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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number: O-26886
OBJECTIVE SYSTEMS INTEGRATORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0239619
(State or other jurisdiction of (I.R.S. Identification Number)
incorporation or organization)
101 Park Way
Folsom, California 95630
(Address of principal executive office, including zip code)
(916) 353-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- _________
Number of shares of registrant's common stock outstanding as of January 31,
2000: 36,145,335
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements......................... 1
Condensed Consolidated Balance Sheets at December 31, 1999
and June 30, 1999................................................... 1
Condensed Consolidated Statements of Operations for the three months
and six months ended December 31, 1999 and 1998..................... 2
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 1999 and 1998.................................... 3
Notes to Condensed Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 6
Item 3. Quantitative and Qualitative Disclosure About Market Risk........... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................... 16
10.1 Enterprise-Wide License Agreement
10.2 Enterprise-Wide Professional Services Agreement
10.3 Severance Agreement of Jeffrey T. Boone
10.4 Severance Agreement of Philip N. Cardman
10.5 Severance Agreement of Lawrence F. Fiore
10.6 Severance Agreement of Danny D. Line
10.7 Severance Agreement of James T. Disen
SIGNATURE 17
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---------------- ----------------
(unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 23,593 $ 15,811
Short-term investments.................................................. 16,806 15,771
Accounts receivable (net of allowance of $2,175 and $1,865)............. 8,840 17,251
Prepaid expenses and other current assets............................... 1,727 1,515
--------- ---------
Total current assets................................................. 50,966 50,348
Property and equipment, net............................................... 10,127 11,319
Other assets, net......................................................... 3,431 4,757
--------- ---------
Total assets......................................................... $ 64,524 $ 66,424
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 5,551 $ 5,822
Accrued liabilities..................................................... 6,767 6,662
Deferred revenue........................................................ 12,262 10,078
--------- ---------
Total current liabilities............................................ 24,580 22,562
Stockholders' equity:
Common stock............................................................ 87,341 86,703
Accumulated other comprehensive income (loss)........................... (859) (917)
Accumulated deficit..................................................... (46,538) (41,924)
-------- ---------
Total stockholders' equity........................................... 39,944 43,862
-------- --------
Total liabilities and stockholders' equity........................... $ 64,524 $ 66,424
======== ========
</TABLE>
(1) Information in this column derived from OSI's audited consolidated balance
sheet as of June 30, 1999
See notes to condensed consolidated financial statements.
1
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
License......................................... $ 9,769 $10,258 $14,593 $21,686
Service and other............................... 7,304 7,325 14,491 13,857
------- -------- -------- --------
Total revenues............................... 17,073 17,583 29,084 35,543
------- -------- -------- --------
Cost of revenues:
License......................................... 464 485 1,039 934
Service and other............................... 4,193 4,692 8,072 9,362
------- -------- -------- --------
Total cost of revenues....................... 4,657 5,177 9,111 10,296
------- -------- -------- --------
Gross profit...................................... 12,416 12,406 19,973 25,247
------- -------- -------- --------
Operating expenses:
Sales and marketing............................. 6,852 7,553 12,931 14,685
Research and development........................ 4,174 5,198 8,901 9,927
General and administrative...................... 1,550 1,648 3,092 3,145
------- --------
Total operating expenses..................... 12,576 14,399 24,924 27,757
------- -------- -------- --------
Loss from operations.............................. (160) (1,993) (4,951) (2,510)
------- -------- -------- --------
Other income, net................................. 330 341 591 980
------- -------- -------- --------
Income (loss) before income taxes................. 170 (1,652) (4,360) (1,530)
Provision (benefit) for income taxes.............. 55 (798) 254 (750)
Net Income (loss)................................. $ 115 $ (854) (4,614) $ (780)
======= ======== ======== ========
Earnings (loss) per share: ======= ======== ======== ========
Basic........................................... $ 0.00 $ (0.02) $ (0.13) $ (0.02)
======= ======== ======== ========
Diluted......................................... $ 0.00 $ (0.02) $ (0.13) $ (0.02)
======= ======== ======== ========
Weighted-average shares outstanding: ======= ======== ======== ========
Basic........................................... 35,807 34,948 35,719 34,878
======= ======== ======== ========
Diluted......................................... 36,736 34,948 35,719 34,878
======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $(4,614) $ (780)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization........................................... 4,224 3,514
Deferred income taxes............................................ -- (959)
Stock compensation expense....................................... -- 174
Effect of changes in:
Accounts receivable..................................................... 8,402 (2,079)
Prepaid expenses, other current assets and other assets................. (220) (158)
Accounts payable........................................................ (483) (596)
Accrued liabilities..................................................... 329 (1,611)
Deferred revenue........................................................ 2,184 (1,494)
-------- --------
Net cash provided by (used for) operating activities.................... 9,822 (3,989)
-------- --------
Cash flows from investing activities:
Sales (purchases) of short-term investments............................. (1,036) 1,044
Purchases of property and equipment..................................... (1,627) (2,247)
Purchases of other assets............................................... (91) (1,570)
-------- --------
Net cash used in investing activities................................... (2,754) (2,773)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............................. 638 1,655
Purchase of treasury stock.............................................. -- (1,957)
-------- --------
Net cash provided by (used for) financing activities.................... 638 (302)
-------- --------
Effect of exchange rate changes on cash.................................... 76 (42)
-------- --------
Net increase (decrease) in cash and cash equivalents.................... 7,782 (7,106)
Cash and cash equivalents:
Beginning of the period................................................. 15,811 24,568
-------- --------
End of the period....................................................... $23,593 $17,462
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
These unaudited, condensed, consolidated financial statements have been prepared
by Objective Systems Integrators, Inc. ("OSI") under the rules and regulations
of the Securities and Exchange Commission. In accordance with those rules and
regulations, some of the information normally included in financial statements
prepared in accordance with generally accepted accounting principles has been
condensed or omitted.
The information in this report reflects all adjustments that we believe are
necessary to fairly state OSI's financial position, results of operations and
cash flows for the periods presented. These adjustments consist of items that
are of a normally recurring nature.
These financial statements should be read in conjunction with the audited
financial statements and their notes contained in OSI's Annual Report on Form
10-K for the fiscal year ended June 30, 1999. Results for interim periods are
not necessarily indicative of the results expected for the full fiscal year or
for any other period.
2. Earnings (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average of
common shares outstanding. Diluted net income (loss) per share is computed using
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares are the incremental common shares
that could be issued (using the treasury stock method) following the exercise of
stock options. Common equivalent shares outstanding are not included in the net
loss per share calculations in loss periods as their inclusion would have the
effect of showing a smaller loss per share.
3. Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, requires us to report a new,
additional measure of income. "Comprehensive Income" includes gains and losses
from foreign currency translations and unrealized gains and losses on equity
securities. These items were previously excluded from net income and reflected
instead in stockholders' equity. The following table sets forth the calculation
of comprehensive income (loss):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31, December 31,
----------------------------- ------------------------------
(in thousands) 1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net profit (loss) $ 115 $(854) $(4,614) $(780)
Foreign currency translation gains (losses) 84 117 58 (43)
------- ------- -------- ------
Total comprehensive income (loss) $ 199 $(737) $(4,556) $(823)
======= ======= ======== ======
</TABLE>
4
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4. Accounting for Derivative Instruments and Hedging Activities
In June 1998 the Financial Accounting Standard Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as an asset or liability measured at
its fair value. It requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. It also requires that companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. We are continuing to evaluate SFAS No. 133, but do not
expect that it will have a material effect on our financial position or results
of operations.
5. Segment and Geographic Information
We adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, in fiscal 1999. SFAS No. 131 establishes standards for reporting
information in our financial statements about operating segments. Operating
segments are components of an enterprise for which separate financial
information is available that is regularly evaluated by the chief operating
decision maker, or decision making group, in deciding resource allocations and
in assessing performance. Our chief operating decision makers are our Co-Chief
Executive Officers.
We conduct our business in one business segment. For the quarter and six months
ended December 31, 1999 we had one customer that accounted for more than 10% of
our revenues. For the quarter ended December 31, 1998, we had a different
customer that accounted for more than 10% of our total revenues.
The following table presents a summary of geographic information:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31, December 31,
--------------------------------- ----------------------------------
(in thousands) 1999 1998 1999 1998
-------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
United States................................. $11,533 $ 9,163 $17,622 $19,052
Europe........................................ 2,552 3,563 4,461 5,250
Asia and Pacific Rim.......................... 2,197 1,855 4,895 5,795
Latin America................................. 481 2,017 1,711 4,461
Other......................................... 310 985 395 985
------- ------- ------- -------
Total....................................... $17,073 $17,583 $29,084 $35,543
======= ======= ======= =======
Long-lived assets:
United States................................. 12,112 16,717 12,112 16,717
Europe........................................ 127 158 127 158
Asia and Pacific Rim.......................... 1,319 2,201 1,319 2,201
------- ------- ------- -------
Total Consolidated.......................... $13,558 $19,076 $13,558 $19,076
======= ======= ======= =======
</TABLE>
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
Some of the statements in this Report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. They have been
identified with an asterisk (*). Underlying these statements are a number of
assumptions regarding risks, both known and unknown, which may cause the actual
results of Objective Systems Integrators, Inc. ("OSI") or the communications
industry to differ materially from those that are expressed or implied. These
risks include, but are not limited to, concentration of product and customers;
growth of sales, customer support and development organizations; competition and
technological change in the industry; international licensing; dependence on
third party relationships; risk of product defect; fluctuations of quarterly
results; "Year 2000" issues; and retention of key personnel. Additional
information can be found in Item 1, Notes to Condensed Consolidated Financial
Statements, throughout Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and in Item 3, Quantitative and Qualitative
Disclosure About Market Risk.
Overview
OSI provides Operation Support Systems ("OSS") framework and application
software that simplifies the integration and management of communications
networks, services, and processes. We were founded in June of 1989 and began
shipments of our NetExpert(TM) product line in August of 1990. In fiscal 1999,
we announced our next-generation products, NetExpert Virtual Service Management
("VSM(TM)"), NetExpert Virtual Process Management ("VPM(TM)), NetExec(TM), and
NetExel(TM) Solution Services applications. These new products reduce deployment
time and reduce the expertise needed for customization of our products. They are
integrated under our NetEx(TM) Unified Management Architecture(TM) ("UMA(TM)")
to provide a blueprint for managing converged services and networks. As of
December 31, 1999, we had directly or indirectly licensed our products to over
250 customers around the world.
Revenue from licenses, service and support of the NetExpert product line has
accounted for substantially all of our revenues since our inception. A typical
NetExpert sale generally includes a combination of license fees, fees for
professional services and fees for customer support and training. We believe
that revenue from the license, service and support of our NetExpert product
line, including VSM and VPM, will account for substantially all of our total
revenue for the foreseeable future.* A significant portion of revenues has been,
and will continue to be, derived from substantial orders placed by large
organizations.* The timing of these orders and their fulfillment has caused, and
may continue to cause, material fluctuations in operating results, particularly
on a quarterly basis.* We believe that our quarterly revenues and operating
results are likely to vary significantly in the future and that period-to-period
comparisons of revenue and results of operations are not necessarily
meaningful.* We also believe that quarterly revenues should not be relied on as
indications of future performance.*
We distribute and sell products to end users in North America primarily through
a direct sales organization. Outside of North America, we sell through systems
integrators, local value-added resellers and, to a lesser extent, an in-region
direct sales force. We intend to enter into additional international markets and
to continue to grow our international operations by expanding our direct sales
force, opening new in-region customer support and sales offices, adding value-
added resellers and pursuing additional strategic relationships.* See further
discussion in the "Results of Operations" section below.
6
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For the second quarter of fiscal 2000, we had a net profit of $0.1 million
compared with a net loss of $0.9 million for the same period in fiscal 1999.
Some of the factors that contributed to this result are described in the
following "Results of Operations" section. We are following a strategy aimed at
meeting the service management, network management and process integration needs
of communications services providers. In fiscal 1998 and 1999, we placed heavy
emphasis on development of a new generation of products that can be integrated
under our Unified Management Architecture. In fiscal 2000, we plan to 1)
continue the launch of our new product line, 2) build stronger sales and
customer interface organizations, and 3) forge new strategic alliances while
strengthening our existing relationships.* While we believe this strategy will
help us gain market share in fiscal 2000 and grow our backlog of orders, we can
give no assurances that this strategy will be successful.* Some orders we
include in our backlog may be cancelled without significant penalty.
Results of Operations
Revenues:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------------------------- ----------------------------------------------
(in thousands, except
percentages) 1999 Change 1998 1999 Change 1998
------------ ---------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
License..................... $ 9,769 (5%) $10,258 $14,593 (33%) $21,686
Percentage of revenues...... 57% 58% 50% 61%
Service and other........... $ 7,304 (0%) $ 7,325 $14,491 5% $13,857
Percentage of revenues...... 43% 42% 50% 39%
Total revenues.............. $17,073 (3%) $17,583 $29,084 (18%) $35,543
</TABLE>
Our revenues are derived from license fees and fees for services that complement
our products, including professional services, software support, customer
support and training. The decrease in total revenues for the three-month and
six-month periods ended December 31, 1999, compared with the three-month and
six-month periods ended December 31, 1998, resulted primarily from the
transition to our new products and delays in entering into contracts for new
orders. List prices for our products and services did not change significantly
during the comparison periods. However, we are in the process of instituting a
new pricing model that will provide customers with additional choices when
licensing our software. This may have a negative impact on future revenues if
our pricing model does not attract sufficient volume.*
License Revenues. Software licenses have previously been granted and priced on
a per-server basis, although we have granted site, network-wide or enterprise-
wide licenses for larger installations. In future periods, licenses may be
granted on either a per-server basis or other bases.* We generally recognize
license revenues when a noncancellable license agreement has been signed,
product has been shipped, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, and collection is probable. We
also recognize revenue under contracts requiring significant customization using
the percentage-of-completion method of contract accounting, based on the ratio
of incurred costs to total estimated costs. Although generally our license
agreements do not provide for a right of return, we maintain reserves for
returns and potential credit losses.
License revenues decreased in absolute dollars and as a percentage of total
revenues for both the three-month and the six-month periods ended December 31,
1999, compared with the three-month and the six-month periods ended December 31,
1998. The Company believes this decrease was due to a reduced number of sales
staff. We embarked on a program to increase the size and competency of our
direct sales force and
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to build relationships with current and new distribution channel partners. We
hired additional sales staff during the second fiscal quarter and are currently
in the process of filling the remaining positions. However, given the
significant number of new products we have introduced, the need to train our
sales and support personnel in those products and the relatively short average
tenure of our direct sales force, no assurances can be given that historic
productivity rates per salesman will be achieved in the near term.* Our failure
to do so could have a material, adverse effect on our business, operating
results and financial condition.*
Services and Other Revenues. We recognize revenues for training, consulting and
professional services as the services are performed and acceptance criteria are
met. We offer support contracts to our customers. These contracts provide
telephone support, updates and maintenance of our products during the support
period. Revenues from our support contracts are deferred and recognized ratably
over the term of the support agreement. Payments for support fees are generally
made in advance and are nonrefundable. Services and other revenues remained flat
for the three month period ended December 31, 1999, compared with the three
months ended December 31, 1998. The growth in our service and other revenues in
the six-month period ended December 31, 1999, compared with the six-month period
ended December 31, 1998, is due to an increased level of professional services
and project completion during the current fiscal year.
We expect that our services and other revenues will continue to represent a
significant portion of our total revenues in future periods.* We anticipate
continued demand for professional services in connection with licenses of our
products, the renewal of existing support contracts and incremental support
revenues attributable to a growing installed product base.* We also believe
that historic growth rates for services and other revenues should not be relied
on as an indication of future growth rates.*
International Revenues. Revenues from outside of the United States represented
32% and 48% of total revenues for the three months ended December 31, 1999, and
1998, respectively. Revenues from outside of the United States represented 39%
and 46% of total revenues for the six months ended December 31, 1999, and 1998,
respectively. The decrease in international revenues as a percentage of total
revenues was primarily caused by our receipt during the quarter of a
particularly large order from one North American customer. We do not believe
that the decease is symptomatic of an on-going change in our revenue mix; and we
plan to continue investing in our international operations.* However, given the
economic uncertainties in world markets, we can give no assurances that
continued international investment will remain prudent.*
The European communications market is growing, as privatization in the region
continues to create a more competitive service provider market. We are
continuing to build our European operations in anticipation of the opportunity
for increased business in this market.*
We believe that the weakened economic conditions in the Asia-Pacific region have
had a slightly negative impact on our growth rate over the last two years. We
believe the economic climate has recently improved but there can be no
assurances that the economies in the Asia-Pacific region will fully recover in
the near term or that similar economic problems will not occur in other parts of
the world.*
We expect that international revenues will continue to account for a material
portion of our total revenues in future periods.* Our international business
involves a number of inherent risks, including longer receivable collection
periods, greater difficulty in collections, fluctuations in the real cost of our
services given changes in relative exchange rates, difficulty in staffing and
managing operations, a longer sales cycle, potentially unstable political and
economic conditions, unexpected changes in regulatory requirements, including a
slowdown in the rate of privatization of telecommunications services, reduced
protection for intellectual property rights, potentially adverse tax
consequences, and tariffs and other trade barriers. In addition, access to
foreign markets is often difficult due to the
8
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established relationships between government-owned or government-controlled
communications providers and local suppliers of communications products. We
cannot give assurances that we will be able to continue penetrating
international markets successfully. In addition, we cannot give assurances we
will be able to sustain or increase revenue from international licensing and
services or that the factors listed above will not adversely affect our future
international business. Any of these factors could have a material, adverse
effect on our business, operating results and financial condition.*
Cost of Revenues:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------------------------- ---------------------------------------------
(in thousands, except
percentages) 1999 Change 1998 1999 Change 1998
------------ ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost of license revenues.... $ 464 (4%) $ 485 $ 1,039 11% $ 934
Percentage of revenues...... 3% 3% 3% 3%
Cost of service and other... $ 4,193 (11%) $ 4,692 $ 8,072 (14%) $ 9,362
Percentage of revenues...... 24% 27% 28% 26%
Total cost of revenues...... $ 4,657 (10%) $ 5,177 $ 9,111 (12%) $10,296
Percentage of revenues...... 27% 29% 31% 29%
Gross profit................ $12,416 0% $12,406 $19,973 (21%) $25,247
Percentage of revenues...... 73% 71% 69% 71%
</TABLE>
Cost of License Revenues. Cost of license revenues consists primarily of
license fees paid to third-party software vendors and the costs of product media
and duplication, manuals, packaging materials, shipping expenses, amortization
of capitalized software costs, and related labor costs. For the three months
ended December 31, 1999 compared with the three months ended December 31, 1998,
cost of license revenues decreased in actual dollars but represented the same
percentage of revenues for those periods. For the six months ended December 31,
1999 compared with the six months ended December 31, 1998, cost of license
revenues increased due to temporarily higher than normal costs for third-party
software vendors.
Cost of Services and Other Revenues. Cost of services and other revenues
consists primarily of personnel costs related to the professional services and
maintenance services we provide in connection with our products. It also
includes outside service fees paid to third-party providers of professional
services, related travel costs and overhead. Our cost of service and other
revenues decreased for both the three-month and the six-month periods ended
December 31, 1999, compared with the three-month and six-month periods ended
December 31, 1998. This decrease was due to reduced headcount and associated
personnel and overhead costs. We believe that, in the future, the cost of
service and other revenues may increase in absolute dollars if additional
headcount or outside services are required.*
Gross profit remained flat for the three months ended December 31, 1999 as
compared to the three months ended December 31, 1998. Gross profit decreased
for the six months ended December 31, 1999 as compared with the six months ended
December 31, 1998, related to decreased license revenues as a percentage of
total revenues. This was partially offset by decreased costs in our
professional services organization, which had the overall effect of increasing
gross profit for service and other revenues. We expect to continue maintaining
a gross profit in our professional services segment.* However, if our costs of
providing services were to increase faster than our services revenues, losses
could occur in the future.*
9
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Operating Expenses:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------------------------- ---------------------------------------------
(in thousands, except
percentages) 1999 Change 1998 1999 Change 1998
------------ ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing......... $ 6,852 (9%) $ 7,553 $12,931 (12%) $14,685
Percentage of revenues...... 40% 43% 44% 41%
Research and development.... $ 4,174 (20%) $ 5,198 $ 8,901 (10%) $ 9,927
Percentage of revenues...... 25% 30% 31% 28%
General and administrative.. $ 1,550 (6%) $ 1,648 $ 3,092 (2%) $ 3,145
Percentage of revenues...... 9% 9% 11% 9%
Total operating expenses.... $12,576 (13%) $14,399 $24,924 (10%) $27,757
Percentage of revenues...... 74% 82% 86% 78%
</TABLE>
Sales and Marketing. Sales and marketing expenses consist mainly of salaries,
commissions and bonuses for sales and marketing personnel, facilities costs
associated with sales and customer support offices, promotional expenses and
contract administration. These expenses decreased for the three months ended
December 31, 1999 compared with the three months ended December 31, 1998. Sales
and marketing expenses also decreased for the six months ended December 31,
1999, compared with the six months ended December 31, 1998. The decrease in
both periods was primarily due to the decrease in sales revenues, which resulted
in reduced commissions. There was also a reduction in headcount for sales and
marketing, resulting in a decrease in salaries and personnel-related costs.
Marketing costs decreased due to discontinuing the services of various outside
vendors. We also reduced travel, facilities, telephone and computer-related
expenses during the periods. We expect that sales and marketing expenses in
future periods will increase both in absolute dollars and as a percentage of
revenues related, in part, to our active hiring program and to agreements with
various partners who are involved in the marketing of our products.*
Research and Development. Research and development expenses consist mainly of
personnel costs for product research, development and quality assurance.
Research and development expenses decreased for the three months ended December
31, 1999 compared with the three months ended December 31, 1998. Headcount and
related expenses, such as travel and computer operations, were reduced. Research
and development expenses also decreased for the six months ended December 31,
1999 compared with the six months ended December 31, 1998. However, this
decrease was offset by the amortization of a $0.6 million expense for purchased
technology in the first quarter of fiscal 2000. We expect that we will continue
committing significant resources to research and development to enhance and
extend our core technology and product lines.* Although we are committed to
controlling expenses in research and development, these expenses may increase in
absolute dollars or as a percentage of total revenues.*
General and Administrative. General and administrative expenses consist mainly
of personnel costs for finance, human resources, legal affairs and general
management. Also included are outside legal and accounting fees, corporate
insurance expenses and allowance for doubtful accounts. General and
administrative expenses remained relatively the same for both the three-month
and six-month periods ended December 31, 1999, compared with the three-month and
six-month periods ended December 31, 1998. We expect that general and
administrative expenses may increase in the future with the hiring of additional
personnel and possibly increased use of outside services.* Although we believe
our allowance for doubtful accounts is adequate as of December 31, 1999, we will
continue to
10
<PAGE>
review this allowance and adjust it as needed. This could result in additional
charges to general and administrative expenses.*
Other Income, Net:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except
percentages) 1999 Change 1998 1999 Change 1998
------------ ---------- ------------ ------------ ---------- ------------
Other income, net........... $ 330 (3%) $ 341 $ 591 (40%) $ 980
Percentage of revenues...... 2% 2% 2% 3%
</TABLE>
Other Income, Net. Other income net consists primarily of interest income,
gain/loss on foreign exchange and miscellaneous bank charges. The decrease in
other income, net was primarily due to the decrease in average levels of cash
and cash equivalents resulting in lower interest income. Other contributing
factors were an increase in the loss associated with foreign currency
fluctuations.
Provision (Benefit) for Income Taxes:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except
percentages) 1999 Change 1998 1999 Change 1998
------------ ---------- ------------ ------------- ---------- ------------
Provision (benefit) for
income taxes............... $ 55 NM $(798) $ 254 NM $(750)
Percentage of revenues...... 0 NM (5%) 1% NM (2%)
</TABLE>
NM -- Not meaningful
Provision (Benefit) For Income Taxes. This includes federal, state and foreign
income taxes. The effective tax rate was 48% for the three months ended December
31, 1998 and 49% for the six months ended December 31, 1998. The effective tax
rate for the three months ended December 31, 1998 differs from the federal
statutory rate primarily because of foreign taxes, state taxes and research and
development tax credits. For the three months ended December 31, 1999, the
provision for income taxes represents state and foreign taxes.
Year 2000 Readiness
Many currently installed computer systems and software products are coded to
accept only two digit entries in their date code fields. As a result, software
that records only the last two digits of a calendar year may not be able to
distinguish whether "00" means 1900 or 2000. In addition, computer programs may
fail to recognize February 29, 2000, as an exception to the calculation of leap
years that occurs only once every 400 years. Residual Year 2000 problems may
result in miscalculations, data corruption, system failures or disruption of
operations.
To date, we have not experienced any significant Year 2000 problems with our
internal systems or our customers' systems. However, we are continuing to
assess the extent to which our systems and products correctly evaluate date
information ("Year 2000-compliant"). We have taken remedial
11
<PAGE>
action whenever we were able to identify any systems and products that were not
Year 2000-compliant and expect that this activity will continue throughout
fiscal 2000.*
Despite our having neither experienced or received reports of customer problems
over the transition to the new calendar year, we can give no assurances that
problems will not occur or that our products will continue to function properly
when integrated with other products, including previously customized OSI
software, third-party software and hardware. Our customers may still experience
Year 2000 difficulties because of the noncompliance of other products that
interoperate with our products. If our products are part of a system that is
not able to manage and manipulate data related to the Year 2000, or if residual
Year 2000 problems cause the failure of the technologies, software or systems
necessary to operate our business, we could lose customers, suffer significant
disruptions in our business, lose revenues and incur substantial liabilities and
expenses. The results could have a material adverse effect on our business.*
We have incurred costs related to our Year 2000 readiness program but have not
maintained separate cost accounting for them. Our Year 2000 readiness efforts
were undertaken by existing employees, and the associated costs were treated as
normal operating expense. As of December 31, 1999, we estimate these costs were
approximately $8.0 million. We do not expect to incur significant additional
costs for our Year 2000 readiness program.* This does not include potential
costs related to customer or other claims, or costs related to internal software
and hardware replaced in the normal course of our business. We believe we have
adequate general corporate funds to pay for any expected costs and expenditures
related to Year 2000 readiness.*
We have provided our customers with limited assurances regarding those of our
products that are Year 2000-compliant. Except as specifically provided for in
our contracts and other limited, written assurances that we provided, we do not
believe that we are legally responsible for costs that may be incurred by our
customers to ensure the Year 2000 compliance of their software, systems and
operations.* Our customer agreements typically contain provisions designed to
limit our liability for these types of claims. However, it is possible that
these provisions will not provide adequate protection from liability under
applicable law or unfavorable judicial decisions.* Even if we have disclaimed
responsibility for Year 2000 problems, our customers may nevertheless make
claims against all suppliers of the component parts of their operating
environment.* Any Year 2000 claims, whether with or without merit, could result
in a material adverse effect on our business, financial condition and results of
operations.*
Factors That May Affect Future Results
Quarterly Results. Our quarterly operating results have varied significantly in
the past and can be expected to vary significantly in the future.* The
fluctuation in quarterly license revenues is caused by the timing of large
orders by our customers, including global telecommunication providers and new,
emerging communication service providers. Orders are typically preceded by long
sales cycles and, accordingly, it has been and will continue to be difficult to
predict when they will be received.* We expect that quarterly license revenues
will continue to vary significantly depending on the timing of our orders.* The
failure to obtain an order during any given reporting period, for whatever
reason, would have a material adverse effect on our business.
We typically receive a significant portion of our orders, and record the
resulting revenue, in the last month of a quarter, and frequently in the last
weeks or even days of a quarter. Expense levels are based, in part, on our
expectations of future revenues. If actual revenues are below expectations,
operating results can be adversely affected. In particular, because only a
small portion of our expenses vary with revenue, net income may be
disproportionately affected if anticipated revenues are not realized. We
believe this pattern will continue.*
12
<PAGE>
Our quarterly operating results have also varied and will continue to vary
significantly from quarter to quarter based on factors such as the capital
spending patterns of our customers; changes in our pricing policies or those of
our competitors; increased competition; cancellation of licenses or support
agreements; changes in operating expenses; personnel changes; fluctuation in
product demand; the number, timing and significance of new products and product
enhancements by OSI and by our competitors; our ability to develop, introduce
and market new and enhanced versions of our products in a timely manner; the mix
of direct and indirect sales; our assessment of our allowance for bad debts;
sales returns; and general economic factors, among others.*
Because of these factors, quarterly revenue and operating results have been and
will continue to be difficult to forecast.*
Sales Cycle. Revenues are also difficult to forecast because the sales cycle,
from initial evaluation to product installation, varies substantially from
customer to customer. Purchase of an OSS application generally involves a
significant commitment of capital, with the attendant time requirements often
associated with a customer's internal approval procedures. It also involves the
need to test and accept new technologies that affect crucial operations. For
these and other reasons, the sales cycle for our products is typically lengthy
and subject to a number of significant risks over which we have little or no
control.
Key Personnel. Our future success depends, to a significant degree, on the
continuing contributions of key management, sales, professional services,
customer support and product development personnel.* The loss of, or the
inability to attract and retain, key personnel could adversely affect our
business.* We have experienced and continue to experience difficulty in
recruiting qualified personnel. Competition for qualified employees is intense
in the software industry, and there can be no assurance that we will be
successful in attracting and retaining the people we need. The complex nature
of customers' networks requires that we recruit and hire personnel with
expertise in, and a broad understanding of, the telecommunications industry.
There are only a limited number of qualified personnel available for employment.
Failure to attract and retain key personnel would have a material adverse effect
on our business condition.*
Growth. To compete effectively and manage future growth, we also need to
improve our internal operational, financial and management information systems,
procedures and controls in a timely manner to accommodate a growing number of
transactions and customers. Management of future growth also means that we must
expand, train, motivate and manage our workforce. We can give no assurances
that our personnel, systems, procedures and controls will be adequate to support
existing and future operations. The failure to improve operational, financial
and management systems, or to expand, train, motivate and manage employees,
could have a material adverse effect on our business.*
Product Defects. Software products as complex as those we offer are likely to
contain defects when they are introduced or when new versions are released.
Although we are not aware of any material software defects in our products, we
can give no assurances, despite extensive testing both by us and by our
customers, that errors will not be found after commercial licensing begins.
This could result in delayed or lost revenue, loss of market share or failure to
achieve market acceptance.* Any of these could have a material adverse effect
on our business.
Competition. Our products are designed for use in an evolving network
operations support and management applications market. Competition in this
market is intense, with customer consolidation and resulting network operations
convergence, rapidly changing technologies, evolving industry standards,
frequent new product introductions and rapid changes in customer requirements.
Our competitors offer a variety of solutions to address this market. We believe
that competition has increased and will continue to increase.* Additionally,
some of our customers regularly evaluate whether to design and develop their own
network operations support and management applications
13
<PAGE>
or to acquire them from outside vendors. There can be no assurance that our
current or potential competitors will not develop products that are comparable
or superior to ours or that they will not be able to adapt more quickly than we
are to new technologies, evolving industry trends or changes in customer
requirements. If we are not able to compete successfully against current and
future competitors, our business will be materially and adversely affected.
International Business. We expect that our international business will continue
to account for a significant portion of total revenues in future periods.* We
intend to enter into additional international markets and to continue expanding
our operations outside of North America.* This will require significant
management attention and the expenditure of significant financial resources.*
The result could adversely affect our operating margins if the investments are
not accompanied by sufficient revenue growth.
Historically, our transactions have been primarily in U.S. dollars. However, as
we further expand our operations outside the United States, transactions in non-
U.S. currencies are likely to increase.* This will result in a corresponding
increase in our exchange rate risk. If exchange rates change unfavorably, this
could result in charges to operations. Although we have tried to reduce the
risk of fluctuations in exchange rates by pricing our products and services in
U.S. dollars whenever possible, we pay our local expenses in local currencies.
We do not engage in hedging transactions with respect to those obligations.
Currency exchange fluctuations in countries where we license our products could
have a material adverse effect on our business by making our pricing
noncompetitive with products priced in local currencies.*
Reseller Relationships. A key element of our future business strategy is to
develop relationships with leading companies that manufacture and market
telecommunications equipment. Another key element of that strategy is to expand
our system integrator and value-added reseller channels of distribution. We are
currently investing, and plan to continue investing, significant resources to
develop these relationships and channels of distribution.* We can give no
assurances that we will be able to attract additional systems integrators and
resellers that can market our products effectively. If we are unable to develop
these relationships or if our partners are unable to market our products
effectively, our business operating results and financial condition would be
materially and adversely affected.*
Proprietary Technology. Our success and ability to compete depends in large
part on our proprietary software technology. To protect our proprietary rights,
we rely on a combination of various technical measures, as well as trade secret,
copyright and trademark laws. We also rely on nondisclosure agreements and
other contractual arrangements. Despite our efforts, unauthorized parties may
attempt to copy our products or to obtain and use our proprietary information.*
We can give no assurances that the steps we have taken will prevent
misappropriation of our technology. Our precautions may also prove insufficient
to preclude competitors from developing products with functionality or features
that are similar to those in our products. In addition, effective copyright and
trade secret protection may be unavailable or limited in certain countries
outside the United States. While we believe that our products and trademarks do
not infringe upon the proprietary rights of third parties, we can give no
assurances that there will not be infringement claims in the future as the
number of products and competitors in our industry increases. Any such claim,
with or without merit, could be time-consuming, result in costly litigation and
divert the attention of our technical and management personnel.* This could
result in a material adverse impact on our business.*
Third-Party Software. Finally, we rely on software licensed from third parties,
including software that is integrated with internally developed software and
used to perform key functions. We can give no assurances that this software
will continue to be available to us or that, on expiration of our current
agreements, renewals will be on commercially reasonable terms. Absence of these
licenses could have a material adverse effect on our business.*
14
<PAGE>
Based upon all of the above, we believe that our quarterly revenues and
operating results may vary significantly in the future.* We also believe that
period-to-period comparisons of results are not necessarily meaningful and
should not be relied on as indications of future performance.* Further, we
believe that it is likely that our revenue or operating results will be below
the expectations of public market analysts and investors in some future
quarter.* If this occurs, the price of our Common Stock could be materially,
adversely affected.*
Liquidity and Capital Resources
For the six months ended December 31, 1999, net cash provided by operations was
$9.8 million compared with net cash used for operations of $4.0 million for the
six months ended December 31, 1998. The increased level of cash was primarily
due to the collection of accounts receivable during the quarter. During the
period, net cash used for investing activities remained flat compared to the
six-month period ended December 31, 1998. This resulted from increased purchases
of short-term investments accompanied by a decrease in the purchases of property
and equipment during the six-month period ended December 31, 1999. We currently
expect to make capital expenditures of between $4.0 million and $6.0 million in
the next twelve months, primarily for the purchase of computer equipment and
related software. These purchases will be financed through current working
capital and cash generated from operations.
In September of 1998, our Board of Directors authorized a stock repurchase
program under which we could purchase up to 1,000,000 shares of our common
stock. As of December 31, 1999, we had repurchased on the open market
approximately 493,300 shares of our common stock at an average purchase price of
$4.47, for a total cost of approximately $2.2 million. We may continue to
repurchase shares in the future.*
As of December 31, 1999, we had working capital of approximately $26.4 million,
including $40.4 million in cash, cash equivalents and short-term investments.
In addition, we have a $2.5 million unsecured revolving line of credit that
expires in December 2002. Under our line of credit, borrowings bear interest at
either (1) a fluctuating rate equal to the prime lending rate in effect or (2) a
fixed rate that is 2% above the London Inter-Bank Offered Rate. As of December
31, 1999, we had not borrowed under our line of credit.
Some of our accounts receivable are beyond their payment terms. We maintain an
allowance for doubtful accounts that we believe is adequate to cover potential
credit losses.* On December 31, 1999, our reserves for doubtful accounts and
sales returns were $2.2 million. We believe our present reserves are adequate
to provide for potential credit losses or sales returns.*
We intend to continue growing our operations.* In the six months ended December
31, 1999, we spent $1.6 million for capital items, principally computer
equipment and leasehold improvements. We expect that capital expenditures will
continue to be significant in fiscal 2000 and in the future.*
We believe that our cash balances and cash flow from operations are sufficient
to support our working capital requirements for at least the next twelve
months.* Thereafter, if cash generated from operations cannot satisfy our
working capital requirements, we may need to raise additional funds. Financing
may not be available or, if it is, may not be obtainable on terms favorable to
us or our stockholders.* If we raise additional capital by issuing equity or
convertible debt securities, ownership dilution to stockholders will result. If
funds are unavailable, our business may be adversely affected.
15
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
Our exposure to market rate risk based on a change in interest rates relates
primarily to our investment portfolio, which consists of cash equivalents and
short-term investments. Cash equivalents are highly liquid investments with
original maturities of three months or less and are stated at cost. We do not
believe our exposure to interest rate risk is material for these balances, which
were $10.6 million on December 31, 1999. The securities in our short-term
investment portfolio are generally classified as available-for-sale. Short-term
investments were $16.8 million on December 31, 1999. We do not use derivative
financial investments in our short-term investment portfolio, we place our
investments with high-quality issuers and, by policy, limit our credit exposure
to any one issuer. We are adverse to principal loss and attempt to ensure the
safety of our investment funds by limiting default, market and reinvestment
risk. If market interest rates were to change immediately and uniformly by 10%
from the rates in effect on December 31, 1999, the fair value of our cash
equivalents and short-term investments would change by an insignificant amount.
Foreign Currency Exchange Rate Risk
As a global business, we face exposure to adverse movements in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and they could have a material adverse impact on our business, operating
results and financial position.* Historically, our primary exposure has related
to local currency expenses in Europe, and the Asia-Pacific region including
Australia. The functional currencies of our foreign subsidiaries are local. A
hypothetical 10% change in foreign currency rates would have an insignificant
impact on our business, operating results and financial position.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be a party to litigation incident to the ordinary
course of our business. As of the date of this Report, we do not believe that
there is material litigation pending against OSI. However, any litigation
involving OSI, whether we are the plaintiff or defendant and regardless of the
outcome, could result in substantial costs and significant diversion of effort
by our technical and management personnel. In addition, we can give no
assurances that material litigation, either by or against OSI, will not be
necessary to resolve issues that may arise in the future. Given the
uncertainties of litigation, any litigation could have a material adverse effect
on our business, financial condition or operating results.*
Reference is made to proceedings filed against OSI with the Bureau de
Conciliation in Grasse, France, by Patric R. Olenezak a former employee of OSI,
which is ongoing and previously disclosed in OSI's Quarterly Report on Form 10-Q
for the period ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Enterprise-Wide License Agreement between Registrant and Adelphia
Communications Corporation dated December 20, 1999.*
10.2 Enterprise-Wide Professional Services Agreement between Registrant and
Adelphia Communications Corporation dated December 20, 1999.
10.3 Severance Agreement of Jeffrey T. Boone.
10.4 Severance Agreement of Philip N. Cardman.
10.5 Severance Agreement of Lawrence F. Fiore.
10.6 Severance Agreement of Danny D. Line.
10.7 Severance Agreement of James T. Olsen.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
16
<PAGE>
None.
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Omitted portions have been filed separately with the SEC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OBJECTIVE SYSTEMS INTEGRATORS, INC.
Dated: February 11, 1999 By: /s/ Lawrence F. Fiore
------------------------------------------
Lawrence F. Fiore, Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
17
<PAGE>
EXHIBIT 10.1
- ------------
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE PORTIONS OF THE
AGREEMENT INDICATED WITH AN ASTERISK (*). A COMPLETE COPY OF THIS AGREEMENT,
INCLUDING THE REDACTED TERMS, HAS BEEN SEPARATELY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
OBJECTIVE SYSTEMS INTEGRATORS, INC.
ENTERPRISE-WIDE LICENSE AGREEMENT
Contract No.: ELA - 321
THIS ENTERPRISE-WIDE LICENSE AGREEMENT ("Agreement") is entered into as of
December 20, 1999 ("Effective Date"), between OBJECTIVE SYSTEMS INTEGRATORS,
INC. ("OSI") and ADELPHIA COMMUNICATIONS CORPORATION ("Adelphia").
1. DEFINITIONS
-----------
(a) Application Component. OSI Software, other than NetExpert Framework
---------------------
Software, licensed as a single off-the-shelf application component
(such as FM Exel(TM)), including only those off-the-shelf Rulesets
provided as part of the application component.
(b) Combined Software. Computer code, modules, programs, data files or
-----------------
rules, including related documentation, resulting from (1) some or all
of the same being linked, combined or otherwise operated with OSI
Software, or (2) Licensee's modification of OSI Software.
(c) Documentation. User manuals and similar documentation supplied with
-------------
OSI Software. Documentation does not include product and service
descriptions, advertising or marketing materials.
(d) Information. Written, machine-reproducible and visual materials that
-----------
are described in this Agreement, or are clearly marked when disclosed,
as being confidential, together with all written, visual and oral
materials so identified in writing within 30 days after their
disclosure.
(e) Installation Date. The business day after OSI Software is delivered to
-----------------
Licensee.
(f) Licensee. Adelphia and those of its Related Entities who affirmatively
--------
avail themselves of the benefits of this Agreement by executing and
delivering either an acknowledgment in the form of Exhibit 2 or an
Order in the form of Exhibit 2a. Adelphia will be jointly and
severally liable for the obligations of any Related Entity under this
Agreement.
(g) Licensee Software. Computer code, modules, programs, data files or
-----------------
rules, including related documentation, owned or licensed by a third
party to Licensee and designed to be linked, combined or otherwise
operated with OSI Software to augment or enhance it. Licensee Software
excludes OSI Software.
(h) NetExpert Framework Software. The OSI Software listed in OSI's
----------------------------
published and generally available Product List, as from time to time
in effect, as part of the NetExpert(R) network management Framework.
(i) OSI Software. Computer code, modules, programs, data files and rules
------------
that are listed as OSI Software in Exhibit 1, or that are provided to
Licensee by OSI in connection with the Services. OSI Software will
also include Documentation.
(j) Related Entity. A corporation or other legal entity that directly or
--------------
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, Adelphia. For purposes
of the foregoing, the terms "control," "controlled by" and "under
common control with" will mean the possession,
Page 1
<PAGE>
directly or indirectly, of the power to direct or cause the direction
of the management and policies of the entity, whether through
ownership of voting securities, by contract or credit arrangement, as
trustee or executor, or otherwise.
(k) Ruleset. A group of instructions which, when taken as a whole,
-------
constitute a decision-making matrix that directs the functions of
NetExpert Framework Software for a specific network element,
management operation or other application.
(l) Services. The update and support services described in Exhibit 3.
--------
(m) Vendor. A third party that directly or indirectly provides software
------
embedded in OSI Software.
2. FEES, PAYMENT
-------------
(a) Fee. Licensee will pay the fees set forth in Exhibit 1. Licensee will
---
be invoiced for payment, and payment will be made, as set forth in
Exhibit 1.
(b) Payments. Payment will be in immediately available funds, without
--------
withholding for Taxes or other amounts. Amounts not paid when due will
accrue interest at the lesser of 1.5% per month or the highest rate
permitted by applicable law, and Licensee will reimburse OSI for all
fees, costs and expenses (including attorneys' fees and court costs)
incurred to collect such amounts. Amounts billed by OSI become final
unless disputed within 45 days after the date of OSI's invoice.
(c) Taxes, Charges. Fees are exclusive of, and Licensee will pay, all
--------------
sales, value-added, withholding or excise taxes, and other government
fees and charges of any nature whatsoever other than taxes on the
income of OSI ("Taxes"). If Licensee is required to make any tax or
other withholding on or in relation to payments otherwise due under
this Agreement, it will be in addition to the amounts otherwise due.
Taxes paid or payable by OSI will be invoiced to and paid by Licensee.
Fees are quoted inclusive of, and Licensor will pay, applicable
freight and insurance charges. Licensee will not be required to pay
any sum to OSI under this subsection unless OSI (1) has actually paid
or intends in good faith to pay an equal sum to a governmental entity,
and (2) in good faith believes that applicable law requires the
payment.
(d) Audits. On reasonable notice, OSI may inspect Licensee's facilities
------
(including computers) and records to verify Licensee's proper use of
all OSI Software. Licensee will keep records regarding its use of the
OSI Software in sufficient detail to permit that verification. Audits
will be made, if at all, only in connection with (1) the termination
or non-renewal of this Agreement, (2) the termination or non-renewal
of any license under this Agreement, or (3) use by a Related Entity in
connection with that Related Entity ceasing to be a Related Entity as
defined in this Agreement.
3. ORDERS, DELIVERY, TITLE, RISK OF LOSS
-------------------------------------
(a) Orders. Licensee will use the Order form attached as Exhibit 2a to
------
acquire any additional copies of OSI Software under this Agreement. If
Licensee modifies this form or submits a different form, OSI may
accept the Order but will not be bound to any additional or different
terms. If Licensee is in then breach of this Agreement, OSI may delay
shipment or cancel an outstanding Order, even if already accepted.
Otherwise, all Orders will be filled and are included within the
license fees set forth in Exhibit 1.
(b) Shipment. OSI will pack and ship OSI Software according to its
--------
standard practice, F.O.B. factory, with freight and insurance prepaid
by OSI. Licensee will not acquire title to OSI Software. Risk of loss
will pass to Licensee when OSI Software is placed on board a carrier
at OSI's facility.
4. TERM, TERMINATION
-----------------
(a) Term. This Agreement will commence on the Effective Date, will remain
----
in effect for 60 months ("Initial Term").
(b) First Option to Renew. Provided Licensee is not then in breach of this
---------------------
Agreement, Licensee will have the option to extend the Initial Term
for an additional, fixed 60 month period ("First Renewal Term"). The
fees
Page 2
<PAGE>
that will apply during the First Renewal Term will be as set forth in
Exhibit 1. Notice of Licensee's election so to extend must be given to
OSI not less than three months before the end of the Initial Term.
(c) Second Option to Renew. Provided Licensee is not then in breach of
----------------------
this Agreement, Licensee will have the option to extend the First
Renewal Term, in one or more fixed increments of 12 months each, for
up to a total of an additional 60-month period following the
expiration of the First Renewal Term ("Second Renewal Term"). The fees
that will apply during the Second Renewal Term will be as set forth in
Exhibit 1. Notice of Licensee's election so to extend must be given to
OSI not less than three months before the end of the First Renewal
Term and/or not less than 60 days before the end of any 12-month
renewal period, as applicable.
(d) Termination of Agreement. This Agreement may be terminated (1) by
------------------------
either party on breach by the other party remaining uncured 60 days
after notice specifying the breach with particularity, or (2) by
notice if the other party becomes insolvent, bankrupt or makes an
assignment for the benefit of creditors.
Page 3
<PAGE>
(e) Effect of Non-Renewal. If Licensee elects not to renew this Agreement
---------------------
under Sections 4(b) or 4(c), as applicable, then not less than 60 days
before the expiration of this Agreement, the parties will meet to (1)
determine the scope of Licensee's then-current use of the OSI
Software, and (2) agree pricing that will apply to Licensee's
continued use, if any, of the OSI Software. Absent agreement, pricing
for continued use of the OSI Software, which will be on a month-to-
month basis for not more than 12 months and will be set, at the
prorated portion of the fees that would otherwise have been in effect
during the period of the month-to-month extension had the Agreement
not then expired. Licensee may elect not to receive Services for the
OSI Software during this month-to-month extension period and, if
Licensee so elects, the fees otherwise applicable to that period will
be decreased to reflect the absence of Services.
(f) Termination of Licenses. The licenses granted in Section 5 will
-----------------------
terminate on the earliest of the following to occur: (1) termination
of this Agreement by OSI under Section 4(d), (2) as to any Related
Entity, (a) six months following the date the entity ceases being a
Related Entity if the entity has independently entered into a direct
contract with OSI obligating it to observe all of the terms and
conditions of this Agreement and limiting its use of the OSI Software
to those uses in effect immediately prior to the date it ceased to be
a Related Entity, or (b) on the date the entity ceases being a Related
Entity if it has not entered into such a direct contractual
relationship with OSI, (3) a violation by Licensee of Sections 5(i) or
5(k), or (4) notice from Licensee. On termination of a license,
Licensee will immediately destroy or return to OSI all copies of the
OSI Software covered by that license that are then in its possession
or under its control. Except as may be negotiated between the parties
pursuant to Section 4(e), Licensee will have no continuing rights to
the OSI Software, whether alone or as part of Combined Software.
(g) Survival. On expiration or termination of this Agreement, the
--------
obligations of Licensee to pay amounts owed to OSI and to discharge
any liability incurred before expiration or termination will survive,
together with the provisions of Sections 2, 4, 5, and 7 - 11.
5. LICENSES
--------
(a) General. This Section sets forth the rights granted to Licensee for
-------
the OSI Software. Except for Rulesets that are provided in NetExpert's
4GL programming language, Licensee will receive only an object code
license for OSI Software.
(b) License Grant. OSI grants Licensee and Licensee accepts a personal,
-------------
non-transferable, non-exclusive license, without the right to
sublicense, to load, install, execute, display and store OSI Software,
solely for Licensee's internal use, and to use the Manuals for that
purpose. Licensee may also (1) modify rules and data files included in
OSI Software, and (2) modify OSI Software, link, combine or otherwise
operate OSI Software with Licensee Software and use the resulting
Combined Software solely for Licensee's internal use. No other rights
are granted to Licensee.
(c) Term, Limitations. The license granted in Section 5(b) will continue
-----------------
until terminated under Section 4(d). Licensee will not, nor will it
permit others to, use OSI Software to develop code, objects, modules
or programs that modify or substitute for code, objects, modules or
programs in the OSI Software. OSI and its Vendors retain title to and
all legally protected rights in all OSI Software, subject only to the
licenses granted under this Agreement. OSI Software may contain
authorization codes and/or lockout software to restrict its operation
to properly licensed uses.
(d) Intellectual Property. OSI Software is copyrighted. Licensee will not
---------------------
copy, alter, adapt, modify or make derivative works of OSI Software
except as expressly permitted by this Section. Licensee may make a
reasonable number of backup and archival copies of OSI Software,
provided that all copyright, patent, trademark and other proprietary
notices on and in the OSI Software is simultaneously copied. Licensee
may make a reasonable number of copies of Documentation for its
internal use only. Licensee will not alter or remove any copyright,
patent, trademark or other proprietary notice from the OSI Software or
Documentation. OSI Software may contain processes and techniques that
are protected by patents. No license to use these processes and
techniques apart from the OSI Software is granted.
(e) Trademarks and Tradenames. Licensee will not acquire any right to the
-------------------------
trademarks or tradenames of OSI and its Vendors. Licensee will not
use, apply to register or register a trademark or tradename that is
the same
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<PAGE>
as or confusingly similar to any used by OSI or a Vendor. OSI will not
use, apply to register or register a trademark or tradename that is
the same as or confusingly similar to any used by Licensee.
(f) Temporary or Replacement Use. Temporarily or permanent transfers of
----------------------------
OSI Software to another computer may be made, without charge. In
either case, Licensee will need to provide notice to OSI and obtain
the requisite authorization codes before the transfer is made.
(g) Reverse Engineering. Licensee will not, and waives to the fullest
-------------------
extent permitted by law any right to, reverse engineer, decompile,
disassemble or otherwise attempt to derive the source code for or
operation of OSI Software, or to decode, de-encrypt or engineer around
any authorization codes, lockout software or other security measures
contained in the OSI Software.
(h) Use of Products to Provide Third Party Services. Except as otherwise
-----------------------------------------------
expressly permitted by the terms of this Agreement, Licensee will not
use OSI Software to provide network management or operations support
services to a third party other than to a Related Entity, whether on
its own network, through its own network elements, on the network of a
third party, through the network elements of a third party, or
otherwise.
(i) Transfers. Licensee will not rent, license, sell or otherwise transfer
---------
any portion of the OSI Software. Any purported transfer will be void,
will be a breach of this Agreement and will cause the licenses granted
in this Agreement to automatically terminate.
(j) Reservation of Rights. Except as set forth in this Agreement, OSI
---------------------
reserves to itself and Vendors all rights to engage in activities
which, absent a grant of rights, would give rise to liability for
infringement of intellectual or intangible property rights.
(k) *
6. OTHER MATTERS
-------------
(a) Installation and Acceptance. OSI will not be responsible for
---------------------------
installation, post-installation testing, management or control of the
OSI Software. OSI Software will be accepted if it performs
substantially as described in its Documentation as in effect at the
time(s) of delivery.
(b) Documentation. Adelphia will be provided with 20 hard copies of OSI's
-------------
standard Documentation for all Licensed Software, together with one
electronic version to the extent available. These copies will be
provided within 30 days after the execution and delivery of this
Agreement. Updates to Documentation will be provided, as above, if and
when they are generally made available.
(c) Services. Exhibits 1 and 3 contain the terms under which OSI will
--------
provide Services to Licensee.
(d) *
(e) Escrow. OSI is a party to an escrow agreement ("Escrow Agreement") in
------
the form attached as Exhibit 5. Within 30 days after this Agreement
has been executed and delivered, OSI will register Licensee as a
beneficiary of the Escrow Agreement, provide Licensee with a copy of
the Escrow Agreement and provide Licensee verification that it is so
registered. Licensee will bear all costs for being added as a
beneficiary to the Escrow Agreement. OSI will have the right to change
to a successor escrow agent with the consent of Licensee, which will
not be unreasonably withheld. Throughout the Term, OSI will update its
Deposit Account under the Escrow Agreement on the earlier of once per
calendar quarter or, in respect of any particular item of OSI
Software, on OSI's issuance of a point release for that item if the
release occurs between OSI's normal quarterly updates, as applicable.
(f) Standards Compliance. During the Term, OSI will remain compliant with
--------------------
all industry standards that it reasonably believes should be
applicable to the OSI Software. Examples of standards to which OSI
currently complies are SNMPv3, CMIP, CORBA, TNM, NMF, ESQL, UML and
EJB.
(g) *
(h) Customer Advisory Board. For so long as this Agreement remains in
-----------------------
effect, Adelphia will have the option of becoming a member of OSI's
Customer Advisory Board ("CAB"). Attached as Exhibit 6 is a copy of
OSI's standard terms applicable to CAB membership, and Adelphia agrees
to be bound by those terms in
Page 5
<PAGE>
connection with that membership.
(i) *
(j) *
7. OWNERSHIP, PROPRIETARY RIGHTS
-----------------------------
(a) Ownership. All right, title and interest to copyrights, trade secrets,
---------
patents and other intellectual property rights (1) in the OSI Software
will remain the exclusive property of OSI and its Vendors, as
applicable, and (2) in Licensee Software will remain the exclusive
property of Licensee. For Combined Software, the parties will each
retain full and exclusive rights to those portions of their respective
software that are incorporated into the Combined Software. Combined
Software will not be a joint work, and on termination of the License
to OSI Software included in Combined Software, Licensee's right to use
that OSI Software will terminate, even as part of Combined Software,
and OSI's right to use Licensee Software will terminate, even as a
part of Combined Software.
(b) Proprietary Rights. All aspects of OSI Software, including programs,
------------------
methods of processing, program design and structure, the interaction
and unique programming techniques they employ, and their screen
formats, are Information and will (1) remain the exclusive property of
OSI or its Vendors, (2) not be used except as permitted by this
Agreement, and (3) not be disclosed or otherwise communicated by
Licensee, directly or indirectly, to anyone except as permitted by
this Agreement.
8. WARRANTIES
----------
(a) Limited Warranty. OSI warrants that:
----------------
(1) Except as set forth in Exhibit 3, each NetExpert Framework
Software will operate substantially as described in its
Documentation for one year after, and all other OSI Software will
operate substantially as described in the Documentation
accompanying the OSI Software, for 90 days after, a physical copy
of the OSI Software is first delivered to Licensee.
(2) All OSI Software will function, in its normal operation, as
follows: (1) values for current dates before, during and after
the Year 2000 will not cause interruptions in normal operation,
except that because of UNIX limitations, current dates greater
than or equal to 2038 cannot be supported on 32 bit machines, or
64 bit machines using 32 bit dates, (2) manipulations of date-
related data will produce desired results before, during and
after the year 2000 and management of stored dates greater than
or equal to 2038 will not cause problems on 32 bit machines, (3)
date elements in interfaces and data storage will permit
specification of century to eliminate date ambiguity, (4) for any
date element represented without century, two digit years greater
than or equal to 69 will convert to 19xx and two digit years less
than 69 will convert to 20xx, and (5) leap years will be properly
processed and recognized. No warranty is provided for any date
related problems caused by Vendor Software, or by any other
software or any hardware connected to OSI Software.
(3) OSI Software does not and will not contain any "Self-Help Code"
or any "Unauthorized Code." As used in this Agreement, "Self-Help
Code" includes any backdoor, time bomb, drop dead device or other
software routine designed to disable a computer program
automatically with the passage of time or under positive control
of a person other than Licensee, but does not include any (a)
authorization keys or other code designed to limit use of the OSI
Software to specific purposes or on specific equipment, or (b)
software routines designed to permit OSI (or any other person
acting on authority of OSI) to obtain access to Licensee's
computer systems (e.g., remote access via modem) for purposes of
authorized maintenance or technical support. "Unauthorized Code"
means any virus, Trojan Horse, worm or other software routines
designed to permit unauthorized access or to disable, erase or
otherwise harm software, hardware or data. The term "Unauthorized
Code" does not include Self-Help Code.
(b) Modifications and Vendor Software. OSI makes no warranty as to any
---------------------------------
portion of OSI Software that is modified, altered or combined with any
other software, such as Rulesets, and as to any of the related
Page 6
<PAGE>
Documentation provisions, unless the modifications, alterations or
combinations have been performed by or with the prior, written
approval of OSI.
(c) Pre-Release OSI Software. Licensee may request copies of Pre-Release
------------------------
OSI Software (such as "alpha" or "beta" versions of new or existing
OSI Software) as an accommodation for Licensee's evaluation, comment
and familiarization. Pre-Release OSI Software is provided without
warranty of any nature but the provisions of Section 10 will apply.
Pre-Release OSI Software may contain bugs and inoperable features that
may not be corrected. OSI may change Pre-Release OSI Software
significantly before commercial release, or even not produce a
commercial product based on Pre-Release OSI Software.
(d) Warranty Limitations. EXCEPT AS OTHERWISE SET FORTH IN EXHIBIT 3, THIS
--------------------
SECTION STATES THE EXCLUSIVE WARRANTIES FOR OSI SOFTWARE. EXCEPT FOR
THOSE WARRANTIES, OSI SOFTWARE IS PROVIDED "AS-IS." NO OTHER WARRANTY,
ORAL OR WRITTEN, IS EXPRESSED OR IMPLIED. OSI does not warrant that
the OSI SOFTWARE will (1) meet Licensee's requirements, (2) perform in
ANY operating environment OTHER THAN THE ONE SET FORTH IN ITS
DOCUMENTATION, OR (3) be uninterrupted or error free in ITS operation.
OSI does not warrant that any defect or malfunction CAN OR WILL BE
corrected. IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE SPECIFICALLY DISCLAIMED. The limited warranties
in this Section will not apply to, and OSI will have no warranty
obligation with respect to, any defect or malfunction (1) that results
from improper modification or use by Licensee, from hardware,
software, interfacing or supplies other than those provided by OSI in
the form provided by OSI, or from any cause other than ordinary use,
or (2) where the nonconformity cannot be reproduced, where OSI is not
provided with a the parameters, procedures or conditions which
generate the problem in sufficient detail to permit it to isolate the
code which causes the problem, or where OSI is not provided with all
data files, rules, Licensee Software and system access necessary to
reproduce and analyze the problem.
9. LIMITATIONS, REMEDIES
---------------------
(a) Exclusive Remedies. Licensee's sole remedy for a breach of the limited
------------------
warranty in Section 8(a) will be for OSI to use its commercially
reasonable efforts to restore the OSI Software to substantially
conforming condition under the terms of Exhibit 3 or, if OSI is unable
after such efforts to restore the OSI Software, then for Licensee to
obtain a refund equal to the depreciated value of the non conforming
OSI Software (based on a 48 month life beginning on its date of
delivery) on its return to OSI.
(b) Aggregate Liability. NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY
-------------------
FOR DAMAGES IN EXCESS OF THE TOTAL AMOUNTS TO BE PAID TO OSI UNDER
THIS AGREEMENT. THIS LIMITATION WILL (1) APPLY REGARDLESS OF THE FORM
OF ACTION, WHETHER CONTRACT OR TORT, INCLUDING NEGLIGENCE AND STRICT
LIABILITY, AND (2) NOT APPLY TO INDEMNITY UNDER SECTION 10, TO A
BREACH OF SECTIONS 5,7, 10 OR 11(A), OR TO LIABILITY FOR REAL PROPERTY
DAMAGE, DEATH OR BODILY INJURY CAUSED BY THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF OSI OR ITS VENDORS.
(c) Damages. NEITHER PARTY WILL BE LIABLE, REGARDLESS OF THE FORM OF
-------
ACTION, FOR LOST DATA, REVENUES, PROFITS OR SAVINGS, OR FOR INDIRECT,
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES, EVEN IF THE
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF THE DAMAGES. THIS
LIMITATION WILL NOT APPLY TO A BREACH OF SECTION 11(a).
10. INFRINGEMENT INDEMNITY
----------------------
(a) Indemnification by OSI.
----------------------
(1) So long as Licensee complies with the terms of Sections 5 and 7
of this Agreement, OSI will defend Licensee against any claims,
and indemnify and hold Licensee harmless against any judgments,
directly
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<PAGE>
or indirectly resulting from a claimed infringement or violation
of any copyright, patent, trademark, trade secret or other
intellectual property right with respect to OSI Software. OSI
will have no liability for any such claims or judgments based
solely on (a) the actions of Licensee, its employees or agents,
(b) use of a version, modification or adaptation of OSI Software,
if the infringement would have been avoided by the use of a then-
current unaltered release of OSI Software, (c) use of Combined
Software, if OSI Software operated independent of the Combined
Software is not the cause of the infringement, or (d) use of OSI
Software in combination with any computer software, hardware or
data not delivered in that combination by OSI or expressly
approved, in writing to Licensee, for use in that combination by
OSI.
(2) On receiving notice of a claimed infringement, OSI may (a) settle
on terms that permit continued use of OSI Software, (b)
discontinue distribution of the OSI Software that is the cause of
the claim and provide a reasonable substitute for OSI Software
without any decrease in functionality, (c) modify OSI Software to
be non-infringing, or (d) if the foregoing remedies are not
reasonably available, grant Licensee a credit for the depreciated
value of the relevant portion of OSI Software (based on a 48
month life beginning on the date of its delivery) and accept its
return.
(3) THIS SECTION PROVIDES LICENSEE'S SOLE REMEDY FOR INFRINGEMENT OF
PATENTS, COPYRIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS.
(b) Indemnification by Licensee. Licensee will defend OSI and its Vendors
---------------------------
against any claims, and indemnify and hold OSI and its Vendors
harmless against any judgments, directly or indirectly resulting from
any claimed infringement or violation of any copyright, patent or
other intellectual property right with respect to the OSI Software to
the extent that Licensee Software or any of the acts described in
Section 10(a)(1)(a) - (d) is the cause of the claimed infringement or
violation.
(c) Cooperation. Notwithstanding the above, an indemnifying party is under
-----------
no obligation to defend or indemnify another party unless: (1) the
indemnifying party has been promptly notified of the claim or suit and
furnished with a copy of each pleading, communication, notice and
other action relating to the claim or suit; (2) the indemnified party
permits the indemnifying party, at the indemnifying party's expense,
to assume sole authority to conduct the trial or settlement of the
claim or suit and any negotiations related to it; and (3) the
indemnified party promptly provides all information and assistance
reasonably requested by the indemnifying party in connection with the
claim or suit.
11. GENERAL
-------
(a) Confidential Information. In the course of their dealings, each party
------------------------
will acquire Information about the other, including Information
regarding business activities and operations, technical information
and trade secrets of the party and its partners. Each party will hold
in confidence any Information that it receives from the other party,
not use that Information for purposes other than performance of this
Agreement and not disclose the Information except to those employees
and advisors who (1) have a need to know the same, and (2) are bound
by law or have agreed in writing to maintain the Information in
confidence. Information includes all nonpublic aspects of the OSI
Software, including programs, methods of processing, program design
and structure, the interaction and unique programming techniques
employed, and performance data and test results. The term
"Information" also includes the nonpublic plans of OSI and Vendors for
new products and services, product improvements and marketing
strategies. If a party discovers Information has been improperly used,
disseminated or published, it will immediately notify the other party
and take all reasonable actions to minimize the impact of the
disclosure.
(b) Excluded Information. Even if marked as confidential, the obligations
--------------------
in Section 11(a) will not apply to Information generally available to
or known to the public, known by the receiving party without
obligation of confidentiality before the negotiations leading to this
Agreement, independently developed by the receiving party outside the
scope of this Agreement, lawfully disclosed to the receiving party
without restriction by a third party having the right to make the
disclosure or required to be publicly disclosed to a tribunal. In the
case of required disclosures to tribunals, the receiving party will
promptly notify the other party of the proceeding and fully assist the
disclosing party to obtain protective orders maintaining the
confidentiality of the Information.
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<PAGE>
(c) Compliance with Export and Other Laws. OSI Software and all related
-------------------------------------
rights, technical data and information are subject to export controls
imposed by the U.S. Government. Licensee will not transmit any OSI
Software or information relating to OSI Software outside of the United
States or to any person or entity prohibited by the U.S. Government,
whether by name, by citizenship, residency or otherwise, and will
comply with all applicable export control restrictions. Each party, at
its expense, will comply with all applicable laws, regulations, codes
and ordinances. Neither party will be bound by any provision of this
Agreement to the extent, but only to the extent, that it violates
applicable law.
(d) Notices. Notices, consents, approvals and communications given under
-------
this Agreement will be (1) in writing, (2) in the English language,
(3) sent by registered or certified mail, return receipt requested,
postage prepaid, or by a courier service that obtains signed
acknowledgement of receipt, to the address indicated below the
signature block of this Agreement or to such other address as the
affected party designates by prior notice, and (4) effective on the
date received unless a later date is otherwise indicated in the
notice, consent or communication.
(e) Assignment. This Agreement is not assignable, including by operation
----------
of law, by either party, either in whole or in part, without the prior
consent of the other party, which consent will not be unreasonably
withheld; provided, however, that OSI may assign this Agreement
without such consent in connection with any merger, acquisition or
other combination with or by OSI, or in connection with the sale of
all or substantially all of OSI's assets, whether directly or
indirectly, provided the surviving entity or the acquiror of those
assets, as applicable, agrees in writing to be bound by all of the
terms and conditions of this Agreement. This Agreement will be binding
on and inure to the benefit of the parties and their respective
successors and permitted assigns.
(f) Governing Law. This Agreement will be governed by and construed in
accordance with the internal substantive laws of the State of
California, excluding its choice of law principles. The United Nations
Convention on Contracts for the International Sale of Goods will not
apply.
(g) Arbitration. Any dispute, controversy or claim arising out of or
-----------
relating to this Agreement will be finally resolved by binding
arbitration under the Rules of Arbitration of the American Arbitration
Association in effect at the time of the arbitration ("AAA Rules").
(1) The venue of the arbitration will be Dallas, Texas. All
proceedings will be conducted in English and English translations
of all foreign language documents filed, submitted or exchanged
during the proceedings will be supplied concurrently by the
producing party. On reasonable notice to the other party and the
arbitration panel, parties will be entitled to use expert and
rebuttal witnesses.
(2) Each party will pay its own fees and expenses incurred in
connection with the arbitration. Common expenses of the
arbitration (such as the fees and expenses of the arbitrator)
will be borne by the parties in such amounts or proportions as
the arbitrator may determine.
(3) The award of the arbitrator will be (a) in writing (including
reasons), and (b) final and binding on the parties. Judgment upon
the award may be entered and enforced by any court of competent
jurisdiction.
(4) In no event will the arbitrator award damages that are not
permitted under the express terms of this Agreement.
(5) Without prejudice to the AAA Rules, either party may apply to any
court of competent jurisdiction for such interim relief as it
considers appropriate, without the need to post bond or other
security, or if required, then the minimum bond or other security
permitted.
(h) Equitable Relief. Any breach of a party's obligations with respect to
----------------
intellectual property rights will cause irreparable injury for which
there are no adequate remedies at law. The aggrieved party will be
entitled to equitable relief in addition to all other remedies that
may be available, without the posting of bond or other security, or if
required, then the minimum bond or security so required.
(i) Force Majeure. Neither party will be liable or held in default for a
-------------
failure or delay in performing its obligations under this Agreement,
other than to make payment for amounts owing or to comply with
Sections 5 and 7, due to any cause beyond its reasonable control, so
long as the party takes all reasonable steps to avoid and minimize the
impact of such cause. A party suffering an event of force majeure will
notify the other party
Page 9
<PAGE>
as promptly as is reasonably possible regarding the nature of the
event and its estimate of when the event will no longer apply.
(j) Entire Agreement. This Agreement and the Enterprise Professional
----------------
Services Agreement of even date between the parties, including their
respective Exhibits, constitutes the entire agreement between the
parties regarding its subject matter and supersedes all prior
communications, both oral and written, between the parties. Except as
set forth in Section 11(k), this Agreement may not be modified, and no
rights will be waived, except by an instrument in writing signed by a
duly authorized representative of both parties. If the terms of this
Agreement conflict with the terms of any of its Exhibits, the Exhibits
will prevail. As used in this Agreement, the term "including" means by
way of example and not limitation.
(k) Modifications to Exhibits. OSI may change Exhibits 3, 4 and 6 to this
-------------------------
Agreement by notice to Licensee at least 30 days in advance of the
change. Any change to an Exhibit will reflect the same terms as OSI
may from time to time generally make available to its customer base.
(l) Waivers. No waiver by a party of a breach of this Agreement will
-------
constitute a waiver of any other breach of the same or any other
provision of this Agreement.
(m) Execution. This Agreement may be executed in multiple counterparts,
---------
each of which will be deemed an original and all of which will
constitute together one agreement. A counterpart delivered to a party
by facsimile or similar electronic means will be deemed an original,
equivalent in all respects to a manually executed counterpart.
(n) Intentional Risk Allocation. The provisions of this Agreement reflect
---------------------------
an informed, voluntary allocation between the parties of the risks
(known and unknown) that may exist in connection with this Agreement.
This voluntary allocation was a material part of the bargain between
the parties and the economic and other terms were negotiated and
agreed to by the parties in reliance on that allocation.
(o) Independent Contractors. The parties are independent contractors.
-----------------------
Under no circumstances will the employees of one party be deemed the
employees of the other for any purpose. This Agreement does not grant
authority for either party to act for the other in an agency or other
capacity, or to make commitments of any kind for the account of or on
the behalf of the other.
(p) Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, it will be deemed to be modified to the
minimum extent necessary to be valid and enforceable. If it cannot be
so modified, it will be deleted and the deletion will not affect the
validity or enforceability of any other provision unless, as a result,
the rights of either party are materially diminished or the
obligations and burdens of either party are materially increased so as
to be unjust or inequitable.
(q) Cumulative Remedies. Except as otherwise provided, the rights and
-------------------
remedies in this Agreement are cumulative and in addition to any other
remedies available at law or equity.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives.
OBJECTIVE SYSTEMS INTEGRATORS, INC. ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ Philip N. Cardman By: /S/ James P. Rigas
------------------------------ --------------------------------
Title: Vice President Title: Vice President
---------------------------- -----------------------------
Date: 12/29/99 Date: 12/29/99
----------------------------- ------------------------------
Address for Notices:
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<PAGE>
Objective Systems Integrators, Inc. Adelphia Communications Corporation.
101 Park Way Main at Water Street
Folsom, CA 95630 Coudersport, PA 16915
Attn: Contracts Administration Attn: President
Business Telephone: (916) 353-2400 Facsimile for Notices: (814) 274-7098
Facsimile for Notices: (916) 353-0647
With a copy to:
Adelphia Business Solutions, Inc.
Main at Water Street
Coudersport, PA 16915
Attn: General Counsel
Facsimile for Notices: (814) 274-7782
Page 11
<PAGE>
Exhibit 1
---------
*
Page 12
<PAGE>
Exhibit 2
---------
ACKNOWLEDGEMENT
THIS ACKNOWLEDGEMENT is made by the undersigned ("Licensee") under the
Enterprise-Wide License Agreement, (ELA-321), dated as of December 20, 1999
("Agreement"), between Adelphia Communications Corporation and Objective Systems
Integrators, Inc. ("OSI"). By execution below, Licensee agrees to be bound by
the terms and conditions of the Agreement as though a signatory thereto.
IN WITNESS WHEREOF, Licensee and the OSI have caused this Acknowledgement to be
executed by their duly authorized representatives as of the later of the dates
indicated below.
__________________________________ OBJECTIVE SYSTEMS INTEGRATORS, INC.
LICENSEE
By: ___________________________________ By: ____________________________
Title: ________________________________ Title: __________________________
Date: _________________________________ Date: ___________________________
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<PAGE>
Exhibit 2a
----------
SOFTWARE ORDER
THIS SOFTWARE ORDER is made by the undersigned ("Licensee") under the
Enterprise-Wide License Agreement (ELA-321), dated as of December 20, 1999
("Agreement"), between Adelphia Communications Corporation and Objective Systems
Integrators, Inc. ("OSI"). On acceptance of this Order by OSI, Licensee agrees
to be bound by all of the terms and conditions of the Agreement as though a
signatory thereto and the software described below will be OSI Software for
purposes of the Agreement.
. Description of Additional Copies of OSI Software*
Product Authorized
Item # Quantity Description Computers
------ ------- ----------- ---------
* In lieu of completing the description and listing prices in this Order,
Licensee may incorporate this information by attaching its form of purchase
order.
. Attachment of Licensee's Purchase Order
If Licensee incorporates information required in Section A by attaching its
purchase order, Licensee agrees that, except for this information, no
provisions in its purchase order will (1) be incorporated into this
Software Order or into the Agreement, or (2) modify or amend the terms of
this Order or the Agreement.
. Designation of Initial Delivery Point/Delivery Schedule
Licensee directs OSI to deliver the OSI Software to ______________________
IN WITNESS WHEREOF, Licensee and the OSI have caused this Order to be executed
by their duly authorized representatives as of the later of the dates indicated
below.
______________________________ OBJECTIVE SYSTEMS INTEGRATORS, INC.
LICENSEE
By: ___________________________________ By: ______________________________
Title: ________________________________ Title: ___________________________
Date: _________________________________ Date: ____________________________
Page 14
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Exhibit 3
SERVICES
1. DEFINITIONS
-----------
(a) Defect. An error in OSI Software or a failure of OSI Software to
------
conform substantially with its then-current Documentation that can be
reproduced by OSI. Defects fall into three categories as follows:
(1) Priority 1 (Production System Failure). Licensee's primary
--------------------------------------
production system (a) is completely unavailable, (b) has a
problem that occurs with sufficient frequency that the system is
effectively rendered inoperable, or (c) is affected such that
critical business processes are unavailable. In each case, no
Workaround can be immediately identified. For Priority 1 Defects,
both OSI and Licensee will commit full-time resources to resolve
the situation.
(2) Priority 2 (System Impairment). Licensee's business processes are
------------------------------
impacted or impaired, but Licensee's primary production system
still functions.
(3) Priority 3 (Minor Fault). A Priority 1 or 2 Defect where a
------------------------
Workaround has been identified, the impact on Licensee is minor,
the Defect has no material operational impact on Licensee, or the
Defect does not require immediate attention.
(b) Emergency Release. A new version of OSI Software that incorporates
-----------------
Patches to rectify one or more Priority 1 or Priority 2 Defects. An
Emergency Release may include additional Documentation.
(c) Patch. Replacement of, or provision of an addition to, a portion or
-----
module of OSI Software. A Patch may include additions or replacement
to existing Documentation
(d) Remote Access. Access to Licensee's systems required by OSI to provide
-------------
Services, which may include dedicated connection, dial-up modem,
internet, telnet or other means by which OSI can gain the required
access.
(e) Workaround. A modification to the procedures Licensee follows or the
----------
data it supplies when using OSI Software. A Workaround is designed to
enable OSI Software to operate without materially and adversely
affecting Licensee's ability to use OSI Software in its production
environment.
2. GENERAL
-------
(a) NetExpert Framework Software. Provided Licensee (1) is not in breach
----------------------------
of this Agreement, and (2) has provided OSI with timely Remote Access
to the affected system, OSI will provide to Licensee the Services
specified below. Services will be provided only for the current
generally available release and for the immediately preceding release,
with all OSI recommended NetExpert(R), operating system, database and
other patches applied. Other than the current generally available
release and the immediately preceding release, OSI will provide
Services for superseded releases on a time and materials basis.
(b) Application Components and Rulesets. Because Application Components
-----------------------------------
and Rulesets may vary between end-users even for the same network
element, management operation or other operation, and because
Application Components and Rulesets may be modified by others after
delivery by OSI, unless otherwise agreed to by OSI in writing,
Services for Application Components and Rulesets are provided only on
a time and materials basis. The following Sections describe the
limited Services available for Application Components and Rulesets
when such Services are made available by OSI.
Page 15
<PAGE>
3. UPDATE AND ENHANCEMENT SERVICES
-------------------------------
(a) NetExpert Framework Product Updates. When available, OSI will provide
-----------------------------------
Licensee at no additional cost with new and interim versions of
NetExpert Framework Software, including any enhancements or extensions
thereto, at the time each version is generally made available to its
other customers. OSI will make such revisions, enhancements or
extensions to NetExpert Framework Software as it deems necessary and
appropriate.
(b) Application Components and Rulesets. Generally, Application Components
-----------------------------------
and Rulesets are only updated on a time and materials basis.
Occasionally OSI may update an Application Component or Ruleset for a
new release of network element software, but unless OSI has agreed
otherwise with Licensee, that updated Application Component or Ruleset
will be made available for license by payment of a separate license
fee, and integration and customization of that Application Component
or Ruleset into Licensee's system will be required either by OSI, by
Licensee or by a party contracted by Licensee.
4. EXTENDED WARRANTY SERVICES
--------------------------
(a) Extended Warranty. As part of the Services for OSI Software, the
-----------------
limited warranties provided in Section 8(a) of the Agreement will,
subject to the terms of the Agreement, be extended for the OSI
Software as set forth in this Section 4.
(b) NetExpert Framework Products. If Licensee believes that there is a
----------------------------
Defect in NetExpert Framework Software, Licensee will (1) promptly
notify OSI, describing the parameters, procedures and conditions that
result from the Defect in sufficient detail to permit OSI to isolate
the code that caused the Defect, and (2) provide OSI with all data
files, database rules, Licensee Software and Remote Access (and where
required by OSI, onsite access) required to reproduce and analyze the
Defect. If OSI is unable to reproduce the Defect, it will have no
responsibility to take further action.
(c) Application Components and Rulesets. If Services are available for
-----------------------------------
Application Components or Rulesets, the OSI Extended Warranty only
covers Application Components and Rulesets in the form provided by
OSI. On receipt by OSI of the notice described in Section 4(b), OSI
will analyze the Application Component or Ruleset to determine if the
Defect is reproducible. OSI will have no obligation for Defects not in
the original Application Component or Ruleset as provided by OSI.
(d) Response Times. On notice of a Defect, during normal business hours
--------------
(unless Extended Services are purchased) OSI will initiate work to
verify the Defect, advise Licensee of its plans for resolving the
Defect, and use commercially reasonable efforts to resolve the Defect,
as follows:
(1) Priority 1. OSI will promptly initiate work to verify a Priority
----------
1 Defect within two hours of being notified and will try to
resolve the Defect within 5 business days.
(2) Priority 2. OSI will initiate work to verify a Priority 2 Defect
----------
no later than the next business day and will try to resolve the
Defect within 10 business days.
(3) Priority 3. OSI will initiate work to verify a Priority 3 Defect
----------
within 30 business days and will try to include a Patch for the
Defect in the next update or version of OSI Software provided
Licensee.
OSI will also promptly notify Licensee if a Defect cannot be resolved
within the above time periods and will cooperate in good faith with
Licensee to arrive at an alternative period for resolution
(e) Response. OSI will work diligently to resolve Priority 1 and
--------
Priority 2 Defects with a Workaround, Patch or Emergency Release.
Whenever practical, OSI will verbally advise Licensee of a
Workaround, followed by a confirmation posted on WebTAC or
otherwise provided in writing to Licensee. If a Workaround does
not resolve the Defect, OSI will use commercially reasonable
efforts to provide a Patch or Emergency Release. If a Workaround
is provided and resolves the Defect, it will be downgraded to
Priority 3.
5. HOTLINE SERVICES
---------------
Telephone Hotline Support will be available from 6:00 a.m. to 5:00 p.m.,
Pacific Standard Time, Monday through Friday (excluding OSI holidays) for
Extended Warranty Services and General Support Services.
6. WEBTAC
------
Page 16
<PAGE>
Subject to system availability, which OSI will make commercially reasonable
efforts to maintain, Licensee will have 24 hour-a-day, 7 day-a-week access
to OSI's Technical Assistance Center on the World Wide Web, URL
http://tac.osi.com/. Use of OSI's WebTAC is subject to the terms and
procedures posted on that site.
7. GENERAL MATTERS
---------------
(a) Contacts and Internal Support.
-----------------------------
(1) Adelphia will designate one employee who will be the primary
contact person and one employee who will be the backup contact
person (either of whom is the "Contact Person") for all matters
related to Services. The Contact Person will have successfully
completed all relevant OSI training. Only the Contact Person will
use Extended or Hotline Services or OSI's WebTAC.
(2) All requests for Services or other assistance will be made
through Adelphia's Contact Person. Licensee will take and
document the following actions (to the extent appropriate) both
before and after reporting a Defect to OSI, and will commit
appropriate resources to working on the Defect until its source
has been agreed:
(A) maintaining an up-to-date record of system changes, such as
upgrades, patches and modifications to operating systems,
databases, device software and Products;
(B) gathering all relevant information from the user reporting
the Defect;
(C) identifying the nature of the Defect;
(D) reproducing the error and documenting the steps required for
that reproduction;
(E) eliminating physical causes, such as connections, device
malfunctions and memory or CPU problems;
(F) examining logs, records, archives, core files and other user
documentation;
(G) reaching, where possible, a tentative conclusion regarding
causation;
(H) providing OSI with proper Remote Access and any required
assistance; and
(I) to the extent appropriate, interfacing with distributors of
interfacing systems such as the operating system, database
programs and other hardware and software, and working with
those distributors to eliminate or identify errors in their
systems.
(b) Cancellation. Services for OSI Software will be canceled if and when
------------
the license for the OSI Software is terminated. In such event, OSI
will refund to Licensee a prorata portion of previously paid Services
fees. Cancellation of Services will not, of itself, constitute
termination of the Agreement.
(c) Modifications and Unauthorized Uses. OSI will have no obligation to
-----------------------------------
support OSI Software if it (1) has been modified by Licensee, or (2)
is being used in violation of the terms of the Agreement. If a
reported Defect is not a Defect in OSI Software but is actually a
problem caused by user error, modification of the OSI Software by a
party other than OSI, or third party hardware or software, OSI may
invoice Licensee on a time and materials basis for efforts provided by
OSI personnel above 8 hours for each such Defect.
(d) Limitations. UNDER THE OSI EXTENDED WARRANTY, OSI WILL USE ITS
-----------
COMMERCIALLY REASONABLE EFFORTS TO REPAIR DEFECTS, BUT OSI DOES NOT
GUARANTEE THAT IT WILL BE ABLE TO REPAIR ALL DEFECTS, OR THAT ANY
REPAIR WILL BE SATISFACTORY TO LICENSEE.
Page 17
<PAGE>
Exhibit 4
---------
TRAINING
--------
Licensee may use OSI Training credits to:
(1) Attend pre-scheduled OSI training classes in Folsom, California.
Student registration is required in advance of any class and is
subject to class availability. The training classes and the training
units are set out in OSI Training Course Catalogue.
(2) Reserve a full class at OSI training at OSI's facilities in Folsom,
California and select the class modules to be taught. Each class may
contain up to 12 students. One class day for 12 students equates to 48
training units.
(3) Schedule a class to be taught at Adelphia facilities. Classes must be
arranged with OSI 2 months in advance. One class day for 12 students
equates to 48 training units.
For any training at Adelphia's facilities, the following will apply:
Prerequisite Information.
- ------------------------
OSI will require the following information about the classroom systems 3-4 weeks
prior to arrival.
. Host names and host IDs of all of the workstations and servers on the
classroom network.
. Classroom network configuration for the technical training classroom.
. The classroom power requirements and/or irregularities. Is the voltage
220v, 110v, etc. Should OSI expect brownouts, surges, or frequent
outages?
. Name, address, phone and fax numbers, email or Internet address of a
contact at Adelphia's site that will facilitate training setup.
. Full address and phone number of where training will be held. Also
provide a local map if available.
. Full address and phone number of where training materials should be
shipped.
Local Support.
- -------------
Since the OSI instructor will not have local knowledge of the UNIX environment,
a UNIX system administrator and DAB for support will need to be provided. They
must have administrative authority over the hardware and software in the
training room. They also must be available for system support throughout the
duration of the training.
The OSI instructor will also need a local point of contact. This person will
provide the instructor access to the building where the classes are to be
conducted and local information as needed.
Completed Before Arrival.
- ------------------------
The classroom facilities must be completely setup before the instructor arrives
at the site. This includes setting up:
. Student seating, classroom furniture, and amenities.
. The classroom network. All workstations must be able to operate on the
same network, and mount ifs filesystems exported by the server.
If this work is not completed prior to the instructor's arrival, it could delay
the start of training.
Page 18
<PAGE>
System Configuration.
- --------------------
The following requirements state the minimum requirements for an OSI technical
training class. The classroom systems need not be the exact models specified.
However, they should be systems equivalent to those specified.
Server
------
The classroom will require one system that will function as the classroom's
file and database server.
-------------------------------------------------
Sparc Ultra 1170
Model
-------------------------------------------------
256mb
Real Memory
-------------------------------------------------
Disk Drive(s) 4 gigabytes
-------------------------------------------------
Clients
-------
The classroom will require one client workstation for every two students.
Each client workstation will access filesystems on the server via nfs. Each
student workstation will need one partition that is at least one gigabyte
in size. Students to install NetExpert during the System Administration
class will use this partition. OSI typically uses the /opt filesystem for
this purpose
-------------------------------------------------
Sparc Ultra 170
Model
-------------------------------------------------
128mb
Real Memory
-------------------------------------------------
2 gigabytes
Disk Drive One partition must be at
least 1 gigabyte in size
-------------------------------------------------
Ethernet Hub
------------
The hub needs enough ports to support all of the machines in the room, as
well as the instructor's laptop PC.
Classroom Installation.
- ----------------------
The OSI instructor will bring a Sun 9.2 Sparc Unipack external disk drive. This
disk drive contains all of the necessary data to conduct the Basic Rules
Development, Basic VisualAgent, and Basic Operator classes. This data includes
the NetExpert and Informix installations, UNIX user accounts, and license files
necessary to conduct the class.
Classroom setup normally requires two days for installation and testing. The OSI
instructor, with the assistance of the local system administrator, will:
. Attach and install the hard drive to the classroom fileserver via a SCSI
connection.
. Mount the filesystems on the external hard drive locally on the
fileserver.
. Install the user accounts on the fileserver.
. Export the external hard drive's filesystems via nfs.
Page 19
<PAGE>
. Mount the external hard drive's filesystems on the clients.
. Install the external hard drive's filesystems on the clients.
The instructor will install the user accounts on the workstations by backing up
the /etc/passwd, /etc/group, and /etc/shadow files on each workstation and then
overwriting them with the passwd, group, and shadow found on the external hard
drive. During breakdown at the end of the training session, the instructor will
restore the original passwd, group, and shadow files to their original
locations.
Page 20
<PAGE>
Exhibit 5
---------
TECHNOLOGY ESCROW AGREEMENT
Account Number ___________________
This Technology Escrow Agreement including any Exhibits ("Agreement")
is effective this _______ day of _____________, 199___. ("Effective Date"), by
and among Data Securities International, Inc. ("DSI"), a Delaware corporation,
Objective Systems Integrators, Inc., a California corporation ("Licensor") and
_______________________, a ________________ corporation ("Licensee").
Notices to Licensor, Licensee and DSI should be sent to the parties at
the addresses identified in the attached Exhibit A.
WHEREAS, Licensor has entered or will enter into a contract with the
Licensee for the use of proprietary technology and other materials of Licensor;
WHEREAS, Licensor and Licensee desire the Agreement to be
supplementary to said contract pursuant to 11 United States Code ("USC") Section
365(n):
WHEREAS, availability of or access to certain proprietary data related
to the proprietary technology and other materials is critical to Licensee in the
conduct of its business;
WHEREAS, Licensor has deposited or will deposit with DSI the related
proprietary data to provide for retention and controlled access for Licensee
under the conditions specified below;
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and in consideration of the promises, mutual
covenants and conditions contained herein, the parties hereto agree as follows:
1. Licensor Deposit Account. Following the execution and delivery of the
------------------------
Agreement and the payment of the set-up and deposit account fees to
DSI, DSI shall open a deposit account ("Deposit Account") for
Licensor. The opening of the Deposit Account means that DSI shall
establish an account ledger in the name of Licensor, calendar Licensor
to receive renewal notices as provided in Section 9, and request the
initial deposit from Licensor until an initial deposit is received.
Unless and until Licensor makes the initial deposit ("Initial
Deposit") with DSI, DSI shall have no further obligation to Licensor
except as defined by this section.
2. Initial Deposit. The Initial Deposit will consist of all material
---------------
initially supplied by Licensor to DSI as specified by an accompanying
document called a "Description of Deposit Materials" hereinafter
referred to as "Exhibit B". DSI shall issue a copy of the Exhibit B to
Licensor and Licensee within ten (10) days of acceptance of the
Initial Deposit by DSI.
3. Deposit Changes. "Deposit" means and includes the Initial Deposit
---------------
and/or Supplemental Deposit and/or Replacement Deposit upon acceptance
by DSI. Unless otherwise provided by the Agreement Licensor has the
obligation to keep the Deposit updated with current materials.
Licensor hereby agrees to update the Deposit held by DSI with
supplemental or replacement technology releases within thirty (30)
days of distribution of a technology release to Licensee. Such deposit
activity shall occur at least every 12 months or Licensor shall
--
certify to Licensee that the Deposit contains the latest technology
release.
a. Supplemental Deposit. "Supplemental Deposit" means and
--------------------
includes any material added to the Deposit. Licensor
will submit the Supplemental Deposit accompanied by an
Exhibit B.
Page 21
<PAGE>
DSI shall issue a copy of the Exhibit B to
Licensor and Licensee within ten (10) days of
acceptance of the Supplemental Deposit by DSI.
b. Replacement Deposit. "Replacement Deposit" means and
-------------------
includes any material which replaces the Deposit or
portions of the Deposit defined by Exhibit B(s). Items
of the Deposit defined in an Exhibit B may not be
replaced. Licensor will submit the Replacement Deposit
accompanied by an Exhibit B.
Within ten (10) days of receipt of a request by
Licensor to replace, DSI will send a notice to Licensee
stating that Licensor request to replace, and DSI will
include a copy of the Exhibit B defining the new
material.
Licensee has thirty (30) days from the mailing of such
notice by DSI to instruct DSI to retain the Deposit
held by DSI and if so instructed DSI will change the
Replacement Deposit to a Supplemental Deposit.
Retention could incur an additional storage unit fee as
specified by DSI's Fee and Service Schedule.
If Licensee does not instruct DSI to retain the
Deposit, or portions of the Deposit requested to be
replaced, DSI shall permit such Deposit to be replaced
with the Replacement Deposit.
DSI shall issue a copy of the Exhibit B to Licensor and
Licensee within ten (10) days of acceptance of the
Replacement Deposit by DSI. DSI will either destroy or
return to Licensor all material that is replaced by the
Replacement Deposit.
4. Deposit Inspection. Upon receipt of an Exhibit B, DSI will visually
------------------
match the listed items on the Exhibit B to the labeling of the
material ("Deposit Inspection"). DSI will not be responsible for the
contents or for validating the accuracy of Licensor's labeling.
Acceptance will occur when DSI concludes that the Deposit Inspection
is complete.
5. Licensee Registration Account. Following the execution and delivery of
-----------------------------
the Agreement and the payment of the registration fee to DSI, DSI
shall open a registration account ("Registration Account") for
Licensee. The opening of the Registration Account means that DSI shall
establish an account ledger in the name of Licensee, calendar Licensee
to receive renewal notices as provided in Section 9, and request the
Initial Deposit from Licensor until an Initial Deposit is received.
Unless and until Licensor makes the Initial Deposit with DSI, DSI
shall have no obligation to Licensee except as defined by this
section.
6. Deposit Obligations of Confidentiality. DSI agrees to establish a
--------------------------------------
receptacle in which it shall place the Deposit and shall put the
receptacle under the control of one or more of its officers, selected
by DSI, whose identity shall be available to Licensor and Licensee at
all times. DSI shall exercise a professional level of care in carrying
out the terms of the Agreement.
DSI acknowledges Licensor's assertion that the Deposit shall contain
Licensor's proprietary data and that DSI has an obligation to preserve
and protect that confidentiality.
Licensor grants DSI the irrevocable right to duplicate the Deposit
only as necessary to preserve and safely store the Deposit and to
provide a copy thereof as authorized herein to Licensee. DSI shall
reproduce on all copies of the Deposit made by DSI any proprietary or
confidentiality notices contained in the Deposit originally deposited
with DSI by Licensor.
7. Verification Rights. Licensor grants to DSI the right to verify the
-------------------
Deposit for accuracy, completeness and sufficiency. Licensor hereby
also permits DSI to verify, audit, and inspect the Deposit held or to
be held by DSI to confirm the quality of the Deposit for the benefit
of Licensee. Upon request by Licensor, DSI will issue a copy of the
verification results to Licensor.
Page 22
<PAGE>
In the event that Licensee retains DSI to perform verification of the
Deposit, Licensor hereby grants to DSI the right to use the facilities of
Licensor, free of charge to DSI, including Licensor's computer systems.
Licensor agrees to make available any technical and support personnel
necessary for DSI to perform verification of the Deposit, Licensee or
Licensor may retain DSI to perform verification of the Deposit upon receipt
by DSI of an executed Verification Agreement.
Licensor hereby grants to DSI permission to release to Licensee information
pertaining to directory lists and/or table of contents of computer media,
manuals, schematics, and manufacturing documents. Licensor grants to DSI
permission to release to Licensee copies of any executables or object code
modules prepared by DSI during the "Load and Compile" validation level for
the purposes of determining the content and quality of the Deposit.
If requested by Licensee, Licensor agrees to permit one employee of
Licensee to be present at Licensor's facility and to observe the
verification of the Deposit held or to be held by DSI.
8. Certification by Licensor. Licensor represents to Licensee that:
-------------------------
a. The Deposit delivered to DSI consists of the following:
source code deposited on computer magnetic media, all necessary and
available information, proprietary information, and technical
documentation which will enable Licensee to create, maintain and/or
enhance the licensed material without the aid of Licensor or any other
person or reference to any other materials, maintenance tools (test
programs and program specifications), proprietary or third party
system utilities (compiler and assembler descriptions), description of
the system/program generation, and descriptions and locations of
programs not owned by Licensor but required for use and/or support.
b. The Deposit will be defined in the Exhibit B(s).
These representations shall be deemed to be made continuously
throughout the term of the Agreement.
9. Term of Agreement. The Agreement will have an initial term of one year,
-----------------
commencing on the Effective Date. The Agreement may be renewed for
additional one-year periods upon receipt by DSI of the specified renewal
fees prior to the last day of the term ("Expiration Date"). In the event
that renewal fees are not received thirty (30) days prior to the Expiration
Date, DSI shall so notify Licensor and Licensee. If the renewal fees are
not received by the Expiration Date, DSI may terminate the Agreement
without further notice and without liability of DSI to Licensor and
Licensee. Licensee has the right to pay renewal fees and other related
fees. In the event Licensee pays the renewal fees and Licensor is of the
opinion that any necessary condition for renewal is not met, Licensor may
so notify DSI and Licensee in writing. The resulting dispute will be
resolved pursuant to the dispute resolution process defined in Section 15.
10. Expiry. If the Agreement is not renewed or is otherwise terminated, all
------
duties and obligations of DSI to Licensor and Licensee will terminate. If
Licensor requests the return of the Deposit upon termination or expiration
of the Agreement, DSI shall return the Deposit to Licensor only after all
outstanding invoices and deposit return fees are paid by Licensor. If the
fees are not received by the Expiration Date of the Agreement, DSI shall,
at its option, either destroy or return the Deposit to Licensor.
11. Filing For Release of Deposit by Licensee. Upon notice to DSI by Licensee
-----------------------------------------
of the occurrence of a release condition as defined in Section 13 and
payment of the release request fee, DSI shall notify Licensor by certified
mail with a copy of the notice from Licensee. If Licensor provides contrary
instruction within ten (10) days of the mailing of the notice to Licensor,
DSI shall not deliver a copy of the Deposit to Licensee.
"Contrary Instruction" means the filing of an affidavit or declaration with
DSI by an officer of Licensor stating that a release condition has not
occurred or has been cured. DSI shall send a copy of the affidavit or
Page 23
<PAGE>
declaration by certified mail to Licensee. DSI shall notify both Licensor
and Licensee that there is a dispute to be resolved pursuant to Section 15.
Upon receipt of Contrary Instruction, DSI shall not deliver a copy of the
Deposit and shall continue to store the Deposit until directed by Licensor
and Licensee jointly, resolved pursuant to Section 15, or ordered by a
court of competent jurisdiction.
12. Release of Deposit to Licensee. If DSI does not receive Contrary
------------------------------
Instruction from Licensor, DSI is authorized to release the Deposit, or if
more than one Licensee is registered to the Deposit, a copy of the Deposit,
to the Licensee filing for release following receipt of any fees due DSI
including Deposit copying and delivery fees.
13. Release Conditions of Deposit to Licensee. Release Conditions are:
-----------------------------------------
a. Licensor's failure to carry out maintenance or support obligations
imposed on it pursuant to a license agreement or other agreement(s)
between Licensor and Licensee; or
b. Licensor's failure to continue to do business in the ordinary course;
or
14. Conditions for Use Following Release. Following a release and payment to
------------------------------------
DSI of all outstanding fees, Licensee shall have the non-exclusive right to
use the Deposit solely for the purpose of continuing the benefits afforded
to Licensee by a license agreement or other agreement(s) between Licensor
and Licensee, unless otherwise specified in such license Agreement or other
agreement(s). Additionally, Licensee shall be required to maintain the
confidentiality of the released Deposit.
15. Disputes. In the event of a dispute, DSI shall so notify Licensor and
--------
Licensee in writing. Such dispute will be settled by arbitration in
accordance with the rules of the American Arbitration Association ("AAA").
Licensor and Licensee will each select one arbitrator and a third
arbitrator will be selected unanimously by said arbitrators. If said
arbitrators are unable to select the third arbitrator within ten (10) days,
the parties consent to the selection of the third arbitrator by the AAA
Administrator. Unless otherwise agreed to by Licensor and Licensee,
arbitration will take place at San Francisco, California.
16. Indemnification. Licensor and Licensee agree to defend and indemnify DSI
---------------
and hold DSI harmless from and against all claims, actions and suits,
whether in contract or in tort, and from and against any and all
liabilities, losses, damages, costs, charges, penalties, counsel fees, and
other expenses of any nature (including, without limitation, settlement
costs) incurred by DSI as a result of performance of the Agreement except
in the event of a judgment which specified that DSI acted with gross
negligence or willful misconduct.
17. Audit Rights. DSI agrees to keep records of the activities undertaken and
------------
materials prepared pursuant to the Agreement. Licensor and Licensee will be
entitled upon reasonable notice and during normal business hours during the
term of the Agreement to inspect the records of DSI with respect to the
Agreement.
Licensor or Licensee accompanied by an employee of DSI will be entitled to
inspect the physical status and condition of the Deposit, upon reasonable
notice and during normal business hours. The Deposit may not be changed by
Licensor or Licensee during the audit.
18. Designated Representative. Licensor and Licensee each agree to designate
-------------------------
one individual to receive notices from DSI and to act on behalf of Licensor
and Licensee respectively in relation to the performance of their
obligations as set forth in the Agreement and to notify DSI immediately in
the event of any change from one designated representative to another in
the manner stipulated in Exhibit A.
19. General. DSI may act in reliance upon any written instruction, instrument,
-------
or signature believed to be genuine and may assume that any person giving
any written notice, request, advice or instruction in connection with or
relating to the Agreement has been duly authorized to do so. DSI is not
responsible for failure to fulfill its obligations under the Agreement due
to causes beyond DSI's control.
The Agreement is to be governed by and construed in accordance with the
laws of the State of California.
Page 24
<PAGE>
The Agreement, including any Exhibits, constitutes the entire agreement
between the parties concerning the subject matter hereof, and supersedes
all previous communications, representations, understandings, and
agreements, either oral or written, between the parties.
If any provision of the Agreement is held by any court to be invalid or
unenforceable, that provision will be severed from the Agreement and any
remaining provisions will continue in full force.
20. Fees. All service fees will be due in full at the time of the request for
----
service. Annual renewal fees will be due in full upon the receipt of
invoice unless otherwise specified by the invoice. If invoiced fees are not
paid within sixty (60) days of receipt of invoice, DSI may terminate the
Agreement. If the payment is not timely received by DSI, DSI shall have the
right to accrue and collect interest at the rate of one and one-half
percent per month (18% per annum) from the date of the invoice for all late
payments.
All service fees and annual renewal fees will be those specified in DSI's
Fee and Service Schedule in effect at the time of renewal or request for
service, except as otherwise agreed. For any increase in DSI's standard
fees, DSI shall notify Licensor and Licensee at least ninety (90) days
prior to the renewal of the Agreement. For any service not listed on the
Fee and Service Schedule, DSI shall provide a quote prior to rendering such
service.
<TABLE>
<S> <C> <C>
Date:_______________________________ Date:____________________________ Date:________________________________
Objective Systems Integrators, _____ __________________Data Securities
Inc. (Licensor): Licensee: International, Inc. (DSI):
By:_________________________________ By:______________________________ By:__________________________________
____________________________________ _________________________________ _____________________________________
(Print Name) (Print Name) (Print Name)
____________________________________ __________________________________ ____________________________________
Title Title Title
</TABLE>
Page 25
<PAGE>
Exhibit A
TECHNOLOGY ESCROW AGREEMENT
Account Number _________________________
Designated representatives and locations
Notices to Licensor regarding
Agreement terms and conditions Invoices should
should be addressed to: be addressed to:
Licensor: ______________________________ ________________________________
Address: ______________________________ ________________________________
______________________________ ________________________________
______________________________ ________________________________
Designated
representative:_____________________________ ________________________________
Phone: ______________________________ ________________________________
Notices to Licensee regarding
Agreement terms and conditions Invoices should
should be addressed to: be addressed to:
Licensee: ______________________________ ________________________________
Address: ______________________________ ________________________________
______________________________ ________________________________
______________________________ ________________________________
Designated
representative:_____________________________ ________________________________
Phone: ______________________________ ________________________________
All requests from Licensor or Licensee to change the designated representative
must be given in writing and signed by the designated representative or an
officer of Licensor or Licensee as the case may be.
All contracts, deposits and Invoice inquiries and
official notifications to DSI remittance of fees to DSI
should be addressed to: should be addressed to:
Data Securities, Int'l., Inc. Data Securities Int'l., Inc.
Attn: Contract Administration Attn: Accounts Receivable
6165 Greenwich Drive, Suite 220 49 Stevenson Street, Suite 550
San Diego, CA 92122 San Francisco, CA 94105
(619) 457-5199 (415) 541-9013
Date: ___________________________________
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<PAGE>
Exhibit B
Description of Deposit Materials
--------------------------------
Deposit Account Number_____________________________________
Account Name_______________________________________________
Licensor, pursuant to a specific Escrow Agreement between the parties, hereby
deposits the below described materials into the above referenced Deposit Account
by transferring them to Data Securities International, Inc. The Deposit type is
(check space that applies)
_____ Initial Deposit _____ Supplemental Deposit _____ Replacement Deposit
If Replacement then destroy Deposit __________ or return Deposit____________
If no Deposit type has been checked the materials will be deemed to be an
Initial or Supplemental Deposit.
DEPOSIT MATERIALS
Name_____________________________________________________ Version_______________
Date_______________________________ CPU/OS___________ Compiler______________
Application_____________________________________________________________________
Utilities needed________________________________________________________________
Special operating instructions__________________________________________________
- --------------------------------------------------------------------------------
Item Description Media Quantity
- ---------------- ----- --------
I certify that the above-described Received the materials subject to the
materials were delivered/sent to Terms and Conditions set forth below.
Data Securities International, Inc.
By___________________________________ By___________________________________
Name_________________________________ Name_________________________________
Title________________________________ Title________________________________
For__________________________________ For Data Securities Int'l.
Date_________________________________ Date_________________________________
Page 27
<PAGE>
OBLIGATIONS OF DATA SECURITIES INTERNATIONAL
If the fees are current, Data Securities International, Inc. (DSI) is obligated
to hold these Deposit Materials and treat them as called for in the specific
Escrow Agreement between the parties. The specific Escrow Agreement between the
parties obligates DSI not to disclose, divulge nor otherwise make available to
any third party the deposited materials except pursuant to an agreement between
Licensor and DSI. DSI shall have no obligation to any licensee or other third
party except Registered and/or Subscribed Licensees accepted by DSI, to the
extent provided in a writing signed by DSI. DSI shall have the right to modify
or cancel this Agreement without the consent of any third party unless expressly
prohibited from doing so by an agreement signed by DSI.
Upon the receipt of an Exhibit B, DSI will visually match the listed items on
the Exhibit B to the labeling of the material ("Deposit Inspection"). DSI will
not be responsible for the contents or for validating the accuracy of Licensor's
labeling. Acceptance will occur when DSI signs the Exhibit B document concluding
that the Deposit Inspection is complete.
DEFINITIONS
Licensor may update the Deposit Account with Supplemental Materials or
Replacement Materials.
Supplemental Materials are materials that are to be added to the existing
Deposit by Licensor. The Supplemental Materials will be incorporated into the
existing Deposit and treated as the whole.
Replacement Materials are materials which replace the entire Existing Deposit.
Licensor may request to replace the entire Existing Deposit. The Existing
Deposit that has been contractually allowed to be replaced will be dealt with as
specified in the specific Escrow Agreement between the parties, or its Exhibits
and Addenda.
DSI reserves the right to destroy the Existing Deposit for which return of
deposit fees have not been paid. DSI will notify Licensor of such action.
WARRANTY BY LICENSOR
Licensor represents and warrants that it is lawfully possessed of all Deposit
Materials stored under the specific Escrow Agreement between the parties and has
the authority to store them in accordance with the terms thereof.
AMENDMENT
This form acts as an Amendment, if one is called for.
Page 28
<PAGE>
Exhibit 6
---------
OSI CUSTOMER ADVISORY BOARD
The purpose of OSI's Customer Advisory Board ("CAB") is to involve a select
group of users in the definition and execution of OSI's short and long term
product strategies.
The CAB will assist OSI in:
. planning product direction.
. defining specific product requirements.
. validating that specifications and prototypes effectively address the
requirements.
. testing pre-release products, including beta testing and, where
appropriate, testing in a production environment prior to general
availability.
In this cooperative arrangement, Adelphia will have the opportunity to work
closely with OSI's internal product teams. These teams are comprised of
individuals from product management, development, technical publications, QA,
customer support, professional services, sales and marketing. Interaction will
be via meetings, conference calls and written documentation.
Adelphia will kick off the program with a meeting in Folsom to discuss product
direction and requirements, and to meet the OSI product teams. As design and
development continues, OSI will follow up with correspondence and meetings to
validate progress. As beta test periods approach, Adelphia will prepare in
advance by attending training classes at OSI and configuring its test
environment. OSI will monitor beta installations and Adelphia will be requested
to report on product performance. For some products or features, we may mutually
agree to follow the beta test with a limited test in a production environment.
Because some members of the CAB may compete with each other, to facilitate free
discussion of strategic direction, most meetings used to solicit input and
feedback will be conducted with individual CAB members. Training classes and
general information meetings may be conducted for the group as a whole.
Adelphia Benefits.
- -----------------
Adelphia will have input on the strategic direction of OSI product development,
regular interaction with OSI's product development and support personnel, the
opportunity to evaluate OSI pre-release products, and the ability to have its
technical personnel gain a detailed understanding of the capabilities of
NetExpert(TM) software and OSI's future development plans.
Adelphia Obligations.
- --------------------
Adelphia agrees to the following:
. It will designate one key technical employee as its CAB representative.
That employee or one or more designees with appropriate experience in
network management issues will participate in each phase of the
program, reviewing materials, attending meetings and providing OSI with
feedback on the issues raised;
. As new pre-release products are provided to Adelphia, it will create an
appropriate test environment with OSI assistance, and provide feedback
to OSI on the performance of the pre-release products and suggestions
for its improvement;
. Adelphia will be responsible for all of your costs incurred in
connection with its CAB participation.
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<PAGE>
OSI's Commitment.
- ----------------
. OSI will conduct regular meetings of the CAB and will provide CAB
members with its plans for product development and improvement;
. OSI will provide pre-release products relevant to Adelphia's operations
as soon as they are available;
. OSI will assist you Adelphia setting up an appropriate test environment
for pre-release products;
. OSI will provide the highest consideration of all suggestions and
comments.
Protection of Confidential Information and Intellectual Property Rights.
- -----------------------------------------------------------------------
. During Adelphia's participation in the CAB, it will be provided with
some of OSI's most sensitive confidential information, including
product development plans, specifications, pre-release products, flow
charts, and other nonpublic information relating to OSI's products,
code, marketing and finances. Adelphia may also provide OSI with its
confidential information, although comments, suggestions, improvements
and other communications from Adelphia to OSI regarding OSI products
become the sole property of OSI. OSI may use them without compensation
or attribution, and Adelphia will take all reasonable steps requested
by OSI to confirm OSI's sole ownership of all rights arising from them.
Each party will hold in confidence all confidential information of the
other and the other's licensors, not use that information for purposes
other than the evaluation, design, improvement, marketing and
development of OSI products and not disclose that information except to
those employees and advisors who (1) have a need to know it to assist
in the party's efforts under this arrangement, and (2) are bound by law
or have agreed in writing to maintain the information in confidence. If
either party discovers that confidential information of the other has
been improperly used, disseminated or published, it will immediately
notify the other party and take all reasonable actions to minimize the
impact of the disclosure.
. Adelphia will be provided from time to time with OSI products
(including software, manuals and other documentation) such as beta and
other pre-release versions of existing or new products, patches and
upgrades. OSI grants Adelphia a nonexclusive, nontransferable license
to (a) use those products in executable code form only, on computers
owned or leased by it and located in its facilities at the address
noted above or another location approved by OSI in writing to assist
OSI in testing and debugging those OSI products and to use those OSI
products for its internal business purposes in connection with that
assistance, and (b) make backup copies of those OSI products only as it
reasonably requires for that purpose. No other rights are granted to
Adelphia by this agreement. Without limitation, Adelphia will not use
those OSI products to monitor or control any third party's network,
produce revenue for you, demonstrate or provide those OSI products to
any other party, or develop products owned by any party other than OSI.
On request from OSI, or on termination of Adelphia's participation in
the CAB, Adelphia will immediately cease use of those OSI products,
return those OSI products to OSI, remove all copies, whole or partial,
from any media and provide OSI with a written statement from an officer
stating that all of those copies have been either destroyed or
returned.
. All right, title and interest to copyrights, trade secrets, patents and
other intellectual property rights in OSI products will remain the
exclusive property of OSI and its licensors. Adelphia may input data as
required to use OSI products for the purposes requested by OSI under
the CAB, but it will not make, alter, adapt, modify or make derivative
works of OSI products or merge OSI products into other programs or
materials. Adelphia will not make copies of OSI products except as
permitted in this agreement. Adelphia will not decompile, disassemble
or otherwise reverse engineer any executable code, object code or
source code of OSI products, or decode, de-encrypt, reverse engineer or
otherwise attempt to avoid any authorization keys and other
Page 30
<PAGE>
security devices in OSI products. Adelphia will be solely responsible
for obtaining any hardware and licenses for other products required for
you to use OSI products.
. Any OSI products or services provided in connection with the CAB are
provided "as is," and OSI will have no responsibility for correcting
any errors, modifying OSI products in any way or for providing a
commercially available product based upon OSI products or for support
or updates to OSI products and services. OSI MAKES NO WARRANTIES,
EITHER EXPRESS OR IMPLIED, AS TO OSI PRODUCTS AND SERVICES, INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
OR NON-INFRINGEMENT. Adelphia acknowledges that OSI products in beta-
test or pre-release form may contain "bugs," inoperable features and
other defects which may not be corrected by OSI, and that the purpose
of its use of OSI products is to help OSI develop OSI products.
Adelphia assumes all risks arising from its possession and use of OSI
products.
. EXCEPT IF ONE OF THE PARTIES VIOLATES THE INTELLECTUAL PROPERTY RIGHTS
OF THE OTHER PARTY, NEITHER PARTY WILL BE LIABLE, REGARDLESS OF THE
FORM OF ACTION, FOR LOST REVENUES, PROFITS OR SAVINGS, OR FOR INDIRECT,
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES, EVEN IF IT HAS
BEEN ADVISED OF THE POSSIBILITY OF THE DAMAGES.
Legal Terms and Conditions.
- --------------------------
. Compliance with Laws. OSI products and all related rights, technical
--------------------
data and information are subject to controls imposed by the U.S.
Government and other countries. Adelphia will comply with all of those
controls and all other applicable laws, regulations, codes and
ordinances.
. No Assignment. Adelphia's membership in the CAB and any of its rights
-------------
and obligations under this agreement will not be assigned or delegated
without OSI's written approval.
. Disputes. Despite our best intentions, disputes may arise under or in
--------
connection with this agreement. We will make very effort to resolve any
dispute informally to both parties' satisfaction, but if we cannot
resolve a dispute informally, it will be resolved exclusively in the
federal or state courts located in Sacramento, California, without a
jury. Both parties waive any right to a jury trial and consent to the
personal jurisdiction and exclusive venue of those courts for that
purpose. This agreement will be governed by and construed in accordance
with the laws of the State of California, excluding its conflicts of
law provisions, and will be deemed to have been entered into and wholly
performed in Sacramento County, California.
. Equitable Relief. Any breach of either party's obligations with respect
----------------
to the intellectual property rights of the other will cause irreparable
injury for which there are no adequate remedies at law. Each party and
its licensors will be entitled to equitable relief in addition to all
other remedies that may be available, without the posting of bond or
other security or, if required, then the minimum bond or security so
required.
. Entire Agreement. This agreement is the entire agreement between the
----------------
parties with respect to the CAB and supersedes all previous
communications, both oral and written, between the parties. No waiver,
amendment or modification of this agreement will be effective unless in
writing and signed by an authorized representative of the party against
whom enforcement is sought. No waiver by a party of a breach of this
agreement will constitute a waiver of any other breach of that or any
other provision of this agreement.
. Independent Contractors. The parties are independent contractors and
-----------------------
not partners or joint venturers. Under no circumstances will the
employees of one party be deemed the employees of the other for any
purpose. This agreement does not grant authority for either party to
act for the other in an agency or other capacity, or to make
commitments of any kind for the account of or on the behalf of the
other.
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<PAGE>
. Term. The terms of this letter will apply so long as Adelphia
----
participates in the CAB. Adelphia's participation in the CAB may be
terminated, at its option, with 30 days' notice, but the Protection of
Confidential Information provisions, the Intellectual Property Rights
provisions and the Legal Terms and Conditions provisions set forth
above will survive that termination.
Page 32
<PAGE>
EXHIBIT 10.2
OBJECTIVE SYSTEMS INTEGRATORS, INC.
ENTERPRISE PROFESSIONAL SERVICES AGREEMENT
CONTRACT NO.: EPSA - 127
THIS ENTERPRISE PROFESSIONAL SERVICES AGREEMENT ("Agreement") is entered into as
of December 1, 1999 ("Effective Date"), between OBJECTIVE SYSTEMS INTEGRATORS,
INC. ("OSI"), and ADELPHIA COMMUNICATIONS CORPORATION.
1. DEFINITIONS.
(a) Adelphia. Adelphia Communications Corporation and those of its
--------
Related Companies who affirmatively avail themselves of the
benefits of this Agreement by executing and delivering an
acknowledgment in the form of Exhibit 1. Adelphia Communications
Corporation will be jointly and severally liable for the
obligations of any Related Company under this Agreement.
(b) Related Entity. A corporation or other legal entity that directly
--------------
or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, Adelphia. For
purposes of the foregoing, the terms "control," "controlled by"
and "under common control with" will mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of the entity, whether
through ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
(c) Unless otherwise expressly noted in this Agreement, the terms in
this Agreement will have the same meanings as set forth in the
Enterprise License Agreement, Contract No. ELA - 321 (the
"Enterprise License"), entered into between the parties
contemporaneously with this Agreement.
2. SERVICES
--------
(a) Work Orders. OSI will provide to Adelphia the professional
-----------
services ("Services") described in one or more consecutively
numbered work orders ("Work Orders"), executed from time to time
by both parties and added as attachments to this Agreement.
Services will be provided (1) in accordance with this Agreement
and the applicable Work Order, and (2) either on a fixed price or
time and materials basis as set forth in each Work Order. OSI
will provide Services only under a valid Work Order. If the terms
of a Work Order directly conflict with the terms of this
Agreement, the terms of the Work Order will govern.
(b) Statements of Work. Each Work Order will have a Statement of Work
------------------
attached ("SOW") which describes the Services, including all
deliverable items and documentation ("Deliverables"), acceptance
and performance criteria, schedule and pricing.
(c) Changes. Adelphia may terminate any Work Order under Section
-------
8(b). Services can be modified by notice from Adelphia. OSI will
notify Adelphia of any increase in costs, delay in schedule or
other consequence from that request, and the change will be
implemented if the parties agree to a modification to the terms
of the SOW.
(d) Delivery. Unless otherwise instructed, OSI will pack and ship
--------
Deliverables to Adelphia's address as noted below and according
to OSI's standard practice, F.O.B. factory, with freight and
insurance prepaid and invoiced to Adelphia. Adelphia will
reimburse OSI for extra costs incurred to comply with Adelphia's
special packing and shipping instructions. Adelphia has 10 days
from receipt to verify that all Deliverables in a shipment have
been received. OSI will replace missing Deliverables at no
charge.
(e) Non-Exclusivity. This Agreement and any Work Order are not
---------------
exclusive. Either party may represent others in any capacity,
perform services for others or retain others to provide services
to it.
3. COORDINATION
------------
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<PAGE>
(a) Project Managers. For each Work Order, the parties will designate
----------------
single contacts as their project managers for the Services.
Either party may change its project manager from time to time in
its discretion by notice to the other party. All communications
regarding a Work Order will be made through the project managers.
(b) Access. Adelphia will make available to OSI, on reasonable
------
notice, such computer programs, data, interface information,
other documentation and access to Adelphia's computers, systems
and programs as are reasonably required by OSI to complete the
Services. Delays in providing such items or access will delay OSI
performance, and OSI will invoice Adelphia for the costs incurred
by OSI in connection with the delay.
(c) Consultations, Reports. OSI will keep Adelphia reasonably
----------------------
informed regarding its performance of the Services and will
consult with Adelphia concerning the Services on a regular basis.
4. ACCEPTANCE
----------
Deliverables will be accepted if they substantially conform to the
specifications set forth in the applicable SOW. Adelphia will be deemed
to have accepted Deliverable if (1) Adelphia fails to provide notice of
nonacceptance detailing one or more reproducible nonconformities within
30 days of the installation date, or any later date set forth in the
applicable SOW, in sufficient detail for OSI to reproduce and analyze
the nonconformity, or (2) Adelphia makes productive use of the
Deliverable at any time more than 30 days after the installation date.
OSI will use its commercially reasonable efforts to remedy agreed
nonconformities promptly after receiving that notice and on the new
installation date, a new 30 day period will begin.
5. PAYMENT
-------
(a) Fees and Expenses. Work Orders will set forth the fees for
-----------------
Services. Pricing for time and materials Work Orders under this
Agreement will be at rates equal to 75% of OSI's standard rates
as in effect on the date that the Work Order is received. OSI
will notify Adelphia of any proposed changes to OSI's standard
rates. In addition to these fees, Adelphia will reimburse OSI for
its reasonable and documented out-of-pocket expenses incurred in
performing the Services, including, without limitation, coach
class travel, business class lodging, automobile rental and meals
Any travel related expenses will be in accord with Adelphia's
then-current expense policies, as previously communicated to OSI
in writing. Work Orders may include a total amount of fees and
expenses, which OSI will not exceed without Adelphia's approval.
(b) Terms. If Services are on a time-and-materials basis, OSI will
-----
invoice Adelphia monthly for Services rendered, and if a not-to-
exceed amount is specified, OSI will use its best efforts to
complete the work described in the SOW for the not-to-exceed
amount, and will provide advance notice to Adelphia if the work
will not be completed for that amount. On receipt of that notice,
Adelphia may determine whether to continue the work or accept the
work in its then-current form and terminate further work under
the SOW. If Services are on a fixed-price basis, OSI will invoice
Adelphia according to the payment schedule in the Work Order.
Invoiced amounts will be paid within 45 days of the date of the
invoice. Payments will be made in immediately available U.S.
funds, without withholding for taxes or other amounts. Late
payments will accrue interest at the lesser of 1.5% per month or
the maximum rate permitted by applicable law. Adelphia will
reimburse OSI for all fees, costs and expenses (including,
without limitation, attorneys' fees and court costs) incurred to
collect amounts not timely paid.
(c) Taxes, Charges. Fees are exclusive of, and Adelphia will pay, all
--------------
sales, value-added, withholding or excise taxes, and other
government fees and charges of any nature whatsoever other than
taxes on the income of OSI ("Taxes"). If Adelphia is required to
make any tax or other withholding on or in relation to payments
otherwise due under this Agreement, it will be in addition to the
amounts otherwise due. Taxes paid or payable by OSI will be
invoiced to and paid by Adelphia. Adelphia will not be required
to pay any sum to OSI under this subsection unless OSI (1) has
actually paid or intends in good faith to pay an equal sum to a
governmental entity, and (2) in good faith believes that
applicable law requires the payment.
6. RIGHTS IN WORK PRODUCT
----------------------
(a) Title. Except as expressly stated otherwise in a particular Work
-----
Order, Deliverables are not "works made for hire." OSI will own
all right, title and interest in copyrights, trade secrets,
patents, all other intellectual property and other rights
relating to (1) the Deliverables, and (2) any information
developed by OSI in the course of its performance.
Notwithstanding the foregoing, OSI will not have any rights in
proprietary
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<PAGE>
information or data first belonging to Adelphia before execution
of the Work Order or provided by Adelphia to OSI under a Work
Order.
(b) License to Adelphia. Except as expressly stated otherwise in a
-------------------
particular Work Order, OSI grants Adelphia a perpetual, non-
exclusive, royalty-free, non-transferable license (without rights
to sublicense) to use, duplicate, alter, maintain, enhance or
otherwise modify Deliverables solely for Adelphia's own internal
business uses and at its facilities. Adelphia will not market,
resell, transfer, publish, disclose, display or otherwise make
Deliverables available to third parties. Even if a Deliverable is
intended to be combined with or operated as part of Adelphia's
software or other work, it will remain a separate work and not
part of a joint work.
(c) Effect of Sales, Divestitures, Mergers or Acquisitions. Expect as
------------------------------------------------------
otherwise expressly stated otherwise in a Work Order, use of the
Deliverables under this Agreement will extend (and is limited) to
Adelphia, as from time to time constituted, and solely for its
own internal uses. If Adelphia either directly or indirectly
acquires, is acquired by, merges with or is otherwise combined in
any way with AT&T, Time Warner Communications, Charter
Communications, Comcast or any other owner-operator having an
account base of 24 million unique subscribers or more (a
"Competitive Merger"), then Adelphia's continued right to use the
Deliverables will be limited only to those uses within its
network as that uses and network existed on the business day
before the acquisition, merger or combination takes place. Joint
ventures or other similar activities, whether with one or more of
the above, or otherwise, in which Adelphia controls the joint
venture will not be deemed to be a Competitive Merger.
7. CONFIDENTIALITY
---------------
(a) Confidential Information. In the course of their dealings, each
------------------------
party will acquire Information about the other, including
Information regarding business activities and operations,
technical information and trade secrets of the party and its
partners. Each party will hold in confidence any Information that
it receives from the other party, not use that Information for
purposes other than performance of this Agreement and not
disclose the Information except to those employees and advisors
who (1) have a need to know the same, and (2) are bound by law or
have agreed in writing to maintain the Information in confidence.
Information includes all nonpublic aspects of the OSI Software,
including programs, methods of processing, program design and
structure, the interaction and unique programming techniques
employed, and performance data and test results. The term
"Information" also includes the nonpublic plans of OSI and
Vendors for new products and services, product improvements and
marketing strategies. If a party discovers Information has been
improperly used, disseminated or published, it will immediately
notify the other party and take all reasonable actions to
minimize the impact of the disclosure.
(b) Excluded Information. Even if marked as confidential, the
--------------------
obligations in Section 7(a) will not apply to Information
generally available to or known to the public, known by the
receiving party without obligation of confidentiality before the
negotiations leading to this Agreement, independently developed
by the receiving party outside the scope of this Agreement,
lawfully disclosed to the receiving party without restriction by
a third party having the right to make the disclosure or required
to be publicly disclosed to a tribunal. In the case of required
disclosures to tribunals, the receiving party will promptly
notify the other party of the proceeding and fully assist the
disclosing party to obtain protective orders maintaining the
confidentiality of the Information.
8. TERM , TERMINATION
------------------
(a) Term. This Agreement will commence on the Effective Date and
----
continue until terminated under Section 8(c).
(b) Termination of Work Order. Services to be provided under a SOW
-------------------------
may be canceled on 45 days' notice by Adelphia, but Adelphia will
pay for all Services provided by OSI through the date of
cancellation at OSI's then-current time and materials rates (not
to exceed the total amount due under that SOW) and all costs
reasonably incurred by OSI in connection with that cancellation.
(c) Termination of this Agreement. This Agreement may be terminated
-----------------------------
(1) by either party on breach by the other party that remains
uncured 30 days after notice specifying the breach with
particularity, or (2) by either party for convenience with 30
days notice after completion or termination by Adelphia under
Section 8(b) of all outstanding Work Orders.
(d) Survival. On termination of this Agreement for any reason, the
--------
obligations of Adelphia to pay amounts
Page 3
<PAGE>
owed to OSI and to discharge any liability incurred before
termination will survive, together with the provisions of the
Sections 5, 6, 7, 9, 10, 11 and 12.
(e) Termination of Licenses. The licenses granted in Section 6(b)
-----------------------
will terminate (1) on any violation by Adelphia of Sections 5, 6
or 7 remaining uncured for 30 days after notice from OSI, (2) as
to any Related Entity, (a) six months following the date the
entity ceases being a Related Entity if the entity has
independently entered into a direct contract with OSI obligating
it to observe all of the terms and conditions of this Agreement
and limiting its use of the Deliverables to those uses in effect
immediately prior to the date it ceased to be a Related Entity,
or (b) on the date the entity ceases being a Related Entity if it
has not entered into such a direct contractual relationship with
OSI, or (3) on notice from Adelphia. On termination of a license,
Adelphia will immediately destroy or return to OSI all copies of
the Deliverables then in its possession or under its control, and
Adelphia will have no continuing rights to the Deliverables.
9. WARRANTIES
----------
(a) Limited Warranty. Except as expressly stated otherwise in a
----------------
particular Work Order, OSI warrants that each Deliverable will
substantially conform to the specifications in the applicable
Work Order (1) for 120 days after it is first delivered to
Adelphia if that delivery occurs during the first year that this
Agreement is in effect, and (2) for 90 days after it is first
delivered to Adelphia if that delivery occurs at any time after
the first year that this Agreement is in effect.
(b) Year 2000. All Deliverables will, in their normal operation,
---------
function as follows: (1) values for current dates before, during
and after the Year 2000 will not cause interruptions in normal
operation, (2) manipulations of date-related data will produce
desired results before, during and after the year 2000 and
management of stored dates will not cause problems, (3) date
elements in interfaces and data storage will permit specification
of century to eliminate date ambiguity, (4) for any date element
represented without century, two digit years greater than or
equal to 69 will convert to 19xx and two digit years less than 69
will convert to 20xx, and (5) leap years will be properly
processed and recognized. No warranty is provided for any date-
related problems caused by any other software or any hardware
connected to a Deliverable.
(c) Self-Help or Unauthorized Code. None of the Deliverables will
------------------------------
contain any "Self-Help Code" or Unauthorized Code. As used in the
Agreement, "Self-Help Code" includes any backdoor, time bomb,
drop dead device or other software routine designed to disable a
computer program automatically with the passage of time or under
positive control of a person other than Licensee, but does not
include any (a) authorization keys or other code designed to
limit use of the OSI Software to specific purposes or on specific
equipment, or (b) software routines designed to permit OSI (or
any other person acting on authority of OSI) to obtain access to
Adelphia's computer systems (e.g., remote access via modem) for
purposes of authorized maintenance or technical support.
"Unauthorized Code" means any virus, Trojan Horse, worm or other
software routines designed to permit unauthorized access or to
disable, erase or otherwise harm software, hardware or data. The
term "Unauthorized Code" does not include Self-Help Code.
(d) Modifications. OSI makes no warranty as to any portion of a
-------------
Deliverable that is modified, altered or combined with any other
software, by any party other than OSI.
(e) Warranty Limitations. SECTIONS 9(a), 9(b) AND 9(c) CONTAIN THE
--------------------
EXCLUSIVE WARRANTIES UNDER THIS AGREEMENT. EXCEPT FOR THAT
WARRANTY, SERVICES AND DELIVERABLES ARE PROVIDED "AS-IS." NO
OTHER WARRANTY, ORAL OR WRITTEN, IS EXPRESSED OR IMPLIED. OSI
does not warrant that (1) the DELIVERABLE will perform in every
operating environment, (2) the operation of the DELIVERABLE will
be uninterrupted or error free, or (3) any defect or malfunction
in the DELIVERABLE is correctable or will be corrected. OSI
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. The limited warranties in
this Section will not apply to, and OSI will have no warranty
obligation with respect to, any defect or malfunction (1) that
results from improper modification or use by Adelphia, from
hardware, software, interfacing or supplies other than those
provided by OSI in the form provided by OSI, or from any cause
other than ordinary use, or (2) where the nonconformity cannot be
reproduced, where OSI is not provided with a the parameters,
procedures or conditions which generate the problem in sufficient
detail to permit it to isolate the code which causes the problem,
or where OSI is not provided with all data files, rules, software
and system access necessary to reproduce and analyze the problem.
Page 4
<PAGE>
10. LIMITATIONS, REMEDIES
---------------------
(a) Exclusive Remedies. Adelphia's sole remedy for a breach of the
------------------
limited warranty provided in Section 9(a) will be for OSI to use
its commercially reasonable efforts to bring the Deliverable into
substantial conformity with applicable specifications, replace
the Deliverable with an equivalent Deliverable substantially
conforming with those specifications or, if OSI is unable to so
restore the Deliverable or to provide an equivalent replacement,
then for Adelphia to obtain a refund equal to the value of the
non conforming portion of the Deliverable on its return to OSI.
(b) Aggregate Liability. NEITHER PARTY WILL BE LIABLE TO THE OTHER
-------------------
PARTY FOR DAMAGES IN EXCESS OF THE TOTAL AMOUNTS TO BE PAID TO
OSI UNDER THIS AGREEMENT. THIS LIMITATION WILL (1) APPLY
REGARDLESS OF THE FORM OF ACTION, WHETHER CONTRACT OR TORT,
INCLUDING NEGLIGENCE AND STRICT LIABILITY, AND (2) NOT APPLY TO
INDEMNITY UNDER SECTION 10 OR TO A BREACH OF SECTIONS 6 OR 7, OR
TO LIABILITY FOR DEATH OR PERSONAL INJURY CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF EITHER PARTY.
(c) Damages. NEITHER PARTY WILL BE LIABLE, REGARDLESS OF THE FORM OF
-------
ACTION, FOR LOST REVENUES, PROFITS OR SAVINGS, OR FOR INDIRECT,
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES, EVEN IF
THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF THE DAMAGES.
THIS SECTON 9(d) WILL NOT APPLY TO A BREACH OF THE OBLIGATIONS IN
SECTION 7.
11. INDEMNIFICATION
---------------
(a) Cross Indemnification. If an act or omission of one of the
---------------------
parties, its officers, directors, employees, agents or
representatives, causes or results in the (1) loss, damage to or
destruction of property of the other party or third parties, or
(2) death or injury to persons, including but not limited to
employees of either party, then that party will indemnify, defend
and hold the other party, its officers, directors, employees,
agents and insurers harmless from and against all claims,
actions, damages, demands, liabilities, costs and expenses,
including reasonable attorneys' fees and expenses, (collectively,
"Claims") resulting therefrom.
(b) Indemnification by OSI.
----------------------
(1) So long as Adelphia complies with the terms of Sections 5
and 7 of this Agreement, OSI will defend Adelphia against
any claims, and indemnify and hold Adelphia harmless
against any judgments, directly or indirectly resulting
from a claimed infringement or violation of any copyright,
patent, trademark, trade secret or other intellectual
property right with respect to the Deliverables. OSI will
have no liability for any such claims or judgments based
solely on (a) the actions of Adelphia, its employees or
agents, (b) use of a version, modification or adaptation of
a Deliverable, if the infringement would have been avoided
by the use of a then-current unaltered release of the
Deliverable, (c) use of Combined Software, if the
Deliverable operated independent of the Combined Software
is not the cause of the infringement, or (d) use of a
Deliverable in combination with any computer software,
hardware or data not delivered in that combination by OSI.
(2) On receiving notice of a claimed infringement, OSI may (a)
settle on terms that permit continued use of Deliverable,
(b) provide a reasonable substitute for the Deliverable,
(c) modify the Deliverable to be non-infringing, or (d) if
the foregoing remedies are not reasonably available, grant
Adelphia a credit for the depreciated value of the relevant
portion of the Deliverable (based on a 48 month life
beginning on the date of its delivery) and accept its
return.
(3) THIS SECTION PROVIDES ADELPHIA'S SOLE REMEDY FOR
INFRINGEMENT OF PATENTS, COPYRIGHTS OR OTHER INTELLECTUAL
PROPERTY RIGHTS.
(c) Indemnification by Licensee. Adelphia will defend OSI and its
---------------------------
Vendors against any claims, and indemnify and hold OSI and its
Vendors harmless against any judgments, directly or indirectly
resulting from any claimed infringement or violation of any
copyright, patent or other intellectual property right with
respect to a Deliverable to the extent that Licensee Software or
any of the acts described in Section 11(b)(1)(a) - (d) is the
cause of the claimed infringement or violation.
(d) Cooperation. Notwithstanding the above, an indemnifying party is
-----------
under no obligation to defend or indemnify another party unless:
(1) the indemnifying party has been promptly notified of the
claim or suit and furnished with a copy of each pleading,
communication, notice and other action relating to the claim or
suit; (2) the indemnified party permits the indemnifying party,
at the indemnifying party's expense, to assume sole
Page 5
<PAGE>
authority to conduct the trial or settlement of the claim or suit
and any negotiations related to it; and (3) the indemnified party
promptly provides all information and assistance reasonably
requested by the indemnifying party in connection with the claim
or suit.
12. GENERAL
-------
(a) Compliance with Export and Other Laws. The Deliverables and all
-------------------------------------
related rights, technical data and information are subject to
export controls imposed by the U.S. Government. Adelphia will not
transmit any Deliverable or information relating to a Deliverable
outside of the United States or to any person or entity
prohibited by the U.S. Government, whether by name, by
citizenship, residency or otherwise, and will comply with all
applicable export control restrictions. Each party, at its
expense, will comply with all applicable laws, regulations, codes
and ordinances. Neither party will be bound by any provision of
this Agreement to the extent, but only to the extent, that it
violates applicable law.
(b) Notices. Notices, consents, approvals and communications given
-------
under this Agreement will be (1) in writing, (2) in the English
language, (3) sent by registered or certified mail, return
receipt requested, postage prepaid, or by a courier service that
obtains signed acknowledgement of receipt, to the address
indicated below the signature block of this Agreement or to such
other address as the affected party designates by prior notice,
and (4) effective on the date received unless a later date is
otherwise indicated in the notice, consent or communication.
(c) Assignment. This Agreement is not assignable, including by
----------
operation of law, by either party, either in whole or in part,
without the prior consent of the other party, which consent will
not be unreasonably withheld; provided, however, that OSI may
assign this Agreement without such consent in connection with any
merger, acquisition or other combination with or by OSI, or in
connection with the sale of all or substantially all of OSI's
assets, whether directly or indirectly, provided the surviving
entity or the acquiror of those assets, as applicable, agrees in
writing to be bound by all of the terms and conditions of this
Agreement. This Agreement will be binding on and inure to the
benefit of the parties and their respective successors and
permitted assigns.
(d) Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the internal substantive laws of the State of
California, excluding its choice of law principles. The United
Nations Convention on Contracts for the International Sale of
Goods will not apply.
(e) Arbitration. Any dispute, controversy or claim arising out of or
-----------
relating to this Agreement will be finally resolved by binding
arbitration under the Rules of Arbitration of the American
Arbitration Association in effect at the time of the arbitration
("AAA Rules").
(1) The venue of the arbitration will be Dallas, Texas. All
proceedings will be conducted in English and English
translations of all foreign language documents filed,
submitted or exchanged during the proceedings will be
supplied concurrently by the producing party. On reasonable
notice to the other party and the arbitration panel,
parties will be entitled to use expert and rebuttal
witnesses.
(2) Each party will pay its own fees and expenses incurred in
connection with the arbitration. Common expenses of the
arbitration (such as the fees and expenses of the
arbitrator) will be borne by the parties in such amounts or
proportions as the arbitrator may determine.
(3) The award of the arbitrator will be (a) in writing
(including reasons), and (b) final and binding on the
parties. Judgment upon the award may be entered and
enforced by any court of competent jurisdiction.
(4) In no event will the arbitrator award damages that are not
permitted under the express terms of this Agreement.
(5) Without prejudice to the AAA Rules, either party may apply
to any court of competent jurisdiction for such interim
relief as it considers appropriate, without the need to
post bond or other security, or if required, then the
minimum bond or other security permitted.
(f) Equitable Relief. Any breach of a party's obligations with
----------------
respect to intellectual property rights will cause irreparable
injury for which there are no adequate remedies at law. The
aggrieved party will be entitled to equitable relief in addition
to all other remedies that may be available, without the posting
of bond or other security, or if required, then the minimum bond
or security so required.
(g) Force Majeure. Neither party will be liable or held in default
-------------
for a failure or delay in performing its obligations under this
Agreement, other than to make payment for amounts owing or to
comply with Sections 5 and 7, due to any cause beyond its
reasonable control, so long as the party takes all reasonable
steps to avoid
Page 6
<PAGE>
and minimize the impact of such cause. A party suffering an event
of force majeure will notify the other party as promptly as is
reasonably possible regarding the nature of the event and its
estimate of when the event will no longer apply.
(h) Entire Agreement. This Agreement and the Enterprise License
----------------
Agreement of even date between the parties, including their
respective Exhibits, constitutes the entire agreement between the
parties regarding its subject matter and supersedes all prior
communications, both oral and written, between the parties. This
Agreement may not be modified, and no rights will be waived,
except by an instrument in writing signed by a duly authorized
representative of both parties. If the terms of this Agreement
conflict with the terms of any of its Exhibits, the Exhibits will
prevail. As used in this Agreement, the term "including" means by
way of example and not limitation.
(i) Waivers. No waiver by a party of a breach of this Agreement will
-------
constitute a waiver of any other breach of the same or any other
provision of this Agreement.
(j) Execution. This Agreement may be executed in multiple
---------
counterparts, each of which will be deemed an original and all of
which will constitute together one agreement. A counterpart
delivered to a party by facsimile or similar electronic means
will be deemed an original, equivalent in all respects to a
manually executed counterpart.
(k) Intentional Risk Allocation. The provisions of this Agreement
---------------------------
reflect an informed, voluntary allocation between the parties of
the risks (known and unknown) that may exist in connection with
this Agreement. This voluntary allocation was a material part of
the bargain between the parties and the economic and other terms
were negotiated and agreed to by the parties in reliance on that
allocation.
(l) Independent Contractors. The parties are independent contractors.
-----------------------
Under no circumstances will the employees of one party be deemed
the employees of the other for any purpose. This Agreement does
not grant authority for either party to act for the other in an
agency or other capacity, or to make commitments of any kind for
the account of or on the behalf of the other.
(m) Severability. If any provision of this Agreement is determined to
------------
be invalid or unenforceable, it will be deemed to be modified to
the minimum extent necessary to be valid and enforceable. If it
cannot be so modified, it will be deleted and the deletion will
not affect the validity or enforceability of any other provision
unless, as a result, the rights of either party are materially
diminished or the obligations and burdens of either party are
materially increased so as to be unjust or inequitable.
(n) Cumulative Remedies. Except as otherwise provided, the rights and
-------------------
remedies in this Agreement are cumulative and in addition to any
other remedies available at law or equity.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives.
OBJECTIVE SYSTEMS INTEGRATORS, INC. ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ Philip N. Cardman By: /s/ James P. Rigas
-------------------------- ----------------------------
Title: Vice President Title: Vice President
-------------------------- ----------------------------
Date: 12/29/99 Date: 12/29/99
-------------------------- ----------------------------
Address for Notices:
Page 7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Objective Systems Integrators, Inc. Adelphia Communications Corporation.
101 Park Way Main at Water Street
Folsom, CA 95630 Coudersport, PA 16915
Attn: Contracts Administration Attn: President
Business Telephone: (916) 353-2400 Facsimile for Notices: (814) 274-7098
Facsimile for Notices: (916) 353-0647
With a copy to:
Adelphia Business Solutions, Inc.
Main at Water Street
Coudersport, PA 16915
Attn: General Counsel
Facsimile for Notices: (814) 274-7782
</TABLE>
Page 8
<PAGE>
Exhibit 1
---------
Acknowledgement
THIS ACKNOWLEDGEMENT is made by the undersigned ("Adelphia") under the
Enterprise-Wide Professional Services Agreement (EPSA - 127), dated as of
December 20, 1999 ("Agreement"), between Adelphia Communications Corporation and
Objective Systems Integrators, Inc. ("OSI"). By execution below, the entity
listed agrees to be bound by the terms and conditions of the Agreement as though
a signatory thereto.
IN WITNESS WHEREOF, The Adelphia Related Entity and the OSI have caused this
Acknowledgement to be executed by their duly authorized representatives as of
the later of the dates indicated below.
__________________________________ OBJECTIVE SYSTEMS INTEGRATORS, INC.
ADELPHIA
By: ______________________________ By: ________________________________
Title:____________________________ Title:______________________________
Date: ____________________________ Date: ______________________________
Page 9
<PAGE>
Exhibit 2
---------
Work Order
CONTRACT NO.: EPSA - 127
WORK ORDER NO:____
This Work Order is entered into as of ___________, ____ under the terms of the
Enterprise Professional Services Agreement (EPSA - 127), dated as of December
20, 1999 ("Agreement"), between the parties signing below. All capitalized terms
are defined in the Agreement unless otherwise defined in this Work Order.
Name of Project:
Date Professional Services are Expected to Begin:
OSI's Project Manager::
Adelphia's Project Manager:
Special Requirements:___________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The Statement of Work for this Project is attached and made a part of the
Agreement.
OBJECTIVE SYSTEMS INTEGRATORS, INC. _________________________________
By: _______________________________ By: _____________________________
Title: ____________________________ Title: __________________________
Date: _____________________________ Date: ___________________________
Page 10
<PAGE>
CONTRACT NO.: EPSA - 127
WORK ORDER NO:____
STATEMENT OF WORK
SCOPE OF WORK
- -------------
The Professional Services to be performed in accordance with this Agreement
are as follows:
SPECIFICATIONS
- --------------
DELIVERABLES
- ------------
OSI will deliver to Adelphia:
DEPENDENCIES
- ------------
PROJECT MILESTONES
- ------------------
Milestone Date due to Adelphia
--------- --------------------
Milestone 1
Milestone 2
ACCEPTANCE CRITERIA
- -------------------
FEE WORK ORDER
- --------------
Fees will be billed on the following basis:
__Firm Fixed Price ("FFP"); or
__Time-and-Materials ("T&M")
Check one line above. If FFP: such price will be $ _____________. OSI will
invoice Adelphia according to the following schedule:
On execution of this Agreement $
On delivery of first milestone $
On final delivery and acceptance $
Total Firm Fixed Price Amount $
If T&M: The aggregate time costs will not exceed $ ___________ without the
approval of Adelphia, at the applicable hourly rates set forth below, and
material and other expenses will not exceed $ ____________ for a total not
to exceed $ ____________. OSI will invoice Adelphia monthly as set forth in
the Agreement.
Category Hourly Rate Estimated No. of Hours
-------- ----------- ----------------------
Program Manager $ __________ per hour ______________________
Sr. Network Administrator $ __________ per hour ______________________
Jr. Technician $ __________ per hour ______________________
Page 11
<PAGE>
Exhibit 10.3
OBJECTIVE SYSTEMS INTEGRATORS, INC.
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT is entered into as of December 15, 1999 ("Effective Date"),
between OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("OSI"), and
JEFFREY T. BOONE ("Officer").
RECITALS
--------
Officer serves as OSI's Vice President, Products and Technology. The parties
wish to set forth the terms of Officer's compensation if his employment ends
because of a Change in Control. If a Change in Control occurs, Officer and
other key employees will be more vulnerable to dismissal without regard to the
quality of their service. Because key employees are in a unique position to
affect the efforts of others, OSI's Board of Directors ("Board") believes it is
in the best interests of OSI and its shareholders to ensure the fair treatment
of key employees and to reduce the adverse effects on their performance inherent
in an acquisition or a change in control.
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the following terms have the
-----------
meanings set forth below:
(a) a "Change in Control" will occur if (1) any person, as that term is
-----------------
used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act
of 1934 ("Exchange Act"), other than OSI, is or becomes the
beneficial owner, as defined in Rule 13(d)3 under the Exchange Act,
either directly or indirectly (including by holding securities which
are exerciseable for or convertible into shares of OSI capital
stock), of 50% or more of the combined voting power of the
outstanding shares of OSI's capital stock entitled to vote generally
in the election of directors (calculated as provided in Rule 13(d)
under the Exchange Act in the case of rights to acquire capital
stock), whether by means of a tender offer or exchange offer, a
Transaction or otherwise, (2) a Transaction is consummated, (3) the
Continuing Directors do not constitute a majority of the Board for
any reason and at any time during the term of this Agreement, or (4)
a majority of OSI's Outside Directors decide that a Change of Control
has occurred.
(b) "Compensation" includes all wages, salary, bonuses and incentive
------------
compensation paid by OSI as consideration for the Officer's service
that are included in the Officer's gross income for federal income
tax purposes, but excludes any taxable income recognized on the
exercise of stock options or the disposition of shares acquired on
the exercise of stock options.
(c) a "Continuing Director" is (1) a member of the Board serving on
-------------------
December 15, 1999, or (2) a person who is thereafter elected by the
shareholders or appointed by the Board where the election or
appointment was approved by at least a majority of the Continuing
Directors then serving on the Board.
(d) "Disability" means that the Officer, in the reasonable judgment of
----------
the Board, is not able to perform the duties of his office by reason
of illness or physical or mental disability, where the condition has
continued for a period of more than three consecutive months.
(e) "Good Reason" includes any of the following:
-----------
(1) assignment to the Officer of significantly reduced duties, or a
substantial reduction in the nature or status of, the Officer's
responsibilities immediately before a Change in Control. In this
regard, a reduction in duties or responsibilities only by virtue
of OSI being acquired and made a part of a larger entity (as,
for example, the Chief Financial Officer of OSI remains as such
following the Change in Control and is not made the Chief
Financial Officer of the acquirer) will constitute "Good Reason"
1
<PAGE>
(2) reduction in the Officer's salary or a material reduction in his
other benefits taken as a whole, as in effect on the date of a
Change in Control.
(3) relocation of OSI's principal executive offices outside of the
Greater Sacramento area.
(4) relocation of the Officer to any place other than the principal
offices of OSI, except for reasonably required travel by the
Officer on OSI's business.
(5) breach by OSI of this Agreement, if the breach has not been
cured within 30 days after notice setting forth with specificity
the nature of the breach.
(6) failure by OSI to obtain the assumption of this Agreement by any
successor or assign of OSI.
(f) "Outside Director" is a person who is not, and who during the past six
----------------
months was not, an employee or officer of OSI.
(g) "Termination for Cause" is termination of the Officer's employment as a
---------------------
result of (1) an act of intentional personal dishonesty by the
Officer in connection with his responsibilities as an employee and
intended to result in his substantial personal enrichment, (2) his
conviction of a felony, (3) a willful act by the Officer which
constitutes gross misconduct and which is more than of de minimus
injury to OSI, or (4) continued substantial violations of his
employment duties (that have been previously communicated to him in
writing, are consistent with his position as an Officer of OSI and
that are neither illegal, immoral nor wrongful), that are
demonstrably willful and deliberate on his part and that have
continued for 30 days after OSI has delivered to him a written demand
for performance, specifically setting forth the factual basis for
OSI's belief that he has not performed his duties.
(h) "Termination on a Change in Control" is (1) termination by the Officer
----------------------------------
of his employment for Good Reason within two years after the
occurrence of a Change in Control, or (2) termination by OSI of the
Officer's employment within two years after the occurrence of a
Change in Control other than a Termination for Cause or a termination
resulting from his death or Disability.
(i) a "Transaction" is (1) a consolidation or merger involving OSI, other
-----------
than a merger solely to effect a reincorporation or a merger as to
which stockholder approval is not required under Sections 251(f) or
253 of the Delaware General Corporation Law, (2) a sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of 50% or more of OSI's assets, or (3) the adoption of
any plan or proposal for the liquidation or dissolution of OSI.
2. Term. If no Change in Control has occurred, this Agreement will expire
----
three years from its Effective Date. This Agreement will be automatically
renewed for successive one-year periods unless either party has given the
other six months prior notice of its election not to renew. If a Change in
Control occurs, this Agreement will continue in effect, and will not
terminate, until the Officer has received the severance compensation
provided for below.
3. Termination on a Change in Control. If a Termination for a Change in
----------------------------------
Control occurs, the Officer will immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be
paid in accordance with the applicable plan), any benefits then due under
any OSI plans in which the Officer participates, accrued vacation pay and
any appropriate business expenses incurred by the Officer in connection
with his duties, all to the date of termination ("Accrued Compensation").
The Officer will also be entitled to the severance compensation described
in Section 4.
4. Severance Compensation. If a Termination on a Change in Control occurs, OSI
----------------------
will pay severance compensation to the Officer in an aggregate amount
equal to the Officer's Compensation for 12 months. Severance compensation
will be computed with reference to the Compensation paid to the Officer
for the last full calendar month immediately preceding the month in which
the Change in Control occurs or the month in which the Officer's
employment terminates, whichever is higher. Compensation as to any month
will include one-twelfth of the amount of any bonus or other lump sum
compensation received by the Officer
2
<PAGE>
during the preceding 12 months and all amounts accrued with respect to
that month under any deferred compensation plan. Severance compensation
will be without prejudice to the Officer's right to receive accrued
Compensation earned and unpaid at the time of termination. Severance
compensation payments to the Officer will be paid in a lump sum within 30
days after Termination on a Change in Control.
5. Other Provisions. In addition to the severance payments described above,
----------------
the Officer will receive 100% OSI-paid benefits in the same or comparable
plans as provided to him immediately before the Termination on a Change in
Control. If the Officer's health insurance coverage included his
dependents, those dependents will also be covered at OSI's expense.
Coverage under this Section will continue for 12 months after termination;
provided, however, that coverage will end on the date the Officer and any
covered dependents become covered under any similar plan not maintained by
OSI.
6. Acceleration of Options. If a Termination on a Change in Control occurs,
-----------------------
all stock option agreements will be amended to provide that the stock
options held by the Officer immediately before the termination will become
fully vested and exerciseable, even if the vesting conditions set forth in
the underlying stock option agreements have not been satisfied in full,
and will remain exerciseable for a period of 12 months after the
Termination on a Change in Control and for a period of 24 months if the
termination results from the Officer's Disability, but in no event longer
than the original term of the option.
7. Aggregate Benefit Cap. If the benefits provided for in this Agreement or
---------------------
otherwise payable to the Officer constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), and will be subject to the excise tax imposed by Section
4999 of the Code, the Officer will receive a payment from OSI sufficient
to pay the initial excise tax ("Gross-Up"), but no further payments from
OSI with respect to the Gross-Up. Unless OSI and the Officer otherwise
agree in writing, determination of the Officer's excise tax liability and
the amount required to be paid under this Section will be made, in
writing, by the same firm of independent public accountants who were
employed by OSI immediately before the Change of Control ("Accountants").
For purposes of making their calculations, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. OSI and the Officer
will furnish the Accountants with such information and documents as the
Accountants may reasonably request. OSI will bear all costs the
Accountants reasonably incur in connection with these calculations.
8. Other Benefits. Neither this Agreement nor the severance compensation that
--------------
it provides for will reduce any amounts otherwise payable, or in any way
diminish the Officer's rights as an employee of OSI, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option,
stock bonus or stock purchase plan or under any employment agreement or
other plan or arrangement.
9. Employment Status. This Agreement does not constitute a contract of
-----------------
employment. It does not impose on OSI any obligation to retain the Officer
as an employee, to change the status of his employment or to change OSI's
policies regarding termination of employment.
10. Miscellaneous.
-------------
(a) Severability. If a court or other body of competent jurisdiction
------------
determines that any term of this Agreement is invalid or
unenforceable, that term will be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and all other terms of the Agreement will be deemed valid and
enforceable to the fullest extent possible.
(b) Withholding. Compensation and benefits to the Officer under this
-----------
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
(c) Entire Agreement. This Agreement is the entire agreement between the
----------------
parties with respect to its subject matter and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any
time to require performance of any term of this Agreement will not
affect the right at a latter time to enforce the same. No waiver of a
breach of this Agreement, whether by conduct or otherwise, in any one
or more instances will be construed as a further or continuing waiver
of the breach or of any other term of this Agreement.
3
<PAGE>
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will constitute an original.
(e) Successors and Assigns. This Agreement will be binding on OSI, its
----------------------
successors and assigns, and will inure to the benefit of the Officer
and his estate, heirs, legal representatives and assigns.
(f) Notices. All notices, requests, demands and other communications under
-------
this Agreement will be in writing, will be effective on receipt and
will be delivered by Federal Express or a similar courier, personal
delivery, certified or registered mail or by facsimile transmission.
Addresses for notice to either party are as shown on the signature
page of this Agreement or as subsequently modified by written notice.
(g) Jurisdiction. The parties each irrevocably consent to the
------------
jurisdiction of the courts of the State of California for all
purposes in connection with any action or proceeding arising out of
or relating to this Agreement. Any action instituted under this
Agreement will be brought only in the state courts of the State of
California.
(h) Governing Law. This Agreement will be governed by, and its provisions
-------------
construed in accordance with, the laws of the State of California as
applied to contracts between California residents entered into and to
be performed entirely within California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15,
1999.
OBJECTIVE SYSTEMS INTEGRATORS, INC.,
By: /s/ Richard G. Vento
----------------------------------
Title: Co-Chief Executive Officer
-------------------------------
Date: 12/15/99
--------------------------------
Address for Notices: 101 Park Way
Folsom, California 95630
Attention: General Counsel
OFFICER
/s/ Jeffrey T. Boone
- -------------------------------------
Jeffrey T. Boone
Address for Notices:
-------------
-------------
4
<PAGE>
Exhbit 10.4
OBJECTIVE SYSTEMS INTEGRATORS, INC.
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT is entered into as of December 15, 1999 ("Effective Date"),
between OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("OSI"), and
PHILIP N. CARDMAN ("Officer").
RECITALS
--------
Officer serves as OSI's Vice President, General Counsel and Secretary. The
parties wish to set forth the terms of Officer's compensation if his employment
ends because of a Change in Control. If a Change in Control occurs, Officer and
other key employees will be more vulnerable to dismissal without regard to the
quality of their service. Because key employees are in a unique position to
affect the efforts of others, OSI's Board of Directors ("Board") believes it is
in the best interests of OSI and its shareholders to ensure the fair treatment
of key employees and to reduce the adverse effects on their performance inherent
in an acquisition or a change in control.
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the following terms have the
-----------
meanings set forth below:
(a) a "Change in Control" will occur if (1) any person, as that term is
-----------------
used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act of
1934 ("Exchange Act"), other than OSI, is or becomes the beneficial
owner, as defined in Rule 13(d)3 under the Exchange Act, either directly
or indirectly (including by holding securities which are exerciseable for
or convertible into shares of OSI capital stock), of 50% or more of the
combined voting power of the outstanding shares of OSI's capital stock
entitled to vote generally in the election of directors (calculated as
provided in Rule 13(d) under the Exchange Act in the case of rights to
acquire capital stock), whether by means of a tender offer or exchange
offer, a Transaction or otherwise, (2) a Transaction is consummated, (3)
the Continuing Directors do not constitute a majority of the Board for
any reason and at any time during the term of this Agreement, or (4) a
majority of OSI's Outside Directors decide that a Change of Control has
occurred.
(b) "Compensation" includes all wages, salary, bonuses and incentive
------------
compensation paid by OSI as consideration for the Officer's service that
are included in the Officer's gross income for federal income tax
purposes, but excludes any taxable income recognized on the exercise of
stock options or the disposition of shares acquired on the exercise of
stock options.
(c) a "Continuing Director" is (1) a member of the Board serving on
-------------------
December 15, 1999, or (2) a person who is thereafter elected by the
shareholders or appointed by the Board where the election or appointment
was approved by at least a majority of the Continuing Directors then
serving on the Board.
(d) "Disability" means that the Officer, in the reasonable judgment of
----------
the Board, is not able to perform the duties of his office by reason of
illness or physical or mental disability, where the condition has
continued for a period of more than three consecutive months.
(e) "Good Reason" includes any of the following:
-----------
(1) assignment to the Officer of significantly reduced duties, or
a substantial reduction in the nature or status of, the
Officer's responsibilities immediately before a Change in
Control. In this regard, a reduction in duties or
responsibilities only by virtue of OSI being acquired and made
a part of a larger entity (as, for example, the Chief
Financial Officer of OSI remains as such following the Change
in Control and is not made the Chief Financial Officer of the
acquirer) will constitute "Good Reason"
<PAGE>
(2) reduction in the Officer's salary or a material reduction in
his other benefits taken as a whole, as in effect on the date
of a Change in Control.
(3) relocation of OSI's principal executive offices outside of the
Greater Sacramento area.
(4) relocation of the Officer to any place other than the
principal offices of OSI, except for reasonably required
travel by the Officer on OSI's business.
(5) breach by OSI of this Agreement, if the breach has not been
cured within 30 days after notice setting forth with
specificity the nature of the breach.
(6) failure by OSI to obtain the assumption of this Agreement by
any successor or assign of OSI.
(f) "Outside Director" is a person who is not, and who during the past
----------------
six months was not, an employee or officer of OSI.
(g) "Termination for Cause" is termination of the Officer's employment
---------------------
as a result of (1) an act of intentional personal dishonesty by the
Officer in connection with his responsibilities as an employee and
intended to result in his substantial personal enrichment, (2) his
conviction of a felony, (3) a willful act by the Officer which
constitutes gross misconduct and which is more than of de minimus
injury to OSI, or (4) continued substantial violations of his
employment duties (that have been previously communicated to him in
writing, are consistent with his position as an Officer of OSI and
that are neither illegal, immoral nor wrongful), that are
demonstrably willful and deliberate on his part and that have
continued for 30 days after OSI has delivered to him a written
demand for performance, specifically setting forth the factual
basis for OSI's belief that he has not performed his duties.
(h) "Termination on a Change in Control" is (1) termination by the
----------------------------------
Officer of his employment for Good Reason within two years after the
occurrence of a Change in Control, or (2) termination by OSI of the
Officer's employment within two years after the occurrence of a
Change in Control other than a Termination for Cause or a
termination resulting from his death or Disability.
(i) a "Transaction" is (1) a consolidation or merger involving OSI,
-----------
other than a merger solely to effect a reincorporation or a merger
as to which stockholder approval is not required under Sections
251(f) or 253 of the Delaware General Corporation Law, (2) a sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of 50% or more of OSI's assets, or (3) the
adoption of any plan or proposal for the liquidation or dissolution
of OSI.
2. Term. If no Change in Control has occurred, this Agreement will expire
----
three years from its Effective Date. This Agreement will be automatically
renewed for successive one-year periods unless either party has given the
other six months prior notice of its election not to renew. If a Change
in Control occurs, this Agreement will continue in effect, and will not
terminate, until the Officer has received the severance compensation
provided for below.
3. Termination on a Change in Control. If a Termination for a Change in
----------------------------------
Control occurs, the Officer will immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be
paid in accordance with the applicable plan), any benefits then due under
any OSI plans in which the Officer participates, accrued vacation pay and
any appropriate business expenses incurred by the Officer in connection
with his duties, all to the date of termination ("Accrued Compensation").
The Officer will also be entitled to the severance compensation described
in Section 4.
4. Severance Compensation. If a Termination on a Change in Control occurs,
----------------------
OSI will pay severance compensation to the Officer in an aggregate amount
equal to the Officer's Compensation for 24 months. Severance compensation
will be computed with reference to the Compensation paid to the Officer
for the last full calendar month immediately preceding the month in which
the Change in Control occurs or the month in which the Officer's
employment terminates, whichever is higher. Compensation as to any month
will include one-twelfth of the amount of any bonus or other lump sum
compensation received by the Officer
<PAGE>
during the preceding 12 months and all amounts accrued with respect to
that month under any deferred compensation plan. Severance compensation
will be without prejudice to the Officer's right to receive accrued
Compensation earned and unpaid at the time of termination. Severance
compensation payments to the Officer will be paid in a lump sum within 30
days after Termination on a Change in Control.
5. Other Provisions. In addition to the severance payments described above,
----------------
the Officer will receive 100% OSI-paid benefits in the same or comparable
plans as provided to him immediately before the Termination on a Change
in Control. If the Officer's health insurance coverage included his
dependents, those dependents will also be covered at OSI's expense.
Coverage under this Section will continue for 24 months after
termination; provided, however, that coverage will end on the date the
Officer and any covered dependents become covered under any similar plan
not maintained by OSI.
6. Acceleration of Options. If a Termination on a Change in Control occurs,
-----------------------
all stock option agreements will be amended to provide that the stock
options held by the Officer immediately before the termination will
become fully vested and exerciseable, even if the vesting conditions set
forth in the underlying stock option agreements have not been satisfied
in full, and will remain exerciseable for a period of 12 months after the
Termination on a Change in Control and for a period of 24 months if the
termination results from the Officer's Disability, but in no event longer
than the original term of the option.
7. Aggregate Benefit Cap. If the benefits provided for in this Agreement or
---------------------
otherwise payable to the Officer constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), and will be subject to the excise tax imposed by
Section 4999 of the Code, the Officer will receive a payment from OSI
sufficient to pay the initial excise tax ("Gross-Up"), but no further
payments from OSI with respect to the Gross-Up. Unless OSI and the
Officer otherwise agree in writing, determination of the Officer's excise
tax liability and the amount required to be paid under this Section will
be made, in writing, by the same firm of independent public accountants
who were employed by OSI immediately before the Change of Control
("Accountants"). For purposes of making their calculations, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. OSI and
the Officer will furnish the Accountants with such information and
documents as the Accountants may reasonably request. OSI will bear all
costs the Accountants reasonably incur in connection with these
calculations.
8. Other Benefits. Neither this Agreement nor the severance compensation
--------------
that it provides for will reduce any amounts otherwise payable, or in any
way diminish the Officer's rights as an employee of OSI, whether existing
now or hereafter, under any benefit, incentive, retirement, stock option,
stock bonus or stock purchase plan or under any employment agreement or
other plan or arrangement.
9. Employment Status. This Agreement does not constitute a contract of
-----------------
employment. It does not impose on OSI any obligation to retain the
Officer as an employee, to change the status of his employment or to
change OSI's policies regarding termination of employment.
10. Miscellaneous.
-------------
(a) Severability. If a court or other body of competent jurisdiction
------------
determines that any term of this Agreement is invalid or
unenforceable, that term will be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and all other terms of the Agreement will be deemed valid and
enforceable to the fullest extent possible.
(b) Withholding. Compensation and benefits to the Officer under this
-----------
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
(d) Entire Agreement. This Agreement is the entire agreement between
----------------
the parties with respect to its subject matter and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any
time to require performance of any term of this Agreement will not
affect the
<PAGE>
right at a latter time to enforce the same. No waiver of a breach
of this Agreement, whether by conduct or otherwise, in any one or
more instances will be construed as a further or continuing waiver
of the breach or of any other term of this Agreement.
(c) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will constitute an original.
(d) Successors and Assigns. This Agreement will be binding on OSI, its
----------------------
successors and assigns, and will inure to the benefit of the
Officer and his estate, heirs, legal representatives and assigns.
(e) Notices. All notices, requests, demands and other communications
-------
under this Agreement will be in writing, will be effective on
receipt and will be delivered by Federal Express or a similar
courier, personal delivery, certified or registered mail or by
facsimile transmission. Addresses for notice to either party are as
shown on the signature page of this Agreement or as subsequently
modified by written notice.
(f) Jurisdiction. The parties each irrevocably consent to the
------------
jurisdiction of the courts of the State of California for all
purposes in connection with any action or proceeding arising out of
or relating to this Agreement. Any action instituted under this
Agreement will be brought only in the state courts of the State of
California.
(g) Governing Law. This Agreement will be governed by, and its
-------------
provisions construed in accordance with, the laws of the State of
California as applied to contracts between California residents
entered into and to be performed entirely within California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15,
1999.
OBJECTIVE SYSTEMS INTEGRATORS, INC.,
By: /s/ Richard G. Vento
-----------------------------------------------
Title: Co-Chief Executive Officer
--------------------------------------------
Date: 12/15/99
---------------------------------------------
Address for Notices: 101 Park Way
Folsom, California 95630
Attention: General Counsel
OFFICER
/s/ Philip N. Cardman
- --------------------------------------------------
Philip N. Cardman
Address for Notices: ______________________
______________________
<PAGE>
Exhibit 10.5
OBJECTIVE SYSTEMS INTEGRATORS, INC.
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT is entered into as of December 15, 1999 ("Effective Date"),
between OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("OSI"), and
LAWRENCE F. FIORE ("Officer").
RECITALS
--------
Officer serves as OSI's Vice President, Finance and Chief Financial Officer.
The parties wish to set forth the terms of Officer's compensation if his
employment ends because of a Change in Control. If a Change in Control occurs,
Officer and other key employees will be more vulnerable to dismissal without
regard to the quality of their service. Because key employees are in a unique
position to affect the efforts of others, OSI's Board of Directors ("Board")
believes it is in the best interests of OSI and its shareholders to ensure the
fair treatment of key employees and to reduce the adverse effects on their
performance inherent in an acquisition or a change in control.
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the following terms have the
-----------
meanings set forth below:
(a) a "Change in Control" will occur if (1) any person, as that term is
-----------------
used in Section 13(d) and 14(d)(2) of the Securities and Exchange
Act of 1934 ("Exchange Act"), other than OSI, is or becomes the
beneficial owner, as defined in Rule 13(d)3 under the Exchange Act,
either directly or indirectly (including by holding securities
which are exerciseable for or convertible into shares of OSI
capital stock), of 50% or more of the combined voting power of the
outstanding shares of OSI's capital stock entitled to vote
generally in the election of directors (calculated as provided in
Rule 13(d) under the Exchange Act in the case of rights to acquire
capital stock), whether by means of a tender offer or exchange
offer, a Transaction or otherwise, (2) a Transaction is
consummated, (3) the Continuing Directors do not constitute a
majority of the Board for any reason and at any time during the
term of this Agreement, or (4) a majority of OSI's Outside
Directors decide that a Change of Control has occurred.
(b) "Compensation" includes all wages, salary, bonuses and incentive
------------
compensation paid by OSI as consideration for the Officer's service
that are included in the Officer's gross income for federal income
tax purposes, but excludes any taxable income recognized on the
exercise of stock options or the disposition of shares acquired on
the exercise of stock options.
(c) a "Continuing Director" is (1) a member of the Board serving on
-------------------
December 15, 1999, or (2) a person who is thereafter elected by the
shareholders or appointed by the Board where the election or
appointment was approved by at least a majority of the Continuing
Directors then serving on the Board.
(d) "Disability" means that the Officer, in the reasonable judgment of
----------
the Board, is not able to perform the duties of his office by
reason of illness or physical or mental disability, where the
condition has continued for a period of more than three consecutive
months.
(e) "Good Reason" includes any of the following:
-----------
(1) assignment to the Officer of significantly reduced duties, or
a substantial reduction in the nature or status of, the
Officer's responsibilities immediately before a Change in
Control. In this regard, a reduction in duties or
responsibilities only by virtue of OSI being acquired and made
a part of a larger entity (as, for example, the Chief
Financial Officer of OSI remains as such following the Change
in Control and is not made the Chief Financial Officer of the
acquirer) will constitute "Good Reason"
<PAGE>
(2) reduction in the Officer's salary or a material reduction in
his other benefits taken as a whole, as in effect on the date
of a Change in Control.
(3) relocation of OSI's principal executive offices outside of the
Greater Sacramento area.
(4) relocation of the Officer to any place other than the
principal offices of OSI, except for reasonably required
travel by the Officer on OSI's business.
(5) breach by OSI of this Agreement, if the breach has not been
cured within 30 days after notice setting forth with
specificity the nature of the breach.
(6) failure by OSI to obtain the assumption of this Agreement by
any successor or assign of OSI.
(f) "Outside Director" is a person who is not, and who during the past
----------------
six months was not, an employee or officer of OSI.
(g) "Termination for Cause" is termination of the Officer's employment
---------------------
as a result of (1) an act of intentional personal dishonesty by the
Officer in connection with his responsibilities as an employee and
intended to result in his substantial personal enrichment, (2) his
conviction of a felony, (3) a willful act by the Officer which
constitutes gross misconduct and which is more than of de minimus
injury to OSI, or (4) continued substantial violations of his
employment duties (that have been previously communicated to him in
writing, are consistent with his position as an Officer of OSI and
that are neither illegal, immoral nor wrongful), that are
demonstrably willful and deliberate on his part and that have
continued for 30 days after OSI has delivered to him a written
demand for performance, specifically setting forth the factual
basis for OSI's belief that he has not performed his duties.
(h) "Termination on a Change in Control" is (1) termination by the
----------------------------------
Officer of his employment for Good Reason within two years after
the occurrence of a Change in Control, or (2) termination by OSI of
the Officer's employment within two years after the occurrence of a
Change in Control other than a Termination for Cause or a
termination resulting from his death or Disability.
(i) a "Transaction" is (1) a consolidation or merger involving OSI,
-----------
other than a merger solely to effect a reincorporation or a merger
as to which stockholder approval is not required under Sections
251(f) or 253 of the Delaware General Corporation Law, (2) a sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of 50% or more of OSI's assets, or (3) the
adoption of any plan or proposal for the liquidation or dissolution
of OSI.
2. Term. If no Change in Control has occurred, this Agreement will expire
----
three years from its Effective Date. This Agreement will be automatically
renewed for successive one-year periods unless either party has given the
other six months prior notice of its election not to renew. If a Change
in Control occurs, this Agreement will continue in effect, and will not
terminate, until the Officer has received the severance compensation
provided for below.
3. Termination on a Change in Control. If a Termination for a Change in
----------------------------------
Control occurs, the Officer will immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be
paid in accordance with the applicable plan), any benefits then due under
any OSI plans in which the Officer participates, accrued vacation pay and
any appropriate business expenses incurred by the Officer in connection
with his duties, all to the date of termination ("Accrued Compensation").
The Officer will also be entitled to the severance compensation described
in Section 4.
4. Severance Compensation. If a Termination on a Change in Control occurs,
----------------------
OSI will pay severance compensation to the Officer in an aggregate amount
equal to the Officer's Compensation for 24 months. Severance compensation
will be computed with reference to the Compensation paid to the Officer
for the last full calendar month immediately preceding the month in which
the Change in Control occurs or the month in which the Officer's
employment terminates, whichever is higher. Compensation as to any month
will include one-twelfth of the amount of any bonus or other lump sum
compensation received by the Officer
<PAGE>
during the preceding 12 months and all amounts accrued with respect to
that month under any deferred compensation plan. Severance compensation
will be without prejudice to the Officer's right to receive accrued
Compensation earned and unpaid at the time of termination. Severance
compensation payments to the Officer will be paid in a lump sum within 30
days after Termination on a Change in Control.
5. Other Provisions. In addition to the severance payments described above,
----------------
the Officer will receive 100% OSI-paid benefits in the same or comparable
plans as provided to him immediately before the Termination on a Change
in Control. If the Officer's health insurance coverage included his
dependents, those dependents will also be covered at OSI's expense.
Coverage under this Section will continue for 24 months after
termination; provided, however, that coverage will end on the date the
Officer and any covered dependents become covered under any similar plan
not maintained by OSI.
6. Acceleration of Options. If a Termination on a Change in Control occurs,
-----------------------
all stock option agreements will be amended to provide that the stock
options held by the Officer immediately before the termination will
become fully vested and exerciseable, even if the vesting conditions set
forth in the underlying stock option agreements have not been satisfied
in full, and will remain exerciseable for a period of 12 months after the
Termination on a Change in Control and for a period of 24 months if the
termination results from the Officer's Disability, but in no event longer
than the original term of the option.
7. Aggregate Benefit Cap. If the benefits provided for in this Agreement or
---------------------
otherwise payable to the Officer constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), and will be subject to the excise tax imposed by
Section 4999 of the Code, the Officer will receive a payment from OSI
sufficient to pay the initial excise tax ("Gross-Up"), but no further
payments from OSI with respect to the Gross-Up. Unless OSI and the
Officer otherwise agree in writing, determination of the Officer's excise
tax liability and the amount required to be paid under this Section will
be made, in writing, by the same firm of independent public accountants
who were employed by OSI immediately before the Change of Control
("Accountants"). For purposes of making their calculations, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. OSI and
the Officer will furnish the Accountants with such information and
documents as the Accountants may reasonably request. OSI will bear all
costs the Accountants reasonably incur in connection with these
calculations.
8. Other Benefits. Neither this Agreement nor the severance compensation
--------------
that it provides for will reduce any amounts otherwise payable, or in any
way diminish the Officer's rights as an employee of OSI, whether existing
now or hereafter, under any benefit, incentive, retirement, stock option,
stock bonus or stock purchase plan or under any employment agreement or
other plan or arrangement.
9. Employment Status. This Agreement does not constitute a contract of
-----------------
employment. It does not impose on OSI any obligation to retain the
Officer as an employee, to change the status of his employment or to
change OSI's policies regarding termination of employment.
10. Miscellaneous.
-------------
(a) Severability. If a court or other body of competent jurisdiction
------------
determines that any term of this Agreement is invalid or
unenforceable, that term will be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and all other terms of the Agreement will be deemed valid and
enforceable to the fullest extent possible.
(b) Withholding. Compensation and benefits to the Officer under this
-----------
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
(c) Entire Agreement. This Agreement is the entire agreement between the
----------------
parties with respect to its subject matter and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any
time to require performance of any term of this Agreement will not
affect the right at a latter time to enforce the same. No waiver of
a breach of this Agreement, whether by conduct or otherwise, in any
one or more instances will be construed as a further or continuing
waiver of the breach or of any other term of this Agreement.
<PAGE>
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will constitute an original.
(e) Successors and Assigns. This Agreement will be binding on OSI, its
----------------------
successors and assigns, and will inure to the benefit of the Officer
and his estate, heirs, legal representatives and assigns.
(f) Notices. All notices, requests, demands and other communications
-------
under this Agreement will be in writing, will be effective on
receipt and will be delivered by Federal Express or a similar
courier, personal delivery, certified or registered mail or by
facsimile transmission. Addresses for notice to either party are as
shown on the signature page of this Agreement or as subsequently
modified by written notice.
(g) Jurisdiction. The parties each irrevocably consent to the
------------
jurisdiction of the courts of the State of California for all
purposes in connection with any action or proceeding arising out of
or relating to this Agreement. Any action instituted under this
Agreement will be brought only in the state courts of the State of
California.
(h) Governing Law. This Agreement will be governed by, and its
-------------
provisions construed in accordance with, the laws of the State of
California as applied to contracts between California residents
entered into and to be performed entirely within California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15,
1999.
OBJECTIVE SYSTEMS INTEGRATORS, INC.,
By: /s/ Richard G. Vento
---------------------------------------------------
Title: Co-Chief Executive Officer
------------------------------------------------
Date: 12/15/99
-------------------------------------------------
Address for Notices: 101 Park Way
Folsom, California 95630
Attention: General Counsel
OFFICER
/s/ Lawrence F. Fiore
- ------------------------------------------------------
Lawrence F. Fiore
Address for Notices: ---------------------------
---------------------------
<PAGE>
Exhibit 10.6
OBJECTIVE SYSTEMS INTEGRATORS, INC.
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT is entered into as of December 15, 1999 ("Effective Date"),
between OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("OSI"), and
DANNY D. LINE ("Officer").
RECITALS
--------
Officer serves as OSI's Vice President, Global Sales. The parties wish to set
forth the terms of Officer's compensation if his employment ends because of a
Change in Control. If a Change in Control occurs, Officer and other key
employees will be more vulnerable to dismissal without regard to the quality
of their service. Because key employees are in a unique position to affect the
efforts of others, OSI's Board of Directors ("Board") believes it is in the
best interests of OSI and its shareholders to ensure the fair treatment of key
employees and to reduce the adverse effects on their performance inherent in
an acquisition or a change in control.
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the following terms have the
-----------
meanings set forth below:
(a) a "Change in Control" will occur if (1) any person, as that term is
-----------------
used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act
of 1934 ("Exchange Act"), other than OSI, is or becomes the
beneficial owner, as defined in Rule 13(d)3 under the Exchange Act,
either directly or indirectly (including by holding securities which
are exerciseable for or convertible into shares of OSI capital
stock), of 50% or more of the combined voting power of the
outstanding shares of OSI's capital stock entitled to vote generally
in the election of directors (calculated as provided in Rule 13(d)
under the Exchange Act in the case of rights to acquire capital
stock), whether by means of a tender offer or exchange offer, a
Transaction or otherwise, (2) a Transaction is consummated, (3) the
Continuing Directors do not constitute a majority of the Board for
any reason and at any time during the term of this Agreement, or (4)
a majority of OSI's Outside Directors decide that a Change of Control
has occurred.
(b) "Compensation" includes all wages, salary, bonuses and incentive
------------
compensation paid by OSI as consideration for the Officer's service
that are included in the Officer's gross income for federal income
tax purposes, but excludes any taxable income recognized on the
exercise of stock options or the disposition of shares acquired on
the exercise of stock options.
(c) a "Continuing Director" is (1) a member of the Board serving on
-------------------
December 15, 1999, or (2) a person who is thereafter elected by the
shareholders or appointed by the Board where the election or
appointment was approved by at least a majority of the Continuing
Directors then serving on the Board.
(d) "Disability" means that the Officer, in the reasonable judgment of the
----------
Board, is not able to perform the duties of his office by reason of
illness or physical or mental disability, where the condition has
continued for a period of more than three consecutive months.
(e) "Good Reason" includes any of the following:
-----------
(1) assignment to the Officer of significantly reduced duties, or a
substantial reduction in the nature or status of, the Officer's
responsibilities immediately before a Change in Control. In this
regard, a reduction in duties or responsibilities only by virtue
of OSI being acquired and made a part of a larger entity (as,
for example, the Chief Financial Officer of OSI remains as such
following the Change in Control and is not made the Chief
Financial Officer of the acquirer) will constitute "Good Reason"
<PAGE>
(2) reduction in the Officer's salary or a material reduction in his
other benefits taken as a whole, as in effect on the date of a
Change in Control.
(3) relocation of OSI's principal executive offices outside of the
Greater Sacramento area.
(4) relocation of the Officer to any place other than the principal
offices of OSI, except for reasonably required travel by the
Officer on OSI's business.
(5) breach by OSI of this Agreement, if the breach has not been
cured within 30 days after notice setting forth with specificity
the nature of the breach.
(6) failure by OSI to obtain the assumption of this Agreement by any
successor or assign of OSI.
(f) "Outside Director" is a person who is not, and who during the past six
----------------
months was not, an employee or officer of OSI.
(g) "Termination for Cause" is termination of the Officer's employment as
---------------------
a result of (1) an act of intentional personal dishonesty by the
Officer in connection with his responsibilities as an employee and
intended to result in his substantial personal enrichment, (2) his
conviction of a felony, (3) a willful act by the Officer which
constitutes gross misconduct and which is more than of de minimus
injury to OSI, or (4) continued substantial violations of his
employment duties (that have been previously communicated to him in
writing, are consistent with his position as an Officer of OSI and
that are neither illegal, immoral nor wrongful), that are
demonstrably willful and deliberate on his part and that have
continued for 30 days after OSI has delivered to him a written demand
for performance, specifically setting forth the factual basis for
OSI's belief that he has not performed his duties.
(h) "Termination on a Change in Control" is (1) termination by the
----------------------------------
Officer of his employment for Good Reason within two years after the
occurrence of a Change in Control, or (2) termination by OSI of the
Officer's employment within two years after the occurrence of a
Change in Control other than a Termination for Cause or a termination
resulting from his death or Disability.
(i) a "Transaction" is (1) a consolidation or merger involving OSI, other
-----------
than a merger solely to effect a reincorporation or a merger as to
which stockholder approval is not required under Sections 251(f) or
253 of the Delaware General Corporation Law, (2) a sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of 50% or more of OSI's assets, or (3) the adoption of
any plan or proposal for the liquidation or dissolution of OSI.
2. Term. If no Change in Control has occurred, this Agreement will expire
----
three years from its Effective Date. This Agreement will be automatically
renewed for successive one-year periods unless either party has given the
other six months prior notice of its election not to renew. If a Change in
Control occurs, this Agreement will continue in effect, and will not
terminate, until the Officer has received the severance compensation
provided for below.
3. Termination on a Change in Control. If a Termination for a Change in
----------------------------------
Control occurs, the Officer will immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be
paid in accordance with the applicable plan), any benefits then due under
any OSI plans in which the Officer participates, accrued vacation pay and
any appropriate business expenses incurred by the Officer in connection
with his duties, all to the date of termination ("Accrued Compensation").
The Officer will also be entitled to the severance compensation described
in Section 4.
4. Severance Compensation. If a Termination on a Change in Control occurs, OSI
----------------------
will pay severance compensation to the Officer in an aggregate amount
equal to the Officer's Compensation for 12 months. Severance compensation
will be computed with reference to the Compensation paid to the Officer
for the last full calendar month immediately preceding the month in which
the Change in Control occurs or the month in which the Officer's
employment terminates, whichever is higher. Compensation as to any month
will include one-twelfth of the amount of any bonus or other lump sum
compensation received by the Officer
<PAGE>
during the preceding 12 months and all amounts accrued with respect to
that month under any deferred compensation plan. Severance compensation
will be without prejudice to the Officer's right to receive accrued
Compensation earned and unpaid at the time of termination. Severance
compensation payments to the Officer will be paid in a lump sum within 30
days after Termination on a Change in Control.
5. Other Provisions. In addition to the severance payments described above,
----------------
the Officer will receive 100% OSI-paid benefits in the same or comparable
plans as provided to him immediately before the Termination on a Change in
Control. If the Officer's health insurance coverage included his
dependents, those dependents will also be covered at OSI's expense.
Coverage under this Section will continue for 12 months after termination;
provided, however, that coverage will end on the date the Officer and any
covered dependents become covered under any similar plan not maintained by
OSI.
6. Acceleration of Options. If a Termination on a Change in Control occurs,
-----------------------
all stock option agreements will be amended to provide that the stock
options held by the Officer immediately before the termination will become
fully vested and exerciseable, even if the vesting conditions set forth in
the underlying stock option agreements have not been satisfied in full,
and will remain exerciseable for a period of 12 months after the
Termination on a Change in Control and for a period of 24 months if the
termination results from the Officer's Disability, but in no event longer
than the original term of the option.
7. Aggregate Benefit Cap. If the benefits provided for in this Agreement or
---------------------
otherwise payable to the Officer constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), and will be subject to the excise tax imposed by Section
4999 of the Code, the Officer will receive a payment from OSI sufficient
to pay the initial excise tax ("Gross-Up"), but no further payments from
OSI with respect to the Gross-Up. Unless OSI and the Officer otherwise
agree in writing, determination of the Officer's excise tax liability and
the amount required to be paid under this Section will be made, in
writing, by the same firm of independent public accountants who were
employed by OSI immediately before the Change of Control ("Accountants").
For purposes of making their calculations, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. OSI and the Officer
will furnish the Accountants with such information and documents as the
Accountants may reasonably request. OSI will bear all costs the
Accountants reasonably incur in connection with these calculations.
8. Other Benefits. Neither this Agreement nor the severance compensation that
--------------
it provides for will reduce any amounts otherwise payable, or in any way
diminish the Officer's rights as an employee of OSI, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option,
stock bonus or stock purchase plan or under any employment agreement or
other plan or arrangement.
9. Employment Status. This Agreement does not constitute a contract of
-----------------
employment. It does not impose on OSI any obligation to retain the Officer
as an employee, to change the status of his employment or to change OSI's
policies regarding termination of employment.
10. Miscellaneous.
-------------
(a) Severability. If a court or other body of competent jurisdiction
------------
determines that any term of this Agreement is invalid or
unenforceable, that term will be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and all other terms of the Agreement will be deemed valid and
enforceable to the fullest extent possible.
(b) Withholding. Compensation and benefits to the Officer under this
-----------
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
(c) Entire Agreement. This Agreement is the entire agreement between the
----------------
parties with respect to its subject matter and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any
time to require performance of any term of this Agreement will not
affect the right at a latter time to enforce the same. No waiver of a
breach of this Agreement, whether by conduct or otherwise, in any one
or more instances will be construed as a further or continuing waiver
of the breach or of any other term of this Agreement.
<PAGE>
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will constitute an original.
(e) Successors and Assigns. This Agreement will be binding on OSI, its
----------------------
successors and assigns, and will inure to the benefit of the Officer
and his estate, heirs, legal representatives and assigns.
(f) Notices. All notices, requests, demands and other communications under
-------
this Agreement will be in writing, will be effective on receipt and
will be delivered by Federal Express or a similar courier, personal
delivery, certified or registered mail or by facsimile transmission.
Addresses for notice to either party are as shown on the signature
page of this Agreement or as subsequently modified by written notice.
(g) Jurisdiction. The parties each irrevocably consent to the
------------
jurisdiction of the courts of the State of California for all
purposes in connection with any action or proceeding arising out of
or relating to this Agreement. Any action instituted under this
Agreement will be brought only in the state courts of the State of
California.
(h) Governing Law. This Agreement will be governed by, and its provisions
-------------
construed in accordance with, the laws of the State of California as
applied to contracts between California residents entered into and to
be performed entirely within California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15,
1999.
OBJECTIVE SYSTEMS INTEGRATORS, INC.,
By: /s/ Richard G. Vento
---------------------------------------
Title: Co-Chief Executive Officer
------------------------------------
Date: 12/15/99
-------------------------------------
Address for Notices: 101 Park Way
Folsom, California 95630
Attention: General Counsel
OFFICER
/s/ Danny D. Line
- ------------------------------------------
Danny D. Line
Address for Notices:
------------
------------
<PAGE>
Exhibit 10.7
OBJECTIVE SYSTEMS INTEGRATORS, INC.
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT is entered into as of December 15, 1999 ("Effective Date"),
between OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation ("OSI"), and
JAMES T. OLSEN ("Officer").
RECITALS
--------
Officer serves as OSI's Vice President, Marketing. The parties wish to set
forth the terms of Officer's compensation if his employment ends because of a
Change in Control. If a Change in Control occurs, Officer and other key
employees will be more vulnerable to dismissal without regard to the quality of
their service. Because key employees are in a unique position to affect the
efforts of others, OSI's Board of Directors ("Board") believes it is in the best
interests of OSI and its shareholders to ensure the fair treatment of key
employees and to reduce the adverse effects on their performance inherent in an
acquisition or a change in control.
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the following terms have the
-----------
meanings set forth below:
(a) a "Change in Control" will occur if (1) any person, as that term is
-----------------
used in Section 13(d) and 14(d)(2) of the Securities and Exchange
Act of 1934 ("Exchange Act"), other than OSI, is or becomes the
beneficial owner, as defined in Rule 13(d)3 under the Exchange Act,
either directly or indirectly (including by holding securities
which are exerciseable for or convertible into shares of OSI
capital stock), of 50% or more of the combined voting power of the
outstanding shares of OSI's capital stock entitled to vote
generally in the election of directors (calculated as provided in
Rule 13(d) under the Exchange Act in the case of rights to acquire
capital stock), whether by means of a tender offer or exchange
offer, a Transaction or otherwise, (2) a Transaction is
consummated, (3) the Continuing Directors do not constitute a
majority of the Board for any reason and at any time during the
term of this Agreement, or (4) a majority of OSI's Outside
Directors decide that a Change of Control has occurred.
(b) "Compensation" includes all wages, salary, bonuses and incentive
------------
compensation paid by OSI as consideration for the Officer's service
that are included in the Officer's gross income for federal income
tax purposes, but excludes any taxable income recognized on the
exercise of stock options or the disposition of shares acquired on
the exercise of stock options.
(c) a "Continuing Director" is (1) a member of the Board serving on
-------------------
December 15, 1999, or (2) a person who is thereafter elected by the
shareholders or appointed by the Board where the election or
appointment was approved by at least a majority of the Continuing
Directors then serving on the Board.
(d) "Disability" means that the Officer, in the reasonable judgment of
----------
the Board, is not able to perform the duties of his office by
reason of illness or physical or mental disability, where the
condition has continued for a period of more than three consecutive
months.
(e) "Good Reason" includes any of the following:
-----------
(1) assignment to the Officer of significantly reduced duties, or a
substantial reduction in the nature or status of, the Officer's
responsibilities immediately before a Change in Control. In
this regard, a reduction in duties or responsibilities only by
virtue of OSI being acquired and made a part of a larger entity
(as, for example, the Chief Financial Officer of OSI remains as
such following the Change in Control and is not made the Chief
Financial Officer of the acquirer) will constitute "Good
Reason"
<PAGE>
(2) reduction in the Officer's salary or a material reduction in
his other benefits taken as a whole, as in effect on the date
of a Change in Control.
(3) relocation of OSI's principal executive offices outside of the
Greater Sacramento area.
(4) relocation of the Officer to any place other than the
principal offices of OSI, except for reasonably required
travel by the Officer on OSI's business.
(5) breach by OSI of this Agreement, if the breach has not been
cured within 30 days after notice setting forth with
specificity the nature of the breach.
(6) failure by OSI to obtain the assumption of this Agreement by
any successor or assign of OSI.
(f) "Outside Director" is a person who is not, and who during the past
----------------
six months was not, an employee or officer of OSI.
(g) "Termination for Cause" is termination of the Officer's employment
---------------------
as a result of (1) an act of intentional personal dishonesty by the
Officer in connection with his responsibilities as an employee and
intended to result in his substantial personal enrichment, (2) his
conviction of a felony, (3) a willful act by the Officer which
constitutes gross misconduct and which is more than of de minimus
injury to OSI, or (4) continued substantial violations of his
employment duties (that have been previously communicated to him in
writing, are consistent with his position as an Officer of OSI and
that are neither illegal, immoral nor wrongful), that are
demonstrably willful and deliberate on his part and that have
continued for 30 days after OSI has delivered to him a written
demand for performance, specifically setting forth the factual basis
for OSI's belief that he has not performed his duties.
(h) "Termination on a Change in Control" is (1) termination by the
----------------------------------
Officer of his employment for Good Reason within two years after
the occurrence of a Change in Control, or (2) termination by OSI of
the Officer's employment within two years after the occurrence of a
Change in Control other than a Termination for Cause or a
termination resulting from his death or Disability.
(i) a "Transaction" is (1) a consolidation or merger involving OSI,
-----------
other than a merger solely to effect a reincorporation or a merger
as to which stockholder approval is not required under Sections
251(f) or 253 of the Delaware General Corporation Law, (2) a sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of 50% or more of OSI's assets, or (3) the
adoption of any plan or proposal for the liquidation or dissolution
of OSI.
2. Term. If no Change in Control has occurred, this Agreement will expire
----
three years from its Effective Date. This Agreement will be automatically
renewed for successive one-year periods unless either party has given the
other six months prior notice of its election not to renew. If a Change
in Control occurs, this Agreement will continue in effect, and will not
terminate, until the Officer has received the severance compensation
provided for below.
3. Termination on a Change in Control. If a Termination for a Change in
----------------------------------
Control occurs, the Officer will immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits, which will be
paid in accordance with the applicable plan), any benefits then due under
any OSI plans in which the Officer participates, accrued vacation pay and
any appropriate business expenses incurred by the Officer in connection
with his duties, all to the date of termination ("Accrued Compensation").
The Officer will also be entitled to the severance compensation described
in Section 4.
4. Severance Compensation. If a Termination on a Change in Control occurs,
----------------------
OSI will pay severance compensation to the Officer in an aggregate amount
equal to the Officer's Compensation for 12 months. Severance compensation
will be computed with reference to the Compensation paid to the Officer
for the last full calendar month immediately preceding the month in which
the Change in Control occurs or the month in which the Officer's
employment terminates, whichever is higher. Compensation as to any month
will include one-twelfth of the amount of any bonus or other lump sum
compensation received by the Officer
<PAGE>
during the preceding 12 months and all amounts accrued with respect to
that month under any deferred compensation plan. Severance compensation
will be without prejudice to the Officer's right to receive accrued
Compensation earned and unpaid at the time of termination. Severance
compensation payments to the Officer will be paid in a lump sum within 30
days after Termination on a Change in Control.
5. Other Provisions. In addition to the severance payments described above,
----------------
the Officer will receive 100% OSI-paid benefits in the same or comparable
plans as provided to him immediately before the Termination on a Change
in Control. If the Officer's health insurance coverage included his
dependents, those dependents will also be covered at OSI's expense.
Coverage under this Section will continue for 12 months after
termination; provided, however, that coverage will end on the date the
Officer and any covered dependents become covered under any similar plan
not maintained by OSI.
6. Acceleration of Options. If a Termination on a Change in Control occurs,
-----------------------
all stock option agreements will be amended to provide that the stock
options held by the Officer immediately before the termination will
become fully vested and exerciseable, even if the vesting conditions set
forth in the underlying stock option agreements have not been satisfied
in full, and will remain exerciseable for a period of 12 months after the
Termination on a Change in Control and for a period of 24 months if the
termination results from the Officer's Disability, but in no event longer
than the original term of the option.
7. Aggregate Benefit Cap. If the benefits provided for in this Agreement or
---------------------
otherwise payable to the Officer constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended ("Code"), and will be subject to the excise tax imposed by
Section 4999 of the Code, the Officer will receive a payment from OSI
sufficient to pay the initial excise tax ("Gross-Up"), but no further
payments from OSI with respect to the Gross-Up. Unless OSI and the
Officer otherwise agree in writing, determination of the Officer's excise
tax liability and the amount required to be paid under this Section will
be made, in writing, by the same firm of independent public accountants
who were employed by OSI immediately before the Change of Control
("Accountants"). For purposes of making their calculations, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. OSI and
the Officer will furnish the Accountants with such information and
documents as the Accountants may reasonably request. OSI will bear all
costs the Accountants reasonably incur in connection with these
calculations.
8. Other Benefits. Neither this Agreement nor the severance compensation
--------------
that it provides for will reduce any amounts otherwise payable, or in any
way diminish the Officer's rights as an employee of OSI, whether existing
now or hereafter, under any benefit, incentive, retirement, stock option,
stock bonus or stock purchase plan or under any employment agreement or
other plan or arrangement.
9. Employment Status. This Agreement does not constitute a contract of
-----------------
employment. It does not impose on OSI any obligation to retain the
Officer as an employee, to change the status of his employment or to
change OSI's policies regarding termination of employment.
10. Miscellaneous.
-------------
(a) Severability. If a court or other body of competent jurisdiction
------------
determines that any term of this Agreement is invalid or
unenforceable, that term will be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and all other terms of the Agreement will be deemed valid and
enforceable to the fullest extent possible.
(b) Withholding. Compensation and benefits to the Officer under this
-----------
Agreement will be reduced by all federal, state, local and other
withholdings or similar taxes as required by applicable law.
(c) Entire Agreement. This Agreement is the entire agreement between
----------------
the parties with respect to its subject matter and may be amended,
modified, superseded or canceled, or its terms waived, only by a
written instrument executed by each party or, in the case of a
waiver, by the party waiving compliance. Failure of a party at any
time to require performance of any term of this Agreement will not
affect the right at a latter time to enforce the same. No waiver of
a breach of this Agreement, whether by conduct or otherwise, in any
one or more instances will be construed as a further or continuing
waiver of the breach or of any other term of this Agreement.
<PAGE>
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will constitute an original.
(e) Successors and Assigns. This Agreement will be binding on OSI, its
----------------------
successors and assigns, and will inure to the benefit of the
Officer and his estate, heirs, legal representatives and assigns.
(f) Notices. All notices, requests, demands and other communications
-------
under this Agreement will be in writing, will be effective on
receipt and will be delivered by Federal Express or a similar
courier, personal delivery, certified or registered mail or by
facsimile transmission. Addresses for notice to either party are as
shown on the signature page of this Agreement or as subsequently
modified by written notice.
(g) Jurisdiction. The parties each irrevocably consent to the
------------
jurisdiction of the courts of the State of California for all
purposes in connection with any action or proceeding arising out of
or relating to this Agreement. Any action instituted under this
Agreement will be brought only in the state courts of the State of
California.
(h) Governing Law. This Agreement will be governed by, and its
-------------
provisions construed in accordance with, the laws of the State of
California as applied to contracts between California residents
entered into and to be performed entirely within California.
IN WITNESS WHEREOF, the parties have executed this Agreement as of December 15,
1999.
OBJECTIVE SYSTEMS INTEGRATORS, INC.,
By: /s/ Richard G. Vento
-----------------------------------------------------
Title: Co-Chief Executive Officer
--------------------------------------------------
Date: 12/15/99
---------------------------------------------------
Address for Notices: 101 Park Way
Folsom, California 95630
Attention: General Counsel
OFFICER
/s/ James T. Olsen
- ---------------------------------------------------------
James T. Olsen
Address for Notices:
-----------------------------
-----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> OCT-31-1999 JUL-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 23,593 23,593
<SECURITIES> 16,806 16,806
<RECEIVABLES> 11,015 11,015
<ALLOWANCES> (2,175) (2,175)
<INVENTORY> 0 0
<CURRENT-ASSETS> 50,966 50,966
<PP&E> 33,723 33,723
<DEPRECIATION> (23,596) (23,596)
<TOTAL-ASSETS> 64,524 64,524
<CURRENT-LIABILITIES> 24,580 24,580
<BONDS> 0 0
0 0
0 0
<COMMON> 87,341 87,341
<OTHER-SE> (47,397) (47,397)
<TOTAL-LIABILITY-AND-EQUITY> 64,524 64,524
<SALES> 0 0
<TOTAL-REVENUES> 17,073 29,083
<CGS> 4,657 9,111
<TOTAL-COSTS> 17,235 34,034
<OTHER-EXPENSES> (330) (591)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 170 (4,360)
<INCOME-TAX> 55 254
<INCOME-CONTINUING> 115 (4,614)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 115 (4,614)
<EPS-BASIC> 0.00 (0.13)
<EPS-DILUTED> 0.00 (0.13)
</TABLE>
