costs and damages finally
awarded against CLIENT, provided that CONSULTANT is given prompt written notice
of such claim and is given information, reasonable assistance, and sole
authority to defend or settle the claim.
21.2 If any such action is brought, or in CONSULTANT opinion is likely to be
brought, then CONSULTANT may at its election (i) obtain for CLIENT the right to
continue using the Hardware, Software, or Documentation; (ii) replace or modify
such so that it becomes noninfringing; or, (iii) if such remedies are not
reasonably available, accept CLIENT's return of the Hardware, Software, or
Documentation, and grant CLIENT a refund for the Hardware, Software, or
Documentation involved, based upon its straight line depreciated value over the
life of the product as determined jointly by CLIENT and CONSULTANT.
21.3 CONSULTANT shall have no obligation under this section if the alleged
infringement or violation is based upon the use of the Hardware, Software, or
Documentation in combination with other hardware, software, or documentation not
furnished by CONSULTANT or if such claim arises from CONSULTANT compliance with
CLIENT's designs, specifications, or instructions, or from CLIENT's modification
of the Hardware, Software, or Documentation.
21.4 CONSULTANT shall have no liability for infringement of patents,
copyrights, or violation of trade secrets or proprietary rights except as
expressly provided in this section.
22. GOVERNING LAW
This Agreement will be governed by the laws of the State of Connecticut,
without regard to the conflicts of laws principles of such state.
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23. ENFORCEMENT EXPENSES
23.1 In the event of a breach or threatened breach of any term or provision of
this Agreement, the nonbreaching party shall be entitled to all of its remedies
available at law or in equity and in addition shall be entitled to be reimbursed
for all of its costs and expenses in enforcing this Agreement, including, but
not limited to, reasonable attorneys' fees. This section shall survive
termination or expiration of this Agreement for any reason.
24. ATTACHMENTS
24.1 The Attachments attached hereto form a part of and are incorporated
herein by this reference.
Attachment A: Scope of Work
Attachment B: Fixed-Price Payments
Attachment C: Billing Terms for Estimated Work
Attachment D: Project Assumptions
Attachment E: Change Order Procedure
Attachment F: Electronic Funds Transfer
Attachment G: Project Schedule - TBD
Attachment H: Deliverable Acceptance Procedures
25. CAPTIONS AND HEADINGS
25.1 The captions and headings herein are for convenience only and in no way
shall be used in the interpretation or construction of this Agreement.
26. WAIVER OF COMPLIANCE
26.1 Any failure by any Party hereto to enforce at any time any term or
condition of this Agreement shall not be considered a waiver of that Party's
right to later enforce each and every term and condition hereof.
27. ASSIGNMENT; BINDING EFFECT
27.1 This Agreement may not be assigned by either Party hereto without the
prior written consent of the other Party which consent shall not be unreasonably
withheld. This Agreement shall be binding upon and inure to the benefit of each
of the Parties and its respective successors and permitted assigns.
28. DELAYS
28.1 Any loss, damage, or delay in, or failure of, performance by CONSULTANT
shall not constitute a default hereunder be a ground for termination of this
Agreement, or give rise to any claims for damage against CONSULTANT if such
loss, damage, delay, or failure is attributable
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in whole or in part to any cause beyond the control of CONSULTANT. These causes
include, but are not limited to, acts or omissions of CLIENT causing delay, acts
of God or the public enemy, compliance with any order, decree, or request of any
governmental authority, fires, floods, explosions, accidents, riots, strikes,
labor difficulties, or other concerted acts of workmen, or any other cause not
within the reasonable control of CONSULTANT. In the event of the occurrence of
any such delay, the time for the performance by CONSULTANT of its services shall
be extended for a period of time equivalent to the time attributable to such
delay.
29. SEVERABILITY
29.1 If any provision of this Agreement or the application thereof to any
party or circumstance shall be declared invalid, illegal, or unenforceable, the
remainder of this Agreement shall be valid and enforceable to the extent
permitted by applicable law. In such event, the parties shall use their best
efforts to replace the invalid or unenforceable provision with a provision that,
to the extent permitted by applicable law, achieves the purposes intended under
the invalid or unenforceable provision.
30. INSURANCE
During the term of this Agreement, CONSULTANT shall provide and maintain
at its own expense the following kinds of insurance with limits of liability as
set forth below:
<TABLE>
<CAPTION>
Insurance Limits of Liability
--------- -------------------
<S> <C>
Workman's Compensation Statutory
Commercial General Liability $2,000,000
Automobile Liability $1,000,000
Excess Liability $10,000,000
</TABLE>
30.2 CONSULTANT agrees to provide CLIENT during the term of the Agreement with
a certificate of insurance evidencing the coverages required above naming CLIENT
as an additional insured under each such policy, with waiver of subrogation and
stating the policy numbers and inception and expiration dates of all policies.
This certificate of insurance shall also provide for 10 days prior notice to the
CLIENT in the event of cancellation of the policy. Said certificate shall be
furnished to CLIENT prior to the commencement of any work under this Agreement.
31. INDEPENDENT CONTRACTOR STATUS
31.1 The parties to this Agreement are independent contractors, and none of
the provisions of this Agreement shall be interpreted or deemed to create any
relationship between such parties other than that of independent contractors.
Nothing contained in this Agreement shall be
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construed to create a relationship of employer and employees, master and
servant, principal and agent, or coventurers between CLIENT and CONSULTANT,
between CLIENT and any employee of CONSULTANT, or between CONSULTANT and any
employee of CLIENT. CLIENT shall have no right to control or direct the details,
manner, or means by which CONSULTANT performs the services hereunder, provided
that such services shall be performed to CLIENT's reasonable satisfaction. In
performing such services, CONSULTANT shall have no control over or management
authority with respect to CLIENT or its operations.
32. DISPUTE RESOLUTION ARBITRATION
32.1 Any and all disputes arising out of or in connection with the execution,
interpretation, performance, or nonperformance of this Agreement or any other
certificate, agreement, or other instrument between, involving, or affecting the
parties (including the validity, scope, and enforceability of this arbitration
agreement) shall be solely and finally settled by a single arbitrator in
accordance with the Commercial Rules of the American Arbitration Association
(the "Rules"); provided, however, that in the event of conflict between the
Rules and the terms of this Agreement, the terms of this Agreement shall govern.
The place of arbitration shall be Stamford, Connecticut, and the law applicable
to the arbitration procedure shall be the Federal Arbitration Act (9 USC P 2).
To commence arbitration of any such dispute, the party desiring arbitration
shall notify the other party in writing in accordance with the Rules. In the
event that the parties fail to agree on the selection of an arbitrator within
fifteen (15) days after the delivery of such notice, the arbitrator shall be
selected by the American Arbitration Association upon the request of either
party.
32.2 The Parties agree that the award of the arbitrator shall (1) be the sole
and exclusive remedy between them regarding any claims, counterclaims, or issues
presented to the arbitrator; (2) be final and subject to no judicial review; and
(3) be made and shall promptly be payable in U.S. dollars free of any tax,
deduction, or offset. The Parties further agree that any costs, fees, or taxes
incident to enforcing the award shall, to the maximum extent permitted by law,
be charged against the Party resisting such enforcement. The Parties hereto
agree that judgment on the arbitration award may be entered and enforced in any
court having jurisdiction over the Parties or their assets.
33.3 Each Party shall, except as otherwise provided herein, be responsible for
its own expenses, including legal fees, incurred in the course of any
arbitration proceedings. The fees of the arbitrator shall be divided evenly
between the Parties.
33.4 CONSULTANT shall carry on and be paid for the services not in dispute and
maintain the schedule for services during any arbitration or litigation
proceedings, unless otherwise agreed by CONSULTANT or CLIENT in writing.
Proprietary and Confidential Convergent Group/FGM1074F
-14-
<PAGE> 15
Citizens Utilities Company
Convergent Group Corporation Professional Services Agreement
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement effective the 15
day of September, 1997.
CITIZENS UTILITIES COMPANY CONVERGENT GROUP CORPORATION
By: /s/ J. MICHAEL LOVE By: /s/ GLENN E. MONTGOMERY
------------------------------------- ---------------------------
Name: J. Michael Love Name: Glenn E. Montgomery
-----------------------------------
Title: VICE PRESIDENT PUBLIC SERVICES Title: Chairman & CEO
----------------------------------
Proprietary and Confidential Convergent Group/FGM1074F
-15-
<PAGE> 16
EXHIBIT 10.19
ATTACHMENT A - SCOPE OF WORK
Convergent Group (CONSULTANT) has prepared this scope of work for the
implementation of the DESIGN Geographic Information System (GIS) Project for the
Gas Business Unit (GBS) of the Energy Sector of Citizens Utilities Company
(CUC), hereafter referred to as CLIENT.
While it is envisioned that the deliverables referred to in this scope of work
will ultimately be rolled out to all Energy Sector service territories, this
scope of work discusses only those tasks that will be used to manage the
development and implementation of the GIS for the CLIENT service territory as
defined in the Data Conversion Plan issued in July 1997. The service territory
as defined in that document does not include gas properties in Colorado, Mojave,
Santa Cruz, or Hawaii. The addition of these or other service territories will
be done via the change order procedure defined in Attachment E - Change Order
Procedure.
The assumptions made in developing this scope of work are listed in Attachment D
- - Project Assumptions.
CONSULTANT activities are addressed in the following scope of work consisting of
nine major tasks.
PROPOSED WORK TASKS
- --------------------- ----------------------- ----------------------
1 2 3
Project Management Employee Communications Hardware Procurement
- --------------------- ----------------------- ----------------------
- --------------------- ----------------------- ----------------------
4 5 6
Third-Party Systems Engineering Data Modeling
Software Procurement
- --------------------- ----------------------- ----------------------
- --------------------- ----------------------- ----------------------
7 8 9
Data Conversion Applications and Training
Interfaces Development
- --------------------- ----------------------- ----------------------
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-1
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 17
ATTACHMENT A - SCOPE OF WORK
TASK 1: PROJECT MANAGEMENT
- --------------------------------------------------------------------------------
CONSULTANT will perform the roles of CLIENT's Representative, General Project
Manager, and Integration Consultant on this project.
CONSULTANT will finalize the detailed project implementation work plan and
schedule with the appropriate subcontractors and the CLIENT Project Manager.
CONSULTANT will take the lead in establishing individual start-up assignments,
participation requirements, and project control/review/approval procedures. In
coordination with the CLIENT Project Manager, CONSULTANT will maintain the
project implementation work plan and schedule on a monthly basis to reflect
accomplishments and changes.
CONSULTANT will provide ongoing project management and coordination, including
coordinating and managing vendors and subcontractors, supporting day-to-day
client activities, scheduling project meetings with the CLIENT Project Team or
vendors and subcontractors, providing status reports, and performing other
project management/support activities. CONSULTANT will share project plan and
schedule updates with the CLIENT Project Team on a regular basis to support
CLIENT's internal project management efforts.
CONSULTANT will provide one full-time, onsite person to assist in project
coordination, Third-Party and Custom Software installation, training, and
acceptance. An extra consultant to commence work in Harvey from January 1998 and
an extra consultant for onsite coordination in Flagstaff from April 1998 are
recommended. An allowance for these two resources is included in Attachment C -
Billing Terms for Estimated Work under "Onsite Consultants."
To facilitate communication and exchange of information between CLIENT and
CONSULTANT, CONSULTANT will specify and CLIENT will establish a data
communications link between Harvey, Louisiana, and Englewood, Colorado.
DELIVERABLE PRODUCTS FOR TASK 1
o Monthly status reports on activities and deliverables
o Monthly project schedule updates
o Quarterly executive briefings
o Ongoing project management
o Ongoing vendor and subcontractor management
o Requirements for Englewood to Harvey communications link
- --------------------------------------------------------------------------------
A-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 18
ATTACHMENT A - SCOPE OF WORK
TASK 2: EMPLOYEE COMMUNICATIONS
- --------------------------------------------------------------------------------
CONSULTANT's experience with large systems integration projects has shown that
user community involvement early in the process is key to employee acceptance
and to the ultimate success of the project. CONSULTANT's communications
professionals will assist CLIENT in refining and managing the Employee
Communications Program. This program, which seeks to inform and educate future
GIS users and any personnel who may be impacted by the GIS implementation, will
help ensure acceptance of the technology by CLIENT staff.
CONSULTANT will advise the CLIENT Communications Team on program implementation.
The CLIENT Communications Team will perform all internal activities associated
with the program implementation. CONSULTANT will conduct monthly or quarterly
teleconference meetings with the CLIENT Communications Team to discuss ongoing
program strategy. CONSULTANT will provide action item reports from these
meetings and quarterly status reports of the Employee Communications Program.
DELIVERABLE PRODUCTS FOR TASK 2
o Revised Employee Communications Plan
o Employee Communications Program implementation management assistance
and consulting
o Project kickoff meeting
o Monthly or quarterly meetings
TASK 3: HARDWARE PROCUREMENT
- --------------------------------------------------------------------------------
CONSULTANT will define the requirements and specifications for all hardware
needed for each phase of development and rollout, negotiate and execute all
hardware purchase orders, and deliver hardware to a location nominated by the
CLIENT.
CLIENT will also be responsible for installing, configuring, and commissioning
hardware, Third-Party and Custom Software, and network communications.
CONSULTANT will work closely with CLIENT to comply with the existing CLIENT
hardware infrastructure and standards.
CLIENT will be responsible for reviewing and executing any license agreements
for Third-Party Software to be delivered by CONSULTANT with the hardware (for
example, operating system, system utilities, etc.).
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-3
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 19
ATTACHMENT A - SCOPE OF WORK
Hardware maintenance of items purchased under this contract is included. It has
been established at 10 percent of the original purchase price.
Hardware pricing is based upon hardware and associated operating system software
as listed in Table A-1. The actual hardware rollout may vary.
TABLE A-1: HARDWARE SCHEDULE
<TABLE>
<CAPTION>
TOTAL 1997 1998 1999 2000
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
GIS Server 4 2 2 -- --
Oracle Server 4 2 2 -- --
Cache Server 11 -- 6 3 2
Plot Server 8 -- 6 1 1
Workstation 39 7 24 6 2
Workstation Upgrade 28 2 21 3 2
Laptop 58 -- 10 39 9
Laser Printer 25 1 17 5 2
Plotter 11 1 7 2 1
Scanner 10 -- 7 2 1
</TABLE>
DELIVERABLE PRODUCTS FOR TASK 3
o Hardware specifications for each phase of system deployment
o Vendor contract negotiations and management
o Operating system agreements
o Hardware and operating system maintenance and associated agreements
- --------------------------------------------------------------------------------
A-4 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 20
ATTACHMENT A - SCOPE OF WORK
TASK 4: THIRD-PARTY SOFTWARE PROCUREMENT
- --------------------------------------------------------------------------------
CONSULTANT will define the requirements and specifications for all third-party
software (i.e., GIS, operating system, relational database management system,
and document imaging software to support the viewing of main, service, and valve
cards) necessary for each phase of development and rollout, negotiate all
Third-Party Software vendor purchase orders, and deliver Third-Party Software to
a nominated site. Third-Party Software pricing is based upon Third-Party
Software and associated operating system software as listed in Table A-2. The
actual Third-Party Software rollout may vary from that listed in Table A-2.
CLIENT will install and accept Third-Party Software at the Harvey development
site. CLIENT will be responsible for deployment of Third-Party Software to end
users.
CONSULTANT will provide a credit for unused GDS licenses (Attachment B - Fixed
Price Payments). This will be the discounted price of one Smallworld developer
license and one Smallworld GIS license, and the first year of maintenance for
both licenses.
CONSULTANT will work closely with CLIENT to comply with the existing CLIENT
software infrastructure and standards.
CONSULTANT will optimize the use of existing Third-Party Software and vendor
purchase agreements and establish an effective parallel Third-Party Software
configuration at CONSULTANT headquarters for efficient system development and
troubleshooting.
CONSULTANT will rely on CLIENT resources for all activities involving changes to
the CLIENT Customer Information System (CIS) on the mainframe.
CLIENT will be responsible for reviewing and executing all license agreements
for the Third-Party Software to be delivered by CONSULTANT.
CLIENT will be responsible for installing all Third-Party Software at the CLIENT
sites.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-5
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 21
ATTACHMENT A - SCOPE OF WORK
TABLE A-2: SMALLWORLD SOFTWARE SCHEDULE
<TABLE>
<CAPTION>
TOTAL 1997 1998 1999 2000
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Smallworld - Developer 2 1 1 -- --
Smallworld - Administrator 2 2 -- -- --
Smallworld - GIS User 65 7 29 22 7
Smallworld - Query/Report 55 2 26 20 7
Smallworld - View 0 -- -- -- --
Smallworld - Web 0 -- -- -- --
</TABLE>
DELIVERABLE PRODUCTS FOR TASK 4
o Third-Party Software specifications for each phase of system deployment
o Vendor contract negotiations and management
o Third-Party Software maintenance and associated agreements
TASK 5: SYSTEMS ENGINEERING
- --------------------------------------------------------------------------------
CONSULTANT will work with CLIENT on overall system engineering, addressing both
functional requirements and system architectural issues. Much of this work has
been performed in the pilot and previous change orders. This task reflects the
level of effort to complete and maintain these activities.
FUNCTIONAL REQUIREMENTS
System-level functional requirements will be developed for work managed and
delivered by CONSULTANT to facilitate design, implementation, testing, and
change management processes. CONSULTANT will advise CLIENT on related work
managed by CLIENT. These requirements will be of a high-level nature and will be
subsequently used to prioritize and estimate the applications and interfaces.
Further detailed requirements for each application or interface will be
developed as part of the development release process.
SYSTEM ARCHITECTURE
As part of the system architecture design, CONSULTANT will define the design and
architecture of the proposed hardware and Third-Party Software technologies.
Tasks will include the following:
o Refine current business process/integrated system model
o Resolve process model issues identified during the system integration
implementation planning workshop
- --------------------------------------------------------------------------------
A-6 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 22
ATTACHMENT A - SCOPE OF WORK
o Define data distribution requirements
o Define security requirements
o Refine system architecture
o Develop the data communications plan, including:
- Local communications requirements
- Remote access requirements
- Outside access requirements
- Infrastructure plan
o Finalize configuration design document
o Define documentation requirements/timing
As part of developing a map of the system architecture illustrating the physical
connectivity between components, CONSULTANT will identify hardware/software
components, develop a computer system network diagram, and develop an
architecture diagram(s) illustrating functionality.
SYSTEM INTEGRATION MANAGEMENT
This task includes all activities associated with development systems
administration, software configuration management, quality assurance and release
procedures, in addition to maintaining an Englewood system and advising CLIENT
on the Harvey development system.
DELIVERABLE PRODUCTS FOR TASK 5
o Systems architecture document
o Functional requirements document
o Initial development environment installation and configuration
o Software configuration management, quality assurance, and release
procedures
TASK 6: DATA MODELING
- --------------------------------------------------------------------------------
This task will consist of all activities required to implement a production data
model to support the CLIENT DESIGN GIS applications developed as part of this
project. These activities will consist of updating the DESIGN GIS data model
created in the pilot project to incorporate necessary changes. These data model
changes include further refinement of the conceptual/logical model to reflect
new application requirements, implementation of the physical data model to
optimize performance, data distribution, and data maintenance requirements.
Many of the activities discussed above will be performed in an iterative fashion
to account for the phased implementation of the
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-7
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 23
ATTACHMENT A - SCOPE OF WORK
system. Therefore, CONSULTANT will provide updates to the logical design, the
physical design, the database distribution architecture, and the management
procedures for the production database, as required, for each phase of
implementation.
DELIVERABLE PRODUCTS FOR TASK 6
o Logical database model update for each phase of implementation
o Physical database model update for each phase of implementation
o Database schema update for each phase of implementation
o Production database maintenance procedures and update for each phase of
implementation
TASK 7: DATA CONVERSION
- --------------------------------------------------------------------------------
CONSULTANT will construct the DESIGN GIS database by managing and coordinating
all data conversion activities. These activities will involve defining and
specifying data requirements, identifying qualified vendors and subcontractors,
negotiating and executing contracts, verifying the quality of data received from
conversion contractors, and delivering and installing data at the Harvey
development site.
The GIS database may consist of several components: satellite imagery, street
centerline and other planimetric data (for example, rivers, railroads, etc.),
premises (e.g., addresses), and facilities (for example, pipes, valves, etc.).
Each of these components may be provided by a separate vendor or subcontractor.
CONSULTANT will manage the specifications, development, and delivery of these
components. CONSULTANT will conduct tests on the database to ensure that the
data meets mutually agreed-upon acceptance criteria to be developed prior to the
initiation of actual data conversion.
In addition to actual data conversion, CONSULTANT will also develop procedures
and processes for use by CLIENT District Offices in preparation of facilities
conversion. These procedures and processes will specify those activities that
can be performed by CLIENT staff in the District Offices in advance of data
conversion to enhance the accuracy and completeness of the paper records.
The current database creation plan is based on the following content:
o One meter resolution orthophotography or satellite imagery for high-growth
areas identified by CLIENT on the service territory maps supplied to
CONSULTANT in November 1996.
- --------------------------------------------------------------------------------
A-8 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR, GAS
BUSINESS UNIT
Proprietary and Confidential
<PAGE> 24
ATTACHMENT A - SCOPE OF WORK
o Address listings from a commercial vendor, such as Database America,
Donnely, or Dun & Bradstreet.
o Customer address listings provided by CLIENT.
o Reconciled addresses obtained by comparing CLIENT CIS addresses with
commercial vendor addresses. The CLIENT Project Team will resolve any
discrepancies, and CONSULTANT will make the appropriate corrections.
o Street centerline and address range data from a commercial vendor, such
as GDT or ETAK.
o Identification and resolution of discrepancies between the street data
and the other data sources processed to date. The CLIENT Project Team
will resolve any discrepancies, and CONSULTANT will make the
appropriate corrections.
o Expanded street centerlines to represent nominal rights-of-way based on
right-of-way width information provided by CLIENT.
o Geocoded addresses placed along the street centerlines. Those addresses
corresponding to CLIENT customers will be flagged.
o Converted gas facilities based on the conversion source documents
prepared by the CLIENT Project Team.
o CLIENT customers (flagged addresses) linked to gas facilities using the
rules specified in the Data Conversion Plan dated July 1997.
DELIVERABLE PRODUCTS FOR TASK 7
o Scrub and control procedures update for each District
o Data conversion acceptance testing procedures for each District
o Conversion specifications update for each phase of implementation
o Contracts negotiation and administration with data conversion
subcontractors and data vendors
o Data acceptance testing
o Orthophotographs or satellite images for high-growth areas, as
specified
o Street network landbase for up to 2,715 square miles
o Facilities conversion for up to 342,000 customers
o Delivery and installation of tested GIS database
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-9
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 25
ATTACHMENT A - SCOPE OF WORK
TASK 8: APPLICATIONS AND INTERFACES DEVELOPMENT
- --------------------------------------------------------------------------------
This task will take CLIENT-requested applications and interfaces development to
a production state. Based on the feedback provided by users from their
experience with the functionality provided by the DESIGN GIS, and based on the
definition of new applications and interfaces, in the pilot, CLIENT and
CONSULTANT will work together to define production applications. CONSULTANT will
develop the releases associated with refining, enhancing, and preparing previous
pilot applications and new applications for production.
The work plans and schedules include effort to convert GDS-based pilot
applications to a Smallworld environment. CONSULTANT will provide a one-time
credit off its fixed fees (Attachment B - Fixed Price Payments), which comprises
the estimate of the work already performed on the pilot application. All future
costs for this application migration effort will be paid by the CLIENT.
CONSULTANT and CLIENT will partner in the development and maintenance of DESIGN
applications and interface design, testing, and deployment. CONSULTANT will work
with CLIENT technical personnel who have received core GIS, Oracle Relational
Database Management System (RDBMS), and other Third-Party Software training to
provide skills transfer that will allow CLIENT personnel to take ownership, to
develop mutually agreed upon applications, and to provide maintenance of DESIGN
applications and interfaces. CLIENT will dedicate appropriate technical
resources for specified training, applications and interface development, and
skills transfer activities.
CONSULTANT will provide applications and interfaces maintenance support during
the life of this contract. The maintenance effort for each application will be
defined in the development release process.
To support the development of applications and interfaces, CONSULTANT will
establish a development facility in its offices in Englewood, Colorado. This
facility will use CLIENT hardware and Third-Party Software to ensure that the
applications operate with the hardware and Third-Party Software environment
deployed for CLIENT. All hardware and Third-Party Software purchased for this
project and used in the CONSULTANT development facility will be delivered to
CLIENT as the project concludes. At CLIENT's option, a portion of the hardware
and Third-Party Software can
- --------------------------------------------------------------------------------
A-10 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 26
ATTACHMENT A - SCOPE OF WORK
remain in CONSULTANT's offices to be used in supporting CLIENT beyond the
project implementation period.
Some of the interfaces to be developed by CONSULTANT can only be simulated in
Englewood, Colorado. Therefore, any development that requires access to CLIENT
systems may be performed at CLIENT's office by CONSULTANT or by CLIENT staff, if
appropriate.
In addition, CLIENT will establish a mirror testing and staging facility at its
own offices to perform integration testing, acceptance testing, and maintenance
support. This will ensure that testing does not disrupt the end users of the
system.
DEVELOPMENT RELEASES
The process by which CONSULTANT and CLIENT will prioritize and define the
functionality to be delivered in each phase will be through the use of
development releases. Development releases are small-scale scopes of work for
applications or modules within applications. Development releases also allow
greater development flexibility in prioritizing application development by
incorporating user feedback and modifications during the development process
prior to spending a substantial amount of development dollars on low priority
functionality. Based on CONSULTANT experience, the development pool of dollars
estimated to be adequate to fund all required development activities will be
established and drawn upon by CLIENT for applications development and
integration. This allows CLIENT to evaluate all incremental development from a
cost-benefit standpoint.
DEVELOPMENT PROCESS
All development, whether it is a configuration of the base Third-Party Software,
customization, application development, or integration, will be performed and
managed by CONSULTANT and will follow the process described below:
1. CONSULTANT will work with CLIENT to document detailed functional
requirements. CONSULTANT will draft a development release specifying
the scope, design, and fixed fee for development to be delivered. The
development release will include Custom Software development and
testing, acceptance criteria, training requirements, and maintenance
allowance.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-11
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 27
ATTACHMENT A - SCOPE OF WORK
2. CLIENT will authorize development to proceed.
3. CONSULTANT will continue development.
4. CLIENT will review preliminary design and/or prototype development with
CONSULTANT.
5. Application code development will continue based on CLIENT's review.
6. CONSULTANT will perform code testing (unit testing) and system-level
testing prior to delivery.
7. Application will be delivered to CLIENT for testing and acceptance.
Because of the importance of this task, CONSULTANT will rely heavily on the
CLIENT Project Team to ensure that the applications and interfaces under
development address CLIENT business issues. To do so, CONSULTANT will involve
the CLIENT Project Team in all phases of the development process.
CONSULTANT will use the development facility at Englewood, Colorado, to install
all vendor-and CONSULTANT-developed Custom Software for applications, to
develop DESIGN applications, and to perform unit and integration testing.
CONSULTANT staff will test all application modules to ensure compliance with the
development release specifications and test plans. This testing will be
completed prior to installation at CLIENT facilities where final integration and
user acceptance testing will be conducted by CLIENT.
CONSULTANT will provide CLIENT with training for applications and interfaces
developed as part of this task. Specifically, CONSULTANT will provide selected
members of the CLIENT Project Team with the necessary training to operate the
applications and interfaces for testing and acceptance and for developing
training materials that will be used by CLIENT to deliver applications- and
interfaces-specific training to end users. CLIENT will be responsible for
training end users, as well as for preparing and producing end-user training
materials.
As each development release is accepted maintenance will commence. All
application and interface maintenance will then continue through the completion
of this contract. During the contract period of performance application and
interface maintenance periods for all accepted applications and interfaces will
be adjusted semi-annually during the life of this contract so as to be
completely synchronized upon contract completion The level of maintenance and
support for applications and interfaces is
- --------------------------------------------------------------------------------
A-12 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 28
ATTACHMENT A - SCOPE OF WORK
based on current projections for CLIENT Information Systems staff anticipated to
be assigned to this project and has been estimated at 15 percent annually of the
original development cost.
Refer to Attachment C - Billing Terms for Estimated Work, Table C-1, for an
estimate of applications and interfaces rollout and costs.
DELIVERABLE PRODUCTS FOR TASK 8
o Development releases for applications and interfaces
o Acceptance criteria and test scripts
o Core product configurations
o Applications and interfaces development
o Assistance with development of training materials
o Maintenance of developed applications and interfaces during contract
period
TASK 9: TRAINING
- --------------------------------------------------------------------------------
CONSULTANT will assist CLIENT in the development of CLIENT internal expertise
needed to support the end users of the DESIGN GIS. CONSULTANT will develop a
"train-the-trainer" program that will cover various aspects of operating,
customizing, and maintaining the system. To the extent possible, this training
will be provided by CONSULTANT staff to ensure that all instruction is given
within the context of the CLIENT business processes, as well as to ensure
continuity with other project activities. It will also include off-the-shelf
training for third-party software products.
For each phase of implementation, CONSULTANT will prepare a training plan and
schedule (Table A-3), identifying the specific courses, the trainees, the course
dates, and their locations.
CONSULTANT will assist the CLIENT Project Team in the preparation of end-user
training materials by incorporating as many of CLIENT's day-to-day business
processes within the "scripts" to be developed for testing applications. It is
assumed that actual development of training materials for use by CLIENT end
users will be the responsibility of the CLIENT staff fulfilling the duties of
the trainer position identified in the DESIGN GIS Pilot Evaluation Report dated
November 1996.
This task does not include applications-specific instruction. That type of
training will be provided as part of the delivery process outlined in Task 8.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, CONVERGENT GROUP A-13
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 29
ATTACHMENT A - SCOPE OF WORK
DELIVERABLE PRODUCTS FOR TASK 9
Training plans and schedules
TABLE A-3: THIRD-PARTY SOFTWARE TRAINING SCHEDULE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
IMPLEMENTATION PHASE
COURSE DAYS LOCATION 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GIS USER TRAINING
GIS Overview 1 On-Site 0 2 3
Introductory GIS Use 2 On-Site 12 3 6
Advanced GIS Use 5 Off-Site 1 1 3
Introductory DBMS Use 5 Off-Site 1 1 3
Advanced DBMS Use 5 Off-Site 4 0 1
PROGRAMMING OF THE SYSTEM
Introductory GIS Programming 5 Off-Site 2 0 1
Advanced GIS Programming 5 Off-Site 2 1 2
GIS DATABASE DESIGN
DBMS Forms, Reports, and 5 Off-Site 2 1 3
Advanced DBMS Programming 5 Off-Site 4 1 1
MANAGEMENT OF THE SYSTEM
Operating System 5 Off-Site 3 3 6
System Operation 5 Off-Site 2 2 3
System Management 5 Off-Site 3 2 3
Database Management 5 Off-Site 2 0 0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
A-14 CONVERGENT GROUP CITIZENS UTILITIES COMPANY,
ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 30
ATTACHMENT B - FIXED PRICE PAYMENTS
The total fixed fee for this project, as defined in Attachment A -
Scope of Work, is $7,900,000, which is comprised of $2,900,000 for services and
$5,000,000 for land and facility data conversion.
SERVICES
CONSULTANT will provide the services defined in Attachment A -
Scope of Work, that consist of the following:
o Task 1 - Project Management
o Task 2 - Employee Communications
o Task 5 - Systems Engineering
o Task 6 - Data Modeling
The total fixed fee for services is $2,900,000. The following sums will be
subtracted from the total fixed fee for services:
<TABLE>
<S> <C>
1. Credit for GDS licenses $ 38,700
2. Unused pilot funds allocated to hardware $ 43,640
and training
3. Pilot applications costs $470,921
TOTAL $553,261
</TABLE>
The remaining $2,346,739 for this new scope of work will be invoiced monthly to
CLIENT according to Table B-1, Fixed Services Fee Schedule of Payments.
TABLE B-1: FIXED SERVICES FEE SCHEDULE OF PAYMENTS
<TABLE>
<CAPTION>
1997 1998 1999 2000
==== ==== ==== ====
<S> <C> <C> <C> <C>
January $75,000 $75,000 $50,000
February $75,000 $75,000 $25,000
March $75,000 $50,000 $25,000
April $75,000 $50,000 $25,000
May $75,000 $50,000 $25,000
June $75,000 $50,000 $21,739
July $75,000 $50,000
August $125,000 $75,000 $50,000
September $125,000 $75,000 $50,000
October $125,000 $75,000 $50,000
November $125,000 $75,000 $50,000
December $125,000 $75,000 $50,000
======== ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP B-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 31
ATTACHMENT B - FIXED PRICE PAYMENTS
DATA CONVERSION
Data conversion consists of the following task as described in Attachment A -
Scope of Work:
o Task 7 - Data Conversion
The total fixed fee for data conversion is $5,000,000 and will be billed 80
percent when the data is delivered to CONSULTANT and 20 percent upon acceptance
by CLIENT in accordance with mutually agreed upon QA/QC acceptance criteria.
Payments to subcontractors are based upon timely acceptance of data. Since
CONSULTANT will be providing QA/QC services, CLIENT must accept or reject data
within 15 working days. Otherwise, a delivery will be deemed to be accepted.
Table B-2 depicts the anticipated invoice time frame for CLIENT budget planning
purposes. A start-up fee of $500,000 for land and facility record team
mobilization is required to mobilize CONSULTANT and conversion vendor resources
prior to production data processing. Actual billing after mobilization will be
based on the percent of data delivered, i.e., measured by number of transformers
and/or customers or portion of landbase area.
TABLE B-2: ANTICIPATED DATA CONVERSION CHARGES
<TABLE>
<CAPTION>
1997 1998 1999 2000
==== ==== ==== ====
<S> <C> <C> <C> <C>
January $100,000 $150,000 $150,000
February $100,000 $150,000 $150,000
March $100,000 $150,000 $150,000
April $150,000 $150,000 $100,000
May $150,000 $150,000 $100,000
June $150,000 $150,000 $100,000
July $200,000 $150,000
August $200,000 $150,000
September $500,000(A) $200,000 $150,000
October $200,000 $150,000
November $200,000 $150,000
December $200,000 $150,000
=========== ======== ======== =========
</TABLE>
A: Subcontractor Mobilization Fee
- --------------------------------------------------------------------------------
B-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 32
ATTACHMENT C - BILLING TERMS FOR ESTIMATED WORK
The total of the estimated payments for this project defined in Attachment A -
Scope of Work, is $10,460,000, as described below. All payments included in this
Attachment are in addition to the fees outlined in Attachment B - Fixed Price
Payments.
Any of these estimated dollars remaining at the end of the project will be left
unspent and kept by CLIENT. If the cumulative value of the estimated dollars
exceeds the estimate, a change order will be required for the additional amount.
EXPENSES
CONSULTANT expenses associated with the support of the activities within this
project will be invoiced monthly at cost plus a 3.5 percent administrative fee
as incurred. These expenses include, but are not limited to, airfare, lodging,
car rental, food, parking, copies, postage, faxes, and long-distance telephone
charges. Expenses will be invoiced monthly. Estimated total project expenses are
$360,000.
HARDWARE
CONSULTANT will specify hardware and related operating system software for each
phase of the project. CLIENT will approve consultant's purchases prior to order
placement.
CLIENT will purchase hardware and peripherals for this project from CONSULTANT.
The hardware equipment is estimated to cost $1,800,000.
THIRD-PARTY SOFTWARE
CLIENT will purchase Third-Party GIS and related Third-Party Software, training,
and maintenance from consultant.
CONSULTANT will require CLIENT to approve and execute Third-Party License
Agreements and a Consultant Maintenance Agreement prior to CONSULTANT's
procurement.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP C-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 33
ATTACHMENT C - BILLING TERMS FOR ESTIMATED WORK
SMALLWORLD LICENSES
Smallworld software pricing is based upon Smallworld software listed in Table
A-2, charged at a 25 percent discount off list price, for a total price of
$1,100,000. CLIENT will purchase Smallworld licenses as a single group in
September 1997 (payable October 1997).
During the term of this contract, if CLIENT requires a different mix of
licenses, any license can be exchanged for the then current relative incremental
cost less the discount of 25 percent.
OTHER THIRD-PARTY SOFTWARE
There is an allowance of $750,000 for all other Third-Party Software.
OTHER THIRD-PARTY SOFTWARE MAINTENANCE
Third-Party Software maintenance of items purchased under this contract is
included in the $750,000 estimate. It has been estimated at 15 percent of the
original purchase price per year.
During the contract period of performance maintenance for the Development
Release will be adjusted and payable semi-annually during the life of the
contract so as to be synchronized at the end of the contract term.
SMALLWORLD MAINTENANCE
Smallworld product maintenance is priced at an annual rate of 15 percent of
current list price, payable in yearly advance upon delivery in accordance with
licensing agreements. Three years' annual maintenance is estimated to be
$450,000. Actual Smallworld maintenance fees will become payable at the time of
key file and/or software delivery.
APPLICATION AND INTERFACES DEVELOPMENT
Applications and interfaces development services provided by CONSULTANT will be
invoiced according to the following payment schedule for each development
release, as documented in the following task in Attachment A - Scope of Work:
o Task 8 - Applications and Interfaces Development
- --------------------------------------------------------------------------------
C-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 34
ATTACHMENT C - BILLING TERMS FOR ESTIMATED WORK
The payment schedule for each development release will be as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL DEVELOPMENT POINT DURING DEVELOPMENT THAT
RELEASE VALUE INVOICED AMOUNT WILL BE INVOICED
- --------------------------------------------------------------------------------
<S> <C>
25% Written authorization by CLIENT provided
25% Prototype and/or design review workshop
25% Development delivered for CLIENT testing
25% Written development acceptance by CLIENT
- --------------------------------------------------------------------------------
</TABLE>
As development releases are authorized and fixed price fees are established for
each individual release, these amounts will be deducted from the remaining
application and systems integration development pool of dollars. The amount of
the total pool of dollars is estimated at $4,000,000, as detailed in Table C-1.
Taken individually, some of the development releases may exceed their estimated
cost, while other development releases may be combined and developed at a lower
cost. The total dollar allocations are projected to be adequate to cover the
applications and interfaces as currently envisioned by CONSULTANT and CLIENT.
CONSULTANT will provide, as part of its invoices, an update of the pool of
dollars allocated to development and the remaining unallocated dollars.
Custom applications and interfaces maintenance fees will be 15 percent of the
"accepted" cumulative development release fees. These custom applications and
interface maintenance fees are in addition to the Third-Party Software
Maintenance fees and will be adjusted and payable semi-annually during the life
of the contract so as to be synchronized at the end of the contract term.
CARD IMAGING CONVERSION
A Card Imaging Conversion Plan will be developed and will include a pilot
conversion activity. The plan will specify how this activity is to be invoiced.
CLIENT will agree and accept the plan before work will proceed. This work
associated with converting the mains, valve, and service cards is estimated to
be $1,000,000.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP C-3
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 35
ATTACHMENT C - BILLING TERMS FOR ESTIMATED WORK
TRAINING
Training in accordance with the plans outlined in Task 9 will be procured to
ensure effective technology transfer to CLIENT and invoiced as incurred.
Training is estimated at $100,000.
ONSITE CONSULTANTS
The provision of two onsite consultants to expedite rollout, training, and
support at Harvey and Flagstaff is estimated at $900,000. These consultants will
be provided on a mutually agreed upon schedule.
TABLE C-1: APPLICATIONS/INTERFACES DEVELOPMENT COST ESTIMATES
<TABLE>
<CAPTION>
APPLICATION 1997 1998 1999 TOTAL
- ----------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
ACCOUNTING INTERFACE
Plant Accounting (Installs, Removals) Report Generation -- 106,958 -- 106,958
Tax Accounting Report Generation -- 54,805 -- 54,805
ANALYSIS -- -- -- --
Engineering Alternative Analysis -- 26,920 -- 26,920
Integration with Network Analysis Package -- 40,186 -- 40,186
Main Repair/Replace Analysis -- 69,090 -- 69,090
Pipeline Monitoring Data Collection/Analysis/Mapping -- -- 110,474 110,474
System Expansion Engineering Analysis (Population Study) -- -- 16,564 16,564
System Improvement Engineering Analysis (Load Study) -- -- 16,564 16,564
CATHODIC APPLICATION -- -- -- --
Cathodic Protection Mapping 19,565 17,247 -- 36,812
CONVERSION TOOLS -- -- -- --
External Facilities Data Translation -- 157,693 -- 157,693
FIELD APPLICATIONS -- -- -- --
Control Valve Data Collection/Management 93,034 -- -- 93,034
Crossings Data Collection/Management 11,463 17,247 -- 28,710
Field Map Export and Annotation -- -- 30,668 30,668
Leak Complaint/Report/Repair/Recheck 28,710 34,545 -- 63,255
Leak Survey Data Collection/Management 6,015 24,498 -- 30,513
Leak Survey Data Mapping -- 47,760 -- 47,760
Odorization Data Collection/Management -- -- 51,791 51,791
Pipeline Status/Condition -- -- 30,668 30,668
Regulator Station Data Collection/Management -- -- 37,700 37,700
Regulator Station Inspection Report Generation -- -- 37,700 37,700
Site Sketching -- -- 110,474 110,474
Test Point/Crossing CP Data Collection -- -- 44,038 44,038
GIS CORE -- -- -- --
CIS Interface 77,604 108,387 -- 185,991
Gas Facilities Data Query 63,963 20,686 -- 84,649
Gas Facilities Mapping and Data Maintenance 23,725 -- -- 23,725
Generate Screen Print 8,797 -- -- 8,797
Landbase Mapping and Data Maintenance 36,026 92,764 -- 128,790
Locate Area of Interest 19,694 -- -- 19,694
MAINFRAME SYSTEMS -- -- -- --
Reengineer Mainframe Systems -- 151,858 139,094 290,952
</TABLE>
- --------------------------------------------------------------------------------
C-4 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 36
ATTACHMENT C - BILLING TERMS FOR ESTIMATED WORK
TABLE C-1: APPLICATIONS/INTERFACE DEVELOPMENT COST ESTIMATES (CONTINUED)
<TABLE>
<CAPTION>
APPLICATION 1997 1998 1999 TOTAL
---- ---- ---- -----
<S> <C> <C> <C> <C>
OFFICE TOOLS -- -- -- --
External Landbase Data Translation -- 108,258 -- 108,258
Map Export -- 9,493 -- 9,493
Marketing Non-Customer Data Access -- 30,938 -- 30,938
On-Line Map Review -- -- 108,258 108,258
Right-of-Way Mapping -- 71,717 -- 71,717
Standard Map Production 106,481 106,481 -- 212,962
OUTAGE -- -- -- --
Customer Notification Letter Generation 17,582 8,797 -- 26,379
Gas Loss Calculation/Reporting -- 8,797 -- 8,797
Outage Analysis 48,520 8,797 -- 57,317
Relight List Generation 21,278 8,797 -- 30,075
Revenue Loss Calculation/Reporting -- 8,797 -- 8,797
Service/Main Break Recording and Reporting -- -- 34,545 34,545
QUALITY ASSURANCE -- -- -- --
Quality Assurance/Quality Control -- 135,127 46,382 181,508
SAFETY AND COMPLIANCE -- -- -- --
DOT Reporting -- -- 95,765 95,765
WORK ORDER -- -- -- --
As-Built Data Gathering 12,301 27,796 11,463 51,560
As-Built Information Posting 11,940 19,694 11,463 43,097
Bill of Material Generation 24,047 8,424 11,463 43,935
Construction Print Generation 48,520 8,424 10,214 67,158
Facilities Availability Analysis -- 30,938 -- 30,938
Historical As-Built Drawing Review -- 61,877 -- 61,877
Job Estimating -- 27,796 11,463 39,259
Job Status Query and Display 7,393 108,258 -- 115,652
Work Closing -- 27,796 -- 27,796
Work Design 75,182 27,796 10,214 113,192
Job Review and Approval -- -- 110,474 110,474
Job Status Query and Display -- 17,247 -- 17,247
WMS Interface -- -- 103,081 103,081
Work Closing -- -- 11,463 11,463
Work Initiation -- 34,545 -- 34,545
WMS Interface -- -- 158,942 158,942
TOTAL FOR EACH YEAR 761,841 1,877,232 1,360,927
GRAND TOTAL 4,000,000
</TABLE>
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP C-5
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 37
ATTACHMENT D - PROJECT ASSUMPTIONS
CONSULTANT is committed to delivering the CLIENT DESIGN GIS Project, as
described in Attachment A - Scope of Work. The following assumptions form the
basis of Attachments A - Scope of Work, B - Fixed Price Payments, and C -
Billing Terms for Estimated Work.
1. CONSULTANT and CLIENT will work together to develop and maintain a detailed
scope of work and schedule that will be used to coordinate the resources of
both parties. The scope of work will be based upon the strategic
implementation plan that is part of the DESIGN GIS Pilot Evaluation Report
dated November 1996.
2. Contract U39, Change Order #2 will be deemed to be complete. Contract U39,
Change Order #4 will continue independently and is estimated to be completed
in December 1997. All other work associated with Contract U39 is closed and
accepted by CLIENT.
3. Price includes a maximum of two iterations for the expeditious completion of
deliverables. The CLIENT and CONSULTANT Project Managers shall mutually
agree on the time required to review each deliverable and the time for
deliverable acceptance in accordance with Attachment H - Deliverable
Acceptance Procedures. The review and acceptance time periods will vary
according to the specific task and deliverable(s). Iterations beyond the
maximum will require additional work effort, which will be handled under
Attachment E - Change Order Procedure.
4. CLIENT will provide the resources (as defined in Table E-10 in the DESIGN
GIS Pilot Evaluation Report dated November 1996) required to perform all
CLIENT source data preparation and conversion scrub activities. Such
resources will have appropriate skills and authority to complete the work
and resolve conflicts among source documents. Work assigned to CLIENT, as
shown in the detailed work plan developed for each phase of work, must be
completed on schedule and to specification. If such tasks are not completed
according to the schedule, the parties will mutually agree to a schedule
and/or scope adjustment.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT CONVERGENT GROUP D-1
Proprietary and Confidential
<PAGE> 38
ATTACHMENT D - PROJECT ASSUMPTIONS
5. CLIENT will assign sufficient personnel resources as required in the
detailed work plan developed for each phase of work. Such resources will
have appropriate skills and authority to complete the work. If such tasks
are not completed according to the schedule, the parties will mutually agree
to a schedule and/or scope adjustment.
6. The total project is estimated to take place over an approximate 36-month
period beginning on the contract date. In the event that CLIENT extends the
schedule due to business strategy changes, increases to scope, etc.,
applicable fixed price task items, such as project management, will be
addressed via change orders.
7. CLIENT will provide programming resources to perform necessary modifications
and maintenance to mainframe legacy systems that are to be interfaced with
the DESIGN GIS.
8. CONSULTANT assumes that a majority of the project work and project meetings
will be performed in Harvey, Louisiana. The design and build efforts
generally will be conducted at CONSULTANT offices in Englewood, Colorado.
Staging and detailed functional testing will be performed at CONSULTANT
offices in Englewood, Colorado. User testing assistance, rollout assistance,
and training will be performed in Harvey, Louisiana, or at mutually agreed
upon sites.
9. CLIENT will establish a telecommunications link between the Harvey,
Louisiana CLIENT office and the Englewood, Colorado CONSULTANT office to
maximize development and project communications efficiencies.
10. CLIENT will provide office space and facilities to CONSULTANT personnel
onsite at CLIENT offices to perform various aspects of the implementation.
11. Pricing is based upon work commencing on or about August 1, 1997, with
estimated project completion in 3 years. The quoted prices are valid for 60
days.
12. An additional price of $10 per customer will be charged in the event that
CLIENT adds customers, within its current CLIENT service territory, as
defined in Attachment A - Scope of Work, to the conversion project in excess
of those that are already part of this project. Prices to add other CLIENT
service areas (i.e., Colorado, Mojave, Santa Cruz, or Hawaii), or new areas
acquired through annexation or merger, will be based upon separate
CONSULTANT proposals.
- --------------------------------------------------------------------------------
D-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 39
ATTACHMENT D - PROJECT ASSUMPTIONS
13. The contract price does not include CLIENT internal team labor and expenses.
14. Task 2, Employee Communications, in Attachment A - Scope of Work, does not
include program tools that are above and beyond the standard presentation
materials. Additional tools and approximate budgets for each may include
training ($15,000 - $25,000), project video ($40,000 - $50,000), and
brochures and other collateral materials ($15,000 - $25,000). Acquisition of
these additional tools will be evaluated during the life of the
implementation. Implementation of any additional tools will be done via the
Change Order authorization process described in Attachment E - Change Order
Procedure.
15. Key CONSULTANT project resources, listed below, will not be replaced by
CONSULTANT during the life of the project without the mutual agreement of
both parties.
o Mr. Dean Zastava, CONSULTANT Project Director
o Mr. Greg Foster, CONSULTANT Project Manager
16. Key CLIENT project resources, listed below, will not be replaced during the
life of the project without mutual agreement of both parties.
o Mr. Karl Weber, CLIENT Project Manager
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP D-3
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 40
ATTACHMENT E - CHANGE ORDER PROCEDURE
FIXED PRICE ADDITIONAL SCOPES OF WORK
1.0 DRAFT ADDITIONAL SCOPES OF WORK. From time to time, during the term of
this Agreement, CLIENT may desire to make changes, modifications, or
enhancements ("Changes") to the provisions of this Agreement in
accordance with this Attachment. CLIENT will notify CONSULTANT of the
desired Changes in writing.
Within 15 business days, CONSULTANT will deliver to CLIENT a proposed
Change Order Response that contains the following:
(i) describes the Services to be provided by CONSULTANT and any
Services to be performed or Items to be provided by CLIENT
(including any Systems of third parties that are required to
operate Systems or Software developed or provided by the
CONSULTANT in connection with the Project).
a. specifies the Work location(s) where the Project will be
performed.
b. sets forth the credentials and skills required by
employees of the CONSULTANT who will perform the Services
associated with the Project.
c. sets forth the period of time during which the Services
under the Project will be provided.
d. describes the Systems and other Deliverables to be
provided.
e. specifies a Schedule showing the time frame for all
stages of the Project and, if required, how the Scope of
Work or any other Additional Scopes of Work are
integrated into the Schedule.
2.0 PRICE PROPOSAL. The CONSULTANT and CLIENT shall cooperate to reach
agreement in the 15 business days following the completion of the draft
Additional Scope of Work on the price to be paid to the CONSULTANT for
the performance of the Services described in the draft Additional Scope
of Work. The CONSULTANT shall be paid a Firm Fixed
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP E-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 41
ATTACHMENT E - CHANGE ORDER PROCEDURE
Price for performance of the Services consistent with the Payment
Schedule for the Services provided under the original Scope of Work,
except as otherwise expressly provided in the draft Price Proposal.
3.0 VALIDITY PERIOD. Each draft Additional Scope of Work and draft Price
Proposal shall be valid for a period of 30 days, or such longer period,
as may be mutually agreed to by the parties.
4.0 CHANGE ORDER RESPONSE. Within 15 days after the CONSULTANT delivers the
Change Order Response to the CLIENT, the CLIENT designated
representative must provide written approval to the Change Order
Response to authorize the implementation of the Change Order.
5.0 CONTINUED PERFORMANCE. The CONSULTANT will diligently proceed with the
performance of the Services already under contract, as directed by
CLIENT, notwithstanding the submittal of a Change Order Proposal in
accordance with Contract Section 11(a).
TIME AND MATERIAL SCOPES OF WORK
1.0 DRAFT ADDITIONAL SCOPES OF WORK. From time to time, during the term of
this Agreement, CLIENT may desire to add effort ("Changes") to the
provisions of this Agreement in accordance with the Time and Material
portions of this Agreement. CLIENT will notify CONSULTANT of the
desired Changes in writing.
2.0 PURCHASE ORDER OR CONTRACT. CLIENT will prepare a separate Purchase
Order or Contract that contains the following:
(i) describes the Services to be provided by CONSULTANT and any
Services to be performed or Items to be provided by CLIENT
(including any Systems of third parties that are required to
operate Systems or Software developed or provided by the
CONSULTANT in connection with the Project).
a. specifies the Work location(s) where the Project will be
performed.
b. sets forth the credentials and skills required by
employees of the CONSULTANT who will perform the Services
associated with the Project.
c. sets forth when the Services will commence.
- --------------------------------------------------------------------------------
E-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 42
ATTACHMENT E - CHANGE ORDER PROCEDURE
3.0 REFERENCES: The Purchase Order or Contract, which delineates the
additional Time and Material work to be performed for this Project,
will state on its face that the Labor Rates, Terms, and Conditions
contained in this Agreement shall take precedence over any terms and
conditions or Labor Rates stated on the Purchase Order or Contract.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP E-3
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 43
ATTACHMENT E - CHANGE ORDER PROCEDURE
SAMPLE CHANGE ORDER FORM
CHANGE ORDER NUMBER
CONTRACT NUMBER
DATE OF CONTRACT
PARTIES TO CONTRACT
Convergent Group (hereinafter referred to as CONSULTANT), and Citizens Utilities
Company/LGS DESIGN GIS Project (hereinafter referred to as CLIENT) mutually
agree to amend _______________ to (choose appropriate type of contract) 1) add
the Firm Fixed Price amount of $_____________ 2) add Time and Material Tasks in
accordance with the Scope of Work in the attached Professional Services
Proposal.
REASON FOR THIS CHANGE ORDER:
1) FOR FIXED PRICE CHANGES
Estimated Start Date:
Estimated Completion Date:
Estimated Impact to Project Schedule:
The following line items will be added to the existing contract: Describe Items
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PRICE
- -------- ----------- -----
<S> <C> <C>
TOTAL $
----
</TABLE>
Based on the phased completion of the professional consulting effort detailed in
this Professional Services Proposal that includes the Scope of Work, all labor,
services, and expenses shall be invoiced monthly on a percent task completion
basis against the Firm Fixed Price amount of $______________ for the
_____________.
- --------------------------------------------------------------------------------
E-4 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 44
ATTACHMENT E - CHANGE ORDER PROCEDURE
2) FOR TIME AND MATERIAL CHANGES
The following line items will be added to the existing contract: Describe Items
<TABLE>
<CAPTION>
TASK DESCRIPTION CEILING PRICE OR HOURS
<S> <C>
Either state or reference Labor Rates to be Explain any reporting requirements relative
used, and approximate hours to be expended by to hours expended, frequency of billing, or
each job classification. ceiling relative to dollars or hours.
TOTAL HOURS OR DOLLARS
</TABLE>
Estimated Start Date:
Estimated Completion Date:
Explanation of any potential impacts to the overall program schedule and/or any
schedule changes on the Firm Fixed Price Contract No. ________.
Based upon the labor hours expended for the professional consulting effort
authorized by CLIENT as defined in this Professional Services Proposal that
includes the Scope of Work, all labor and services performed by CONSULTANT shall
be invoiced monthly in accordance with the agreed upon Labor Rates. CONSULTANT's
expenses are not included in the Labor Rates and will be reimbursed at cost and
are estimated to be $________. Expenses shall be reimbursed in accordance with
Clause 5 of this CONSULTANT Agreement.
Amendment 1 now forms an integral part of this Agreement. All other terms and
conditions of Agreement ________ will remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives.
- -------------------------------------- Convergent Group
By: By:
----------------------------------- ---------------------------
By: By:
----------------------------------- ---------------------------
Glenn E. Montgomery
Title: Title: Chairman & CEO
--------------------------------
Date: Date:
--------------------------------- -------------------------
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP E-5
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 45
ATTACHMENT F - ELECTRONIC FUNDS TRANSFER
Instructions for transmitting funds to Convergent Group Corporation via wire are
as follows:
Wire to: UMB Columbine Bank
6900 E. Hampden Avenue
Englewood, CO 80224
For credit to: Convergent Group Corporation
Operating Account
6200 S. Syracuse Way
Suite #200
Englewood, CO 80111
Account #7170565404
If you have questions, please contact UMB Columbine Bank directly at (303)
758-2501. The persons to contact are Shelly Robbins or Marion Legett in the Wire
Transfer Department. Convergent Group Corporation is the Controller at (303)
741-8400.
- --------------------------------------------------------------------------------
CITIZENS UTILITY COMPANY, ENERGY SECTOR, CONVERGENT GROUP F-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 46
[CONVERGENT
GROUP
LOGO]
ATTACHMENT G
PROJECT SCHEDULE
TO BE DETERMINED
<PAGE> 47
ATTACHMENT G - PROJECT SCHEDULE
(To be determined)
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP G-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 48
EXHIBIT 10.19
ATTACHMENT H - DELIVERABLE ACCEPTANCE PROCEDURES
As work on this project progresses, CONSULTANT will prepare a Deliverable
Acceptance Agreement, which will include a detailed description of the
Deliverables listed in the Payment section of the Contract. The CONSULTANT
Project Manager and the CLIENT Project Manager will mutually agree as to the
description of each of the Deliverables and upon an appropriate Detailed
Schedule for CLIENT to provide inputs to CONSULTANT for these Deliverables. The
CONSULTANT and CLIENT Project Managers will indicate agreement to the
Deliverable Description and Detailed Schedule by signing the Deliverable
Acceptance Agreement in the appropriate signature block.
When the Deliverables are completed by CONSULTANT, CLIENT will formally accept
each set of Deliverables by signing the Deliverable Acceptance Agreement in the
appropriate signature block.
SAMPLE DELIVERABLE ACCEPTANCE AGREEMENT
DESIGN GIS PROJECT PURCHASE ORDER NUMBER
CONVERGENT GROUP CONTRACT NUMBER
DATE OF CONTRACT
PARTIES TO CONTRACT
LINE ITEM NUMBER
DELIVERABLE DESCRIPTION
CONSULTANT and CLIENT mutually agree that when the criteria set forth in this
document are met by CONSULTANT, CLIENT will accept these Deliverables in
accordance with the referenced Contract Line Item. The purpose of this
Deliverable Acceptance Agreement is to detail the description of the
Deliverables for this Line Item, to bound the types and/or quantities of
Deliverables, and/or limit the time period for CLIENT to review and provide
inputs for this Deliverable from CONSULTANT.
Additionally, this Agreement provides for formal acceptance of Deliverables. In
case of a conflict between the terms of this Deliverable Acceptance Agreement
and the terms of the Contract, the Contract terms will take precedence.
- --------------------------------------------------------------------------------
CITIZENS UTILITIES COMPANY, ENERGY SECTOR, CONVERGENT GROUP H-1
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 49
ATTACHMENT H - DELIVERABLE ACCEPTANCE PROCEDURES
DETAILED DESCRIPTION OF THE DELIVERABLES
Both CONSULTANT and CLIENT agree that when two copies of the above Deliverables
are delivered to and accepted by CLIENT, this part of the contract will be
considered complete. Upon completion, CLIENT agrees to pay CONSULTANT the Price
for this Deliverable as described in the Contract.
AGREEMENT TO DESCRIPTION OF DELIVERABLES
Citizens Utilities Company/ Convergent Group
DESIGN GIS Project
By: By:
----------------------------- ------------------------------------
Project Manager Project Manager
Date: Date:
--------------------------- ----------------------------------
ACCEPTANCE OF DELIVERABLES
CLIENT agrees that the above Deliverables are acceptable and CLIENT agrees that
CONSULTANT's obligations as they relate to this Contract Line Item have been
satisfied. Any further work required on this Line Item will be considered a
Change Order and will be processed in accordance with the Change Order
Procedure.
CONSULTANT is hereby authorized to invoice CLIENT for these Deliverables in
accordance with the terms and conditions of the Contract.
Citizens Utilities Company/DESIGN GIS Project
By:
-------------------------------
Project Manager
Date:
-----------------------------
- --------------------------------------------------------------------------------
H-2 CONVERGENT GROUP CITIZENS UTILITIES COMPANY, ENERGY SECTOR,
GAS BUSINESS UNIT
Proprietary and Confidential
<PAGE> 1
EXHIBIT 23.1
When the reverse stock split referred to in Note A7 of the Notes to
Consolidated Financial Statements has been consummated, we will be in a position
to render the following consent.
GRANT THORNTON LLP
April 12, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 8, 2000 (except for Note J, as to
which the date is February 16, 2000), accompanying the financial statements of
Convergent Group Corporation contained in the Registration Statement and
Prospectus, and we consent to the use of our name as it appears under the
caption "Experts."
GRANT THORNTON LLP
, 2000
