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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21958
QUICKRESPONSE SERVICES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0102251
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
1400 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
(Address of principal executive offices, including zip code)
(510) 215-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 28, 1997 was approximately $231,215,738 (based upon
the closing price for shares of the Registrant's common stock as reported by the
Nasdaq National Market). Shares of common stock held by each officer, director
and holder of 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
Number of shares of common stock outstanding as of February 28, 1997: 8,407,845
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the following document are incorporated by reference into
this Report on Form 10-K where indicated:
QuickResponse Services, Inc. Proxy Statement for the Annual Meeting of
Stockholders to be held on or about May 30, 1997, Part III.
The exhibit index appears on Pages 41-42.
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QUICKRESPONSE SERVICES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
ITEM 1 Business 3
ITEM 2 Facilities 13
ITEM 3 Legal Proceedings 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
PART II
ITEM 5 Market for Registrant's Common Equity
and Related Shareholder Matters 14
ITEM 6 Selected Financial Data 15
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
ITEM 8 Financial Statements 19
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 33
PART III
ITEM 10 Directors and Executive Officers of the Registrant 34
ITEM 11 Executive Compensation 36
ITEM 12 Security Ownership of Certain Beneficial Owners and Management 36
ITEM 13 Certain Relationships and Related Transactions 36
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
SIGNATURES 40
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PART I
ITEM 1. BUSINESS
QuickResponse Services, Inc. (the "Company" or "QRS" ) is a leading provider of
electronic commerce merchandising and logistics solutions that optimize its
customers' performance throughout the retail demand chain. The Company's
primary products include the world's largest centralized product information
database ("The QRS Catalog"), an integrated replenishment and sales analysis
service ("Collaborative Replenishment Services" or "CRS"), transportation and
logistics solutions ("Easy EDI" and "LMS") and electronic data interchange and
related network services ("EDI Services" and "EConnect Services") and Internet
services. The Company's business is subject to various risks and uncertainties
(see "Item 1. Business - Risk Factors").
The QRS Catalog was the first independent product information database using the
industry standard Universal Product Code ("U.P.C.") numbering system. Retailers
and vendors access The QRS Catalog and electronically exchange industry standard
business documents using EDI Services. Collaborative Replenishment Services is
a network-centric inventory management system that processes daily sales
information for specific products at specific stores. The system analyzes the
sales data, determines recommended order quantity and electronically
communicates and tracks the flow of the reordered items to ensure timely
delivery. QRS' transportation and logistics services allow retailers and
manufacturers to tender and track motor freight shipments to carriers using EDI
Services and provide delivery performance reporting. Integral to all of these
value-added services are the Company's EDI Services, which support retailers and
vendors' electronic exchange of purchase orders, invoices, shipping notices and
other business documents, including information from The QRS Catalog.
The Company provides its retailer, vendor and carrier customers with a single
source for implementing demand chain management solutions. The QRS Catalog is a
central repository of timely, complete and accurate vendor product information.
CRS is a network-centric application that eliminates the costly capital and
operating investment of a replenishment and sales analysis solution located at
the vendor or retailer site. The transportation and logistics solution
represents a single source of information that provides trading partners with
the information necessary to evaluate carrier performance and efficiency.
The Company was incorporated in California in 1985 and had 148 employees at
December 31, 1996. The Company's principal executive offices are located at
1400 Marina Way South, Richmond, California 94804, and its telephone number is
510-215-5000.
INDUSTRY BACKGROUND
The United States general merchandise retail industry accounts for revenues in
excess of $1.5 trillion, with approximately 1,000 retailers recording sales in
excess of $80 million. As competitive pressures within the industry have
intensified, retailers have focused increasingly upon the importance of
efficient merchandise management to improve their financial performance.
Failure to manage merchandise to meet customer demand results in lost sales. In
the soft goods industry alone, inefficiencies such as inadequate information,
excess inventories and slow communications between vendor and retailers have
been estimated to cost over $25 billion in lost revenues each year. Merchandise
management is a complex problem. For example, the average department store
carries more than one million stockkeeping units ("SKUs") at a time, each unique
in terms of product style, size and color. Each retailer's SKUs are produced by
hundreds, or in some cases thousands, of vendors. These vendors are required to
manage rapid production and accurate delivery of ordered merchandise to multiple
retail locations. To address these issues, retailers and vendors have in recent
years sought to develop strategies for optimizing selection and availability
while minimizing absolute inventory levels. These strategies are known
collectively in the industry as "quick response merchandise management" and are
intended to improve the efficiency of the retail demand chain. The participants
in the demand chain are actively pursuing ways to optimize the flow of
merchandise by improving procurement, inventory and distribution management.
QRS' network-centric applications align closely with the Company's customers'
needs in these three key strategic areas: The QRS Catalog and EDI Services
assist in procurement, Collaborative Replenishment Services provides valuable
inventory management tools through its replenishment, sales analysis and
forecasting services, and Easy EDI and LMS aid in transportation and logistics
services.
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Technology has made significant contributions to the evolution of merchandise
management. The replacement of cash registers with point of sale terminals
during the 1980s made possible automatic price look-up and merchandise tracking.
These capabilities, and the rapid spread of bar coding, soon led to the retail
industry's adoption of a standardized product identification, numbering and
communication format. Known as the universal product code, or U.P.C., this
standard has greatly increased the efficiency with which retailers and vendors
can mark, track and exchange product information.
During the same period, advances in data communications and the availability of
public data networks fostered the use of computers for the electronic
transmission of transaction documents, including purchase orders, invoices and
shipping instructions. Such paperless transactions are widely referred to as
electronic data interchange, or EDI. In conjunction with the broad use of
standard U.P.C.-based data, EDI has benefited retailers by lowering costs,
reducing errors and improving the timeliness of the merchandise ordering
process.
Despite the benefits of EDI, retailers have continued to rely on paper U.P.C.
catalogs or magnetic tapes published by each vendor as their primary source of
product information. Although updated frequently, such information quickly
becomes outdated and as a result these catalogs and tapes cannot provide the
real-time information necessary for quick response merchandise management. In
order to efficiently implement quick response merchandise management, retailers
and vendors need an independent, reliable centralized database containing U.P.C.
product information accessible through a reliable and secure data network.
QRS SERVICES
In order to improve the flow of information, goods and services throughout the
retail demand chain, the Company offers a range of services, including The QRS
Catalog, Collaborative Replenishment Services, transportation and logistics
solutions, electronic commerce solutions, Internet services and related
training, implementation and support. These services may be implemented
incrementally, allowing customers to integrate functions over time within their
organizations and with their trading partners.
THE QRS CATALOG
The QRS Catalog is the retail industry's largest U.P.C. database. As of
December 31, 1996, The QRS Catalog contained over 48 million U.P.C. entries and
supported a vendor customer base of over 1,500 companies. A vendor's
merchandise entries are classified by name, merchandise classification, style
number and U.P.C., as well as size, color and other relevant characteristics.
The U.P.C. classification system underlies all subsequent transaction
processing. When loaded into the database, the data is screened for accuracy
and completeness by the Company's software and is further reviewed by a Company
customer support representative. Vendor information is protected, and is
available only to trading partners approved by the vendor.
Pricing of The QRS Catalog services is based upon the formation of trading
partnerships between vendors and retailers. Each time a retailer accesses a
vendor's data in The QRS Catalog a trading partnership is formed and a specific
fee is charged for that month. In addition to the trading partnership charges,
a usage fee is charged based on the actual number of records the retailer
retrieves from The QRS Catalog.
The QRS Catalog is continually upgraded and enhanced to meet the needs of our
customers. In 1996, a Windows-based version of The QRS Catalog was released.
This version provides additional ordering information through the addition of
26 new data elements and increases the efficiency of the end users by providing
new filtering techniques to quickly access information.
COLLABORATIVE REPLENISHMENT SERVICES
CRS is a customized network-centric application for inventory management based
on individual manufacturer and retailer needs. CRS is intended to maximize both
retailers' and manufacturers' inventory management and increase sales by having
the right merchandise at the right place at the right time. CRS is comprised of
three services that aid in optimizing inventory and sales: replenishment, sales
analysis and forecasting.
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Based on actual customer results, the initial replenishment program resulted in
a 25% increase in sales with a 30% decrease in inventory. While customers have
a choice of implementing third-party or in-house services, QRS believes its
replenishment solution is superior because it permits replenishment models to be
run daily, by U.P.C. and by store location. This permits optimum merchandise
management at the SKU level on a daily basis. Most in-house and third-party
applications are run monthly or bi-monthly and require large capital and
operating cost investments. Because all components of CRS are network-centric,
the Company believes that capital and operating costs for both the retailer and
the manufacturer will be reduced.
Released in 1996, Sales Analysis provides additional tools for the retailer and
vendor to enhance inventory management. Through Sales Analysis, both retailers
and their vendors can view daily sales in an easy-to-use Windows environment.
The information is available by product, by size and color down to the specific
store location. This information provides immediate data on which products are
doing well and which should be discontinued.
Forecasting, which is expected to be released in the first half of 1997, will
enable both retailers and their vendors to forecast sales for up to 53 weeks
using seasonal and promotional variables. From the simplest statistical method
to sophisticated neural networking technologies, Forecasting will support a
variety of statistical methods, allowing users to facilitate informed buying
and/or production decisions.
TRANSPORTATION AND LOGISTICS SERVICES
The Company's ShipNet division, with approximately 1000 enabled customers, is a
market leader in providing logistical information and communication services.
The Logistics Management System ("LMS") enables shippers to tender and track
motor freight shipments to carriers via EDI, and provides delivery performance
reporting. Easy EDI software provides entry level logistics solutions and EDI
interfaces for shippers and carriers.
The LMS and its PC-based enablement tool, Easy EDI, allow the capture,
transmission, storage and management of shipment information. This provides
customers electronic access to real-time information and allows both retailers
and manufacturers to conduct electronic commerce for tendering, freight
invoicing and other functions, track the current status of in-transit shipments
and notify affected parties of impending service failures.
The proactive notification of potential service failures and easy access to
accurate, timely information helps eliminate the uncertainty surrounding
individual orders or shipments. This leads to a reduction in costs and
order-fulfillment cycles as distribution channels become more efficient.
ELECTRONIC COMMERCE SOLUTIONS
Electronic commerce involves the automation of business-to-business transactions
through the use of telecommunications and computers to exchange and process
electronically commercial information and business transaction documents. Due
to the critical nature of these transactions, electronic commerce requires
reliable, secure, automated connectivity between businesses. Advantages of
electronic commerce include reduced clerical workload and elimination of
unnecessary paper handling; rapid, accurate, secure exchange of time sensitive
business information; reduced operating and inventory carrying costs; and
improved speed for ordering, delivering and paying for goods and services.
Electronic commerce typically involves software and network services to perform
critical business functions such as EDI, which facilitates uniform communication
with different trading partners, including suppliers, customers, transportation
carriers, financial institutions and governmental agencies. In addition,
electronic commerce includes value-added services such as e-mail, electronic
funds transfer, electronic forms and bulletin board and catalog services.
Currently, EDI is the most widely adopted component of electronic commerce.
EDI services provide the vehicle for electronic communication to and from QRS'
network-centric applications. In addition to providing access to QRS' demand
chain management applications, EDI enables retailers, vendors and carriers to
electronically exchange industry standard business documents, permitting
communication of purchase orders, invoices, shipping notices and other business
documents. As retailers, vendors and carriers expand their
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utilization of QRS' value-added applications, the Company anticipates a shift in
revenue from the basic EDI services to more value-added services.
In order to support its customers' goals of achieving 100% electronic commerce
implementation, QRS provides its customers with EDI-to-Fax, a service whereby
QRS receives EDI documents from retailers and translates and faxes the documents
to non-EDI enabled vendors. In addition, QRS continually increases its ability
to enable increased numbers of trading partners quickly through its multi-tiered
support organizations, including account management, program sales and services
and customer and production support.
In 1996, QRS developed and released EConnect, a Windows-based software product
that allows vendors to communicate with their retailers electronically. From a
retailer's perspective, EConnect is a seamless EDI solution, while on the
vendor's side, it is an easy-to-use solution without the traditional start-up
costs associated with an EDI program.
INTERNET SERVICES
The Company provides its value-added services in a network-centric model. The
Company's applications for Catalog, CRS and transportation and logistic services
reside within the Company's data operations environment and are accessible
primarily through the IBM Global Network ("IGN") which is a Value-Added Network
("VAN").
Due to the "mission critical" nature of the customers' network activity, high
performance standards for reliability, auditability and enabling, and
maintenance services have been required for the successful implementation of
electronic commerce solutions. To date, the network access preferred by
customers to meet these needs has been that access provided by a VAN.
The emergence of the Internet as an alternative network access continues to gain
momentum. Although it appears at this time to present an opportunity for a more
cost-effective network service, the Internet has yet to achieve the performance
standards demanded for mission critical activities. Solutions for such
deficiencies are currently the subject of much effort and investment. The
Company views the Internet as a significant opportunity to expand the reach and
coverage of its value-added applications to trading partners who previously were
unable to participate in electronic commerce solutions due to technical or cost
constraints.
The Company is positioning itself to take advantage of the Internet as it
develops to meet the needs of its customers. Today, the Company provides
Internet services, including connectivity through its network services provided
by IGN, and assists customers in establishing a World Wide Web presence and
developing custom dial capabilities. The Company has developed and is beta
testing an Internet enableable graphical user interface, QRSolutions, to each of
its value-added service offerings. Implemented in a Windows environment, these
products allow delivery of a user friendly solution using an Internet protocol.
The products will be generally available initially through private Internet
protocol network access, such as IGN, to ensure performance standards are
achieved, but can be provided over the public Internet as such standards are
addressed. Finally, the Company has established an Internet presence to provide
customer support, including technical support, as well as forums for exchange of
information among retailers and vendors.
MARKETING, SALES AND CUSTOMER SUPPORT
The Company's marketing strategy is to be the driving force in retail demand
chain management. With the introduction of new products, the Company's
strategic reach significantly expanded in 1996 and now covers a greater portion
of the demand chain. The Company's marketing activities include participation
in industry conventions, trade shows and user groups. The Company's sales and
marketing personnel include numerous individuals with prior retail,
replenishment, transportation and EDI experience.
The Company utilizes experienced software development and customer service
personnel to assist customers in implementing and using the Company's catalog
and EDI services. The Company operates a 24-hour hotline for customers to call
with questions and problems and has a program to regularly contact its customers
by telephone to ensure customer satisfaction, currency of catalog data and
maximization of trading partner opportunities.
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In addition to its own sales force, the Company also benefits from the marketing
efforts of IBM. IBM, in coordination with the Company, actively promotes the
use of its network services in the retail industry. The Company cooperates with
IBM marketing teams to generate leads and qualify prospects. IBM field sales
personnel currently are compensated for generating EDI revenue for IBM through
customer use of QRS services.
RETAILERS AND VENDOR CUSTOMERS
The Company markets its services to retailers and vendors, primarily in the
United States and Canada. As of December 31, 1996, the Company's Catalog and
EDI Services were being utilized by 205 retailers representing all segments of
the retail industry, with an emphasis in apparel and department store retailers.
The Company's customers also included approximately 4,700 general merchandise
vendors, selling a variety of goods ranging from apparel and shoes to cosmetics
to electronics and automotive goods.
The Company's customer base increased 6% from approximately 4,900 customers at
December 31, 1995 to approximately 5,200 customers at December 31, 1996. Its
QRS Catalog customer base remained stable with approximately 1,500 at December
31, 1995 and 1996. The number of U.P.C.s active in The QRS Catalog grew 13%
from 43 million at December 31, 1995 to 48 million at December 31, 1996. By
December 1996, there were 205 retailers, including 22 retailers who made the use
of The QRS Catalog a mandate or requirement to their vendors. These statistics
demonstrate the support of the retail industry for quick response merchandise
management.
Although none of the Company's customers accounted for more than 10% of its
revenues for any of the three years in the period ended December 31, 1996,
trading activities of three of the Company's retail customers, and their
vendors, represent a significant amount of the Company's business. Because of
the large number of vendors that transact business with each of these and other
retailers, the difficulty of allocating vendor EDI services to any particular
retailer trading partnership program, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailer trading
partnership programs. Revenues attributable to three major retailers, and their
vendors, amounted to approximately $19 million, $16 million and $14 million in
1996, 1995 and 1994, respectively. Such amounts represented 34%, 38%, and 45%
of revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
COMPETITION
The Company competes on the basis of service offerings, availability and quality
of support, implementation services, sales and marketing resources, and price.
The Company's competitors include a number of companies providing EDI services
to retailers and vendors. The EDI services business is highly competitive, and
competitive pricing may materially and adversely affect the prices the Company
can charge for its services. Competition may also affect the Company's ability
to attract new customers and retain and expand business with its existing
customers and may impact negatively the range of services offered to its
customers. The Company expects competition to increase as more companies enter
the market and existing competitors continue to change and expand their product
offerings. Several companies, including General Electric Information Services
Company, Sterling Commerce, Inc. and others, offer EDI and certain other network
services, including, a U.P.C. catalog. In-house systems and third-party
software providers are the Company's largest competitors relative to its CRS
products and services. The Company believes it provides a competitive advantage
relative to these products by offering daily management of inventory at the
U.P.C. and store level and significantly lower capital and operating costs.
Competitors for the Company's transportation and logistics offerings are
primarily other freight carriers who provide outsourcing to customers.
The Company differentiates itself from its competitors in part by providing the
U.P.C. catalog containing product information from the largest number of
vendors. The Company's business and results of operations could be materially
and adversely affected if other competitors introduce catalogs or if any
competitor provides a catalog that is superior to the Company's catalog. Many
of the Company's existing and potential competitors have financial, marketing or
technological resources that are greater than those of the Company, and there
can be no
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assurance that the Company will be able to compete successfully. Some large
retailers and vendors operate private computer networks for transacting business
with their trading partners. It is possible that additional retailers and
vendors, including certain of the Company's existing customers, may develop and
implement similar private networks, thereby reducing the demand for the
Company's services. IGN has, under certain license and maintenance agreements
with the Company, the right to market the Company's catalog applications in
competition with the Company, in return for prescribed royalty and maintenance
payments. Although the Company does not believe that IGN has any current
intention to enter the Company's market, there can be no assurance that IGN will
not exercise its license rights and become a competitor, and the Company's
inability to obtain information may limit the Company's ability to provide for
any such contingency.
DATA CENTER
The Company operates its primary data center at its Richmond, California
offices, with additional capabilities at its Lisle, Illinois facilities. The
data center operates 24 hours a day, seven days a week, and is connected to the
Company's network provider through three leased data circuits in two routings to
ensure availability. The data center consists primarily of leased mainframe,
client/server, disk storage, tape drive and other peripheral technology to
provide on-line, batch and back-up operations. Catalog data is backed up and
shipped off site daily. The Company's facility and data center are both secured
with controlled access doors and the data center is equipped with a Halon fire
protection system, an Uninterrupted Power Supply (UPS) permitting an additional
20 minutes of continuous electrical power in the event of a power failure, and a
diesel generator permitting 24 hours of continuous electrical power. The data
center has a separate, isolated power source from the remainder of the facility.
The Company has contracted for an alternative operations facility in the event
of physical disaster.
PRODUCT DEVELOPMENT
The Company is focused on the development and upgrading of its valued added
applications: The QRS Catalog, CRS and transportation and logistic services.
IGN currently develops, implements and operates the network applications used by
the Company and many of its customers.
In 1996, 1995, and 1994, the Company expensed $3,127,000, $2,023,000, and
$961,000 respectively, of product development costs and capitalized $245,000,
$252,000, and $133,000 in 1996, 1995, and 1994, respectively, related to the
development and enhancement of The QRS Catalog interface, enhancement of network
support, Collaborative Replenishment Services, new technology and architecture
research. Capitalized software development costs are amortized over three
years. The Company's product development effort consists of in-house
development of software applications and integration of third-party software
tools to provide service offerings and contracted software development.
PROPRIETARY RIGHTS
The Company regards certain features of its software and documentation as
proprietary information and relies on a combination of contract, copyright,
trademark and trade secret laws and other measures for its protection. Although
data provided to QRS by its vendor customers is not proprietary to the Company,
the Company seeks to protect its U.P.C. catalog applications through copyright
laws. The Company has no patents, and existing copyright laws afford only
limited protection. The Company believes that, because of the rapid pace of
technological change in the EDI and other network services industry, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of the Company's employees, product
enhancements and the timeliness and quality of support services.
VALUE-ADDED NETWORK SERVICES
The Company remarkets Value Added Network services provided through the IBM
Global Network ("IGN"). The Company is IGN's preferred industry remarketer of
network services to the retail market. Services provided include EDI,
connectivity, e-mail, Internet, electronic funds transfer and bulletin board
services.
The Company remarkets such services under a five year agreement commencing
January 1, 1993 that requires the Company to purchase $80 million of network
services over the term of the agreement in order to be eligible for increased
discounts. The Company has fulfilled its purchase obligation under this
agreement. In the fourth quarter
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of 1996, the Company received further discount concessions from IGN without any
other material changes in the terms of its agreement.
UNIQUEST
On May 20, 1993, the Company sold its software and services business to
Uniquest, a publicly held company. The gain recognized from the sale of this
business for the year ended December 31, 1993 was $1,441,000. In connection with
the sale, the Company entered into various agreements with the buyer, including
the sublease of approximately 40,000 square feet of office space through
June 30, 2000. Minimum monthly lease payments ranged from $53,000 to $75,000
through the seven-year term of the lease.
At December 31, 1993, Uniquest was delinquent in its payments and owed the
Company approximately $1,358,000 under sublease and data center cost sharing
agreements. As a result, the Company provided an allowance of $1,018,000
against these receivables and made additional provisions of $2,009,000 against
nonpayment of future obligations. The result of the allowance and provision
described was to reduce the gain from sale of the software and services business
by $3,027,000. A $1,700,000 reserve provided in 1992 for lease payments related
to another vacant building was included to sublease loss reserves at December
31, 1993.
In May 1995, Uniquest entered into voluntary bankruptcy and subsequently
dissolved, resulting in the termination of the Company's sublease with Uniquest.
The Company received a payment of $923,000 and wrote off the balance of a note
for delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $740,000.
At December 31, 1996, the Company maintains sublease loss reserves of
$2,538,000. The Company may recognize additional gain from sale of the software
and services business at such time that all outstanding matters with the
discontinued business are resolved.
During 1995 and 1994, the Company recorded $164,000 and $624,000 as sublease
income and $77,000 and $1,102,000 as data center cost reimbursements from
Uniquest as reductions of occupancy expense and data center-cost of sales,
respectively.
RISK FACTORS
INTENSE COMPETITION. The Company competes with a number of companies providing
electronic commerce services to retailers and vendors. The electronic commerce
services business is highly competitive, and competitive pricing may materially
adversely affect the prices the Company can charge. Competition may also affect
the Company's ability to gain new customers and retain and expand business with
its existing customers, and the range of services offered to its customers. The
Company expects competition to increase as more companies enter the market and
existing competitors continue to change and expand their product offerings.
Many of the Company's existing and potential competitors have financial,
marketing or technological resources that are greater than those of the Company,
and there can be no assurance that the Company will be able to compete
successfully. Some large retailers and vendors operate private computer
networks for transacting business with their trading partners. It is possible
that additional retailers and vendors, including certain of the Company's
existing customers, may develop and implement similar private networks, thereby
reducing the demand for the Company's services. IBM has, under certain license
and maintenance agreements with the Company, the right to market the Company's
catalog applications in competition with the Company, in return for prescribed
royalty and maintenance payments. IBM has informed the Company that various
types of information regarding such matters as IBM's current activities,
intentions, plans and projections with respect to its business are confidential
to IBM and, accordingly, will not be disclosed. Although the Company does not
believe that IBM has any current intention to enter the Company's market, there
can be no assurance that IBM will not exercise its license rights and become a
competitor, and the Company's inability to obtain information may limit the
Company's ability to provide for any such contingency. If IBM were to become a
competitor, the Company's business and results of operations could be materially
adversely affected. See "Item 1. Risk Factors - Dependence on IGN" and "Item 1.
Business - Competition."
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DEPENDENCE ON KEY RETAILERS. The Company's customers include several retailers
with a large number of vendor trading partners. Although none of the Company's
customers accounted for more than 10% of its revenues for the three years ended
December 31, 1996, trading activities of three of the Company's retail
customers, and their vendors, represent a significant amount of the Company's
business. Because of the large number of vendors that transact business with
each of these and other retailers, the difficulty of allocating vendor EDI
services to any particular retailer, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailers. However,
the Company estimates that slightly over 34% of its revenue for 1996 could be
attributable to trading activities involving these three retailers and their
vendors. In addition, one or more of the Company's retailers could elect either
to develop their own catalog and EDI services or to transfer all or a
significant portion of their trading activities to a competitor. In addition,
any such transfer could result in many of the retailer's vendor partners
electing not to maintain their U.P.C. catalog information with the Company. Any
transfer that results in a loss or significant reduction in the Company's
catalog and EDI services business could have a material adverse effect on the
Company's business and results of operations. See "Item 1. Business - Retailer
and Vendor Customers" and Note 8 of the Notes to Financial Statements.
DEPENDENCE ON IGN. Since 1988, the Company has used the IGN value-added network
("VAN") to provide customers with certain electronic commerce services,
including EDI and connectivity. The maintenance and operation of the VAN is
controlled solely by IGN. The Company depends on the IGN VAN for a substantial
part of its revenues and such dependence is expected to continue for the
foreseeable future. Since the Company has no right to control the maintenance
and operation of the VAN, IGN's decision with respect to such matters may have a
material impact on the Company's business and results of operations. In
addition, disruption or unavailability of the IGN VAN could have a material
adverse effect on the Company's business and results of operations.
IGN charges the Company for the network services used by its customers. These
charges are subject to specified volume discounts and allowances. In the event
that IGN determines to increase the prices that it charges the Company or
reduces the amount of discounts or allowances, there can be no assurance that
the Company will be able to pass along these changes to its customers. If it
cannot do so, the Company's business and results of operations could be
materially adversely affected. The Company has an agreement with IGN for the
purchase of $80 million of network services over a five year period which began
January 1, 1993. Based upon the current relationship with IGN, the Company
anticipates an ability to renew the agreement beyond December 31, 1997.
While the Company believes that it is the only remarketer of IGN services to the
retail industry, the Company does not have an exclusive arrangement with IGN.
If IGN marketed its network services directly to the Company's customers or
permitted a competitor of QRS to use and remarket these services to the retail
industry, the Company's business and results of operations could be materially
adversely affected. IGN is free to compete against the Company, and there can
be no assurance that IGN will not choose to compete with the Company in the
future.
IGN provides the Company's customers certain EDI implementation and support
services. If IGN were unable or unwilling to provides these services, the
Company would either have to provide these services directly or arrange for a
third-party to provide such services. There can be no assurance that the
Company would be able to do so on a timely basis, if at all, or that the costs
of any such arrangements would not materially adversely affect the Company's
business and results of operations. See "Item 1. Business - Value Added Network
Services."
TECHNOLOGICAL CHANGE. The EDI services industry is characterized by continuously
evolving standards and technology. The Company's ability to anticipate or guide
retail industry standards, to continue to apply advances in network technology
and to develop new catalog and other applications will be a significant factor
in the Company's ability to grow and remain competitive. Because the Company's
current pricing structure is partially based on the number of characters
transmitted, the Company's business and results of operations could be
materially adversely affected if new compression technology were introduced
which reduces the number of characters needed to transmit electronically
business documents. In addition, new technologies could be developed or
enhanced that could make existing catalog and EDI services technology obsolete.
There can be no assurance that the Company will be able to respond in a timely
manner to technological changes or that the ability of
10
<PAGE>
competitors to successfully incorporate evolving standards and technologies into
new services will not render the Company's services noncompetitive. The failure
by the Company to adapt to or incorporate new standards or technology could have
a material adverse effect on the Company's business and results of operation.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS. The Company's future growth depends on
its successful and timely introduction of new products and services in markets
that do not currently exist or are just emerging. The Company, however, has not
yet completed development of all of these services and there can be no assurance
that the Company will successfully complete any such development or that if such
development is completed, the Company's planned introduction of these services
will realize market acceptance or will meet the technical or other requirements
of potential customers.
Software products as complex as those used in the electronic commerce industry
may contain undetected errors or failures when first introduced or when new
versions are released. If software errors are discovered after introduction,
the Company could experience delays or lost revenues during the period required
to correct these errors. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of, or delay in, market acceptance, which could have a material adverse
effect on the business, results of operations and financial condition of the
Company. See "Item 1. Business - Product Development."
DEPENDENCE ON DATA CENTER. The QRS Catalog runs on a computer system contained
in the Company's data center facility in Richmond, California. The data center
is located in a single facility and the Company has no present intention of
establishing an additional data center in a separate location. The Company
utilizes fault tolerant IBM mainframe computer equipment. The Company has
arranged for use of off-site computer facilities, if necessary, and has taken
other precautions to protect itself and its customers from events that could
interrupt delivery of the Company's services. These precautions include
off-site storage of back-up data, fire protection and physical security systems
and an early warning detection and Halon fire extinguishing system.
Notwithstanding these precautions, there can be no assurance that a fire,
earthquake or other natural disaster affecting the data center would not disable
the Company's computer system. The Company's data center connects to the IGN
San Francisco hub. In the event that service through this location is
interrupted, the Company has back-up access through the IGN Seattle hub. Any
significant damage to the Company's data center or disruption of its
connectivity to the IGN network could have a material adverse effect on the
Company's business and results of operations. See "Item 1. Business - Data
Center."
ABILITY TO MANAGE GROWTH. The Company has significantly increased its service
offerings and customers. Maintaining profitability during a period of expansion
will depend, among other things, on the Company's ability to manage effectively
its operations. Difficulties in managing continued growth could have a material
adverse effect on the Company's business and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the performance of its executive officers and other key employees,
particularly the members of senior management. The Company has no
"key-personnel" life insurance for any of its senior management and does not
currently intend to purchase any such policies. There is no assurance that QRS
will be able to continue to attract and retain the qualified personnel necessary
for the development of its business. The loss of the services of key personnel
or the failure to recruit necessary additional personnel could have a material
adverse effect on the Company's business and results of operations.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company relies on a
combination of copyright, trade secret, and trademark laws and nondisclosure
agreements to protects its proprietary rights. Existing copyright laws afford
only limited protection. While the Company uses both internal proprietary and
IGN network security measures, it may be possible for unauthorized third parties
to copy the Company's products and services or to reverse engineer or otherwise
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products and services is difficult. Further,
the laws of certain countries in which the Company's products or services may be
distributed may not protect the Company's products or services and intellectual
rights
11
<PAGE>
to the same extent as the laws of the United States. If unauthorized third
parties copy or reverse engineer or otherwise obtain and use information the
Company regards as proprietary, the Company's business and results of operations
could be materially adversely affected.
THE INTERNET. The Internet is an interconnected global network of computer
systems linked together through a common protocol. Although the Company
believes that the Internet will provide opportunities to expand the electronic
commerce market, there can be no assurance that the Company's efforts to exploit
such opportunities will be successful or that increased usage of the Internet
for electronic commerce or increased competition will not adversely affect the
business, results of operations and financial condition of the Company. To
date, the Internet's use by the Company's customers or potential customers to
exchange their "mission critical" data significant to their business has been
limited.
FACTORS AFFECTING OPERATION RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS. The Company's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in the Company's quarterly operating results could result from a
variety of factors, including changes in the levels of revenues derived from
each product, the timing of new service announcements by the Company or its
competitors, changes in pricing policies by the Company or its competitors,
market acceptance of new and enhanced versions of the products and services of
the Company or its competitors, the size and timing of significant orders,
changes in operation expenses, changes in the Company's strategy, the
introduction of alternative technologies, the effect of potential acquisitions
and industry and general economic factors. The Company has limited or no
control over many of these factors.
GOVERNMENT REGULATORY AND INDUSTRIAL POLICY RISKS. Current regulations and laws
governing the telecommunications industry generally do not apply to providers of
electronic commerce services and products. Except for government regulations in
certain foreign countries (which may affect the provision of certain of the
Company's services or use of certain of its products) and regulations governing
the ability of the Company to disclose the contents of communications by its
customers, there are no government regulations pertaining to the pricing,
service characteristics or capabilities, geographic distribution or quality
control features of the Company's electronic commerce services or products.
There exists, however, the risk that governmental policies affecting the
electronic commerce industry could be implemented by executive order,
legislation, administrative order or otherwise. If such policies are adopted,
they could have a material adverse effect on the business, results of operations
and financial condition of the Company.
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock has
fluctuated significantly since the initial public offering in August 1993. The
market price of the Common Stock could be subject to significant fluctuations in
the future based on factors such as announcements of new products by QRS or its
competitors, quarterly fluctuations in the Company's financial results or other
electronic commerce services companies' financial results, changes in analysts'
estimates of the Company's financial performance, general conditions in the
electronic commerce services industry and conditions in the financial markets.
In addition, the stock market in general has experienced extreme price and
volume fluctuations, which have particularly affected the market prices for many
high technology companies and which have often been unrelated to the operating
performance of the specific companies. Many technology companies, including the
Company, have recently experienced historic highs in the market price of their
equity securities. There can be no assurance that the market price of the
Common Stock will not decline substantially from such historic highs, or
otherwise continue to experience significant fluctuations in the future.
12
<PAGE>
ITEM 2. FACILITIES
The Company leases approximately 40,000 square feet of office space in Richmond,
California for its corporate headquarters. The lease expires on June 30, 2000.
The Company leases approximately 8,000 square feet of office space in Lisle,
Illinois. The leases expire on December 31, 1997. Management believes that
the Company's facilities are adequate for its level of business and its
near-term growth requirements.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's common stock has been traded in the over-the-counter market on the
Nasdaq National Market under the symbol QRSI since the Company's initial public
offering in August 1993. According to records of the Company's transfer agent,
the Company had approximately 52 shareholders of record as of February 28, 1997.
Because many of such shares are held by brokers and other institutions on behalf
of shareholders, the Company is unable to estimate the total number of
beneficial holders of the common stock. The following table sets forth the low
and high sale price of the Company's common stock for the period ended December
31, 1996:
PERIOD ENDED LOW HIGH
- ------------------------------------------ --------- ---------
Four quarters ended December 31, 1995:
First Quarter 11.00 19.25
Second Quarter 17.25 23.50
Third Quarter 20.00 26.00
Fourth Quarter 18.38 26.75
Four quarters ended December 31, 1996:
First Quarter 17.75 26.25
Second Quarter 25.50 37.13
Third Quarter 27.75 41.50
Fourth Quarter 28.00 40.25
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has paid no cash dividends on its common stock and does
not anticipate declaring dividends on its common stock in the foreseeable
future.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER, 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $56,746 $42,134 $31,382 $22,457 $13,253
Operating earnings 9,442 2,479 (1) 5,311 3,124 1,429
Earnings (loss) from continuing
operations before income taxes 11,019 3,961 5,980 1,911 (90)
Discontinued operations:
Earnings (loss) from operations of
software and services business - - - - (3,119)
Gain from sale of software and
services business - - - 1,441 -
Income tax expense (benefit) 4,408 1,574 (7,985) - -
Extraordinary loss on extinguishment
of debt - - - (763) -
------- ------- ------- ------- -------
Net earnings (loss) $6,611 $2,387 $13,965 $2,589 $(3,209)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings (loss) per share - continuing
operations $0.77 $0.28 $1.67 $.31 $(.12)
Earnings (loss) per share -
discontinued operations - - - .26 (.93)
Extraordinary item - - - (.14) -
------- ------- ------- ------- -------
Net earnings (loss) per share $0.77 $0.28 $1.67 $.43 $(1.05)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
(1) 1995 results include write-off of purchased in-process research and
development of $4,318.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit) $29,416 $30,248 $23,024 $17,946 $(19,219)
Total assets 55,946 46,592 39,910 23,135 12,564
Long-term debt - - - 493 849
Convertible redeemable preferred
stock - - - - 3,299
Shareholders' equity (deficit) 43,570 35,430 31,427 15,485 (25,272)
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "ITEM 1. BUSINESS
- - RISK FACTORS."
GENERAL
QRS provides a centralized product information database (The QRS Catalog),
electronic data interchange services (EDI Services), transportation and
logistics services (Easy EDI and LMS) and Collaborative Replenishment Services
(CRS) to retailers and merchandise suppliers and vendors to automate and improve
their merchandise management. The Company derives revenues from four principal
and related sources: the transmission of standard business documents over a
network, monthly charges for accessing The QRS Catalog, CRS related fees based
on the number of U.P.C.'s managed per store and logistics management services
and consulting fees. EDI Services pricing is based primarily on the volume of
characters transmitted and the type of network access utilized. EDI services
pricing also incorporates discounts based on volume.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain line items in the Company's statements of
operations:
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues 100% 100% 100%
Cost of sales 60 61 61
----------- ----------- -----------
Gross profit 40 39 39
Operating expenses:
Sales and marketing 11 11 11
Product development 6 5 3
General and administrative 7 7 8
Purchased in-process research
and development - 10 -
----------- ----------- -----------
Total operating expenses 24 33 22
----------- ----------- -----------
Operating earnings 16 6 17
Interest income (net of expense) 3 3 2
----------- ----------- -----------
Earnings before income taxes 19% 9% 19%
----------- ----------- -----------
----------- ----------- -----------
REVENUES
Revenues increased from $31.4 million in 1994 to $42.1 million in 1995 and to
$56.7 million in 1996 representing increases of 34% from 1994 to 1995 and 35%
from 1995 to 1996. These increases were primarily attributable to four factors.
First, the number of customers increased from 131 retailers and 3,692 vendors at
December 31, 1994 to 156 retailers and 4,865 vendors as of December 31, 1995 and
to 205 retailers and 4,973 vendors and carriers as of December 31, 1996.
Second, the number of catalog trading partnerships increased significantly as a
result of the increase in the number of customers and their trading links with
each other. Third, customers increased the number, type and size of
transactions transmitted over the network, as well as the utilization of The QRS
Catalog. Fourth, the Company expanded its product offerings by introducing
Collaborative Replenishment Services and transportation and logistics services.
16
<PAGE>
COST OF SALES
Cost of sales consists primarily of the cost of purchasing network services, the
cost of the Company's data centers and technical customer support services.
Cost of sales increased from $19.1 million in 1994 to $25.5 million in 1995 and
to $33.8 million in 1996. These increases were principally due to increases in
purchased network services reflecting growth in EDI services purchased under a
long-term contract, discounted based upon a multi-year volume commitment, and an
expanded customer support group reflecting growth in customers and products.
The Company's data center costs declined from 1994 to 1995 due to lowered
hardware and software costs and increased in 1996 due to additional equipment
leases. The expense reductions from 1994 and 1995 were offset by, and the
expense increases from 1995 to 1996 were augmented by, lower cost-reimbursements
from Uniquest which decreased from $1.1 million in 1994 to $77,000 in 1995 and
$0 in 1996. Cost of sales as a percentage of revenue decreased from 61% in 1994
and 1995 to 60% in 1996. Cost of sales as a percentage of revenues decreased
slightly in 1996 due to increases in higher margin revenue from The QRS Catalog,
increased operating efficiencies in data center operations, and higher discounts
on EDI services partially offset by increased sales of certain lower margin
network services and volume discounts earned by larger customers.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of personnel and related costs in
the Company's sales and marketing organizations, as well as the costs of various
marketing programs. Sales and marketing costs increased from $3.6 million in
1994 to $4.7 million in 1995 and to $6.5 million in 1996 , reflecting the
general increase in the number of customers and the size of the Company's
operations, and represented 11% of revenues in years 1994, 1995 and 1996.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of personnel and equipment costs
related to research, development and implementation of new services, and
maintenance of existing services. Product development expenses increased from
$1.0 million in 1994 to $2.0 million in 1995 and to $3.1 million in 1996 and
represented 3%, 5% and 6% of revenues, respectively. The 1996 increase is
consistent with the incremental effort to support expanding service offerings.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and related
costs of the Company's finance and administrative organizations, as well as
professional fees and other costs. General and administrative expenses
increased from $2.4 million in 1994 to $3.1 million in 1995 and to $3.9 million
in 1996 and represented 8%, 7% and 7% of revenues, respectively. These dollar
increases resulted primarily from increased staffing to support the Company's
growth.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4.9 million, including $200,000 paid in cash,
assumption of certain liabilities of $3.3 million, shutdown, relocation and
severance expenses of $1.1 million associated with integrating ShipNet's
operations, and $300,000 in transaction costs related to the acquisition.
The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4.3 million of the purchase price was allocated to purchased
in-process research and development and charged to operations as technological
feasibility had not been established and no alternative future uses existed at
the acquisition date. The Company allocated $0.6 million of the purchase price
to current assets and property and equipment.
17
<PAGE>
In addition, the Company spent approximately $100,000 and $600,000 in 1995 and
1996, respectively, in order to complete the development of the acquired
in-process products.
INTEREST INCOME
Interest income consists primarily of interest earned on cash, cash equivalents
and investment securities, including cash accumulated from the Company's initial
public offering of common stock in August 1993, as well as subsequent positive
cash flow from operations. Interest income increased from $0.7 million in 1994
to $1.5 million in 1995 and to $1.6 million in 1996.
INCOME TAXES
In 1993, the Company established a valuation reserve for its deferred tax assets
which primarily consisted of the tax benefits of prior year losses and tax
credits, because there was no assurance that sufficient taxable income would be
generated in the future to realize these deferred tax assets. The valuation
allowance totaled $10.6 million at December 31, 1993. At December 31, 1994,
management evaluated its 1994 and 1993 operating results as well as its
projections for 1995 and future years and concluded that it was more likely than
not that the deferred tax assets would be realized. Accordingly, the valuation
allowance was removed resulting in an income tax credit of $8.0 million for the
year ended December 31, 1994. The Company's effective income tax rate in 1996
and 1995 was 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $30.2 million at December 31, 1995
to $29.4 million at December 31, 1996. Cash, cash equivalents and marketable
securities available-for-sale increased from $24.4 million at December 31, 1995
to $34.6 million at December 31, 1996. At December 31, 1996, $10.0 million of
marketable securities available-for-sale were classified as non-current assets
and therefore were not included in working capital. Total assets increased from
$46.6 million at December 31, 1995 to $55.9 million at December 31, 1996, while
total liabilities increased from $11.2 million at December 31, 1995 to $12.4
million at December 31, 1997.
During 1995, the Company acquired certain assets ShipNet for $4.9 million
including the assumption of certain liabilities, relocation, personnel and
transaction costs. The Company disbursed approximately $2.3 million and $1.2
million of such funds in 1995 and 1996 respectively, and expects the remaining
funds to be disbursed in 1997.
Income tax net operating loss carryforwards are anticipated to run out during
1997 and will result in an increased use of cash for payment of taxes.
Management believes that the cash, cash equivalents and marketable securities
available-for-sale at December 31, 1996, and cash anticipated to be generated
from future operations will be sufficient for the Company to meet its working
capital needs and capital expenditures through 1997. However, the Company may
choose to raise additional cash through the sale of equity or debt prior to such
time. The Company has no plans to pay dividends with respect to common stock in
the foreseeable future.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report 20
Balance Sheets 21
Statements of Earnings 22
Statements of Shareholders' Equity 23
Statements of Cash Flows 24
Notes to Financial Statements 25-32
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
QuickResponse Services, Inc.:
We have audited the accompanying balance sheets of QuickResponse Services, Inc.
(the "Company") as of December 31, 1996 and 1995, and the related statements of
earnings, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of QuickResponse Services, Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 30, 1997
20
<PAGE>
QUICKRESPONSE SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $16,022 $ 6,460
Marketable securities, available-for-sale. . . . . . . . . . . . . . . . . . . 8,605 17,976
Accounts receivable - net of allowance for doubtful accounts of $722 and
$460 in 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,294 8,032
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,130 4,860
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141 812
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 39,192 38,140
------- -------
Property and equipment:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 1,052
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 3,005
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344 1,249
------- -------
6,683 5,306
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 2,747 1,946
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,936 3,360
Marketable securities, available-for-sale. . . . . . . . . . . . . . . . . . . . 9,985 -
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,308 4,642
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525 450
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,946 $46,592
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,480 $ 3,582
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,435 3,437
Current portion of sublease loss reserves. . . . . . . . . . . . . . . . . . . 861 873
------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 9,776 7,892
------- -------
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923 1,141
Sublease loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,677 2,129
------- -------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,376 11,162
Commitments and contingencies (Note 7) . . . . . . . . . . . . . . . . . . . . . - -
Shareholders' equity:
Preferred stock - $.01 par value; 10,000,000 shares authorized; none issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock - no par value; 20,000,000 shares authorized; 8,407,220
shares outstanding in 1996 and 8,305,824 in 1995. . . . . . . . . . . . . . . 61,394 59,907
Unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . 42 -
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,866) (24,477)
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 43,570 35,430
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . $55,946 $46,592
------- -------
------- -------
</TABLE>
See notes to financial statements.
21
<PAGE>
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $56,746 $42,134 $31,382
Cost of sales. . . . . . . . . . . . . . . . . . . . . 33,802 25,520 19,126
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . . 22,944 16,614 12,256
Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . 6,512 4,707 3,580
Product development. . . . . . . . . . . . . . . . . 3,127 2,023 961
General and administrative . . . . . . . . . . . . . 3,863 3,087 2,404
Purchased in-process research and development. . . . - 4,318 -
------- ------- -------
Total operating expenses. . . . . . . . . . . . . 13,502 14,135 6,945
Operating earnings . . . . . . . . . . . . . . . . . . 9,442 2,479 5,311
Interest income (net). . . . . . . . . . . . . . . . . 1,577 1,482 669
------- ------- -------
Earnings before income taxes . . . . . . . . . . . . . 11,019 3,961 5,980
Income tax expense (benefit) . . . . . . . . . . . . . 4,408 1,574 (7,985)
------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 6,611 $ 2,387 $13,965
------- ------- -------
------- ------- -------
Net earnings per common and common share equivalents . $0.77 $0.28 $1.67
------- ------- -------
------- ------- -------
Shares used to compute per share amounts . . . . . . . 8,613 8,499 8,379
------- ------- -------
------- ------- -------
</TABLE>
See notes to financial statements.
22
<PAGE>
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN ON ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT INVESTMENT DEFICIT EQUITY
------------------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 . . . . . . . . 7,862,384 $56,314 $ - $(40,829) $15,485
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 238,517 1,765 - - 1,765
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 13,392 137 - - 137
Exercise of warrant. . . . . . . . . . . 16,000 40 - - 40
Net earnings . . . . . . . . . . . . . . - - - 13,965 13,965
--------- --------- --------- --------- ---------
Balance, December 31, 1994 . . . . . . . 8,130,293 58,291 - (26,864) 31,427
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 143,951 1,363 - - 1,363
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 16,580 180 - - 180
Exercise of warrant. . . . . . . . . . . 15,000 38 - - 38
Net earnings . . . . . . . . . . . . . . - - - 2,387 2,387
--------- --------- --------- --------- ---------
Balance, December 31, 1995 . . . . . . . 8,305,824 59,907 - (24,477) 35,430
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 80,190 1,141 - - 1,141
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 19,206 306 - - 306
Exercise of warrant. . . . . . . . . . . 2,000 5 - - 5
Unrealized gain on investments . . . . . 42 42
Net earnings . . . . . . . . . . . . . . - - - 6,611 6,611
--------- --------- --------- --------- ---------
Balance, December 31, 1996 . . . . . . . 8,407,220 $61,394 $42 $(17,866) $43,570
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
23
<PAGE>
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,611 $ 2,387 $13,965
Adjustment to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 1,153 618 419
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 35 64
Purchased in-process research and development . . . . . . . . . . . - 4,318 -
Purchase of trading securities - net. . . . . . . . . . . . . . . . - (8,401) (3,163)
Changes in deferred income tax assets . . . . . . . . . . . . . . . . 3,877 1,338 (8,256)
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . (1,262) (2,273) (1,867)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . (329) (343) 18
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (5) 150
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,898 1,750 285
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . 1,149 61 466
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (99) 116
Sublease loss reserves (net) . . . . . . . . . . . . . . . . . . . (464) 326 (769)
------- ------- -------
Net cash provided by (used in) operating activities . . . . . . 12,442 (288) 1,428
Investing activities:
Marketable securities - available for sale (net) . . . . . . . . . . . . (572) 2,335 -
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . (1,551) (2,197) (518)
Capitalization of product development costs. . . . . . . . . . . . . . . (245) (252) (133)
Payment of liabilities assumed in the acquisition of Shipnet . . . . . . (1,151) (2,339) -
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . (3,519) (2,453) (651)
Financing activities:
Proceeds from issuance of common stock -net. . . . . . . . . . . . . . . 306 180 137
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . 328 354 189
Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 5 38 40
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . - - (669)
------- ------- -------
Net cash provided by (used in) financing activities . . . . . . 639 572 (303)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 9,562 (2,169) 474
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 6,460 8,629 8,155
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . $16,022 $ 6,460 $ 8,629
------- ------- -------
------- ------- -------
Other cash flow information:
Interest paid during the year. . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 73
------- ------- -------
------- ------- -------
Taxes paid during the year . . . . . . . . . . . . . . . . . . . . . . . $ 498 $ 284 $ 129
------- ------- -------
------- ------- -------
Noncash investing and financing activities:
Conversion of accounts receivable from Uniquest to subordinated note
Conversion of accounts receivable from Uniquest to subordinated
note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 2,178
Tax benefit from non-qualified stock options exercised . . . . . . . . . 813 1,009 1,576
Assumption of liabilities related to ShipNet acquisition . . . . . . . . - 4,724 -
Assumption of accounts receivable, property and equipment, and other
assets related to ShipNet acquisition . . . . . . . . . . . . . . . . - 406 -
Unrealized gains on marketable securities, available-for-sale. . . . . . 42 - -
</TABLE>
See notes to financial statements
24
<PAGE>
QUICKRESPONSE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
QuickResponse Services, Inc. provides electronic commerce and merchandise
logistics solutions that optimize its customers' performance throughout the
retail demand chain. The Company's products include The QRS Catalog,
Collaborative Replenishment Services, Electronic Data Interchange and related
network services and transportation services including Logistics Management
Systems and EasyEDI-SM-.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
All services revenues are recognized in the month in which the service is
performed.
PRODUCT DEVELOPMENT COSTS
The Company capitalizes certain development costs related to its product
offerings based upon the establishment of technological feasibility. Capitalized
development costs are amortized over various periods up to three years. The
capitalization and ongoing assessment of recoverability of development costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, technological and economic feasibility,
and estimated economic life. Costs incurred to maintain existing product
offerings are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives, which are generally five years or the
life of the lease, whichever is shorter. Depreciation expense for the years
ended December 31, 1996, 1995 and 1994 was $924,000, $516,000 and $353,000,
respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.
MARKETABLE SECURITIES, AVAILABLE-FOR-SALE
Effective April 1, 1995, the Company determined that its portfolio of marketable
debt securities met the criteria for being classified as "Available for Sale"
under Statement of Financial Accounting Standard No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Previously the Company had
classified its marketable securities as "Trading Securities" under that
Standard. There was no effect on the financial statements of the change in
classification of these marketable debt securities, since the cost of such
securities approximated the fair market value at March 31, 1995. The Company
classifies those marketable securities which mature in less than one year as
short-term marketable securities.
EARNINGS PER SHARE
Primary earnings per share is based on the weighted average of common and common
equivalent shares outstanding, which includes stock options and warrants if
dilutive.
STOCK OPTION COMPENSATION
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" effective for the Company's year ended
December 31, 1996. SFAS No. 123 establishes accounting and disclosure
requirements using a fair-value based method of accounting for stock-based
employee compensation plans. As allowed under provisions of SFAS No. 123, the
Company has chosen to continue the intrinsic value based method and provide pro
forma disclosures of net earnings and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted; therefore such adoption has no
effect on the Company's earnings or cash flows. See Note 10.
25
<PAGE>
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenues and expenses for the periods
presented.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
3. MARKETABLE SECURITIES, AVAILABLE FOR SALE
Marketable securities, available-for-sale are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996
Debt issued by:
Government/Agencies $ 7,965 $20 $- $ 7,985
Corporate bonds 10,583 22 - 10,605
---------- ---------- ---------- ----------
Total marketable securities 18,548 42 - 18,590
Long-term marketable
securities, available-for-sale 9,965 20 - 9,985
---------- ---------- ---------- ----------
Short-term marketable
securities, available-for-sale $ 8,583 $22 $- $ 8,605
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Debt issued by:
Government/Agencies $ 2,511 $- $- $ 2,511
Corporate bonds 15,466 - - 15,466
---------- ---------- ---------- ----------
Total short -term marketable
securities, available-for-sale $17,976 $- $- $17,976
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The long-term marketable securities held at December 31, 1996 have contractual
maturities of two years or less.
4. INCOME TAXES
The Company accounts for income taxes using the asset and liability method under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
The Company provides a deferred tax expense or benefit for differences between
financial accounting and tax reporting. Deferred income taxes represent
operating loss carryforwards, tax credit carryforwards and future net tax
effects resulting from temporary differences between the financial statement and
tax bases of assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse.
26
<PAGE>
The income tax expense (credit) for the years ended December 31, 1996, 1995 and
1994 consisted of (in thousands):
1996 1995 1994
------- ------- -------
Current:
Federal $ 906 $ 127 $2,394
State 438 284 662
------- ------- -------
1,344 411 3,056
------- ------- -------
Deferred:
Federal 2,519 1,303 (10,439)
State 545 (140) (602)
------- ------- -------
3,064 1,163 (11,041)
------- ------- -------
Total $4,408 $1,574 $(7,985)
------- ------- -------
------- ------- -------
Significant components of the Company's deferred tax balances as of December 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Minimum tax credit carryforwards. . . . . . . . . . $ 391 $ 345
Net operating loss carryforwards . . . . . . . . . 1,916 4,160
Research and development credit carryforwards. . . 899 1,152
Purchased in-process research and development. . . 973 1,288
Allowance for doubtful accounts. . . . . . . . . . 282 111
Other reserves not currently deductible. . . . . . 1,807 1,644
Depreciation . . . . . . . . . . . . . . . . . . . - 266
Deferred rent. . . . . . . . . . . . . . . . . . . 399 513
State taxes. . . . . . . . . . . . . . . . . . . . 39 97
------------ ------------
Total deferred income tax assets. . . . . . . . 6,706 9,576
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . 126 -
Deducted research and development expenses . . . . 142 74
------------ ------------
Total deferred income tax liabilities. . . . . . . 268 74
------------ ------------
Deferred income tax assets. . . . . . . . . . . $6,438 $9,502
------------ ------------
------------ ------------
</TABLE>
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory tax rate. . . . $3,746 34% $1,347 34% $2,034 34%
State income taxes, net of federal
tax benefit . . . . . . . . . . . . 649 6 243 6 383 7
Change in deferred tax assets, net
of benefit. . . . . . . . . . . . . - - - - (10,533) (176)
Other. . . . . . . . . . . . . . . . . 13 - (16) - 131 2
------- ------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . $4,408 40% $1,574 40% $(7,985) (133)%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
27
<PAGE>
In 1993, the Company estimated a valuation reserve for its deferred tax assets
which primarily consisted of the tax benefits of prior year losses and tax
credits because there was no assurance that sufficient taxable income would be
generated in the future to realize these deferred tax assets. The valuation
allowance totaled $10,623,000 at December 31, 1993. At December 31, 1994,
management evaluated its 1994 and 1993 operating results as well as its
projections for 1995 and future years and concluded that it was more likely than
not that the deferred tax assets would be realized. Accordingly, the valuation
allowance was removed resulting in an income tax credit of $7,985,000 for the
year ended December 31, 1994.
For income tax purposes, the Company had federal operating loss carryforwards at
December 31, 1996 of approximately $5,634,000 which expire in 2008. In
addition, the Company has federal research and development credit carryforwards
of approximately $899,000 which expire from 2005 to 2012, and federal credits
for prior year minimum tax paid of $391,000 which have an indefinite life.
Section 382 of the Internal Revenue Code imposes limitations on the utilization
of loss and credit carryforwards when changes in control, as defined, have
occurred. Primarily as a result of the sale of shares in the Company's public
offering in 1993, a change of control occurred. As a result, the utilization of
the loss and credit carryforwards is limited to approximately $4,300,000
annually under Section 382. The Company does not believe that the Section 382
limitations will result in the loss of any benefits related to the
carryforwards.
5. ACQUISITION OF SHIPNET SYSTEMS, INC. ("SHIPNET")
In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4,902,000, comprised of $200,000 paid in cash,
assumption of certain liabilities of $3,302,000, shutdown, relocation and
severance expenses of $1,100,000 associated with rationalizing ShipNet's
operations, and $300,000 in transaction costs related to the acquisition.
The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4,318,000 of the purchase price was allocated to in-process research
and development and, as technological feasibility had not been established and
no alternative future uses existed at the acquisition date, charged to
operations. The Company allocated $584,000 of the purchase price to current
assets and property and equipment.
6. SUBLEASE LOSS RESERVES
On May 20, 1993, the Company divested its software and services business to
Uniquest, a publicly held company. In connection with the sale, the Company
entered into various agreements with the buyer, including the sublease of
approximately 40,000 square feet of office space through June 30, 2000. Minimum
monthly lease payments ranged from $53,000 to $75,000 through the seven-year
term of the lease.
At December 31, 1993, Uniquest owed the Company approximately $1,358,000 which
was delinquent under sublease and data center cost sharing agreements. As a
result, the Company provided an allowance of $1,018,000 against these
receivables and made additional provisions of $2,009,000 against nonpayment of
future obligations. The result of the allowance and provision described was to
reduce the gain from sale of the software and services business by $3,027,000.
A $1,700,000 reserve provided in 1992 for lease payments related to another
vacant building was added to sublease loss reserves at December 31, 1993.
In May 1995, Uniquest entered into voluntary bankruptcy and subsequently
dissolved, resulting in the termination of the Company's sublease with Uniquest.
The Company received a payment of $923,000 and wrote off the balance of a note
for delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $750,000.
28
<PAGE>
At December 31, 1996, the Company maintains sublease loss reserves of
$2,538,000. The Company may recognize additional gain from sale of the software
and services business at such time that all outstanding matters with the
discontinued business are resolved.
During 1995 and 1994, the Company recorded $164,000, and $624,000 as sublease
income and $77,000 and $1,102,000 as data center cost reimbursements from
Uniquest as reductions of occupancy expense and data center-cost of sales,
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office buildings and certain equipment under various
non-cancelable operating lease agreements expiring through the year 2000. The
leases for office buildings generally provide renewal options and additional
rents based on increases in operating expenses of the buildings.
The Company's corporate building lease agreement provides for significant
periods of "free rent" when no cash is required. The total cash payments over
the life of the lease are divided by the total number of months in the lease
period and the average rent is charged to expense each month during the lease
period. During the periods of "free rent", this expense creates a deferred
liability which is amortized to expense over the life of the lease.
Total rent expense charged to continuing operations for the years ended December
31, 1996, 1995 and 1994 was $1,331,000, $1,272,000 and $1,536,000
respectively.
At December 31, 1996, future minimum payments under long-term operating leases
are as follows (in thousands):
Year ending December 31:
1997. . . . . . . . . . . . . . . . $1,598
1998. . . . . . . . . . . . . . . . 1,509
1999. . . . . . . . . . . . . . . . 1,437
2000. . . . . . . . . . . . . . . . 715
------
Total $5,259
------
------
The Company has an agreement with IBM Global Network ("IGN") for the purchase of
$80 million of network services over a five-year period which began January 1,
1993. The Company has fulfilled its purchase obligation under this agreement.
In the fourth quarter of 1996, the Company received further discount concessions
from IGN without any other material changes in the terms of its agreement.
Based upon the current relationship with IGN, the Company anticipates an ability
to renew the agreement beyond December 31, 1997.
8. MAJOR RETAILER TRADING PARTNERSHIP PROGRAMS
Although none of the Company's customers accounted for more than 10% of its
revenues for any of the three years in the period ended December 31, 1996,
trading activities of three of the Company's retail customers, and their
vendors, represent a significant amount of the Company's business. Because of
the large number of vendors that transact business with each of these and other
retailers, the difficulty of allocating vendor EDI services to any particular
retailer trading partnership program, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailer trading
partnership programs. Revenues attributable to three major retailers, and their
vendors, amounted to approximately $19 million, $16 million and $14 million in
1996, 1995 and 1994, respectively. Such amounts represented 34%, 38%, and 45%
of revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
29
<PAGE>
9. RETIREMENT SAVINGS PLAN
The Company has a defined contribution retirement savings plan for all eligible
employees. Until December 31, 1994, the Company made discretionary matching
contributions of up to 50% of each employee's contribution to a maximum of
$2,000 for the year . The plan was modified, effective January 1, 1995, to allow
discretionary matching employer contributions of up to 50% of the maximum
allowable employee contribution ($9,500 in 1996 and $9,240 in 1995 and 1994).
The amount charged to continuing operations during 1996, 1995 and 1994 was
approximately $ 238,000, $135,000 and $45,000, respectively.
10. COMMON STOCK, STOCK OPTIONS AND WARRANTS
In 1989, the Board of Directors approved a Non-Qualified Stock Option Plan (the
"Plan"). The Plan was amended in 1990. The Plan provides for the granting of
options to certain employees and directors to purchase shares of common stock of
the Company at prices determined by the Board of Directors.
In June 1993, the Board of Directors adopted an Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan provides for the purchase of common
stock by eligible employees. A total of 150,000 shares of common stock has been
reserved for purchase under the Purchase Plan. The purchase price per share is
85% of the lower of (i) the fair market value of the common stock on the
participant's entry date (first business day in January, April, July and October
each year) into a purchase period (first business day in January and through the
last business day in December each year) or (ii) the fair market value on the
annual purchase date (the last business day in December each year). For a
participant whose entry date is subsequent to the start date of the purchase
period (first business day in January each year), the clause (i) value will not
be less than the fair market value of the common stock on the start date of the
purchase period. In 1996 and 1995, employees acquired 19,206 and 16,580 shares
of common stock, respectively, under the Purchase Plan.
In June 1993, the Board of Directors also approved the 1993 Stock Option/Stock
Issuance Plan (the "1993 Plan"). A total of 1,850,000 shares of common stock
has been reserved for issuance under this plan. The 1993 Plan is divided into
three separate components: (i) the Discretionary Option Grant Program under
which key employees (including officers), certain non-employee directors and
consultants may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock at an exercise price not less than 85% of the
fair market value of such shares on the grant date, (ii) the Automatic Option
Grant Program under which option grants will automatically be made at periodic
intervals to certain non-employee members of the Board to purchase shares of
Common Stock at an exercise price equal to 100% of the fair market value of the
option shares on the grant date, and (iii) the Stock Issuance Program under
which key employees (including officers), certain non-employee and consultants
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, either through the purchase of such shares at a price not less than
85% of their fair market value at the time of issuance or as a bonus tied to the
performance of services or the Company's attainment of financial objectives,
without any cash payment required of the recipient.
All outstanding options under the 1993 Stock Option/Stock Issuance Plan (the
"1993 Plan") have been granted at fair market value on the date of grant and
vest in equal annual installments over periods up to four years. Outstanding
options granted under earlier plans were granted in fair market value or lesser
values, and vest over different periods, primarily over periods up to four
years.
Shareholders approved additional allocations of 500,000 shares of common stock
to the stock option pool under the 1993 Stock Option/ Issuance Plan in each of
May 1995 and May 1996 (1,000,000 shares total).
30
<PAGE>
The following table shows the activity in the Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Balance, January 1, 1994 (198,414 exercisable at $0.31 weighted average price per share). . . 630,256 $ 3.83
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,500 13.56
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (238,517) 0.79
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,877) 16.73
--------- -------
Balance, December 31, 1994 (97,469 exercisable at $5.25 weighted average price per share) . . 543,362 7.45
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,000 17.98
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,951) 2.46
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,125) 12.79
--------- -------
Balance, December 31, 1995 (93,276 exercisable at $9.72 weighted average price per share) . . 669,286 12.94
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,750 29.75
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,190) 4.09
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,500) 12.82
--------- -------
Balance, December 31, 1996 (205,408 exercisable at $13.70 weighted average price per share) . 839,346 $19.11
--------- -------
--------- -------
</TABLE>
Warrants issued in connection with a line of credit and the public offering to
purchase 21,756 shares of common stock at $2.50 to $18.50 were outstanding at
December 31, 1996. Options to purchase approximately 500,996 shares of common
stock are available for future grants under the plans.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its employee stock-based compensation plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock-based plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FASB Statement
123, the Company's net earnings and net earnings per share would have been
decreased to the proforma amounts indicated in the following table. As 1996 is
the initial phase-in period for applying this Statement, the proforma results
indicated are not necessarily representative of the effects on proforma
disclosures of net earnings for future periods as they exclude options that were
granted prior to January 1, 1995, with vesting periods in 1995 and later.
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
1996 1995
--------------- ---------------
Net earnings as reported $6,611 $2,387
--------------- ---------------
--------------- ---------------
Proforma $5,489 $2,021
--------------- ---------------
--------------- ---------------
Net earnings per share as
reported $ 0.77 $ 0.28
--------------- ---------------
--------------- ---------------
Proforma $ 0.64 $ 0.24
--------------- ---------------
--------------- ---------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made in 1996 and 1995 under the 1993 Stock
Option/Stock Issuance Plan and for purchases made in 1996 and 1995 under the
Employee Stock Purchase Plan: risk-free interest rates of 6.07% in 1996 and
5.91% in 1995; expected volatility of 51%; expected lives in both years of 18
months beyond each incremental vesting period (total life of 2 to 5.5 years,
depending upon each grant's individual vesting schedule). No dividends are
assumed for any plan in either year. The weighted average fair value of options
granted during 1996 and 1995 was $13.27 and $8.05, respectively.
31
<PAGE>
The status of options outstanding as of December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.25-2.50 14,947 6.0 $ 2.06 11,947 $ 1.94
5.25-9.00 89,964 6.3 5.92 49,089 6.03
10.37-14.13 172,435 7.8 12.61 46,435 11.55
16.00-19.13 256,250 8.6 17.64 74,187 17.65
20.75-23.00 40,000 8.4 21.17 12,500 21.54
28.00-29.25 235,750 9.9 29.02 3,750 28.00
36.56-36.56 30,000 9.4 36.56 7,500 36.56
----------------- ----------- ----------- -------- ----------- --------
$ 0.25-36.56 839,346 8.5 $ 19.11 205,408 $13.70
----------------- ----------- ----------- -------- ----------- --------
----------------- ----------- ----------- -------- ----------- --------
</TABLE>
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter R. Johnson (2)(3)(4) 48 Chairman of the Board of Directors and the Nomination Committee
Lynn Hazlett 60 President, Chief Executive Officer and Director
Paul Benchener 51 Vice President, Marketing
Stephen Brown 40 Vice President, Sales
Kathleen Dell 40 Vice President, Demand Chain Products
Shawn M. O'Connor 37 Vice President, Chief Financial Officer and Secretary
John S. Simon 39 Executive Vice President
Philip Swift 46 Vice President, Product Development
Tania Amochaev (4) 47 Director, Chairman of the Executive Committee
Steven D. Brooks (2)(3)(4) 45 Director, Chairman of the Audit Committee
John P. Dougall 53 Director
Garth Saloner (1)(2) 42 Director
Philip Schlein (1) 63 Director
Garen K. Staglin (1)(3)(4) 52 Director, Chairman of the Compensation Committee
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee
(3) Member of the Nomination Committee
(4) Member of the Executive Committee
Mr. Johnson founded the Company in 1985 and has been Chairman of the Board since
the Company's inception. Mr. Johnson served as the Chief Executive Officer of
the Company from inception to March 1991 and again from January 1992 to May
1993. Before founding the Company, Mr. Johnson was a corporate general manager
of the Myer Emporium Limited, a large retailer in Australia. Mr. Johnson served
as the Chief Executive Officer of Uniquest Incorporated from December 1993 to
December 1994. From 1995 to the present, Mr. Johnson was a private investor and
a consultant to technology companies.
Dr. Hazlett was named a director of the Company in 1994 and was named President
and Chief Executive Officer in February 1997. Dr. Hazlett served as Vice
President, Business Systems at VF Corporation, a global apparel manufacturer,
from 1989 to 1994. From 1984 to 1989, Dr. Hazlett served as President and Chief
Executive Officer of Information and Communications, Inc., a division of Carson
Pirie Scott & Company, a conglomerate comprised of 33 department stores, 400
specialty stores and a mail order catalog business. Dr. Hazlett also served as
Corporate Vice President and Chief Information Officer at Levi Strauss.
Mr. Benchener joined the Company in August 1996 as Vice President, Marketing.
Prior to joining the Company, from 1992 to 1996, Mr. Benchener was Director of
Global Quick Response Services at Levi Strauss & Co, a manufacturer of apparel.
From 1976 to 1991, Mr. Benchener held various positions with Levi Strauss & Co.
Mr. Benchener current serves as Chair of the Voluntary Interindustry Commerce
Standards Board ("VICS") and on the Executive Committee of the Uniform Code
Council ("UCC").
Ms. Dell joined the Company in February 1993 as Vice President, Marketing and
became Vice President, Demand Chain Products in September 96. The Company has
accepted Ms. Dell's resignation effective March 31, 1997. Before joining the
Company, from 1987 to 1993, Ms. Dell held various management positions with
General Electric Medical Systems, a manufacturer and designer of diagnostic
medical imaging equipment and services.
Mr. Brown joined the Company in June 1995 as Vice President, Sales. Prior to
joining the Company, from 1984 to 1995, Mr. Brown held various management
positions with FedEx, a global transportation and logistics firm.
Mr. O'Connor joined the Company in February 1995 and became Vice President,
Chief Financial Officer and Secretary in March 1995. Before joining the Company,
from 1992 to 1994, Mr. O'Connor was Vice President and Chief Financial Officer
for Diasonics Ultrasound, Inc, a medical equipment manufacturer. From 1988 to
1992, Mr. O'Connor held various management positions, including Chief Financial
Officer with Diasonics, Inc.
34
<PAGE>
Mr. Simon has held various positions with the Company since 1988, and currently
serves as Executive Vice President. From 1980 to 1988, Mr. Simon was employed
by Carter Hawley Hale Stores, Inc., a retail company, most recently as Senior
Program Manager of its Information Services Division, and prior to that held a
number of merchandising, store management, and information services positions.
Mr. Swift joined the Company in October 1996 as Vice President, Product
Development. Before joining the Company, from 1992 to 1996, Mr. Swift was
Department Head of Information Products at VISA, a credit card transaction
processing company. From 1989 to 1991, Mr. Swift was Senior Project Manager at
Matson Navigation, a shipping company.
Ms. Amochaev was named a director in May 1993 and was named Chairman of the
Executive Committee of the Board of Directors in February 1997. Ms. Amochaev
served as the President of the Company from May 1992 until February 1997, and as
Chief Executive Officer from May 1993 until February 1997. Before joining the
Company, from 1988 to 1992, Ms. Amochaev was Chief Executive Officer of Natural
Language, Inc., a client server database tool software company. From 1984 to
1987, Ms. Amochaev was President and Chief Executive Officer of Comserv
Corporation, a manufacturing applications software company that was sold in 1987
to Management Science America. Ms. Amochaev currently serves as a director of
Walker Interactive Systems, Inc., a financial software company, and Government
Technology Services, Inc., a government software company.
Mr. Brooks was named a director of the Company in January 1994. From 1996 to the
present, Mr. Brooks was a private investor and a consultant to technology
companies. From 1994 to 1996, Mr. Brooks served as Managing Director and Head
of Global Technology Investment Banking at Union Bank of Switzerland Securities,
LLC. From 1986 to 1988, Mr. Brooks served as Managing Partner of investment
banking at Robertson, Stephens & Co., a San Francisco-based investment bank.
From 1988 to 1994, Mr. Brooks was a private investor and consultant to
high-technology firms. Mr. Brooks is a Director of Paychex, Inc., a national
payroll processing and business services company, as well as several private
companies.
Mr. Dougall has been a director of the company since July 1990. Mr. Dougall has
been employed since November 1996 by Aristocrat Leisure Limited, an Australian
publicly listed company and a supplier to gambling and entertainment companies,
where he currently serves as Chairman and Chief Executive Officer. From January
1992 to September 1996, Mr. Dougall served as Chief Executive Officer of AWA
Limited, an electronics and telecommunications company. Mr. Dougall held various
executive positions with the Company from July 1990 to January 1992, serving as
President of the Company from February 1991 to June 1991. and as President and
Chief Executive Officer from June 1991 to January 1992. From February 1988 to
June 1990, Mr. Dougall was the Executive Director of Paxus Corporation, a
software services and outsourcing firm.
Mr. Saloner was named a director of the Company in December 1993. Mr. Saloner
has served as the Robert A. Magowan Professor of Strategic Management and
Economics at the Graduate School of Business at Stanford University since 1990.
He also serves as Associate Dean for Academic Affairs and Director of Research
and Course Development at Stanford. From 1982 to 1990, Mr. Saloner taught as a
professor in the Economics Department of the Massachusetts Institute of
Technology.
Mr. Schlein was named a director of the Company in February 1996. Mr. Schlein
has been a general partner of BMS Partners L.P., a venture partner of U.S.
Venture Partners, a venture capital firm, since April 1985. Mr. Schlein held
various executive positions with R.H. Macy & Company, Inc. from September 1957
to December 1973 and was President and Chief Executive Officer of Macy's
California division from January 1974 to January 1985. Mr. Schlein currently
serves as a director of Burnham Pacific Incorporated, a commercial real estate
development and leasing company, Ross Stores, a clothing store chain, and
Resound Corporation, a hearing device manufacturing company. Additionally, Mr.
Schlein has previously served as a director of Apple Computer, Inc.
35
<PAGE>
Mr. Staglin was named a director of the Company in 1991. Since 1991, Mr.
Staglin has served as the Chief Executive Officer and Chairman of the Board of
Directors of Safelite Glass Corporation, a replacement auto glass manufacturing
and retailing company. From 1980 to 1991, Mr. Staglin was a Vice President and
General Manager of Automatic Data Processing, a computer networking services
company. Mr. Staglin currently serves as a director of First Data Corporation,
a supplier of computer services for credit card processing and other financial
services, Cybercash, Inc., a provider of secure transaction services for the
Internet, and Grimes Aerospace Corporation, a manufacturer of aircraft
replacement parts and repair services. In 1994, he was named a member of the
Advisory Council to the Stanford Graduate School of Business.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 11 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 12 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 13 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed or incorporated by reference as part of this
Form 10-K:
(A) ITEMS FILED AS PART OF REPORT:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheets
Statements of Earnings
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not
required or because the required information is included in the
financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company (corrected)
4.1 Specimen of Common Stock Certificate of the Registrant.*
10.1 1993 Stock Option/Stock Insurance Plan and forms of agreement thereunder.*
10.2 Employee Stock Purchase Plan*.
10.3 Form of 1990 Nonqualified Stock Option Agreement.*
10.4 Employment Agreement dated April 22, 1992 between the Registrant and Tania
Amochaev.*
10.5 Employment Agreement dated March 1, 1993 between the Registrant and Tania
Amochaev.*
10.6 Form of Indemnification Agreement.*
10.7 Lease Agreement dated April 27, 1990 between the Registrant and
Schooner Drive Associates, a California Limited Partnership.*
10.8 Sublease dated May 1, 1993 between the Registrant and PRJ&, Inc.*
10.9 Preferred Stock Purchase and Debt Consolidation Agreement, dated as of
March 22, 1991 among the Registrant, Peter R. Johnson and International
Business Machines Corporation.*
37
<PAGE>
10.10 First Amendment dated as of May 20, 1993 to the Preferred Stock Purchase
and Debt Consolidation Agreement among the Registrant, Peter R. Johnson,
and International Business Machines Corporation.*
10.11 Replacement Consolidated Convertible Notes dated March 22, 1991
issued to International Business Machines Corporation.*
10.12 Security Agreement dated as of March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.13 Warrant dated March 22, 1991 issued to International Business Machines
Corporation.*
10.14 License Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.15 First Amendment dated as of May 20, 1993 to the License Agreement between
the Registrant and International Business Machines Corporation.*
10.16 Maintenance and Support Agreement dated March 22, 1991 between the
Registrant and International Business Machines Corporation.*
10.17 First Amendment dated as of May 20, 1993 to the Maintenance and Support
Agreement between the Registrant and International Business Machines
Corporation.*
10.18 Marketing Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.19 Common Stock Purchase Agreement dated April 3, 1989 by and among
Registrant and Retail Shopping International (Aust.) Pty. Ltd., Barclays
Investment Pty. Ltd., and Peter R. Johnson.*
10.20 Business Loan Agreement dated May 30, 1990 between Registrant and Silicon
Valley Bank as amended on June 3, 1993.*
10.22 Warrant dated July 16, 1992 issued to Steven D. Brooks.*
10.23 Warrant dated March 31, 1993 issued to Steven D. Brooks.*
10.24**Volume Discount Agreement dated December 16, 1991 between the Registrant
and International Business Machines Corporation.*
10.25 Facilities and Cost Sharing Agreement dated May 1, 1993 between the
Registrant and PRJ&, Inc.*
10.26 Data Center Services Agreement dated April 30, 1993 between the Registrant
and PRJ&, Inc.*
10.27 Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*
10.28 Consent and Release Agreement dated as of May 20, 1993 among the
Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
International Business Machines Corporation.*
10.29 Separation Agreement dated May 1, 1993 between the Registrant and PRJ&,
Inc.*
10.30 Assignment, Bill of Sale and Assumption Agreement dated as of May 20, 1993
between the Registrant and PRJ&, Inc.*
38
<PAGE>
10.31 Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
Incorporated and Bank of America NT&SA.*
10.32 Pledge Agreement dated as of May 20, 1993 between the Registrant and
International Business Machines Corporation.*
10.33 Agreement dated as of July 13, 1993 between the Registrant and
International Business Machines Corporation.*
10.34 **Advantis Industry Remarketer Agreement dated as of January 6, 1994
between Advantis and the Registrant.
10.35 Uniquest Forbearance Agreement
10.36***International Remarketer Agreement dated as of November 11, 1996 between
Advantis and the Registrant.
10.37***Employment Agreement dated as of February 6, 1997 between Registrant and
Lynn Hazlett.
11.1 Computation of Earnings Per Share - Primary and Fully-diluted
23.1 Consent of Deloitte & Touche LLP, independent auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
* Incorporated by reference to Exhibit of same number of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-63938).
** Confidential treatment has been granted with respect to portions of this
document.
*** Confidential treatment has been requested with respect to portions of this
document.
39
<PAGE>
SIGNATURES
In accordance with 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, on this 6th day of March, 1997.
QUICKRESPONSE SERVICES, INC.
/s/ Shawn M. O'Connor
---------------------------------------------
Shawn M. O'Connor, Vice President,
Chief Financial Officer and Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Tania Amochaev, acting
alone, his or her true and lawful attorney-in-fact with authority to execute in
the name of each person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 necessary or advisable to enable QuickResponse Services,
Inc. to comply with the Securities Exchange Act of 1934, any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
which amendments may make such other changes in the report as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 has been signed
by the following persons in the capacities indicated and on the dates indicated.
SIGNATURE DATE
/s/ H. Lynn Hazlett March 6, 1997
- ---------------------------------------------------------
H. Lynn Hazlett, President, Chief Executive Officer,
and Director (Principal Executive Officer)
/s/ Peter R. Johnson March 6, 1997
- ---------------------------------------------------------
Peter R. Johnson, Chairman of the Board of Directors
/s/ Tania Amochaev March 6, 1997
- ---------------------------------------------------------
Tania Amochaev, Director
/s/ Steven D. Brooks March 6, 1997
- ---------------------------------------------------------
Steven D. Brooks, Director
/s/ John P. Dougall March 6, 1997
- ---------------------------------------------------------
John P. Dougall, Director
/s/ Philip Schlein March 6, 1997
- ---------------------------------------------------------
Philip Schlein, Director
/s/ Garen K. Staglin March 6, 1997
- ---------------------------------------------------------
Garen K. Staglin, Director
/s/ Garth Saloner March 6, 1997
- ---------------------------------------------------------
Garth Saloner, Director
/s/ Shawn M. O'Connor March 6, 1997
- ---------------------------------------------------------
Shawn M. O'Connor, Vice President, Chief Financial
Officer and Secretary (Principal Financial Officer)
40
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company (corrected).
4.1 Specimen of Common Stock Certificate of the Registrant.*
10.1 1993 Stock Option/Stock Insurance Plan and forms of agreement thereunder.
10.2 Employee Stock Purchase Plan*.
10.3 Form of 1990 Nonqualified Stock Option Agreement.*
10.4 Employment Agreement dated April 22, 1992 between the
Registrant and Tania Amochaev.*
10.5 Employment Agreement dated March 1, 1993 between the
Registrant and Tania Amochaev.*
10.6 Form of Indemnification Agreement.*
10.7 Lease Agreement dated April 27, 1990 between the Registrant
and Schooner Drive Associates, a California Limited Partnership.*
10.8 Sublease dated May 1, 1993 between the Registrant and PRJ&, Inc.*
10.9 Preferred Stock Purchase and Debt Consolidation Agreement, dated
as of March 22, 1991 among the Registrant, Peter R. Johnson and
International Business Machines Corporation.*
10.10 First Amendment dated as of May 20, 1993 to the Preferred Stock Purchase
and Debt Consolidation Agreement among the Registrant, Peter R. Johnson,
and International Business Machines Corporation.*
10.11 Replacement Consolidated Convertible Notes dated March 22, 1991
issued to International Business Machines Corporation.*
10.12 Security Agreement dated as of March 22, 1991 between the Registrant
and International Business Machines Corporation.*
10.13 Warrant dated March 22, 1991 issued to
International Business Machines Corporation.*
10.14 License Agreement dated March 22, 1991 between the Registrant
and International Business Machines Corporation.*
10.15 First Amendment dated as of May 20, 1993 to the License Agreement
between the Registrant and International Business Machines Corporation.*
10.16 Maintenance and Support Agreement dated March 22, 1991 between
the Registrant and International Business Machines Corporation.*
10.17 First Amendment dated as of May 20, 1993 to the Maintenance and
Support Agreement between the Registrant and International Business
Machines Corporation.*
10.18 Marketing Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
41
<PAGE>
10.19 Common Stock Purchase Agreement dated April 3, 1989 by and among
Registrant and Retail Shopping International (Aust) Pty. Ltd.,
Barclays Investment Pty. Ltd., and Peter R. Johnson.*
10.20 Business Loan Agreement dated May 30, 1990 between Registrant and
Silicon Valley Bank as amended on June 3, 1993.*
10.22 Warrant dated July 16, 1992 issued to Steven D. Brooks.*
10.23 Warrant dated March 31, 1993 issued to Steven D. Brooks.*
10.24**Volume Discount Agreement dated December 16, 1991 between the
Registrant and International Business Machines Corporation.*
10.25 Facilities and Cost Sharing Agreement dated May 1, 1993 between the
Registrant and PRJ&, Inc.*
10.26 Data Center Services Agreement dated April 30, 1993 between the
Registrant and PRJ&, Inc.*
10.27 Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*
10.28 Consent and Release Agreement dated as of May 20, 1993 among the
Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
International Business Machines Corporation.*
10.29 Separation Agreement dated May 1, 1993 between the Registrant and PRJ&,
Inc.*
10.30 Assignment, Bill of Sale and Assumption Agreement dated as of May 20,
1993 between the Registrant and PRJ&, Inc.*
10.31 Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
Incorporated and Bank of America NT&SA.*
10.32 Pledge Agreement dated as of May 20, 1993 between the Registrant and
International Business Machines Corporation.*
10.33 Agreement dated as of July 13, 1993 between the Registrant and
International Business Machines Corporation.*
10.34**Advantis Industry Remarketer Agreement dated as of January 6, 1994
between Advantis and the Registrant.
10.35 Uniquest Forbearance Agreement
10.36***International Remarketer Agreement dated as of November 11, 1996 between
Advantis and the Registrant.
10.37***Employment Agreement dated as of February 6, 1997 between Registrant and
Lynn Hazlett
11.1 Computation of Earnings Per Share - Primary and Fully-diluted 43
23.1 Consent of Deloitte & Touche LLP, independent auditors 44
24.1 Power of Attorney
27.1 Financial Data Schedule
* Incorporated by reference to Exhibit of same number of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-63938).
** Confidential treatment has been granted with respect to portions of this
document.
*** Confidential treatment has been requested with respect to portions of
this document.
42
<PAGE>
INTERNATIONAL REMARKETER AGREEMENT
[LOGO]
REMARKETER PROFILE
- --------------------------------------------------------------------------------
1. DETAILS OF OUR RELATIONSHIP
A. OTHER AGREEMENTS
The terms of the Advantis Industry Remarketer Agreement, its Amendments
and Transaction Documents supersede the terms of the International
Remarketer Agreement in the United States.
B. AGREEMENT TERM
The term of this Agreement commences on December 1, 1996 and will
terminate on December 31, 1997.
C. AUTHORIZED RELATIONSHIP AND APPROVED INDUSTRY
The term "Retail Industry" means retailers in the industry segments ("IS")
DI through D9, as further identified below, and those suppliers whose
business is to supply, by sale or consignment, finished goods to those
retailers.
The term "Transportation Customers" means those transportation carriers
whose business is to transport finished goods between those retailers
and suppliers identified above. For the purpose of this Agreement, the
term "Retail Industry" includes Transportation Customers, except where
specifically excluded.
You are approved to remarket Eligible Services as an IBM Global Network
Remarketer in the Retail Industry, including Transportation Customers.
Some countries prohibit segmentation of markets by industry. In such
countries, this provision does not apply to you. We will identify to
- --------------------------------------------------------------------------------
Each of us agrees that the complete agreement between us about this
transaction consists of 1) this Profile, 2) any other Transaction Documents,
and 3) the International Remarketer Provider Agreement (or any equivalent
agreement signed by both of us).
Agreed to: (Remarketer name) Agreed to: (Service Provider Lead Company Name)
QUICK RESPONSE SERVICES (QRS) ADVANTIS
By /s/Shawn M. O'Connor By /s/ R.A. Giffin
--------------------------- -----------------------------------
Authorized signature Authorized signature
Name (type or print): Name (type or print): R.A. Giffin
Shawn M. O'Connor
Date: 11/11/96 Date
Remarketer Enterprise Number: Agreement number: N1071-US
5229967
Remarketer address: Service Provider Lead Company Address:
1400 Marina Way South 3405 W. Dr. Martin Luther King Jr. Blvd.
Richmond, CA 94804 U.S.A. Tampa, FL 33607 U.S.A.
Attention: Order Support Services
* Indicates that material has been omitted and confidential treatment has
been requested therefore. All such omitted material has been filed
separately with the Commission pursuant to Rule 24b-2.
- --------------------------------------------------------------------------------
After signing, please return a copy of this Agreement to the "Service
Provider Lead Company address" shown above.
- --------------------------------------------------------------------------------
Page 1 of 6
<PAGE>
you the countries where you are doing business under this Agreement where
this provision does not apply.
AUTHORIZED INDUSTRY SEGMENTS
IS SIC DESCRIPTION
D1 Department Stores and Mail Order Retailers
D1 5311 Department Stores
D1 5399 Miscellaneous General Merchandise Stores
D1 5961 Mail-Order Houses
D2 Mass Merchandisers and Discount Retailers
D2 533A Discount Stores
D2 5331 Variety Stores
D3 Specialty Retailers
D3 5611 Men's and Boys' Clothing Stores
D3 5621 Women's Ready-to-Wear
D3 5632 Women's Accessory and Specialty Stores
D3 5641 Children's and Infants' Wear Stores
D3 5651 Family Clothing Stores
D3 5661 Shoe Stores
D3 5699 Miscellaneous Apparel and Accessory Stores
D3 5941 Sporting Goods and Bicycle Shops
D3 5942 Book Stores
D3 5943 Stationary Stores
D3 5944 Jewelry Stores
D3 5945 Hobby, Toy and Game Shops
D3 5946 Camera and Photographic Supply Stores
D3 5947 Gift, Novelty and Souvenir Shops
D3 5948 Luggage and Leather Goods Stores
D3 5949 Sewing, Needlework and Piece Goods
D4 Hardgoods Retailers
D4 5211 Lumber and Other Building Materials
D4 5231 Paing, Glass and Wallpaper Stores
D4 5251 Hardware Stores
D4 5261 Retail Nurseries, Lawn and Garden Stores
D4 5712 Furniture Stores
D4 5713 Floor Covering Stores
D4 5714 Drapery, Curtain and Upholstery Stores
D4 5719 Miscellaneous Home Furnishing Stores
D4 5722 Household Appliances Stores
D4 5731 Radio, TV and Electronic Stores
D4 5734 Computer and Software Stores
D4 5735 Record and Prerecorded Tape Stores
D4 5736 Musical Instruments
D5 Other General Merchandise Stores
D5 5982 Used Merchandise Stores
D5 5983 Fuel Oil Dealers
D5 5984 Liquified Petroleum Gas Dealers
D5 5989 Fuel Dealers, NEC
D5 5992 Florist Stores
D5 5993 Cigar Stores and Stands
D5 5994 News Dealers and Newsstands
D5 5995 Optical Goods Stores
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<PAGE>
D5 5999 Miscellaneous Retail Stores, NEC
D6 Grocery Retailers
D6 5411 Grocery Stores
D6 5421 Meat and Fish Markets
D6 5431 Fruit Stores and Vegetable Markets
D6 5441 Candy, Nut and Confectionary Stores
D6 5451 Dairy Products Stores
D6 5461 Retail Bakeries
D6 5499 Miscellaneous Food Stores
D7 Drug Dealers
D7 5912 Drug Stores and Proprietary Stores
D8 Restaurant Retailers
D8 5812 Eating Places
D8 5813 Drinking Places (Alcoholic Beverages)
D9 Other Food and Drug Retailers
D9 5921 Liquor Stores
D9 5962 Vending Machine Operators
D9 5963 Direct Selling Establishments
D. ELIGIBLE SERVICES TO BE REMARKETED
You may market and sell any generally-available value-added network
Service eligible for discount which may be ordered and managed through
the IBM International Project Support System (IPSS) in the countries
listed in Schedule A of the International Remarketer Agreement. Most,
but not all, Services are eligible for discount.
E. DISCOUNTS
AMOUNT. Services eligible for discount outside the United States will
be discounted to you at *
CONDITIONS. To be eligible for the discount, you must perform your
responsibilities described in section 3 of the International Remarketer
Agreement and Section 1H of this Profile.
F. REVENUE COMMITMENT
The revenue commitment of US$80,000,000 provided for in the Advantis
Industry Remarketer Agreement shall remain unchanged and apply to all
revenue globally for the Agreement term.
G. ADJUSTMENT CHARGES
If the $80,000,000 minimum revenue commitment that QRS agrees to achieve
over the contract period of this Agreement is not met, the adjustment
charge will be calculated by using the following adjustment charge
calculation table:
*Indicates that material has been omitted and confidential treatment has
been requested therefore. All such omitted material has been filed
separately with the Commission pursuant to Rule 24b-2.
Page 3 of 6
<PAGE>
ADJUSTMENT CHARGE CALCULATION TABLE
<TABLE>
<CAPTION>
If Actual Service Provider
Revenue from you is: The Adjustment Charge is:
<S> <C>
From $00,000,000 to 34,999,999 (34,999,999 minus actual revenue) x 20% + $2,400,000
From $35,000,000 to 49,999,999 (49,999,999 minus actual revenue) x 8% + $1,200,000
From $50,000,000 to 59,999,999 (59,999,999 minus actual revenue) x 6% + $ 600,000
From $60,000,000 to 69,999,999 (69,999,999 minus actual revenue) x 4% + $ 200,000
From $70,000,000 to 79,999,999 (79,999,999 minus actual revenue) x 2%
</TABLE>
H. ADDITIONAL QRS RESPONSIBILITIES
You will:
1. ensure that you have personnel trained in selling, installing, and
supporting IBM Global Network (IGN) Products and Services. These personnel
should attend the appropriate IGN courses available to them as soon as
possible. Courses are listed in the section 1.1.;
2. develop solutions, make proposals, and implement contracts with your
Customers for IGN Eligible Services;
3. submit orders and engage IGN project management by utilizing the
International Project Support System (IPSS);
4. perform, or have your Customer perform, any necessary planning and
preparation and training prior to the installation of Eligible Services;
5. invoice and collect payment from all your Customers. You will establish
your own invoicing system independently of us for invoicing your
Customers. We will provide you on a timely basis with invoice and usage
detail by country on paper, and where available, electronically. When
appropriate or necessary, the Consolidated Statement Facility may be used;
6. provide implementation planning, account management, and ongoing sales
support to your Customers;
7. be responsible for providing all necessary support to Customers and their
End Users for use of your value-added services;
8. provide enabling support for your Customers' applications. Your Customers
may also do their own enabling, or you may engage business partners to do
so. You, your Customers, or your business partner will distribute any IGN
enabling software under appropriate terms we provide;
9. inform your Customers and their End Users to direct problem reporting to
the QRS help desk using NOTIFY when possible. You may monitor problems in
process for IGN issues and will manage all application issues with your
Customers;
10. participate in occasional joint surveys with us to determine customer
satisfaction. Each of us will jointly share the results of such surveys;
11. gather requirements from your Customers and their End Users, and from
general participants in the retail and transportation industries, and
twice a year provide us with a report with the requirements in
consolidated form; and
12. maintain a disaster recovery plan and provide it to us for review within
60 days of a written request from us.
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<PAGE>
1. ADDITIONAL SERVICE PROVIDER RESPONSIBILITIES
1. EDUCATION
We will provide education courses for your marketing and support
personnel during the Agreement term. Your marketing and support
personnel should attend these courses within one year of the
commencement date of this Agreement or within the first year that you
assign additional personnel to perform a particular function. The
courses we provide may include the following:
- Specialist Update:
- Marketing IBM Global Network Services:
- Marketing in the internetworking and Multiprotocol Environment:
- Host Connectively Workshop:
- LAN, TCP/IP and Router Workshop.
We have sole discretion to determine the content and availability of
education courses and the addition or deletion of courses. We will
provide these education courses to you on a tuition-free basis:
however, you are responsible or travel expenses, lodging and meals, and
expenses for educational materials not included in the tuition fee.
When your personnel complete the course of study listed above, they
should be able to perform the following activities:
- market Eligible Services plus your value-added enhancements:
- propose valid technical solutions and pricing:
- discuss terms relating to provisioning or services: and
- manage your Customers' networking requirements by proposing new or
additional services, and maintain an ongoing relationship with the
Customers.
2. PRESALE ACTIVITIES
The IGN Global Sales Solution Center may be called on to assist you in
developing the technical solution for network services. The IGN
Messaging Support Group may be called on to assist you in developing
the technical solution for messaging services.
3. FULFILLMENT ACTIVITIES
The International Support Services organization will provide project
management for all International networking activity on a fee basis.
IGN is responsible for enabling connectivity for all leased lines. The
International Messaging Enabling organizations will provide project
management and enabling for all international messaging activity on a
fee basis. IGN is responsible for provisioning account IDs and user IDs
for international messaging.
2. PROVISION OF ELIGIBLE SERVICES
You agree to provide all marketing activities required by your Customers
and their End Users, including installation and application assistance and
technical support. We provide marketing and technical sales support to you
(and not to your Customers and their End Users).
You agree to:
1. make the Eligible Services available only to Customers in the countries
listed in Schedule A:
2. demonstrate and explain the functions and expected performance of, the
Eligible Services and your services to Customers:
3. provide support (such as documentation and technical assistance) for
the Eligible Services and for your services and software. This support
includes ordering User Identifications:
Page 5 of 6
<PAGE>
4. inform the Customers, upon their request, of applicable courses that we
provide and how to enroll in them; and
5. select, develop, procure, integrate, and install all elements of your
services and any updates to them.
Page 6 of 6
<PAGE>
INTERNATIONAL REMARKETER AGREEMENT [LOGO]
- ----------------------------------------------------------------------------
We welcome you as an International Remarketer for networking services. Based
on your offerings and your knowledge of our Services, your skills and
experience, we grant you a nonexclusive right to remarket our Services to
Customers. Like yours, our goal is to provide the highest quality Services
and solutions to the customer. As our remarketer, please let us know if your
have any questions or problems with our Services.
The Remarketer Lead Company and Service Provider Lead Company agree to
coordinate the activities of the local Remarketer Companies ("you") and
Service Provider Companies ("we") in their respective Enterprises listed in
Schedule A, under this International Remarketer Agreement (called the
"Agreement"). This Agreement is written and signed in English with the
understanding that the Remarketer Lead Company and the Service Provider Lead
Company are bound by its terms. In some countries, local law formally
requires the use of local language for the Agreement. A lsit of such
countries is available from the Service Provider Lead Company upon request.
You agree to purchase Eligible Services in the geographic area in which they
are to be made available; for example, the Eligible Services to be marketed
and installed in Canada will be ordered and purchased in Canada and the
Eligible Services for Western Europe will be ordered and installed in Western
Europe.
As the Service Provider Lead Company, we warrant that in signing this
Agreement. 1) we are acting on behalf of all of the local Service Provider
Companies in the countries specified in Schedule A and 2) we will ensure that
each such company is aware of, and will agree to comply with and be bound by,
the terms of this Agreement.
As the Remarketer Lead Company, you warrant that in signing this Agreement,
1) all your local Remarketer Companies are Subsidiaries or Related Companies,
2) you are acting on behalf of all of the local Remarketer Companies in the
countries specified in Schedule A and 3) you will ensure that each such
company is aware of, and will agreed to comply with and be bound by, the
terms of this Agreement.
AGREED TO: (REMARKETER LEAD COMPANY) AGREED TO:(SERVICE PROVIDER LEAD COMPANY)
QUICKRESPONSE SERVICES INC. ADVANTIS
By /s/ Shawn N. O'Conner By /s/ R.A. Giffin
------------------------------ -------------------------------
Authorized signature Authorized signature
Name (type or print): Name (type or print): R.A. Giffin
Shawn N. O'Conner
Date: 11/11/96 Date:
Enterprise Number: 5229967 Agreement Number: N1071-US
Remarketer Address:
1400 MARINA WAY SOUTH
RICHMOND, CA 94804 U.S.A.
- -------------------------------------------------------------------------------
AFTER SIGNING, PLEASE RETURN A COPY OF THIS AGREEMENT TO THE FOLLOWING ADDRESS:
Advantis
3405 W. Dr. M. L. King Jr. Blvd
Tampa, FL 33607 U.S.A.
Attention: Order Support Services
- -------------------------------------------------------------------------------
Page 1 of 27
<PAGE>
The Remarketer Lead Company and Service Provider Lead Company agree to
distribute copies of this Agreement to their respective local Companies,
including those added to this Agreement in the future. Ten days after
acceptance by the Service Provider Lead Company, this Agreement will become
effective in each country listed in Schedule A. However, if during this ten
day period, either the Remarketer Lead Company or Service Provider Lead
Company notifies the other that any of the parties which it represents does
not agree to this Agreement. Part B and Schedule A will be revised
accordingly. This Agreement will then become effective as modified. Each
local Remarketer Company will provide written acceptance of this Agreement to
the local Service Provider Company when initially ordering Eligible Services;
however, both of us may agree to to an alternative acceptance procedure.
Local agreements between each Remarketer Company and Service Provider Company
consist of Attachments and Transaction Documents to this Agreement. This
Agreement and its applicable Attachments and Transition Documents are the
complete agreement regarding these transactions in the countries listed in
Schedule A and replace any prior oral or written communications between us.
By signing this Agreement, both of us agree to the terms of this Agreement.
Once signed, 1) unless prohibited by local law or specified otherwise, any
reproduction of this Agreement, an Attachment, or a Transaction Document made
by reliable means (for example, photocopy or facsimile) is considered an
original and 2) all Eligible Services ordered locally referring to this
Agreement are subject to it.
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<PAGE>
INTERNATIONAL REMARKETER AGREEMENT
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PART A - GENERAL TERMS
SECTION TITLE PAGE
1. Definitions 4
2. Agreement Structure 5
3. Responsibilities of the Parties 6
4. Access to Eligible Services 8
5. Warranty for Eligible Services 8
6. Prices and Price Changes 9
7. Invoicing, Payment, and Taxes 10
8. Equipment Provided by Services Provider Company 11
9. Customer Transmitted Data 12
10. Electronic Communications 13
11. Ordering and Delivery 13
12. Status Change 13
13. Export of Services and Products 13
14. Liability 13
15. Trademarks 15
16. No Property Rights 15
17. Changes to the Agreement Terms 15
18. Agreement Termination 15
19. Waiver of Noncompliance 16
20. Geographic Scope 16
21. Governing Law 16
PART B - COUNTRY UNIQUE TERMS
SCHEDULE A - LIST OF REMARKETER AND SERVICE PROVIDER LOCAL COMPANIES
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<PAGE>
INTERNATIONAL REMARKETER AGREEMENT
- -------------------------------------------------------------------------------
1. DEFINITIONS
CUSTOMER is a party to whom you remarket Eligible Services and provide a
User Identification. A Customer may authorize an End User to use an
Eligible Service. A Customer may not remarket an Eligible Service. A
Customer may allow End Users to access an Eligible Service for the
Customer's business purposes only.
END USER is any party whom a Customer authorizes, by any means, for
example, a User Identification, to use an Eligible Service. An End User
may not remarket or authorize other parties to access an Eligible Service.
ELIGIBLE SERVICE is an Service Provider Service that a Service Provider
authorizes you to remarket.
EQUIPMENT is a machine, its features, conversions, upgrades, elements, or
accessories, or any combination of them. The term "Equipment" includes
Service Provider Equipment and any non-Service Provider Equipment we
provide to you or your Customers.
RELATED COMPANY is any corporation, company or other entity.
1. more than 50 percent of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are owned or controlled, directly or indirectly, by
either of us:
2. which owns or controls, directly or indirectly, more than 50 percent
of the outstanding voting shares of either of us; or
3. more than 50 percent of whose outstanding voting shares are owned or
controlled, directly or indirectly, by a Related Company as defined in
item 2 above.
However, any such corporation, company or other entity will be deemed to
be a Related Company only so long as such ownership or control exists.
SERVICES are described in Transaction Documents and include access to,
and use of, Equipment, programs, networking facilities, and associated
enhanced communication and support services. Except for the right to use
programs that we authorize you or your Customers to access through the
Services, we grant no other rights to those programs to you, your
Customers or End Users.
SERVICE START DATE of an Eligible Service is the date on which we make it
available to you or your Customer.
SUBSIDIARY is any corporation, company or other entity;
1. more than 50 percent of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or
2. which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association, but
more than 50 percent of whose ownership interest (representing the right
to make the decisions for such corporation, company or other entity) is,
now or hereafter, owned or controlled, directly or indirectly, by either
of us, but such corporation, company or other entity shall be deemed to
be Subsidiary only so long as such ownership or control exists.
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<PAGE>
USER IDENTIFICATION is a code or codes which enable authorization or
access to programs, data, or equipment through a Service.
2. AGREEMENT STRUCTURE
The structure of the International Remarketer Agreement is as follows:
GENERAL TERMS
The General Terms consist of two parts:
Part A -- General Terms are applicable to all your Remarketer Companies,
except where modified by Part B. These terms accredit your local
Remarketer Companies as Authorized Remarketers in the countries listed in
Schedule A and are the general terms governing this relationship.
Part B -- Country Unique General Terms modify the terms of Part A in the
countries specified.
TERMS FOR THE ORDERING OF ELIGIBLE SERVICE
You may order Eligible Services from:
1. Service Provider Companies in the countries listed in Schedule A; or
2. any other IBM company or affiliate pursuant to the IBM company or
affiliate's then current remarketer terms. All such terms are in addition
to those of this Agreement. The applicable IBM company or affiliate will
make these terms available to you and you will accept these terms (or any
amendment or modifications to these terms) by doing either of the
following:
a. signing them; or
b. accepting a Service from that local IBM company or affiliate.
Other local Remarketer Companies may be added to this Agreement upon the
mutual written consent of both parties.
TRANSACTION DOCUMENTS
For each business transaction, we will provide to you the appropriate
"Transaction Documents" that confirm the details of the transaction or
provide additional information about our relationship. Transaction
Documents may contain terms in addition to those we specify in this
Agreement. Some Transaction Documents require signature, and others do
not. Supplements may contain descriptions of custom solutions and
associated special charges. Exhibits and Fee Schedules are unsigned
Transaction Documents that explain in detail Service Provider Services,
Programs, and associated charges.
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, those of
a Transaction Document prevail over those of the International Remarketer
Agreement.
YOUR ACCEPTANCE OF ADDITIONAL TERMS
You accept the terms in a Transaction Document by doing any of the
following:
1. signing it;
2. providing an Eligible Service to your Customer; or
Page 5 of 27
<PAGE>
3. making any payment for an Eligible Service.
3. RESPONSIBILITIES OF THE PARTIES
MUTUAL RESPONSIBILITIES
Each of us agrees that under this Agreement:
1. you are an independent contractor. Neither of us is a legal
representative or agent of the other. Neither of us is legally a
partner of the other (for example, neither of us is responsible for
debts incurred by the other), and you are not our employee or
franchisee;
2. each of us is free to enter into similar agreements with others, to
market service competitive with the Eligible Service, and to conduct
its business in whatever way it chooses, provided there is no
conflict with this Agreement. The number of our remarketers, the
types of distributions channels, and the number of participants in
such channels may vary from country to country;
3. each is free to establish its own prices and terms and neither of us
will discuss its customer prices and terms in the presence of the
other;
4. except for information and data transmitted in electronic form using
the Eligible Service, which is discussed in section 9, the terms of
this Agreement, which neither of us will disclose except as required
by law or unless both of us agree in writing to do so, and
information exchanged under a confidentiality agreement signed by
both of us, all information exchanged by both of us is
nonconfidential;
5. we will provide you with access to our information systems only in
support of your authorized marketing activities. Programs associated
with these information systems are subject to the terms of their
applicable license agreements, except that you may not transfer
them;
6. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided
by local law without possibility of contractual waiver; and
7. neither of us is responsible for failure to fulfill its obligations
due to causes beyond its control.
YOUR RESPONSIBILITIES
You agree not to do any of the following:
1. assign, or otherwise transfer, this Agreement or your rights, under
it, delegate you obligations, or appoint another reseller (including
a related company) or agent to represent you or to market the
Eligible Services, without our prior written consent. Any attempt to
do so is void; however, if we allow you to use an agent to represent
you, we will provide written guidelines; or
2. assume or create any obligations on our behalf, or make any
representations or warranties about us or the Eligible Services
other than those we authorize.
You agree to:
1. sell Eligible Services only to Customers, unless otherwise specified
in this Agreement;
2. be responsible for Customer satisfaction with the Eligible Services
and all your related activities, and participate in
Customer-satisfaction programs as we determine. For example, if we
request, you agree to provide us with the names and addresses of all
Customers who have acquired Eligible Services from you;
Page 6 of 27
<PAGE>
3. report or have your Customer report promptly to us all suspected and
actual problems with Eligible Services;
4. maintain trained personnel and comply with any reasonable
certification requirements:
5. develop and maintain the capability to provide first level warranty
service support for the Eligible Services;
6. ensure that your compensation or incentive plans for your employees
who market the Eligible Services are not unfair to us in comparison
with your plans for competitive products you market;
7. retain records by location of each Eligible Service transaction (for
example, a sale or credit) for five years and of each warranty claim
for three years. Records must include (as applicable) identification
of the Eligible Service provided, the date of your Customer's
initial access to an Eligible Service, and the Customer's name and
address;
8. assist us in tracing and locating Equipment;
9. provide us with sufficient, free, and safe, access to facilities, at
a mutually-convenient time, for us to fulfill our obligations. If you
become aware of any unsafe conditions or hazardous materials to
which our personnel would be exposed at any of the facilities, you
agree to notify us promptly;
10. require your Customers to keep a record of End Users outsider the
Customer's enterprise which include the name and address of the End
user, the date of initial Eligible Service access by the End User,
and the Eligible Service provided;
11. comply, and require your Customers and their End Users to comply
with all applicable laws, regulations, or conventions including those
related to data privacy, international communications, consumer
transactions, and exportation of technical or personal data with
respect to your activities under this Agreement;
12. inform your Customers and their End Users that they are responsible
for obtaining all necessary governmental, regulatory, or statutory
approvals for their use of the Eligible Services, to obtain all
required permissions if they use an Eligible Service to copy,
download, display, distribute, or execute programs or perform other
works;
13. be responsible for, and inform your Customers that they are
responsible for, data, programs, or other material that you or your
Customers provide for use with an Eligible Service, and for 1)
ensuring that your use and informing your Customer that their use of
an Eligible Service to provide data, programs, or other material
does not cause us to violate anyone's rights, and 2) the disclosure
or use of the material through the Eligible Service does not breach
any contractual relationship;
14. inform, and instruct your Customers to inform, in writing, those
whom you or your Customers authorize to access Eligible Services of
the applicable terms of this Agreement (for example, the Eligible
Services warranty) and that we have no liability to them, before
their initial access to the Eligible Services.
15. inform you Customers and their End Users that we are not responsible
for the content of information and data that they transmit using our
Services; and
16. to comply with the highest ethical principals in performing under
this Agreement. You will not offer or make payments or gifts
(monetary or otherwise) to anyone for the purpose of influencing
decisions in favor of a Service Provider Company, directly or
indirectly. We may terminate this Agreement immediately in case of
1) a breach of this clause or 2) when we reasonably believe such a
breach has occurred.
OUR REVIEW OF YOUR PERFORMANCE WITH THIS AGREEMENT
We may employ an independent auditor to audit your records related to the
remarketing of Eligible Services. Audits will be conducted during normal
business hours upon twenty days'
Page 7 of 27
<PAGE>
prior written notice, and no more often than once per year for the sole
purpose of determining compliance with this Agreement.
4. ACCESS TO ELIGIBLE SERVICES
We will provide to you User Identifications which enable access to
Eligible Services. You may authorize the Customer to access an Eligible
Service by providing a User Identification to that Customer. The Customer
may in turn provide User Identifications to its End Users of the Eligible
Services. You are responsible for the control and distribution of User
Identifications to Customers. You will require your Customers to be
responsible for the control and distribution of User Identifications to End
Users. We have no responsibility for misuse of User Identifications not
under our control.
You agree to notify us in writing of a new authorized Customer and of the
User Identifications assigned to that Customer. You also agree to provide us
with all information we reasonably require to enable your Customers and
their End Users to access an Eligible Service (or to terminate such access).
We may withdraw access to an Eligible Service from you when, in our
opinion, you, your Customers, or their End Users cause any part of an
Eligible Service to malfunction. We may withdraw access if there is a
failure to make changes which, in our judgment, are necessary to correct
malfunctions. We will promptly notify you if we withdraw access to an
Eligible Service pursuant to this paragraph.
You may acquire Eligible Services for your own internal use under the
terms, including prices, of the applicable Transaction Documents and any
other terms to which we mutually agree.
5. WARRANTY FOR ELIGIBLE SERVICES
For each Eligible Service, we warrant that we provide it:
1. using reasonable care and skill; and
2. according to its current description contained in this Agreement or a
Transaction Document.
We do not warrant uninterrupted or error free operation of an Eligible
Service. We will identify Eligible Services that we do not warrant.
If the availability, as measured by us and exclusive of maintenance
periods, of an Eligible Service listed below or the IBM Global Network
backbone network falls below 95% for two consecutive months, then you may
terminate this Agreement pursuant to section 18 and no adjustment charge
will be due:
Information Exchange
IBM-Registered Trademark- Mail Exchange
The Advantis Backbone Network extends between Service Provider Company
points of presence. It does not include the leased line or dial circuits
from the Service Provider Company point of presence to your Customer's or
End User's location nor the telecommunications equipment at those
locations.
- ------------------------
IBM is a registered trademark of the International Business Machines
Corporation.
Page 8 of 27
<PAGE>
Misuse, accident, modification, unsuitable physical or operating
environment, improper maintenance by you, or failure caused by a service
or program for which we are not responsible, may void the warranties.
You will afford us the opportunity to correct any deficiency in an
Eligible Service before being found in breach of our obligations under
this Agreement. You will permit us to take all appropriate measures to
restore the Eligible Service to conform to its desciption. In addition, we
may, at our option, substitute for or add to Eligible Services and take such
other measures as may be necessary, in each case, to correct an Eligible
Service deficiency.
We are not responsible for the selection of, use of, and results obtained
from, Eligible Services by you, your Customers, or their End Users.
Neither party is authorized to make any warranty commitment, whether
written or oral, on the other party's behalf.
THESE WARRANTIES REPLACE ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. HOWEVER, SOME LAWS DO NOT ALLOW THE EXCLUSION OF
EXPRESS OR IMPLIED WARRANTIES. IF THESE LAWS APPLY, THEN ALL EXPRESS AND
IMPLIED WARRANTIES ARE LIMITED IN DURATION TO THE WARRANTY PERIOD. NO
WARRANTIES APPLY AFTER THAT PERIOD.
WARRANTY FOR OTHER SERVICES, PROGRAMS, AND EQUIPMENT
For Services and programs that we do not warrant and non-Service Provider
Equipment that a Customer may reasonably believe is warranted by us, you
agree to inform your Customers in writing, before the sale or installation
as appropriate, that we do not warrant them. You also agree to inform your
Customers 1) that the Services, programs, or Equipment are non-Service
Provider, 2) of the applicable third party warranty (if any), and 3) of the
procedure to obtain any warranty service.
You are responsible for all programs, data, or equipment you, your
Customers, or their End Users provide which you, your Customers, or their
End Users use to access the Service Provider network.
6. PRICES AND PRICE CHANGES
The following are the bases on which we may require the amount payable
for an Eligible Service to be paid, with an example of each:
1. one-time (Eligible Service installation charges);
2. recurring (a periodic charge for Eligible Services);
3. usage (network traffic charges).
We will specify the amount and basis for the particular Eligible Service.
We specify discountable and non-discountable charges, adjustment
charges, credits, and education and reporting requirements in the Fee
Schedules. We may change the terms of these Fee Schedules on written notice
as specified in section 17. "Changes to the Agreement Terms."
For a discounted-charge Eligible Service, we will reduce your charges by
the applicable discount percent we specify in the Fee Schedules.
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PRICE INCREASES
We may increase recurring charges and usage charges by giving you three
months' written notice. An increase applies on the first day of the month
on or after the effective date we specify in the notice.
We may increase one-time charges and hourly rates without notice.
However, an increase to one-time charges does not apply to you if 1) we
receive your order before the announcement date of the increase and 2) we
make the Service available to you within three months after the
announcement.
We will not increase the Eligible Service charges during the first year
of the contract period. Thereafter, we may increase Eligible Service charges
by giving you three months' written notice.
When the cumulative effect of an increase in Eligible Service charges, or
termination of an Eligible Service, in any one year of the contract
period results in a change to your Service Provider Company invoice of
more than six percent (determined by recalculating your last invoice
using the new charges), you may terminate this Agreement by giving us
written notice. We must receive the notice before the effective date of
the change. The adjustment charge does not apply in this case. The
cumulative effect of any of any of these actions resulting in such change
to your Service Provider invoice cannot be carried over to subsequent years
of the contract period.
PRICE DECREASES
For one-time charges, you receive the benefit of a price decrease when
the Service Start Date occurs on or after the effective date of the
decrease.
For recurring charges and usage charges, you receive the benefit of a
decrease on the first day of the month following the effective date of
the decrease.
7. INVOICING, PAYMENT, AND TAXES
Payment in full is due upon receipt of our invoice. You agree to pay as
we specify in the invoice. We may offset any amounts due you, or
designated for your use (for example, marketing funds or promotional
offerings), against amounts due us or any of our affiliates.
You agree to pay amounts equal to any applicable taxes resulting from any
transaction under this Agreement. This does not include taxes based on
our net income.
You agree to provide us with valid reseller-exemption documentation for
each applicable taxing jurisdiction. Otherwise, we will charge you all
applicable state and local taxes or duties. You agree to notify us
promptly if this documentation is revoked or modified. You are liable for
any claims or assessments that result from any taxing jurisdiction refusing
to recognize your exemption.
FAILURE TO PAY ANY AMOUNTS DUE
If your account becomes delinquent, you agree that we may do one or more
of the following:
1. impose a finance charge, up to the maximum permitted by law, on the
delinquent portion of the balance due;
2. require cash payment on or before provision of any Eligible
Services;
3. terminate this Agreement; or
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4. pursue any other remedy available at law or equity.
In addition, if your account with any of our affiliates becomes
delinquent, we may invoke any of these options allowable by law or equity.
8. EQUIPMENT PROVIDED BY SERVICE PROVIDER COMPANY
We may provide Equipment to be installed on your Customers' or End Users'
premises for the purpose of providing Eligible Services. The Equipment is
and will remain the asset of the Service Provider Company or its lessor
and will not become a fixture or really.
Certain Equipment may contain licensed internal code. We will identify
this Equipment to you. Such Equipment may be subject to additional terms
specified in a Transaction Document.
No right, title, or interest in or to the Equipment, or licensed internal
code associated with it, or any related planning informantion, is passed
to you. However, we will use such Equipment to provide Eligible Services
to you, your Customers, and their End Users.
As appropriate, we will provide you physical planning information for the
Equipment. You will ensure that your Customers and their End Users comply
with that information in order to provide an environment meeting our
specifications.
OUR RESPONSIBILITIES
We agree to:
1. Install the Equipment we provide at your Customers' or their End
Users' sites unless we specify otherwise;
2. maintain the Equipment; and
3. be responsible for all return, removal, and shipping charges for the
Equipment.
YOUR RESPONSIBILITIES
You agree to:
1. ensure that your Customers provide for the physical space and
electrical power for the Equipment at your Customers' or their End
Users' sites at the Customer's or their End Users' expense;
2. be responsible for loss of or damage to the Equipment caused by
your, your employeess', your agents', your Customers' or their End
Users' intentional acts or negligence;
3. provide us or our designee with all assistance reasonable necessary
to permit us access to your Customers' or their End Users' sites to
perform inspection, installation, preparation for return, or
maintenance, as applicable;
4. ensure that your Customers or their End Users provide, at no cost to
us, adequate security to protect the Equipment from theft, loss,
damage, or misuse;
5. return to us, or permit us or our designee to remove at our
discretion, the Equipment, any licensed internal code associated
with it, and physical planning documentation at the expiration or
termination of the Eligible Service;
6. not alter the Equipment and any licensed internal code associated
with it in any manner, not move it to other locations, and not
transfer it to anyone else without our prior written approval;
7. keep the Equipment and any licensed internal code associated with it
free from all liens, charges, or encumbrances; and
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8. affix and keep in a prominent place on the Equipment any marking or
label we require.
9. CUSTOMER TRANSMITTED DATA
We agree not to disclose your, your Customers', or their End
Users' confidential information, including programs and data,
transmitted in electronic form using the Eligible Services. However,
we have no obligation of confidentiality relating to your, your
Customers', or their End Users' information, including programs and
data, which is not confidential. Information that is not
confidential includes information which is:
1. either currently publicly available or becomes publicly
available in the future without our breach of any obligation or
responsibility described in this Agreement:
2. rightfully received by either of us from a third party,
where the information was received without any obligation of
confidentiality associated with it;
3. already in our possession without an obligation of
confidentiality;
4. independently developed by us; or
5. approved for disclosure by you or your Customers.
We also have no liability for any disclosure of information
that occurs as the result of our delivery of your, your Customers',
or their End Users' information, at your, your Customers', or their
End Users' direction and to a recipient you, your Customers, or
their End Users designate, when the delivery is made in the normal
course of Eligible Service provision (for example, to an incorrect
delivery address provided by you, your Customers, or their End
Users to us). We may disclose information to the extent required by
law.
HANDLING OF YOUR, YOUR CUSTOMERS', OR THEIR END USERS'
INFORMATION
You, your Customers, and their End Users are responsible for selection
and use of the security facilities and options that we provide.
You, your Customers, and their End Users are responsible to
develop and maintain procedures (apart from the Eligible Services)
to protect your, your Customers', and their End Users' information.
You, your Customers, or their End Users are responsible for backup
and restoration of your respective information.
For the purposes of operation and maintenance we may use,
copy, display, store, and distribute internally your, your
Customers', or their End Users' information. We agree not to
reverse assemble or reverse compile your, your Customers', or their
End Users' information. We do not guarantee that these procedures
will prevent the loss of, alteration of, or improper access to,
your, your Customers', or their End Users' information. You agree that
access to your, your Customers', or their End Users' information will not
prohibit or prevent us from developing or marketing any service or
product.
For transmission carried over interexchange carriers' and
local exchange carriers' facilities, Service Provider is not
responsible for transmission errors, or corruption or security of
data.
We reassign to other customers data storage that you, your
Customers, or their End Users return to us. We do not erase data
storage and, in some cases, the next customer accessing a disk may
be able to read residual data. We are not responsible for your,
your Customers', or their End Users' failure to erase sensitive
data from disk space returned to us.
You will take appropriate measures to inform your Customers
and their End Users of these provisions.
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10. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means,
such as IBM(registered trademark) Mail Exchange. Each of us agrees
to the following for electronic communications:
1. a User Identification contained in an electronic document
is legally sufficient to verify the sender's identity and the
document's authenticity;
2. an electronic document that contains a User Identification
is a signed writing; and
3. an electronic document, or any computer printout of it, is an
original when maintained in the normal course of business.
11. ORDERING AND DELIVERY
On our request, you agree to make reasonable efforts to use
our automated order-entry system.
CANCELLATION OF AN ORDER
You may cancel an order for an Eligible Service before we
provide it. We may charge you a cancellation charge. We will inform
you in writing of the cancellation charge. The cancellation charge
does not apply to an Eligible Service if 1) we postpone providing
it for more than 15 days from its estimated availability date and
2) you cancel your order before we provide the Eligible Service.
DELAYED PROVISION OF AN ELIGIBLE SERVICE
Circumstances may arise where we delay the provision of an
Eligible Service due to our inability to meet the original
estimated availability date. If this delay causes the estimated
date to be after the end of your contract period, the terms of this
Agreement apply to that Eligible Service. It will be treated as if
you had acquired it during the contract period.
12. STATUS CHANGE
You agree to give us prompt written notice (unless precluded
by law or regulation) or any material change, or anticipated
change, in your financial condition, business structure, or
operating environment (for example, a material change in equity
ownership or management or any change to information you have
provided to us). Such change or failure to give notice may result
in termination of this Agreement.
13. EXPORT OF ELIGIBLE SERVICES
You are not authorized to actively market Eligible Services
outside the geographic scope of this Agreement and you agree not to
use anyone else to do so.
If a Customer acquires an Eligible Service for export, our
responsibilities under this Agreement no longer apply to that
Eligible Service. You agree to ensure that your Customers and their
End Users comply with export laws and regulations of the
originating country, and any import requirements of the destination
country.
14. LIABILITY
Circumstances may arise where, because of a default or other
liability, one of us is entitled to recover damages from the other.
In each such instance, regardless of the basis on which
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damages can be claimed, the following terms apply.
OUR LIABILITY
We are responsible for:
1. bodily injury (including death), and damage to real property
and tangible personal property caused by the Eligible Services; and
2. the amount of any other actual loss or damage, up to the
greater of US$100,000 (or equivalent) or the charges (if recurring
12 months' charges apply) for the Eligible Service that is the
subject of the claim.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances are we liable for any of the following:
1. third-party claims against you for losses or damages (other than those
under the first two items above);
2. loss of, or damage to, records or data; or
3. economic consequential damages (including lost profits or
savings) or incidental damages, even if we are informed of their
possibility.
ITEMS FOR WHICH YOU ARE LIABLE
Circumstances may arise where, because of a default on your
part or other liability, we are entitled to recover damages from
you. In each such instance, regardless of the basis on which we are
entitled to claim damages from you, you are liable only for:
1. bodily injury (including death), and damage to real
property and tangible personal property;
2. claims by others made against us (particularly regarding
statements, representations, or warranties not authorized by us)
arising out of your conduct under this Agreement or as a result of
your relations with anyone else, except where such claim is a
result of our action or failure to act;
3. the adjustment charge, if you fail to meet your minimum
revenue commitment; and
4. the amount of any other actual loss or damage, including
any lost profits associated with the product or Service to the
extent inherent in payments required to be made under this
Agreement, up to the greater of US$100,000 (or equivalent) or the
charges (if recurring, 12 months' charges apply) for the Service,
Eligible Service, or program that is the subject of the claim.
ITEMS FOR WHICH YOU ARE NOT LIABLE
Under no circumstances are you liable for any of the following:
1. third party claims against us for any losses or damages
(other than those set forth above);
2. loss of, or damages to, records or data; or
3. economic consequential damages (including lost profits or
savings) or incidental damages, even if you are informed of their
possibility; however, notwithstanding the foregoing, you will
indemnify us from consequential or incidental damages associated
with the damages for which you are liable as set forth in items 1
and 2, "Items For Which You are Liable," and you are responsible
for lost profits associated with the product or Service to the
extent inherent in payments required to be made under this
Agreement.
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15. TRADEMARKS
We will provide you with advertising guidelines for our
logos, trade and service marks, trade names, emblems, and titles
(collectively called "Trademarks"). We will notify you in writing
of the title you are authorized to use. You may use the Trademarks
only as described in the guidelines and only in association with
the Eligible Services we approve you to market.
On our request, you agree to change or stop using any
advertising or promotional material that does not comply (as we
determine) with our guidelines or this Agreement. When this
Agreement ends, you agree to promptly stop using our Trademarks. If
you do not, you agree to pay any expenses and fees that we incur in
getting you to stop.
You agree that any goodwill attaching to our Trademarks as a
result of your use of them belongs to us. You agree not to register
or use any mark that is confusingly similar to any of our
Trademarks.
16. NO PROPERTY RIGHTS
Your rights under this Agreement are not property rights and,
therefore, you cannot transfer them to anyone else or encumber them
in any way. For example, you may not sell your authorization to
market the Eligible Services or your right to use our Trademarks.
17. CHANGES TO THE AGREEMENT TERMS AND ELIGIBLE SERVICES
CHANGES TO THE AGREEMENT TERMS
In order to maintain flexibility in our relationship, we may
change the terms of this Agreement by giving you three months'
written notice. However, these changes are not retroactive. They
apply as of the effective date we specify in the notice. If you do
not accept a change, you must inform us in writing before its
effective date.
Otherwise, for a change to be valid, both of us must sign it.
Additional or different terms in any order or written communication
from you are void.
CHANGES TO AND TERMINATION OF ELIGIBLE SERVICES
We will give you three months' written notice if increase Eligible
Service charges or change invoicing procedures, or when a planned
change would substantially alter an Eligible Service from its
current description. We will give you 12 months' written notice if
we terminate an Eligible Service (or if we can change this 12-month
notice period). However, if a third party claims that a product
that we provide as part of an Eligible Service infringes a patent
or copyright, we reserve the right to terminate the Eligible
Service effective immediately.
You agree to give us one month's written notice to terminate
your use of or remarketing of an Eligible Service. The termination
will be effective at month's end.
18. AGREEMENT TERMINATION
This Agreement ends when terminated or when the contract
period ends.
You may terminate this Agreement, with or without cause, on
one month's written notice. If you terminate this Agreement without
cause, you are responsible to pay any applicable adjustment charges.
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We may terminate this Agreement, with or without cause, on
three months' written notice. If the termination is for cause, we
may (at our discretion) allow you a reasonable opportunity to
cure. If you fail to do so, the date of termination is that
specified in the notice. However, certain acts or omissions are so
serious as to warrant immediate termination. If you repudiate this
Agreement, materially breach any of its terms or make any material
misrepresentation to us, we may terminate this Agreement at any
time, on written notice.
Examples of a material breach are violation of our status-change
terms, violation of our trademark terms, submission of a false
warranty claim, unauthorized sale to a reseller, and failure
to use reasonable efforts to maintain your Customers' satisfaction.
You agree that our only obligation is to provide the notice called
for in this section and we are not liable for any claims or losses
if we do so.
Any terms of this Agreement, which by their nature extend
beyond the day this Agreement ends, remain in effect until
fulfilled, and apply to respective successors and assignees.
We may permit you to continue to provide Eligible Services
after this Agreement ends. If we do so, you agree to provide those
Eligible Services under the terms of this Agreement.
19. WAIVER OF NONCOMPLIANCE
Failure by either of us to insist on strict performance or to
exercise a right when entitled, does not prevent us from doing so
at a later time, either in relation to that default or any
subsequent one.
20. GEOGRAPHIC SCOPE
All your rights and all our obligations are valid only in the
countries designated in Schedule A.
21. GOVERNING LAW
Any dispute related to this Agreement will be subject to the
law and jurisdiction of the locality in which the Agreement was
signed. And dispute regarding a Service will be subject to the law
and jurisdiction of the locality where the Service to which the
dispute relates was provided.
In no event will the "United Nations Convention on Contracts
for the International Sale of Goods" apply.
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INTERNATIONAL REMARKETER AGREEMENT
PART B - COUNTRY UNIQUE TERMS
- -------------------------------------------------------------------------------
The following terms are country amendments to Part A - General Terms. All
terms not specifically modified or deleted by these amendments remain in
effect.
Countries listed in this Part B are those with modifications to the terms of
this Agreement or where Services are provided by Service Provider Companies
other than IBM. Services are provided in some countries that are not listed
in Part B because no country unique terms apply and Services are provided by
IBM Subsidiaries or Related Companies.
The following terms are effective only if the country listed in this Part B
is also listed in Schedule A.
THE FOLLOWING COUNTRY UNIQUE TERMS APPLY TO AUSTRIA, BELGIUM/LUXEMBOURG,
DENMARK, EGYPT, FRANCE, FINLAND, GREECE, IRELAND, ISRAEL, NETHERLANDS,
NORWAY, PORTUGAL, SPAIN, SWEDEN, AND SWITZERLAND.
2. AGREEMENT STRUCTURE
YOUR ACCEPTANCE OF ADDITIONAL TERMS
Item 2, "providing an Eligible Service to your Customer," does not apply
6. PRICES AND PRICE CHANGES
PRICE INCREASES
You may withdraw a Service from an order or terminate a Service to which
an increase applies by providing us with written notice within one month
of the date of our notice of increase.
THE FOLLOWING ADDITIONAL COUNTRY UNIQUE TERMS APPLY TO FRANCE.
FRANCE
Services are provided by Axone in France.
17. CHANGES TO THE AGREEMENT TERMS
If we announce a change in accordance with this section, you may
terminate the affected Service by providing us with written notice on or
before the effective date of any such change. Continued use of a Service
after the effective date of any change shall be considered acceptance of
the change.
THE FOLLOWING ADDITIONAL COUNTRY UNIQUE TERMS APPLY TO THE NETHERLANDS.
NETHERLANDS
5. WARRANTY FOR ELIGIBLE SERVICES
Where Decree D 78-464 is relevant, the legal warranty for hidden defects
remains applicable.
8. EQUIPMENT PROVIDED BY SERVICE PROVIDER COMPANY
The first two paragraphs are replaced with the following:
We will, if applicable, provide Equipment specified in the local
Agreement Transaction Document to be installed on your premises for
the purposes of providing a Service. The Equipment is and will remain
the asset of the Service Provider Company or its lessor
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and will not become a fixture or really. Certain Equipment may
contain licensed internal code. We will specify this in the local
Agreement Transaction Document.
THE FOLLOWING ADDITIONAL COUNTRY UNIQUE TERMS APPLY TO NORWAY.
NORWAY
Services are provided by Norsk Informasjonsteknologi AS (NIT AS) in Norway.
THE FOLLOWING ADDITIONAL COUNTRY UNIQUE TERMS APPLY TO PORTUGAL.
PORTUGAL
Services are provided by COMPENSA in Portugal.
THE FOLLOWING ADDITIONAL COUNTRY UNIQUE TERMS APPLY TO SWEDEN.
SWEDEN
1. DEFINITIONS
Item 1 in the definition of "Related Companies" is replaced by the
following:
1. instituted by more than 50% of the total votes for the election
of directors or other managing authority by either of us; or
2. AGREEMENT STRUCTURE
YOUR ACCEPTANCE OF ADDITIONAL TERMS
Item 2, "providing an Eligible Service to your Customer," does not apply.
6. PRICES AND PRICE CHANGES
PRICE INCREASES
You may withdraw a Service from an order or terminate a Service to which
an increase applies by providing us with written notice within one month
of the date of our notice of increase.
14. LIABILITY
Item 3 is modified to read:
3. the amount of any other actual loss or damage, up to the greater
of SEK 500,000 or the charges (if recurring or usage, 12 months'
charges apply) for the Service that is the subject of the claim.
21. GOVERNING LAW
If any dispute is to be governed by Swedish law, if shall be settled by
arbitration in accordance with the Rules of the Arbitration Institute of
the Stockholm Chamber of Commerce by three arbitrators all appointed in
accordance with said Rules. The place of arbitration shall be Stockholm,
Sweden. The language to be used in these procedings shall be Swedish,
unless any party is not incorporated under the laws of Sweden.
Notwithstanding this, either party is free to sue before an ordinary court
of law for any debt which is due and payable and not disputed in good faith
by the other party.
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THE FOLLOWING COUNTRY UNIQUE TERMS APPLY IN THE COUNTRIES AS INDICATED.
AUSTRALIA
Services are provided by ISSC Australia in Australia.
5. WARRANTY FOR ELIGIBLE SERVICES
The following paragraph is added at the beginning of this Section:
The warranties specified in this section 5 are in addition to any
rights you may have under the Trade Practices Act or other similar
legislation.
The following is deleted from this section 5:
HOWEVER, SOME LAWS DO NOT ALLOW THE EXCLUSION OF EXPRESS OR IMPLIED
WARRANTIES. IF THESE LAWS APPLY, THEN ALL EXPRESS AND IMPLIED
WARRANTIES ARE LIMITED IN DURATION TO THE WARRANTY PERIOD. NO
WARRANITES APPLY AFTER THAT PERIOD.
The following paragraph is added:
Materials delivered to you under this Agreement are provided
without warranty of any kind. We do not warrant that the materials
are correct or that they will be suitable to your needs.
6. PRICES AND PRICE CHANGES
PRICE DECREASES
For one-time charges, you receive the benefit of a price decrease for any
amount which becomes due on or after the effective date of the decrease.
14. LIABILITY
The following paragraphs are added to this section 14:
Where we are in breach of a condition or warranty implied by the Trade
Practices Act 1974:
Our liability is limited to, for Services, the payment of the cost of
having the Services supplied again, and for goods, the repair or
replacement of the goods or the supply of equivalent goods.
Where this condition or warranty relates to right to sell, quiet
possession or clear title (i.e., Section 69), or the goods are of a
kind ordinarily acquired for personal, domestic or household use or
consumption, then none of the limitations in this Section apply.
In addition to the above, the following is deleted from this section:
"This limit also applies to any of our subcontractors and program
developers. It is the maximum for which we are collectively
responsible."
ITEMS FOR WHICH WE ARE NOT LIABLE
The first line is modified to read, "Under no circumstances are we liable for
any of the following:"
CANADA
Services are provided by Advantis Canada in Canada.
5. WARRANTY FOR ELIGIBLE SERVICES
The following sentence is added to this section 5.
Warranties include both warranties and conditions.
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9. CUSTOMER TRANSMITTED DATA
HANDLING OF YOUR INFORMATION
The third paragraph is modified by the addition of the following sentence:
Any idea, concept, know-how or technique which relates to the subject
matter of a Transaction Document and is developed or provided by either of
us or jointly by both of us in the performance of a Transaction Document
(subject to applicable patents and copyrights) may be freely used by either
of us in any way either of us deem appropriate.
14. LIABILITY
Our liability for bodily injury (including death) or damage to real property and
tangible personal property shall be limited to that caused by our negligence.
This "Liability" section applies regardless of the basis on which you are
entitled to claim damages from us, including:
1. breach of contract, even if fundamental breach; or
2. tort, including, but not limited to, negligence or misrepresentation.
The limitation of liability for Canada is Canadian $100,000.00
17. CHANGES TO THE AGREEMENT TERMS AND ELIGIBLE SERVICES
Changes to and Termination of Eligible Services
We will give you three months' written notice if we terminate a Service (or if
we change this 3-month notice period).
DOMINICAN REPUBLIC
Services and are provided by GBM de Republica Dominicana S.A. in the Dominican
Republic.
GERMANY
2. AGREEMENT STRUCTURE
YOUR ACCEPTANCE OF ADDITIONAL TERMS
Item 2, "providing an Eligible Service to your Customer" does not apply.
3. RESPONSIBILITIES OF THE PARTIES
MUTUAL RESPONSIBILITIES
Item 7 is not applicable in case of tort by either of us and our agents.
5. WARRANTY FOR ELIGIBLE SERVICES
If we are not able in a timely manner to eliminate or circumvent a
substantial deviation of the Service provided compared with the current
Service description, you reserve the right either to terminate the Service
effective immediately or deduct the Service charge for the provided Service
accordingly.
6. PRICES AND PRICE CHANGES
The following example is added at the end of the list in the first
paragraph under this section:
5. a total upfront charge for a fixed contract period.
PRICE INCREASES
"Price Increases" is modified as follows:
You may withdraw a Service from an order or terminate a Service to
which an increase applies by providing us with written notice within
one month of the date of our notice of
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increase. Continued use of a Service after the effective date of
any price change shall be considered as acceptance of the change.
14. LIABILITY
The limitations and exclusions specified in the Agreement will not
apply to damages caused by us with intention or gross negligence. We
are liable for assured characteristics. The maximum amount of liability
in clause 14, subparagraph 3 is limited to one million Deutche marks.
17. CHANGES TO THE AGREEMENT AND ELIGIBLE SERVICES
If we announce a change in accordance with this Section, you may
terminate your use of the affected Service by providing us with written
notice on or before the effective date of the change.
HUNGARY
Some Services are provided by the Hungarian PTT in Hungary.
3. RESPONSIBILITIES OF THE PARTIES
YOUR RESPONSIBILITIES
Additional responsibilities are added as follows:
12. to procure communication lines from the Hungarian PTT prior
to the Start Date of a Service and to maintain the communication
lines for the duration of this Agreement. Any communication
equipment you provide must comply with specifications provided by
the IBM Computing Center;
13. to be responsible for the attachment and operation of
communication equipment you provide. IBM's responsibility ends at
the applicable interface to the IBM Equipment. IBM is not
responsible for maintenance and operation of the Hungarian PTT
communication lines including those within the IBM computing
center network.
14. LIABILITY
Item 3 is modified to read:
3. the amount of any other actual loss or damage, up to the
greater of FT 2,500,000.00 (two million five hundred thousand
Hungarian Forint) or the charges (if recurring or usage, 12
months' charges apply) for the Service that is the subject of the
claim.
21. GOVERNING LAW
The following is added to this section:
The Hungarian language version of this Agreement is the only
legally binding version. The laws of Hungary apply to this
Agreement.
INDONESIA
Services are provided by PT Sistelindo Mitralintas in Indonesia.
1. DEFINITIONS
Add the following at the end of the last sentence of the definition of
"Related Company" following "exists:"
provided that for the purpose of this definition, the Service
Provider Company's agent in Indonesia, PT Sistelindo Mitralintas,
a corporation established and domiciled in Jakarta, Indonesia.
will be categorized as a "Related Company."
2. AGREEMENT STRUCTURE
Add the following to "Terms for Ordering of Eligible Services:"
All orders must be confirmed in writing.
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6. PRICES AND PRICE CHANGES (PRICE INCREASES)
Add the following to the first paragraph:
You may withdraw a Service from an order or terminate a Service to
which an increase applies by providing us with written notice
within one month of the date of our notice of increase.
8. EQUIPMENT PROVIDED BY SERVICE PROVIDER COMPANY
The first two paragraphs are replaced with the following:
We will, if applicable, provide Equipment specified in the local
Agreement Transaction Document to be installed on your premises
for the purpose of providing a Service. The Equipment is and will
remain the asset of the Service Provider Company or its lessor and
will not become a fixture or realty. Certain Equipment may contain
licensed internal code. We will specify this in the local
Agreement Transaction Document.
18. AGREEMENT TERMINATION
Add the following to this section:
A termination hereunder shall not require a court decree: we both
waive in this regard the provision in article 1266 of the
Indonesian Civil Code, 2nd, 3rd and 4th paragraphs to the extent
the article provision requires such court decree for the
termination of an agreement creating mutual obligations.
ITALY
In Italy, Services will be provided by IN.TE.S.A. S.p.A. (hereinafter called
INTESA), according to the terms of this Agreement. The following additional
terms integrate and replace the terms stated in the Agreement. In the event
of any conflict between the clauses of the Agreement and those of such
additional clauses, the latter shall prevail.
2. AGREEMENT STRUCTURE
YOUR ACCEPTANCE OF ADDITIONAL TERMS
Item 2, "providing and Eligible Service to your Customer" does not apply.
6. PRICES AND PRICE CHANGES
The applicable charges for each Service, fixed by INTESA for INTESA's
customers, are indicated in Transaction Documents. For one-time
charges, the relevant amount will be invoiced in the month of the start
date of the Service. For periodic charges, the relevant amount will be
invoiced in advance with reference to the related period.
PRICE INCREASES
You may withdraw a Service from an order or terminate a Service to
which an increase applies by providing us with written notice within
one month of the date of our notice of increase.
7. INVOICING, PAYMENT, AND TAXES
The first invoice will be issued by INTESA in the month of the start
date of the Service. Payment shall be made cash within 30 days from the
end of the month of the invoice. If the order specifies that payment
shall be made cash via Factor, INTESA will be free to assign its
credits to the Factor specified in the Transaction Document. Without
prejudice to the provisions on cash payment via Factor, all payments
shall be made to INTESA at 125, via Servais, Turin, ITALY, which
remains the place of receipt of customer's payments, also in the event
that payment of all or part of the charges due has been otherwise
agreed in writing, or, however, made by means of delivery of promissory
notes or banking receipts.
14. LIABILITY
Our entire liability is as follows:
Page 22 of 27
<PAGE>
1. (unchanged)
2. bodily injury (including death) and damage to real property and
tangible personal property caused solely by our negligence; and
3. as to any other actual loss or damage arising in all situations
involving our non-performance pursuant to, or in any way related to
the subject matter of this Agreement, our liability, except as
mandatory by law, will be limited to the charge paid by you for the
individual Service that is the subject of the claim.
(Applicability to subcontractors and program developers unchanged).
21. GOVERNING LAW
These additional provisions shall be governed by the laws of Italy and
the competent court will be Turin in Italy. The Attachment for Italian
Burdensome Clauses (Clausole Onerose) must be signed prior to doing
business in Italy, whenever Services will be obtained in Italy. The
Attachment must be signed whether Italy is the country where the
Remarketer Lead Company and Service Provider Lead Company are located
or when business will be transacted by other Remarketer Companies and
Service Provider Companies.
Page 23 of 27
<PAGE>
INTERNATIONAL REMARKETER AGREEMENT
[LOGO]
ATTACHMENT FOR ITALIAN BURDENSOME CLAUSES (CLAUSOLE ONEROSE)
- -------------------------------------------------------------------------------
PURSUANT TO ARTICLES 1341 AND 1342 OF THE ITALIAN LAW - CIVIL CODE, YOU MUST
SPECIFICALLY ACCEPT THE CLAUSES LISTED IN THIS ATTACHMENT (CALLED "CLAUSOLE
ONEROSE") BY SIGNING THIS ATTACHMENT. THE INTERNATIONAL REMARKETER AGREEMENT
IS VOID IN ITALY IN THE ABSENCE OF YOUR SIGNATURE ON THIS ATTACHMENT.
You hereby specifically accept the following clauses.
PART A - GENERAL TERMS
2. Agreement Structure
3. Responsibilities of the Parties
5. Warranty for Eligible Services
8. Equipment Provided by Service Provider Company
9. Customer Transmitted Data
10. Electronic Communications
14. Liability
17. Changes to the Agreement Terms and Eligible Services
18. Agreement Termination
21. Governing Law
You specifically accept the Italian country unique terms in the following
contract Part.
PART B - COUNTRY UNIQUE TERMS
If any of the clauses mentioned above have been amended by a written document
signed by both of us, by signing this Attachment you are specifically
accepting the amended terms.
- -------------------------------------------------------------------------------
Each of us agrees that the complete agreement between us about this
transaction consists of 1) this Attachment, 2) any other Transaction
Documents, and 3) the International Remarketer Agreement (or any equivalent
agreement signed by both of us).
AGREED TO: (Remarketer Lead Company name)
QUICKRESPONSE SERVICES, INC.
By /s/Shawn M. O'Connor
---------------------------------
Authorized signature
Name (type or print): Shawn M. O'Connor
Date: 11/11/96
<TABLE>
<S> <C>
Remarketer Lead Company Number: 5229967 Agreement number: N1071-US
Remarketer Lead Company address: Service Provider Lead Company Name and Address:
1400 Marina Way South Advantis
Richmond, CA 94804 U.S.A. 3405 W. Dr. M.L. King Jr. Blvd.
Tampa, FL 33607 U.S.A.
Attention: Order Support Services
</TABLE>
AFTER SIGNING, PLEASE RETURN A COPY OF THIS AGREEMENT TO THE "SERVICE
PROVIDER LEAD COMPANY ADDRESS" SHOWN ABOVE.
Page 24 of 27
<PAGE>
JAPAN
14. LIABILITY
We are not liable for damages which have arisen through special
circumstances.
MALAYSIA
Services are provided by IBM VADS SDN BHD in Malaysia.
14. LIABILITY
Our liability for actual damages from any cause whatsoever will be
limited to the lesser of:
a) RM75,000 or
b) the total amount invoiced for your use of the Service which
is the subject of the action during the previous twelve months
before the cause of action arose.
21. GOVERNING LAW
Any dispute arising in connection with this Agreement which cannot be
settled by negotiation between the parties or their representatives
shall be submitted to arbitration in accordance with the Rules for
Arbitration of the Kuala Lumpur Regional Arbitration Centre.
The following new section is added following section 21.
22. LICENSE
The Services are made available in accordance with the terms of the
license for Value Added Network Services granted by the government of
Malaysia in 1991. In the event that such license or any successor
thereof or VADS SDN BHD's registration thereunder is revoked,
terminated or amended, VADS SDN BHD's shall, notwithstanding any other
terms, have the right to terminate this Agreement or amend it
accordingly on three months' notice.
MEXICO
Services are provided by IBM Servicios Corporativos de Informacion (ISCI) in
Mexico.
NEW ZEALAND
14. LIMITATION OF LIABILITY
The Consumer Guarantees Act 1993 will not apply in respect of any goods
or Services we provide, if you require the goods or Services for the
purposes of a business as defined in that Act (which includes any
undertaking, whether carried on for gain or reward or not).
PAKISTAN
2. AGREEMENT STRUCTURE
The following paragraph is added after the second paragraph in the
subsection titled, "Transaction Documents."
Service Supplements and Schedule of Charges are unseperable parts of
this Agreement. The charges and payment schedule is defined in the
Schedule of Charges; the Services that we will provide you under this
Agreement are defined in the Service Supplement.
Any reproduction of this Agreement, an Attachment, or a Transaction
Document, must be attested by a Court of Law, to be considered an
original.
The paragraph under "Terms for the Ordering of Eligible Services" is
modified to read:
You may order a Service by various means, including a request
written on paper and delivered to us, and a request sent via
facsimile to us.
Page 25 of 27
<PAGE>
3. RESPONSIBILITIES OF THE PARTIES
MUTUAL RESPONSIBILITIES
A new item 8 is added:
8. we assume no responsibility for not providing Services due to
reasons arising from Pakistan's PTT or a private network operator's
inability to provide data and/or communications lines.
YOUR OTHER RESPONSIBILITIES
Item 6 is modified to read:
6. to obtain, install, and maintain suitable equipment, including
communication lines, as necessary to access the Services.
14. LIMITATION OF LIABILITY
Item 3 in the first paragraph is modified to read:
3. the amount of any other actual loss or damage, up to the greater
of this Agreement amount or the charges (if recurring or usage, 12
months' charges apply) for the Service that is the subject of the claim.
17. CHANGES TO THE AGREEMENT TERMS
The first paragraph is modified to read:
We will give you three months' written notice if we increase Service
charges or revise our prices due to an act of Government or change
invoicing procedures, or when a planned change would substantially
alter a Service from its current description. We will give you 12
months' notice if we terminate a Service (or if we change this 12-month
notice period). However, if a third party claims that a product we
provide as part of a Service infringes a patent or copyright, we
reserve the right to terminate the Service effective immediately.
SINGAPORE
6. PRICES AND PRICE CHANGES
If we have agreed not to change specified charges to you over a
specified period (period type charges), changes to those charges will
not apply to you until expiration of the protection period.
7. INVOICING, PAYMENT, AND TAXES
Usage charges are payable up-front if a) they are for the minimum usage
specified, and b) you buy units at up-front prices.
8. EQUIPMENT PROVIDED BY SERVICE PROVIDER COMPANY
The term "Equipment" in this section does not apply to Equipment
purchased by you where the asset title passes to you.
14. LIABILITY
Our liability for actual damages to you, from any cause whatsoever,
will be limited to the greater of S$100,000 or the total amount
invoiced for your use of the Service which is the subject of the action
during the previous twelve months before the cause of action arose.
This limitation will apply regardless of the form of action, whether in
contract or in tort including negligence. This limitation will not
apply to claims for bodily injury or damage to real property for which
we are legally liable.
Page 26 of 27
<PAGE>
SOUTH AFRICA
Services are provided by Trafex Pty, Ltd. in South Africa.
SOUTH KOREA
3. RESPONSIBILITIES OF THE PARTIES
MUTUAL RESPONSIBILITIES
An additional responsibility is added as follows:
8. each of us will use only communication equipment of the type
approved by the Ministry of Communication.
TAIWAN
Services are provided by Global Communications Network (GCN Taiwan) in Taiwan.
3. RESPONSIBILITIES OF THE PARTIES
Mutual Responsibilities
Item 6 is deleted in its entirety.
14. LIABILITY
THAILAND
Some Services are provided by the Communications Authority of Thailand (CAT)
in Thailand.
With respect to Thailand, Value-added Network Services ("VAN Services") are
subject to licensing under the Telephone and Telegraph Act of 2477, Telephone
Organization of Thailand Act, and Communication Authority of Thailand Act and
their administrative regulations.
UNITED KINGDOM
2. AGREEMENT STRUCTURE
YOUR ACCEPTANCE OF ADDITIONAL TERMS
Item 2, "providing an Eligible Service to your Customer" does not apply.
6. PRICES AND PRICE CHANGES
PRICE INCREASES
You may withdraw a Service from an order or terminate a Service to
which an increase applies by providing us with written notice within
one month of the date of our notice of increase.
14. LIABILITY
1. in respect of Services, the greater of:
a. 150,000 UK Pounds; or
b. 125% of the total purchase price payable under Clause 7
(Invoicing, Payment, and Taxes) for the Services which are
directly related to the default or which are directly related to,
or rendered functionally inoperative by, a deficiency in the
Services.
UNITED STATES OF AMERICA
Services are provided by Advantis in the USA. The terms of the Industry
Remarketer Agreement between QuickResponse Services and Advantis replace the
terms of this Agreement in the United States of America.
Page 27 of 27
<PAGE>
INTERNATIONAL REMARKETER AGREEMENT [LOGO]
SCHEDULE A
______________________________________________________________________________
THE TERMS OF THE INTERNATIONAL REMARKETER AGREEMENT APPLY TO THIS TRANSACTION.
Country Remarketer Company Service Provider Company
Name and Address Name and Address
___________ ____________________________ _________________________
Argentina QuickResponse Services IBM Argentina S.A.
1400 Marina Way South Ing. Enrique Butty 275
Richmond, CA 94804 USA 1300 Buenos Aires
Australia QuickResponse Services ISSC Australia
1400 Marina Way South Darling Park
Richmond, CA 94804 USA 201 Sussex Street
Sydney NSW 2000
Austria QuickResponse Services IBM Oesterreich GESMBH
1400 Marina Way South Obere Donaustrasse 95
Richmond, CA 94804 USA A-1020 Vienna
Belgium QuickResponse Services IBM IN Belgium
1400 Marina Way South Sq. Victoria Regina 1
Richmond, CA 94804 USA 1210 Bruxelles
Canada QuickResponse Services Advantis Canada
1400 Marina Way South 3500 Steeles Avenue East
Richmond, CA 94804 USA Business/Fin. Serv.
Markham, Ontario
Denmark QuickResponse Services IBM Denmark A.S.
1400 Marina Way South Nymoellevej 91
Richmond, CA 94804 USA 2800 Lyngby
France QuickResponse Services IBM France Axone-DRCE
1400 Marina Way South 4 Av. Montaigne
Richmond, CA 94804 USA Le Montaigne
93881 Noisy Le Grand
Germany QuickResponse Services IBM Deutschland
1400 Marina Way South Informationssysteme GmbH
Richmond, CA 94804 USA Pascalstrasse 100
70569 Stuttgart
11/96 Page 1 of 3
<PAGE>
Country Remarketer Company Service Provider Company
Name and Address Name and Address
___________ ____________________________ _________________________
Hong Kong QuickResponse Services IBM China/Hong Kong Corp.
1400 Marina Way South 8 Connaught Road
Richmond, CA 94804 USA 46/F Two Exchange Sq.
Hong Kong
Italy QuickResponse Services IN.TE.S.A. SPA
1400 Marina Way South Via Servais, 125
Richmond, CA 94804 USA 10146 Torino
Israel QuickResponse Services IBM Israel Ltd.
1400 Marina Way South IBM Building
Richmond, CA 94804 USA 2 Welzmann Street
P.O.B. 33655
Tel Aviv 61336
Japan QuickResponse Services IBM Japan Ltd.
1400 Marina Way South 2-12 Roppongi 3-Chome
Richmond, CA 94804 USA Minato-ku
Tokyo 10G
Mexico QuickResponse Services IBM Mexico
1400 Marina Way South Avenida Casa de la Moneda
Richmond, CA 94804 USA Col Lomas de Sotelo
11200 Mexico D.F.
The Netherlands QuickResponse Services IBM Nederland N.V
1400 Marina Way South Johan Huizingerlaan 765
Richmond, CA 94804 USA 1066 VH Amsterdam
2713 HA Zoelermeer
New Zealand QuickResponse Services IBM New Zealand Ltd.
1400 Marina Way South 171 Featherston Street
Richmond, CA 94804 USA P.O. Box 38-993
Wellington
Pakistan QuickResponse Services IBM Pakistan
1400 Marina Way South 3, Avari Plaza, Fatima
Richmond, CA 94804 USA Jinnah Rd.
Karachi
Singapore QuickResponse Services IBM Singapore Pte. Ltd.
1400 Marina Way South 80 Anson Road
Richmond, CA 94804 USA IBM Towers
Singapore 0207
11/96 Page 2 of 3
<PAGE>
Country Remarketer Company Service Provider Company
Name and Address Name and Address
___________ ____________________________ _________________________
South Africa QuickResponse Services IBM Trafex Pty. Ltd.
1400 Marina Way South 256 Kent Avenue
Richmond, CA 94804 USA Ferndale Randburg
Spain QuickResponse Services IBM ISS Spain
1400 Marina Way South Ctra. Barcelona, KM 18.40
Richmond, CA 94804 USA San Fernando de Henares
28850 Madrid
Switzerland QuickResponse Services IBM (Switzerland) Busines
1400 Marina Way South Baendiweg 21
Richmond, CA 94804 USA 8010 Zurich
Taiwan QuickResponse Services IBM Taiwan
1400 Marina Way South 12F. 2. Sec. 1
Richmond, CA 94804 USA Tun Hua S. Road
Taipei
Thailand QuickResponse Services IBM Thailand Co. Ltd.
1400 Marina Way South 388 Phaholyothin Road
Richmond, CA 94804 USA Phyathal
Bangkok 10400
United Kingdom QuickResponse Services IBM United Kingdom Ltd.
1400 Marina Way South PO Box 31
Richmond, CA 94804 USA Birmingham Road
Warwick CV34 5JL
Venezuela QuickResponse Services IBM Venezuela S.A.
1400 Marina Way South Avenida Ernesto Blohm
Richmond, CA 94804 USA Guidad Commercial
Chuao Caracas
11/96 Page 3 of 3
<PAGE>
[LOGO] [LETTERHEAD]
February 6th, 1997
* Indicates that material has been omitted
and confidential treatment has been
Dr. Lynn Hazlett requested therefore. All such omitted material
P.O. Box 1322 has been filed separately with the Commission
776 S. Ilakee Avenue pursuant to Rule 24b-2.
Lake Alfred, Florida 33850
Dear Lynn:
Following our recent discussions it is with pleasure that I confirm our
verbal offer for employment with QuickResponse Services, Inc. The following
summarizes our offer:
REPORTING TO: Peter R. Johnson, Chairman of the Board of Directors
POSITION: President, Chief Executive Officer and Director
As a Director and Chief Executive officer, you will have an overall corporate
perspective and responsibility. You will have responsibility for the
following functions:
- - Strategy and Business Development
- - Research and Development
- - Finance, Operations and Administration
- - Marketing
- - Sales
KEY OBJECTIVES:
(i) As a member of the Board of Directors, protect the interests of all
shareholders; while providing the Chairman and Board members with
advice and counsel to assist them in ensuring that our corporate
objectives are met.
(ii) As a member of the Corporate Management Committee (CMC), work in
cooperation with the other CMC team members to realize the company's
mission and strategy.
(iii) As CEO, succeed in all Key Result Areas.
<PAGE>
February 6th, 1997
Page 2
KEY RESULT AREAS:
(i) Meet or exceed the 1997 business plan and maintain predictable
performance.
(ii) Implement/adhere to the company's mission, core values and management
process.
(iii) Focus on and develop the company's revenue particularly the
contribution from new "value added" products and services (e.g., CRS).
(iv) Aggressively expand QuickResponse Services, Inc. products and markets
organically and where appropriate through acquisition.
(v) Improve the gross margin particularly the cost of goods sold from
IBM/Advantis.
(vi) Continue to develop the company's organization and people.
(vii) Improve the quality of our products and services.
(viii) Promote QRS with our customers/prospects and the financial community.
ANNUAL COMPENSATION:
With regard to 1997 objectives and compensation, the following points have
been agreed between us:
Key elements of our agreement that impact 1997 compensation are as follows:
(i) Your annual base compensation will be $275,000 or $22,916.66 per
month. QRS employees are paid semi-monthly (i.e., on the fifteenth and
last working day of each month).
(ii) In addition, you will be eligible to receive incentive compensation at
an annualized rate of $150,000 upon the attainment of the incentive
targets specified below. This incentive compensation component will be
administered by me and reviewed by the Compensation Committee. However,
based upon an assumed February 10, 1997 start date, your incentive
compensation for the 1997 calendar year will be pro-rated to $134,375.
75% of your pro-rated incentive compensation will be paid to you on a
monthly basis as follows: $7,031 at the end of February 1997 and $9,375
<PAGE>
February 6th, 1997
Page 3
at the end of each month during the remainder of the 1997 calendar year,
provided you continue in the Company's employ. These payments will
represent a non-refundable draw-down of your incentive compensation
which you shall be entitled to retain, whether or not the incentive targets
specified below are achieved. These draw-downs will be applied
dollar-for-dollar against the actual amount of incentive compensation to
which you become entitled for the 1997 calendar year on the basis of the
incentive targets actually attained for that year.
Notwithstanding the above, your total target compensation (base
compensation plus incentive at 100%) for the 1997 calendar year will
depend upon your start date, but again assuming a February 10, 1997
start date, it shall not be less than $380,730. For subsequent calendar
years of employment, your total target compensation (base compensation
plus incentive at 100%) shall not be less than $425,000.
Specific incentive targets for 1997 will, as a percentage of the 1997
annual incentive compensation of $134,375, be as follows:
--------------------------------------------------------------------
* (a) Achieve Total Revenue of million. 40%
Award will be paid pro-rata within range of 80% to
110% of goal with the full 40% payable at 110% of goal.
--------------------------------------------------------------------
* (b) Achieve Net Income of million. 40%
Award will be paid pro-rate within range of 80% to
110% of goal with the full 40% payable at 110% of goal.
Above 110% achievement an additional $20,000 will be
awarded together with continuing proportional and
incremental incentive.
Below 80% the award for this particular target will be
zero.
--------------------------------------------------------------------
(c) Implement/adhere to the company's mission, core 10%
values and management process.
--------------------------------------------------------------------
(d) Successfully renegotiate the processing agreement with 10%
Advantis positively impacting gross margin while being
mindful of our strategic positioning.
--------------------------------------------------------------------
(e) Successful design, development and implementation of 20%
the Collaborative Replenishment Services and
EConnect as evidenced by (a) timely and successful
completion of development work, (b) successful
implementation of pilot programs and (c) expansion of
the pilot programs and sale of new prospects sufficient
to meet '97 and '98 revenue plan.
--------------------------------------------------------------------
(iv) During the first month of your tenure with QRS, you and I, with
support from Tania Amochaev, Garen Staglin and Phil Schlein where
necessary,
* Indicates that material has been omitted and confidential treatment has
been requested therefore. All such omitted material has been filed
separately with Commission pursuant to Rule 24b-2.
<PAGE>
February 6th, 1997
Page 4
will review these objects, finalize your key result areas and these
proposals regarding the annual incentives to ensure that they are fair
and equitable.
(v) QuickResponse Services, Inc. will pay you an additional bonus of
$150,000 if the consulting revenue resulting from Supply Chain
*Associates' current clients and prospects exceeds in 1997.
QuickResponse Services, Inc. will also pay you a further $150,000 if
this revenue exceeds in 1998. Within 10 days from signing of this
agreement, you will provide the Company a list of such current clients
and prospects upon which the Company will rely for purposes of
determining incentive payments.
(vi) Your compensation and annual incentives will be reviewed in each year
(unless there is a change in objectives, location, etc. in which case
it will be reviewed at that time), to ensure that it continues to be
equitable, appropriate to the location and provide appropriate
incentive and support to the agreed objectives.
INTEGRATION OF CONSULTING BUSINESS:
We have agreed
- That your current consulting agreement with QuickResponse Services,
Inc. will terminate, and as such while the stock options thereby
granted will continue to vest, the consulting fees will cease.
- That you will merge your other consulting activities (currently
referred to as Supply Chain Associates), including all projects,
clients and prospects into QuickResponse Services, Inc.
PERSONAL COVENANTS:
You will be required to sign the Company's standard Proprietary Information
and Non-Disclosure Agreement, at the time you start your employment, a copy
of which is attached for your review.
During your period of employment with the Company and for a period of two (2)
years thereafter, you will be subject to the following restrictive covenants:
(i) You will not, directly or indirectly, whether for your own account
or as an officer, employee, director, consultant, advisor, partner,
principal or greater than 10% owner, engage in any activity which
competes with the Company with respect to (A) any products or
services provided by the Company to its customers at any time during
the period of your employment with the Company or (B) any products
or services which you
* Indicates that material has been omitted and confidential treatment has
been requested therefore. All such omitted material has been filed
separately with Commission pursuant to Rule 24b-2.
<PAGE>
February 6th, 1997
Page 5
had reason to know the Company had plans to provide to its customers
within twelve (12) months after your termination date.
(ii) You will not directly encourage or solicit any individual to leave the
Company's employ for any reason or interfere in any other manner with the
employment relationships at the time existing between the Company and its
current or prospective employees.
(iii) You will not induce or attempt to induce any customer, vendor, supplier
or other business relation of the Company to cease doing business with
the Company or in any way interfere with the existing business
relationship between any such customer, vendor, supplier or other
business relation and the Company.
You acknowledge that monetary damages may not be sufficient to compensate the
Company for any economic loss which may be incurred by reason of your breach
of the foregoing restrictive covenants. Accordingly, in the event of any such
breach, the Company will, in addition to the cessation of any severance
benefits which the Company may be providing to you at the time pursuant to
this agreement, be entitled to obtain equitable relief in the form of an
injunction precluding you from continuing to engage in such breach.
LONG TERM INCENTIVES:
You will be granted a non-qualified stock option under the Company's existing
stock option plan to purchase 150,000 shares of the Company's common stock.
The option will be granted on the date you accept this agreement and will
have an exercise price per share equal to the closing selling price of the
common stock on that date.
The option will become exercisable for the option shares in two successive
equal annual installments upon your completion of each of the first two years
of your employment with the Company measured from the grant date. The option
will have a maximum term of 10 years, subject to earlier termination upon
your cessation of employment. All the remaining terms of your option will be
as set forth in the form stock option agreement utilized under the option
plan.
SIGNING BONUS:
In return for your agreement to the terms of this agreement, QuickResponse
Services, Inc. will pay you a "signing bonus" of $150,000.
<PAGE>
February 6th, 1997
Page 6
BENEFITS:
Currently QRS offers a comprehensive benefits package including health and
dental insurance, accidental death and dismemberment insurance (AD&D),
short-term and long-term disability insurance, paid vacation, paid sick
leave, ten public holidays per calendar year and participation in QRS' 401(K)
Plan.
In addition to QRS' group benefit plan, we will attempt to maintain
additional life, AD&D and long-term disability insurance for you.
You will be entitled to a total of twenty (20) days-paid vacation per year. A
prorata portion of vacation and sick leave is accrued each pay period.
Shawn O'Connor will prepare an Employee Information Kit which includes
information about our benefits package and other new employee forms which you
must fill out. Please review these materials and complete the forms as soon
as practicable. He will also be available to answer any questions you might
have during your orientation, which will be scheduled during your first few
days of employment.
LIVING AWAY FROM HOME ALLOWANCES:
QuickResponse Services, understanding you will maintain your domicile in
Florida, will provide you with appropriate accommodation (e.g., furnished
2-bedroom apartment in Larkspur) and a car, when you are in the bay area, at
a cost not to exceed $2,500 per month. You will be responsible for the
payment of any and all income and employment taxes attributable to these
benefits.
In addition, QuickResponse Services will provide financial and/or tax advice
as necessary to handle the issues relating to living away from home.
COMMENCEMENT DATE AND TERM:
February 10th, 1997.
Your employment with the Company is for no specific period of time, and
either you or the Company may terminate our employment with the Company at
any time, for any reason, with or without cause or prior notice. This is the
full and complete agreement between you and the Company regarding your
employment relationship, and this "at-will" employment relationship may only
be changed in an express writing executed by you and the Chairman of the
Company's Board of Directors.
However, if you are terminated, other than for cause, during the initial
twenty-four month period of your employment you will be paid the base
compensation at
<PAGE>
February 6th, 1997
Page 7
the monthly rate in effect at the time of your termination and benefits for a
period of twenty four months less the period of your employment.
For the purpose of this agreement, termination "for cause" shall mean (i) the
willful failure by you to substantially perform your material duties after a
written demand for substantial performance is delivered by you by the Company
which specifically identifies the manner in which you have not substantially
performed your duties; (ii) the failure in a material respect by you to
follow reasonable policies or directives, established by the Company, after
written notice to you that you were not following such policies or
directives, or; (iii) your willful misconduct having material detrimental
effect on the Company.
Alternatively, if the Company is acquired by merger or sale of all or
substantially all of the Company's assets or securities possessing more than
fifty percent (50%) of the total voting power of the Company's outstanding
voting securities and you should subsequently resign, within twelve (12)
months following the effective date of such acquisition, in connection with
(i) a reduction in the level of your total target compensation by more than
fifteen percent (15%) or (ii) a material reduction in your duties and
responsibilities with the Company, then you will be paid your base
compensation (at the monthly rate in effect at the time of the acquisition)
and benefits for a six-month period following the date of your resignation.
The agreement constitutes the entire agreement and understanding of the
Company and you with respect to the terms set forth herein and supersedes all
prior and contemporaneous written or verbal agreements and understandings
between you and the Company relating to such subject matter. This agreement
may only be amended by written instrument signed by you and the Chairman of
the Company's Board of Directors. Any and all prior agreements,
understandings or representations relating to your employment with the
Company are hereby terminated and cancelled in their entirely and are of no
further force or effect.
Any and all disputes between you and the Company which arise out of your
employment or under the terms of this agreement shall be resolved through
final and binding arbitration. This shall include, without limitation,
disputes relating to this agreement, your employment by the Company or the
termination thereof, claims for breach of contract or breach of the covenant
of good faith and fair dealing, and any claims of discrimination or other
claims under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, the
California Fair Employment and Housing Act, or any other federal, state or
local law or regulation now in existence or hereinafter enacted and as
amended from time to time concerning in any way the subject of your
employment with the Company or its termination. The only claims NOT covered
by this agreement are claims for benefits under the workers'
<PAGE>
February 6th, 1997
Page 8
compensation or unemployment insurance laws, which will be resolved pursuant
to those laws. Binding arbitration will be conducted in San Francisco County,
California, in accordance with the rules and regulations of the American
Arbitration Association. Each party will split the cost of the arbitration
filing and hearing fees, and the cost of the arbitrator; each side will bear
its own attorneys' fees, that is, the arbitration will not have authority to
award attorneys' fees UNLESS a statutory section at issue in the dispute
authorizes the award of attorneys' fees to the prevailing party, in which
case the arbitrator has authority to make such award as permitted by the
statute in question. You understand and agree that the arbitration shall be
instead of any civil litigation and that this means that you are waiving your
right to a jury trial as to such claims. You and the Company further
understand and agree that the arbitrator's decision shall be final and
binding to the fullest extent permitted by law and enforceable by any court
having jurisdiction thereof.
To accept this offer please sign this letter in the space provided and return
it to me by the close of business on February 7th, 1997.
Yours sincerely,
/s/ Peter R. Johnson
- -------------------------------------
Peter R. Johnson
Chairman
I accept this offer of employment with QuickResponse Services, Inc. as
outlined above.
/s/ Lynn Hazlett
- ------------------------------------------- ------------------------------
Lynn Hazlett Date
<PAGE>
EXHIBIT 11.1
QUICKRESPONSE SERVICES, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary shares:
Average common shares outstanding 8,345,679 8,228,882 8,034,124
Common share equivalents 267,095 270,154 344,764
--------- --------- ---------
8,612,774 8,499,036 8,378,887
--------- --------- ---------
--------- --------- ---------
Net earnings applicable to common stock $6,611 $2,387 $13,965
--------- --------- ---------
--------- --------- ---------
Earnings per common and common share equivalents,
primary $0.77 $0.28 $1.67
--------- --------- ---------
--------- --------- ---------
Fully-diluted shares:
Average common shares outstanding 8,345,679 8,228,882 8,034,124
Common share equivalents 267,254 297,584 344,231
--------- --------- ---------
8,612,933 8,526,465 8,378,355
--------- --------- ---------
--------- --------- ---------
Net earnings applicable to common stock $6,611 $2,387 $13,965
--------- --------- ---------
--------- --------- ---------
Earnings per common and common equivalent share,
fully - diluted $0.77 $0.28 $1.67
--------- --------- ---------
--------- --------- ---------
</TABLE>
43
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-67138, No. 33-74734 and No. 33-94878 of QuickResponse Services, Inc. on Forms
S-8 of our report dated January 30, 1997, appearing in the Annual Report on Form
10-K of QuickResponse Services, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
March 5, 1997
44
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,022
<SECURITIES> 18,590
<RECEIVABLES> 10,016
<ALLOWANCES> 722
<INVENTORY> 0
<CURRENT-ASSETS> 39,192
<PP&E> 6,683
<DEPRECIATION> 2,747
<TOTAL-ASSETS> 55,946
<CURRENT-LIABILITIES> 9,776
<BONDS> 0
0
0
<COMMON> 61,394
<OTHER-SE> (17,824)
<TOTAL-LIABILITY-AND-EQUITY> 55,946
<SALES> 0
<TOTAL-REVENUES> 56,746
<CGS> 33,802
<TOTAL-COSTS> 13,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 408
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,019
<INCOME-TAX> 4,408
<INCOME-CONTINUING> 6,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,611
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
