UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission Number 0-14112
JACK HENRY AND ASSOCIATES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-1128385
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (417) 235-6652
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best pf registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes X No
As of August 21, 2003, the Registrant had 88,560,346 shares of Common Stock
outstanding ($.01 par value). On that date, the aggregate market value of
the Common Stock held by persons other than those who may be deemed
affiliates of Registrant was $1,332,458,488 (based on the average of the
reported high and low sales prices on NASDAQ on such date).
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company's Notice of Annual Meeting of Stockholders
and Proxy Statement for its 2003 Annual Meeting of Stockholders (the "Proxy
Statement"), as described in the footnotes to the Table of Contents below,
are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
PART I Page Reference
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PRECEEDINGS 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 STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 42
ITEM 9A. CONTROLS AND PROCEDURES 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT (1) 43
ITEM 11. EXECUTIVE COMPENSATION (2) 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (3) 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (4) 43
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES (5) 43
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 43
(1) Proxy Statement sections entitled "Election of Directors", "Corporate
Governance," "Audit Committee Report," "Executive Officers and
Significant Employees," and "Section 16(a) Beneficial Ownership
Reporting Compliance."
(2) Proxy Statement sections entitled "Executive Compensation",
"Compensation Committee Report", and "Company Performance."
(3) Proxy Statement sections entitled "Stock Ownership of Certain
Stockholders," "Election of Directors," and "Equity
Compensation Plan Information."
(4) Proxy Statement section entitled "Certain Relationships and Related
Transactions."
(5) Proxy Statement sections entitled "Audit Committee Report" and
"Independent Auditors - Audit and Non-Audit Fees."
PART I
Item 1 Business
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Jack Henry & Associates, Inc. ("JHA" or the "Company") is a leading provider
of integrated computer systems providing data processing and management
information to banks, credit unions and other financial institutions in the
United States. The Company was formed in 1976 and made its initial public
offering in 1985. Since our formation, JHA has grown by developing highly
specialized products and services for its financial institution customers,
acquiring organizations that complemented and added to the infrastructure of
the Company and adding new customers.
We offer a complete, integrated suite of data processing system solutions to
improve our customers' management of their entire back-office and
customer/member interaction processes. We believe our solutions enable our
financial institution customers to provide better service to their customers
and compete more effectively against other banks, credit unions and
alternative financial institutions. Our customers either install and use
our systems in-house or outsource these operations to us. We perform data
conversion and hardware and software installation for the implementation of
our systems and applications. We also provide continuing customer support
services to ensure proper product performance and reliability, which
provides us with continuing client relationships and recurring revenue. For
our customers who prefer not to acquire hardware and software, we provide
outsourcing services through eight data centers and sixteen item processing
centers located across the United States.
Our gross revenue has grown from $204.3 million in fiscal 1999 to $404.7
million in fiscal 2003, representing a compound annual growth rate over this
five-year period of 21.0%. Net income has grown from $32.7 million in
fiscal 1999 to $49.4 million in fiscal 2003, a compound annual growth rate
of 15.3%.
Industry Background
According to the Automation in Banking 2003 report, United States financial
institutions, including commercial banks, thrifts and credit unions,
increased spending on hardware, software, services and telecommunications to
$41.6 billion in calendar 2002 from $34.3 billion in 1999, representing a
compound annual growth rate of 6.0%. The increase of industry spending was
2.4% from December 31, 2001 to December 31, 2002. Industry surveys continue
to show that financial institutions believe upgrading information technology
is one of the most important issues to their continued success and to
enhance growth and efficiencies. We believe that the market opportunity for
providers of hardware and software systems, maintenance, support and related
outsourcing services targeted toward financial institutions will continue to
grow as a result of the competitive pressures within their respective
industries.
There are approximately 8,400 commercial banks and 9,900 credit unions
in the United States. Our primary market segment, which represented
approximately 85% of our consolidated revenues in fiscal 2003, is commercial
banks with less than $30.0 billion in assets, of which there were
approximately 8,350 at December 31, 2002. Consolidation within the
financial services industry has resulted in a 2% compound annual decline in
the population of commercial banks and a 1.2% compound annual decline in
their aggregate assets between 1999 and 2002. Our other market segment is
credit unions within the United States, and represented approximately 15% of
our total revenues in fiscal 2003. These are cooperative, not-for-profit
financial institutions organized to promote savings and provide credit to
their members. As of December 31, 2002, there were approximately 9,900
federally insured credit unions in the United States. Although the number
of these credit unions has declined at a 3.0% compound annual rate between
1999 and 2002, their aggregate assets have increased at a compound annual
growth rate of 9.7% to $557.1 billion at December 31, 2002.
We believe that commercial and regional banks and credit unions play an
important role with the geographic and demographic communities and the
customers they serve. Typically, customers of these financial institutions
rely on them because of their ability to provide personalized, relationship-
based service and their focus on retail, commercial and business needs. We
believe these core strengths will allow our financial institution customers
to effectively compete with other banks, credit unions and alternative
financial institutions. In order to succeed and to maintain strong customer
relationships, we believe these banks and credit unions must continue to:
* focus on excellence in delivery to customers of their primary
products and service offerings;
* sell more products and services to existing customers through
utilization of customer relationship management ("CRM") products;
* implement advanced technologies, such as imaging, platform
automation and Internet banking;
* use advanced technologies in back-office operations to improve
operating efficiency and control costs, while increasing service
and lowering costs to their customers; and
* integrate products and services into their core, complementary
service offerings and data processing infrastructure, to provide
competitive products and services to their customers.
According to Automation in Banking 2003, in 2002 approximately 56% of all
commercial banks and 69% of all credit unions utilized in-house hardware and
software systems to perform all of their core systems and data processing
functions. Off-site data processing centers provided system services on an
outsourced basis for 44% of all banks and 31% of all credit unions. Since
the mid-1980s, banks have tended to shift their data processing requirements
in-house from outsourcing such functions to third-party data centers. Of
the commercial banks with under $500 million of total assets in the United
States with in-house installations, approximately 51%, 25%, 9%, and 8%
utilize IBM, Unisys, other Unix-based platforms and NCR, respectively. No
other specific hardware platform had more than a 7% share of the market.
The Internet continues to become a more powerful and efficient medium for
the delivery of financial services, including Internet banking, bill
payment, bill presentment and other services for individuals, and cash
management and other services for the commercial customers of financial
institutions. Financial institutions provide Internet banking solutions to
retain customers, attract new customers, reduce operating costs, and
gain non-interest sources of revenue. According to industry sources,
approximately 65% of banks and 64% of credit unions in the United States
offer Internet banking. We believe that commercial banks and credit unions
have a potential risk of losing customers to other financial institutions if
they do not offer competitive Internet banking services.
Our Solution
We are a single-source provider of a comprehensive and flexible suite of
integrated products and services that address the information technology and
data processing needs of financial institutions on various hardware
platforms and operating systems. Our business derives revenues from three
primary sources which include gross customer reimbursements received for out
of pocket expenses incurred and reported in the respective lines of revenue:
* sales of software licenses;
* support and services fees which include installation services; and
* hardware sales.
We develop software applications designed primarily for use on hardware
supporting IBM and UNIX/NT operating systems. Our marketed product and
service offerings are centered on five proprietary software applications,
each comprising the core data processing and information management
functions of a commercial bank or credit union. Any of these core systems
can be utilized either through an in-house or outsourced delivery method
depending on the financial institution's management style and philosophy.
Key functions of each of our core software applications include deposits,
loans, and general ledger. Our software applications make extensive use of
parameters allowing our customers to tailor the software to their needs
without needing to customize or program the software. Our software
applications are designed to provide maximum flexibility in meeting our
customer data processing requirements within a single, integrated system.
To complement our core software applications, we provide a variety of
complementary products and services for use on an in-house or an outsourced
basis by financial institutions.
We believe our solutions provide strategic advantages to our customers by
enabling them to:
* Implement Advanced Technologies with Full Functionality. Our
comprehensive suite of products and services is designed to meet
our customers' information technology needs through custom-
tailored solutions using proprietary software products. Our
clients can either perform these functions themselves on an in-
house basis through the installation of our hardware and software
systems or outsource those functions to us.
* Rapidly Deploy New Products and Services. Once a financial
institution has implemented our core software, either in-house or
on an outsourced basis, we can quickly and efficiently install
additional applications and functions. This allows our customers
to rapidly deploy new products and services.
* Focus on Customer Relationships. Our products and services allow
our customers to stay focused on their primary business of
gaining, maintaining and expanding their customer relationships
while providing the latest financial products and services.
* Access Outsourcing Solutions to Improve Operating Efficiency.
Customers utilizing our outsourcing solutions benefit from access
to all of our products and services without having to maintain
personnel to develop, update and run these systems without having
to make large up-front capital expenditures to implement these
advanced technologies.
Our Strategy
Our objective is to grow our revenue and earnings organically, supplemented
by strategic acquisitions. The key components of our business strategy are
to:
* Provide High Quality, Value-Added Products and Services to Our
Clients. We compete on the basis of providing our customers with
the highest-value products and services in the market. We believe
we have achieved a reputation as a premium product and service
provider.
* Continue to Expand Our Product and Service Offerings. We
continually upgrade our core software applications and expand our
complementary product and service offerings to respond to
technological advances and the changing requirements of our
clients. For example, we offer several turn-key solutions that
enable financial institutions to rapidly deploy sophisticated new
products and services. Our integrated solutions enable our
customers to offer competitive services relative to larger banks
and alternative financial institutions. We intend to continue to
expand our range of Internet banking and other products and
services as well as provide additional services such as network
services and computer facilities design.
* Expand Our Existing Customer Relationships. We seek to increase
the information technology products and services we provide to
those customers that do not utilize our full range of products and
services. In this way, we are able to increase revenues from
current customers with minimal additional sales and marketing
expenses.
* Expand Our Customer Base. We seek to establish long-term
relationships with new customers through our sales and marketing
efforts and selected acquisitions. As of June 30, 2003, we had
over 3,000 customers, up from 1,400 in 1999.
* Build Recurring Revenue. We enter into contracts with customers
to provide services that meet their information technology needs.
We provide ongoing software support for our in-house customers.
Additionally, we provide data processing for our outsourcing
customers and ATM transaction switching services, both on
contracts that typically extend for periods of up to five years.
* Maximize Economies of Scale. We strive to develop and maintain a
sufficiently large client base to create economies of scale,
enabling us to provide value-priced products and services to our
clients while expanding our operating margins.
* Attract and Retain Capable Employees. We believe attracting and
retaining high-quality employees is essential to our continued
growth and success. Our corporate culture focuses on the needs of
employees, a strategy we believe has resulted in low employee
turnover. In addition, we selectively use employee stock options
to serve as a strong incentive and retention tool. In April 2003,
the Company granted approximately 3,670,000 stock options to
approximately 2,100 full time employees, or 94% of all full time
employees as of that date.
Our Acquisitions
To complement and accelerate our internal growth, we selectively acquire
companies that provide us with one or more of the following:
* new customers;
* products and services to complement our existing offerings;
* additional outsourcing capabilities; and
* entry into new markets related to financial institutions.
When evaluating acquisition opportunities, we focus on companies with a
strong employee base and management team and excellent customer
relationships. Since fiscal 1999, we have completed the following
acquisitions:
Fiscal
Year Company Products and Services
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2003 National Bancorp Data Item Processing
Services, LLC
2003 Credit Union Solutions, Inc Data processing systems and services
for smaller credit unions
2002 Transcend Systems Group Customer Relationship Management
software and related services
2002 System Legacy Solutions Image data conversion systems
2000 Symitar Systems, Inc. Data processing systems and services
for credit unions
2000 Sys-Tech, Inc. Uninterruptible power supply systems
and computer facilities design
2000 BancData Systems Outsourcing services
2000 Open Systems Group UNIX/NT-based data processing systems
for banks
1999 Peerless Group Data processing systems for banks and
credit unions
1999 Digital Data Services Outsourcing services
1999 Hewlett Computer Services Item Processing
Our Products and Services
Changing technologies, business practices and financial products have
resulted in issues of compatibility, scalability and increased complexity
for the hardware and software used in many financial institutions. We have
responded to these issues by developing a fully integrated suite of products
and services consisting of core software systems, hardware and complementary
products and services. These address virtually all of a commercial bank or
credit union's customer interaction, back-office data and information
processing needs.
We provide our full range of products and services to financial institutions
on either an in-house or outsourced basis. For those customers who prefer
to purchase systems for their in-house facilities, we contract to sell
computer hardware, license core and complementary software and contract to
provide installation, data conversion, training and ongoing support and
other services.
We also offer our full suite of software products and services on an
outsourced basis to customers who do not wish to maintain, update and run
these systems or to make large up-front capital expenditures to implement
these advanced technologies. Our principal outsourcing service is the
delivery of mission-critical data processing services using our data centers
located within the United States. We provide our outsourcing services
through an extensive national data and service center network, comprised of
8 data centers and 16 item processing centers. We monitor and maintain our
network on a seven-day, 24-hour basis. Customers typically pay monthly fees
on service contracts of up to 5 years for these services.
Information regarding the classification of our business into separate
segments serving the banking and credit union industries is set forth in
Note 13 to the Financial Statements (see item 8 below).
Hardware Systems
Our software operates on a variety of hardware systems. We have entered
into remarketing agreements with IBM, NCR and other hardware providers which
allow us to purchase hardware at a discount and sell (remarket) it to our
customers together with our software applications. We currently sell the
IBM iSeries, which is IBM's premier mid-range hardware system, the IBM
pSeries, NCR servers and reader/sorters, BancTec reader/sorters and Unisys
reader/sorters.
We have a long-term strategic relationship with IBM, dating to the initial
design of our first core software applications more than 20 years ago. In
addition to our remarketing agreement with IBM, which we regularly renew, we
have been named a "Premier Business Partner'' of IBM for the last eleven
consecutive years. Our relationship with IBM provides us with a substantial
and ongoing source of revenue.
Core Software Applications
Each of our core software systems consists of several fully-integrated
application modules, such as deposits, loans, general ledger, and the
customer information file, which is a centralized file containing customer
data for all applications. We can custom-tailor these modules utilizing
parameters determined by our customer. The applications can be connected to
a wide variety of peripheral hardware devices used in financial
institution's operations. Our software is designed to provide maximum
flexibility in meeting our customers' data processing requirements within a
single system to minimize data entry and improve efficiencies.
For our customers who choose to acquire in-house capabilities, we generally
license our core system under standard license agreements, which provide the
customer with a fully-paid, nonexclusive, nontransferable right to use the
software on a single computer and at a single location. These same systems
can be delivered on an outsourced basis as well.
Our core software applications are differentiated broadly by size of
customer, scalability, functionality, customer competitive environment and,
to a lesser extent, cost. Our core applications include:
Banking Segment
* Silverlake System[R], which operates on the IBM iSeries and is
used primarily by banks with total assets up to $30.0 billion;
* CIF 20/20[R], which operates on the IBM iSeries and is used
primarily by banks with total assets up to $300.0 million;
* Core Director[R], which operates on hardware supporting a UNIX/NT
environment and is used by banks employing client-server
technology.
Credit Union Segment
* Episys[TM], which operates on the IBM pSeries with a UNIX/NT
operating system and is used primarily by credit unions with total
assets greater that $25.0 million.
* Cruise[TM], which operates on the IBM xSeries and is used
primarily by credit unions with total assets under $25.0 million.
Complementary Products and Services
To enhance our core software applications, we provide a number of
complementary products and services, including:
* Vertex Teller Automation System[TM] is an online teller automation
system that enables tellers to process transactions more efficiently
and with greater accuracy.
* Streamline Platform Automation[R] is a fully-automated new account
origination and documentation preparation solution that integrates
new customer data, including signature cards, disclosure statements,
and loan applications into the core customer data files on a real-
time basis.
* SuperIMAGE[TM] is a check image system that provides enhanced
integration, automation, and dependability in item imaging
* 4|sight[TM] item image solutions is our new generation of imaging
products, which allows our customers to create and store digital
check images for inclusion in monthly statements, facilitate their
customer support services and leverage their investments with system
integration.
* Silhouette Document Imaging[R] utilizes digital storage and
retrieval technology to provide online instant access to document
images, such as loan documents and signature cards.
* PinPoint/WinPoint Report Retrieval[TM] enables system-wide storage
and retrieval of computer-generated reports for simplified
information access.
* NetTeller Online Banking[TM] and NetTeller MemberConnect Web[TM]
provides Internet-based home banking and commercial cash management.
See "Online Banking" below.
* PowerPay[TM] is an internet bill payment solution.
* NetTeller Cash Management is an internet cash management solution
for small and large businesses providing complete ACH and wire
transfer capabilities over the internet.
* InTouch Voice Response[TM] provides a fully-automated interactive
voice response system for 24-hour telephone-based customer account
management.
* Centurion Disaster Recovery[R] provides multi-tiered disaster
recovery protection, including comprehensive disaster planning and
procedures.
* TimeTrack Payroll System [TM]is a fully-integrated payroll
accounting and human resources software system.
* FormSmart[R] provides day-to-day operating forms, year-end tax forms
and other printing and office supplies.
* PassPort[TM] ATM & transaction processing solutions provides
national switching and processing services for ATM, debit card and
point-of-sale transactions.
* Matrix Network Services[TM] provides network design, implementation,
security and related consulting services to financial institutions
* Synapsys[TM] provides a powerful stand alone tool for customer
relationship management (CRM).
* OnTarget[TM] provides a fully integrated deposit platform, lending
platform and teller solution for our Core Director and Banker II
customers through a partnering alliance with ARGO Data Resource
Corporation ("ARGO").
* ARGOKeys[TM] is a suite of platform sales and automation and CRM
solutions for clients using our Silverlake core systems, including
depositkeys, the deposit platform solution; lendingkeys, the lending
platform solution; and relationshipkeys, the customer relationship
management solution. ARGOKeys is a joint product delivered through
our alliance with ARGO.
Other software products such as proof of deposit, secondary market loan
servicing, account reclassification, and investment sweeps further
complement our core systems.
Installation and Training
Although not a requirement of the software contract, the majority of our
customers contract with us for installation and training services in
connection with their purchase of in-house systems. The complete
installation process of a core system typically includes planning, design,
data conversion, hardware set-up and testing. At the culmination of this
installation process, one of our installation teams travels to our
customer's facilities to ensure the smooth transfer of data to the new
system. Installation fees are charged separately to our customers on either
a fixed fee or hourly charge model depending on the system, with full pass-
through to our customers of travel and other expenses. Installation
services are also required in connection with new outsourcing customers, and
are billed separately at the time of installation.
Both in connection with installation of new systems and on an ongoing basis,
our customers require, and we provide, extensive training services and
programs related to our products and services. Training can be provided in
our regional training centers, at meetings and conferences or onsite at our
customers' locations, and can be customized to meet our customers'
requirements. The large majority of our customers acquire training services
from us, both to improve their employees' proficiency and productivity and
to make full use of the functionality of our systems. Generally, training
services are paid for on an hourly basis, however, we have recently been
successful in marketing annual subscriptions for training services,
representing blocks of training time that can be used by our customers in a
flexible fashion and the related revenue is recognized as the services are
provided.
Support and Services
Following the installation of our integrated software and hardware systems
at a customer site, we provide ongoing software support services to assist
our customers in operating the systems. We also offer support services for
hardware, primarily through our hardware suppliers, providing customers who
have contracted for this service with "one-call'' system support covering
hardware and software applications.
Support is provided through a 24-hour telephone service available to our
customers seven days a week. Most questions and problems can be resolved
quickly by our experienced support staff. For more complicated issues, our
staff, with our customers' permission, can log on to our customers' systems
remotely. We maintain our customers' software largely through releases
which contain improvements and incremental additions. Updates also are
issued when required by changes in applicable laws and regulations. We
provide support services on our core systems as well as our complementary
software products.
Nearly all of our in-house customers contract for annual support services
from us. These services are a significant source of recurring revenue, are
contracted for on an annual basis and are typically priced at approximately
18 to 20% of the particular software product's license fee. These fees will
increase as our customers' asset base increases and as they increase the
level of functionality of their system by purchasing additional
complementary products. Software support fees are generally billed at June
30 and are paid in advance for the entire fiscal year, with pro-ration for
new contracts which start during the year at the time of final conversion.
Hardware support fees are also paid in advance for the entire contract
period which ranges from one to five years. Most contracts automatically
renew annually unless we or our customer gives notice of termination at
least 60 days prior to expiration. Identical support is provided to our
outsourced customers by the same support personnel, but is included as part
of their overall monthly fees and therefore not billed separately.
Online Banking
We provide a suite of fully integrated Internet products and services that
enables financial institutions to offer Internet banking and e-commerce
solutions to their customers. Our offerings include:
* NetTeller[R], an Internet-based home banking system for individual
customers and commercial cash management for business customers of
banks;
* DirectLine allows NetTeller customers to offer a direct connect
service utilizing personal financial management tools for their
customers.
* MemberConnect Web[TM], an Internet-based home banking system for
credit union members;
* PowerPay[TM] , which allows customers to pay bills online; and
* Netharbor[R], which provides our bank customers with a custom-
branded web portal that enables them to provide their customers with
a variety of information and e-commerce opportunities.
Customer Relationship Management
We offer several different CRM solutions for our customers:
* Synapsys[TM] is a powerful stand-alone tool integrated with our
strategic core products and provides an enterprise-wide relationship
management solution for both retail and commercial customers that
integrates sales management, customer profiling, automated sales
tracking, profitability assessment, lead generation and referral
tracking capabilities;
* The ARGOKeys[TM] is the Argo/JHA joint solution for our Silverlake
customers that provides an enterprise wide branch sales and
automation solution, including a deposit platform, a lending
platform with an advanced automated decision module, and a complete
CRM solution, all of which is fully integrated with our core and
teller systems.
Research and Development
We devote significant effort and expense to develop new software, service
products and continually upgrade and enhance our existing offerings.
Typically, we upgrade our core software applications and complementary
services once per year. We believe our research and development efforts are
highly efficient because of the extensive experience of our research and
development staff and because our product development is highly customer-
driven. Through our regular contact with customers at user group meetings,
sales contacts and through our ongoing maintenance services, our customers
inform us of the new products and functionalities they desire.
Sales and Marketing
Our primary markets consist of commercial banks and credit unions. We have
not devoted significant marketing and sales efforts to other financial
institutions such as thrifts.
Our sales efforts are conducted by dedicated field sales forces, inside
sales teams and technical sales support teams, for each of our market
segments, all of which are overseen by regional sales managers. Our
dedicated field sales force is responsible for pursuing lead generation
activities and representing the majority of our products and solutions to
current and prospective clients. Our inside sales force sells certain
complementary products to our existing customers. All sales force personnel
have responsibility for a specific territory. The sales support team writes
business proposals and contracts and prepares responses to request-for-
proposals regarding our software and hardware solutions. All of our sales
professionals receive a base salary and performance-based commission
compensation.
Our marketing efforts consist of sponsorship and attendance at trade shows,
e-mail newsletters, print media advertisement placements, telemarketing, and
national and regional marketing campaigns. We also conduct a number of
national user group meetings each year, which enable us to keep in close
contact with our customers and demonstrate new products and services to
them.
We have 38 installations in the Caribbean primarily through the marketing
efforts of our wholly-owned foreign sales subsidiary, Jack Henry
International Limited. Our international sales accounted for less than 1%
of our total revenues.
Backlog
Our backlog consists of contracted in-house products and services (prior to
delivery) and the minimum amounts due on the remaining portion of
outsourcing contracts, which are typically for five-year periods and
represents the minimum guaranteed payments over the remainder of the
contract period. Our backlog at June 30, 2003 was $69.5 million for in-
house products and services and $113.7 million for outsourcing services,
with a total backlog of $183.1 million. Of the $113.7 million amount of the
backlog for outsourcing service at June 30, 2003, $80.5 million is not
expected to be realized in our current fiscal year due to the long-term
nature of many of our outsourcing service contracts. Backlog at June 30,
2002 was $52.8 million for in-house products and services and $88.9 million
for outsourcing services, with a total backlog of $141.7 million. Our
backlog is subject to seasonal variations and can fluctuate quarterly due to
various factors, including slower contract processing rates during the
summer months.
Competition
The market for companies providing technology solutions to financial
institutions is competitive and fragmented, and we expect continued
competition from both existing competitors and companies entering our
existing or future markets. Some of our current competitors have longer
operating histories, larger customer bases and greater financial resources.
The principal competitive factors affecting the market for our services
include comprehensiveness of the applications, features and functionality,
flexibility and ease of use, customer support, references from existing
customers and price. We compete with large vendors that offer transaction
processing products and services to financial institutions, including
Fidelity Information Services, Inc., Fiserv, Inc., Intercept and Marshall
and Ilsley Corporation. In addition, we compete with a number of providers
that offer one or more specialized products or services. There has been
significant consolidation among providers of information technology products
and services to financial institutions, and we believe this consolidation
will continue in the future.
Intellectual Property, Patents and Trademarks
Although we believe that our success depends upon our technical expertise
more than on our proprietary rights, our future success and ability to
compete depends in part upon our proprietary technology. We have registered
or filed applications for our primary trademarks. None of our technology is
patented. Instead, we rely on a combination of contractual rights and
copyrights, trademarks and trade secrets to establish and protect our
proprietary technology. We generally enter into confidentiality agreements
with our employees, consultants, resellers, customers and potential
customers. We restrict access to and distribution of our source code and
further limit the disclosure and use of other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain or use our products or technology.
We cannot be sure the steps taken by us in this regard will be adequate to
prevent misappropriation of our technology or that our competitors will not
independently develop technologies are substantially equivalent or superior
to our technology.
Government Regulation
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective customers, which consist
of financial institutions such as community/regional banks and credit
unions, operate in markets that are subject to substantial regulatory
oversight and supervision. We must ensure our products and services work
within the extensive and evolving regulatory requirements applicable to our
customers, including those under the federal truth-in-lending and truth-in-
savings rules, usury laws, the Equal Credit Opportunity Act, the Fair
Housing Act, the Electronic Funds Transfer Act, the Fair Credit Reporting
Act, the Bank Secrecy Act, the USA Patriot Act, the Gramm-Leach-Bliley Act,
and the Community Reinvestment Act. The compliance of our products and
services with these requirements depends on a variety of factors including
the particular functionality, the interactive design and the classification
of customers. Our customers must assess and determine what is required of
them under these regulations and they contract with us to ensure that our
products and services conform to their regulatory needs. It is not possible
to predict the impact any of these regulations could have on our business in
the future.
We are not chartered by the Office of the Comptroller of Currency, the Board
of Governors of the Federal Reserve System, the National Credit Union
Administration or other federal or state agencies that regulate or supervise
depository institutions. The services provided by our OutLink Data Centers
are subject to examination by the Federal Financial Institution Examination
Council regulators under the Bank Service Company Act. On occasion these
services are also subject to examination by state banking authorities.
We provide outsourced data and item processing through our geographically
dispersed OutLink Data Centers, electronic transaction processing through
PassPort ATM and Transaction Processing Solutions, Internet banking
through NetTeller online banking, and bank business recovery services
through Centurion Disaster Recovery. As a service provider to financial
institutions, our operations are governed by the same regulatory
requirements as those imposed on financial institutions. We are subject to
periodic review by federal depository institution regulators who have broad
supervisory authority to remedy any shortcomings identified in such reviews.
Employees
As of June 30, 2003 and 2002, we had 2,257 and 2,093 full time employees
respectively. Our employees are not covered by a collective bargaining
agreement and there have been no labor-related work stoppages. We consider
our relationship with our employees to be good.
Available Information
Our internet website is easily accessible to the public at www.jackhenry.com
Our key corporate governance documents and our Code of Conduct addressing
matters of business ethics are available in the "Investor Relations"
portion of the website, together with archives of press releases and other
materials. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and other filings and amendments thereto that
we make with the U.S. Securities Exchange Commission (the "SEC") are
available free of charge on the website as soon as reasonably practicable
after such reports have been filed with or furnished to the SEC.
RISK FACTORS
The Company's business and the results of its operations are affected by
numerous factors and uncertainties, some of which are beyond their control.
The following is a description of some of the important risk factors and
uncertainties that may cause the actual results of the Company's operations
in future periods to differ materially from those currently expected or
desired.
Changes within the banking industry could reduce demand for our products.
In the current environment of low interest rates, the profit margins of
commercial banks and credit unions have narrowed. As the economy has
stumbled, loan demand has slackened and loan defaults have increased. As a
result, many banks have slowed or stopped their capital spending, including
spending on computer software and hardware, affecting both sales to new
customers and upgrade/complimentary product sales to existing customers.
We may not be able to manage rapid growth. We have grown at a rapid pace,
both internally and through acquisitions. Our expansion has and will
continue to place significant demands on our administrative, operational,
financial and management personnel and systems. We cannot assure you that
we will be able to enhance and expand our product lines, manage costs, adapt
our infrastructure and modify our systems to accommodate future growth.
If we fail to adapt our products and services to changes in technology, we
could lose existing customers and be unable to attract new business. The
markets for our software and hardware products and services are
characterized by changing customer requirements and rapid technological
changes. These factors and new product introductions by our existing
competitors or by new market entrants could reduce the demand for our
existing products and services and we may be required to develop or acquire
new products and services. Our future success is dependent on our ability
to enhance our existing products and services in a timely manner and to
develop or acquire new products and services. If we are unable to develop
or acquire new products and services as planned, or fail to achieve timely
market acceptance of our new or enhanced products and services, we may incur
unanticipated expenses, lose sales or fail to achieve anticipated revenues.
Acquisitions may be costly and difficult to integrate. We have acquired
several businesses and will continue to explore possible business
combinations in the future. We may not be able to successfully integrate
acquired companies. We may encounter problems in connection with the
integration of new businesses including: financial control and computer
system compatibility; unanticipated costs; unanticipated quality or customer
problems with acquired products or services; diversion of management's
attention; adverse effects on existing business relationships with suppliers
and customers; loss of key employees; and significant amortization expenses
related to identifiable intangible assets. Without additional acquisitions,
we may not be able to grow and to develop new products and services as
quickly as we have in the past to meet competitive challenges. If our
integration strategies fail, our business, financial condition and results
of operations could be materially and adversely affected.
If our strategic relationship with IBM were terminated, it could have a
negative impact on the continuing success of our business. We have
developed a strategic relationship with IBM. As part of this collaborative
relationship, we market and sell IBM hardware and equipment to our customers
under an IBM Business Partner Agreement and resell maintenance on IBM
hardware products to our customers. Much of our software is designed to be
compatible with the IBM hardware that is run by a majority of our customers.
If IBM were to terminate or fundamentally modify our strategic
relationship, our relationship with our customers and our revenues and
earnings would suffer. We could also lose software market share or be
required to redesign existing products or develop new products that would be
compatible with the hardware used by our customers.
Competition may result in price reductions and decreased demand for our
products and services. We expect competition in the markets we serve will
remain vigorous. We compete on the basis of product quality, reliability,
performance, ease of use, quality of support and pricing. We cannot
guarantee that we will be able to compete successfully with our existing
competitors or with companies entering our markets in the future. Certain
of our competitors have strong financial, marketing and technological
resources and, in some cases, a larger customer base than we do. They may
be able to adapt more quickly to new or emerging technologies or to devote
greater resources to the promotion and sale of their products and services.
The loss of key employees could adversely affect our business. We depend to
a significant extent on the contributions and abilities of our senior
management. Our Company has grown significantly in recent years and our
management remains concentrated in a small number of key employees. If we
lose one or more of our key employees, we could suffer a loss of sales and
delays in new product development, and management resources would have to be
diverted from other activities to compensate for this loss. We do not have
employment agreements with any of our executive officers, however, we
currently have a management succession plan in place.
Consolidation of financial institutions could reduce the number of our
customers and potential customers. Our primary market consists of
approximately 8,400 commercial banks and 9,900 credit unions. The number of
commercial banks and credit unions has decreased as a result of mergers and
acquisitions over the last five years and is expected to continue to
decrease as more consolidation occurs, which will reduce our number of
potential customers. As a result of this consolidation, some of our
existing customers could terminate, or refuse to renew their contracts with
us and potential customers could break off negotiations with us.
The services we provide to our customers are subject to government
regulation that could hinder our ability to develop portions of our business
or impose additional constraints on the way we conduct our operations. The
financial services industry is subject to extensive and complex federal and
state regulation. As a supplier of services to financial institutions, some
of our operations are examined by the Office of the Comptroller of the
Currency, the Federal Reserve Board and the Federal Deposit Insurance
Corporation, among other regulatory agencies. These agencies regulate
services we provide and the manner in which we operate, and we are required
to comply with a broad range of applicable laws and regulations. In
addition, existing laws, regulations and policies could be amended or
interpreted differently by regulators in a manner that has a negative impact
on our existing operations or that limits our future growth or expansion.
Our customers are also regulated entities, and the form and content of
actions by regulatory authorities could determine both the decisions they
make concerning the purchase of data processing and other services and the
timing and implementation of these decisions. The development of financial
services over the Internet has raised concerns with respect to the use,
confidentiality and security of private customer information. Regulatory
agencies, Congress and state legislatures are considering numerous
regulatory and statutory proposals to protect the interests of consumers and
to require compliance by the industry with standards and policies that have
not been defined.
Network or Internet security problems could damage our reputation and
business. We rely on standard network and Internet security systems, most
of which we license from third parties, to provide the security and
authentication necessary to effect secure transmission of data. Computer
networks and the Internet are vulnerable to unauthorized access, computer
viruses and other disruptive problems. In addition, advances in computer
capabilities, new discoveries in the field of cryptography or other events
or developments may render our security measures inadequate. Someone who is
able to circumvent security measures could misappropriate proprietary
information or cause interruptions in our operations or those of our
customers. Security risks may result in liability to us and also may deter
financial institutions from purchasing our products. We may need to expend
significant capital or other resources protecting against the threat of
security breaches or alleviating problems caused by breaches. Eliminating
computer viruses and alleviating other security problems may result in
interruptions, delays or cessation of service to users, any of which could
harm our business.
As technology becomes less expensive and more advanced, purchase prices of
hardware may decline and our revenues and profits from remarketing
arrangements may decrease. Computer hardware technology is rapidly
developing. Hardware manufacturers are producing less expensive and more
powerful equipment each year, and we expect this trend to continue into the
future. As computer hardware becomes less expensive, revenues and profits
derived from our hardware remarketing may decrease and become a smaller
portion of our revenues and profits.
An operational failure in our outsourcing facilities could cause us to lose
customers. Damage or destruction that interrupts our provision of
outsourcing services could damage our relationship with certain customers
and may cause us to incur substantial additional expense to repair or
replace damaged equipment. Although we have installed back-up systems and
procedures to prevent or reduce disruption, we cannot assure you that we
will not suffer a prolonged interruption of our transaction processing
services. In the event that an interruption of our network extends for more
than several hours, we may experience data loss or a reduction in revenues
by reason of such interruption. In addition, a significant interruption of
service could have a negative impact on our reputation and could lead our
present and potential customers to choose service providers other than us.
Item 2 Properties
------ ----------
We own approximately 138 acres located in Monett, Missouri on which we
maintain eight office and three security, shipping & receiving and
maintenance buildings. We also own buildings in Houston, Texas; Allen,
Texas; Albuquerque, New Mexico; Birmingham, Alabama; Angola, Indiana;
Lenexa, Kansas; Shawnee, Kansas; Rogers, Arkansas; and Oklahoma City,
Oklahoma. Our owned facilities represent approximately 612,000 square feet
of office space. We have 28 leased office facilities in 17 states, which
total approximately 211,000 square feet. All of the space is utilized for
normal business purposes.
Of these facilities, leased office space totaling approximately 44,500 in
one facility is devoted primarily to serving our credit union business
segment, with the remainder of our leased and all owned facilities primarily
devoted to serving our banking business segment. Subsequent to year-end, the
Company purchased a 93,000 square foot facility in San Diego, CA. for
approximately $12.8 million, with costs to complete the building estimated
at an additional approximately $16 million. This building will serve our
credit union business segment.
We own seven aircraft which are utilized for business purposes. Many of our
customers are located in communities that do not have an easily accessible
commercial airline service. We primarily use our airplanes in connection
with installation, sales of systems and internal requirements for day to day
operations. Transportation costs for installation and other customer
services are billed to our customers. We lease property, including real
estate and related facilities, at the Monett, Missouri municipal airport.
Item 3 Legal Proceedings
------ -----------------
We are subject to various routine legal proceedings and claims arising in
the ordinary course of business. We do not expect that the results in any of
these legal proceedings will have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Item 4 Submission of Matters To a Vote of Security Holders
------ ---------------------------------------------------
None.
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
------ ---------------------------------------------------------------------
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "JKHY". The following table sets forth, for the periods indicated,
the high and low sales price per share of the common stock as reported by
the Nasdaq National Market.
Fiscal 2003 High Low
----------- ----- -----
First Quarter $17.22 $11.76
Second Quarter 13.71 7.24
Third Quarter 14.89 9.90
Fourth Quarter 18.32 10.34
Fiscal 2002
-----------
First Quarter $ 33.24 $ 20.00
Second Quarter 27.07 19.05
Third Quarter 24.49 20.80
Fourth Quarter 23.50 15.76
The Company established a practice of paying quarterly dividends at the end
of fiscal 1990 and has paid dividends with respect to every quarter since
that time. Quarterly dividends per share paid on the common stock for the
two most recent fiscal years ended June 30, 2003 and 2002 are as follows:
Fiscal 2003 Dividend
----------- -----
First Quarter $ .035
Second Quarter .035
Third Quarter .035
Fourth Quarter .035
Fiscal 2002
-----------
First Quarter $ .030
Second Quarter .030
Third Quarter .035
Fourth Quarter .035
The declaration and payment of any future dividends will continue to be at
the discretion of our Board of Directors and will depend upon, among other
factors, our earnings, capital requirements, contractual restrictions, and
operating and financial condition. The Company does not currently foresee
any changes in its dividend practices.
Information regarding the Company's equity compensation plans is set forth
under the caption "Equity Compensation Plan Information" in the Company's
definitive Proxy Statement and is incorporated herein by reference.
On August 21, 2003, there were approximately 46,800 holders of the Company's
common stock. On that same date the last sale price of the common shares as
reported on NASDAQ was $19.31 per share.
Item 6 Selected Financial Data
------ -----------------------
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
-------------------------------------------------------
Income Statement Data 2003 2002 2001* 2000* 1999*
--------------------------------------------------------------------------------------
Revenue (1) $404,627 $396,657 $366,903 $239,841 $204,324
Income from continuing
operations $ 49,397 $ 57,065 $ 55,631 $ 34,350 $ 32,726
Loss from discontinued
operations $ - $ - $ - $ 332 $ 758
Net income $ 49,397 $ 57,065 $ 55,631 $ 34,018 $ 31,968
Diluted income per share:
Income from continuing
operations $ 0.55 $ 0.62 $ 0.61 $ 0.40 $ 0.39
Loss from discontinued
operations $ - $ - $ - $ - $ 0.01
Net income $ 0.55 $ 0.62 $ 0.61 $ 0.40 $ 0.38
Dividends declared
per share $ 0.14 $ 0.13 $ 0.11 $ 0.09 $ 0.08
Balance Sheet Data
------------------
Working capital $ 70,482 $ 67,321 $ 65,032 $(47,990) $ 24,133
Total assets $548,575 $486,142 $433,121 $321,082 $177,823
Long-term debt $ - $ - $ 228 $ 320 $ 211
Stockholders' equity $365,223 $340,739 $302,504 $154,545 $115,798
* Selected financial information for 2000 and 1999 have been restated to
include all acquisitions that have been accounted for as pooling-of-
interests as if each had occurred at the beginning of the earliest period
reported. Revenue for the years ended June 30, 2001, 2000, and 1999 have
been restated for the adoption of Emerging Issues Task Force Issue No. 01-
14, "Income Statement Characterization of Reimbursements Received for 'Out
of Pocket' Expenses Incurred".
(1) Revenue includes license sales, support and service revenue, and
hardware sales, less returns and allowances.
Item 7 Management's Discussion and Analysis of Financial Condition and
------ ---------------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the consolidated financial statements and
related notes included elsewhere in this report.
OVERVIEW
We provide integrated computer systems for in-house and outsourced data
processing to commercial banks with under $30.0 billion in total assets,
credit unions and other financial institutions. We have developed and
acquired banking and credit union application software systems that we
market, together with compatible computer hardware, to financial
institutions throughout the United States. We also perform data conversion
and software installation for the implementation of our systems and provide
continuing customer support services after the systems are installed. For
our customers who prefer not to make an up-front capital investment in
software and hardware, we provide our full range of products and services on
an outsourced basis through our eight data centers and sixteen item
processing centers located throughout the United States.
We derive revenues from three primary sources, which include gross customer
reimbursements received for out of pocket expenses incurred and reported in
the respective lines of revenue:
- sales of software licenses;
- support and service fees, which include installation services; and
- hardware sales.
Over the last five fiscal years, our revenues have grown from $204.3 million
in fiscal 1999 to $404.6 million in fiscal 2003. Income from continuing
operations has grown from $32.7 million in fiscal 1999 to $49.4 million in
fiscal 2003. This growth has resulted primarily from internal expansion
supplemented by strategic acquisitions, allowing us to develop and acquire
new products and services and expand the number of customers who use our
core software systems to approximately 2,450 as of June 30, 2003.
Since July 1998, we have completed 11 accretive acquisitions. Nine of these
acquisitions were accounted for using the purchase method of accounting and
our consolidated financial statements include the results of operations of
the acquired companies from their respective acquisition dates. The
remaining two acquisitions were accounted for using the pooling-of-interests
method.
License revenue represents the sale and delivery of application software
systems contracted with us by the customer. We license our proprietary
software products under standard license agreements which typically provide
the customer with a non-exclusive, non-transferable right to use the
software on a single computer and for a single financial institution
location. In revenue arrangements with multiple elements, the components
are all separately and independently priced within the related contracts.
Allocation of revenue is consistent with pricing when each product or
service is sold separately establishing Vendor Specific Objective Evidence
("VSOE"). Generally, 25% of license fees are payable upon execution of the
license agreement with additional payments due at specified times after
contract signing. We recognize 100% of software license revenue upon
delivery and acceptance of the software and documentation.
Support and services fees are generated from installation services
contracted with us by the customer, ongoing support services to assist the
customer in operating the systems and to enhance and update the software,
and from providing outsourced data processing services and ATM and debit
card processing services. We recognize installation services revenue as
services are performed under hourly contracts and at the completion of the
installations under fixed fee contracts. Revenues from software support are
generated pursuant to annual agreements and are recognized ratably over the
life of the agreements. Outsourcing services are performed through data and
item centers. Revenues from outsourced processing and ATM and debit card
processing services are derived from monthly usage fees typically under
five-year service contracts with our customers. We recognize the revenues
under these contracts as services are performed.
Cost of license fees represents the third party vendor costs associated with
license fee revenue.
Cost of services represents costs associated with conversion and
installation efforts, ongoing support for our in-house customers, operation
of our data and item centers providing services for our outsourced
customers, ATM and debit card processing services, and direct operation
costs. These costs are recognized as they are incurred.
We have entered into remarketing agreements with several hardware
manufacturers under which we sell computer hardware and related services to
our customers. Revenues from hardware sales are recognized when the
manufacturers ship the hardware directly to our customers. Cost of hardware
consists of the direct and related costs of purchasing the equipment from
the manufacturers and delivery to our customers. These costs are recognized
at the same time as the related revenue.
We have two business segments: bank systems and services and credit union
systems and services. The respective segments include all related license,
support and service, customer reimbursements and hardware sales along with
the related cost of sales.
RESULTS OF OPERATIONS
FISCAL 2003 COMPARED TO FISCAL 2002
REVENUE - Revenues increased 2% from $396.7 million in fiscal 2002 to $404.6
million in fiscal 2003. Compared to fiscal 2002, license fees decreased 27%;
support and service revenues increased 14%, and hardware sales decreased 5%.
Beginning in fiscal 2003, customer reimbursements received for pass-through
costs are now included and presented in the correlating line items of
support and service or hardware revenues and costs, respectively. Prior
years have been reclassified to conform with the 2003 presentation.
Reflecting the strength in new outsourcing business, revenues from support
and services continues to grow, increasing to 64% of revenues in 2003
compared to 58% of 2002 revenues. The increase is composed of $10.8 million
or 17% increase in outsourcing services, $5.2 million or 24% growth in ATM
and debit card processing services, $16.4 million or 16% growth in in-house
support and a slight decrease of $0.6 million or 2% for installation
services. Recurring revenue (support and service revenue less installation
services) increased to 55% of total revenue in fiscal 2003 from 47% of total
fiscal 2002 revenue.
Continued softness in banking core system sales negatively impacted revenues
from license fees and hardware sales in 2003. For the year, license fees
dropped 27% to $48.3 million or 12% of total 2003 revenues, compared to
$66.6 million, or 17% of 2002 revenues. The decrease is due to the overall
reduced number of software licenses delivered during the year in our bank
segment. Hardware revenue decreased 5% to $95.9 million or 24% of fiscal
2003 revenues compared with $101.3 million or 26% of fiscal 2002 revenues.
This decline is primarily attributable to the decrease in software sales
which typically drives the sale of related hardware.
COST OF SALES - Cost of sales increased 7% during the fiscal year, primarily
due to a 9% increase in employee related expenses included in cost of
services. Cost of license increased 55%, from $2.5 million in fiscal 2002
to $3.9 million in fiscal 2003, primarily due to obligations to third party
vendors for the software we resell. Cost of services increased 10% to
$178.3 million or 44% of revenue in fiscal 2003 compared to $161.5 million
or 41% of revenue in the fiscal 2002, which is in line with the increase in
revenue. Cost of hardware decreased 3% from $71.4 million or 18% of revenue
in year 2002 to $69.1 million or 17% of revenue in current 2003 fiscal year.
GROSS PROFIT - Gross profit decreased 5% from $161.2 million in fiscal 2002
to $153.3 million in fiscal 2003. The total gross margin for fiscal 2003
was 38% compared to 41% for fiscal 2002. Gross profit on license sales
decreased $19.7 million or 31% and gross margin decreased from 96% in fiscal
2002 to 92% in fiscal 2003. The decrease in gross profit was due to the
overall weakness in the capital goods market and the reduction in the margin
is primarily due to decrease in license revenue, which is our highest margin
revenue.
Gross profit for support and services increased $15.0 million or 22% in
fiscal year 2003 compared to fiscal 2002. Support and service margins
continue to strengthen to 32% this year from 29% in the prior year. The
increase is primarily due to increased volumes, increased number of
customers and continued leveraging of resources in our outsourcing and
ATM/Debit card processing services.
Hardware gross margin for the current fiscal year 2003 was 28%, compared to
30% margin in fiscal year 2002. The decrease in hardware margin for the
year is primarily attributable to the sales mix of products. In fiscal 2003
our hardware sales included a higher percentage of servers and personal
computers related to networks than in 2002. Network hardware has a
significantly lower margin than midrange hardware and reader sorters.
Another contributing factor to lower gross margin has been reduced vendor
incentives in fiscal 2003.
OPERATING EXPENSES - Operating expenses increased 2% for the current year,
with the majority of the increase generated from research and development
expenses. Research and development expenses went up by 27% to $15.9 million
for fiscal 2003 as compared to $12.5 million for fiscal 2002. The increase
is primarily attributable to a 27% increase in employee related expenses for
ongoing development of new products and enhancements to existing products in
both segments of our business. Selling and marketing annual expenses
increased 4% to $30.7 million in 2003 compared to $29.4 million for fiscal
year 2002. General and administrative expenses decreased 10% to $29.5
million this year from $32.7 million in fiscal year 2002, mainly due from
ongoing efforts to control expenses by management.
INTEREST INCOME (EXPENSE) - Interest income (expense) decreased from $1.8
million in fiscal 2002 to $0.5 million in fiscal 2003. Interest income
decreased 69% from $2.0 million to $0.6 million due to lower interest rates
on investments. Interest expense decreased $81,000 from $191,000 in fiscal
year 2002 to $110,000 in fiscal 2003. The decrease is due to short term
borrowings being paid off in January 2002, with no additional borrowings
since that date.
PROVISION FOR INCOME TAXES - The provision for income taxes was $28.4
million, or 36.5% of income before income taxes in fiscal 2003, compared
with $31.4 million, or 36% of income before income taxes in fiscal 2002.
The increase in the tax rate in the current fiscal year is due to changes in
effective state income tax rates.
NET INCOME - Net income decreased 13% from $57.1 million, or $.62 per
diluted share in fiscal 2002 to $49.4 million, or $.55 per diluted share in
fiscal 2003.
FISCAL 2002 COMPARED TO FISCAL 2001
REVENUE - Revenues increased by 8% from $366.9 million in fiscal 2001 to
$396.7 million in fiscal 2002. Compared to fiscal 2001, license revenue
decreased 5% from $70.1 million to $66.6 million in fiscal 2002; support and
service revenue increased 23% from $185.8 million in fiscal 2001 to $228.7
million in fiscal 2002, and hardware sales decreased 9% from $111.0 million
in fiscal 2001 to $101.3 million in fiscal 2002.
License fees and hardware revenues were negatively impacted by the sluggish
economy following the September 11th terrorist attacks and a decrease in
capital spending. The support and service revenues remained strong, which
was primarily recurring revenue from annual in-house support agreements,
monthly data and item center outsourcing contracts, and processing of ATM
and debit card transactions. The increase in fiscal 2002 is composed of
$10.9 million growth in outsourcing services, $6.2 million growth in ATM and
debit card processing services, $21.8 million growth in in-house support and
$4.1 million growth in installation services. Recurring revenue (support
and service revenue less installation services) increased to 47% of total
revenue in fiscal 2002 from 41% of total fiscal 2001 revenue.
COST OF SALES - Cost of sales increased 9% from $215.3 million in fiscal
2001 to $235.4 million in fiscal 2002, compared to an 8% increase in
revenues. Cost of license remained almost flat, while the license revenue
decreased 5%. Cost of services increased 19% compared to the 23% increase
in support and service revenue. Cost of hardware decreased 7%, in line with
the decrease in hardware sales of 9%. The total increase in cost of sales
is primarily due to a 10% increase in the number of employees, related
benefits and increased depreciation expense related to prior capital
expenditures.
GROSS PROFIT - Gross profit increased 6% from $151.6 million or 41% of
revenue in fiscal 2001 to $161.2 million in fiscal 2002, also 41% of
revenue. Gross profit decreased 5% in fiscal 2002 for license fees compared
to fiscal 2001. Support and services gross profit increased 35% from $49.6
million in fiscal 2001 to $67.2 million in fiscal 2002 and the related gross
margin increased from 27% to 29% in fiscal 2002. Hardware sales gross
profit decreased from $34.4 million in fiscal 2001 to $29.9 million in
fiscal 2002 and the gross margin was 30% in fiscal 2002 compared to 31% in
fiscal 2001. The slight decrease is due to the sales mix and reduced
incentives from hardware suppliers.
OPERATING EXPENSES - Operating expenses increased 13% from $65.9 million in
fiscal 2001 to $74.6 million in fiscal 2002. Selling and marketing expenses
increased 6%, research and development increased 15% and general and
administrative expenses increased 20% during fiscal 2002. Operating expenses
rose due to increasing employee benefit costs, primarily due to increased
health care costs and increased depreciation expense related to capital
expenditures.
INTEREST INCOME (EXPENSE) - Interest income (expense) increased from $1.2
million in fiscal 2001 to $1.8 million in fiscal 2002. Interest income
decreased by 4% from $2.1 million to $2.0 million due to lower interest
rates on investments. Interest expense decreased $729,000 due to expense
last year from short-term borrowing compared to this year. Short term debt
was paid off in January 2002.
PROVISION FOR INCOME TAXES - The provision for income taxes was $31.4
million, or 36% of income before income taxes in fiscal 2002, compared with
$31.3 million, or 36% of income before income taxes in fiscal 2001.
NET INCOME - Net income increased 3% from $55.6 million, or $.61 per diluted
share in fiscal 2001 to $57.1 million, or $.62 per diluted share in fiscal
2002.
Business Segment Discussion
Revenues in the bank systems and services business segment increased 1% from
$339.3 million in fiscal 2002 to $343.1 million in fiscal 2003. Gross
profit in this business segment decreased 6% from $143.6 million or 42%
gross margin in fiscal 2002 to $135.0 million or 39% gross margin for the
year ended June 30, 2003. This decline in gross profit is primarily due to
the industry trend of an overall decrease in capital spending for the fiscal
year and is reflected by the significant decrease in software and hardware
revenues offset somewhat by the increase in services revenue. The decrease
in gross margin is primarily due to the significant reduction in license
revenue, which is our highest margin revenue.
Revenues in the credit union systems and services business segment increased
from $57.3 million in fiscal 2002 to $61.5 million in fiscal 2003,
representing a 7% increase. Gross profit in this business segment increased
from $17.7 million or 31% gross profit margin in fiscal 2002 to $18.3
million or 30% gross profit margin for the year ended June 30, 2003.
Despite the sluggish economy, the credit union segment was able to achieve
growth in revenue and maintain a fairly flat gross margin. The increase in
revenue was due to additional core customers during the year and expanded
product offerings in this segment.
Revenues in the bank systems and services business segment increased 7% from
$318.0 million in fiscal 2001 to $339.3 million in fiscal 2002. Gross
profit in this business segment increased 4% from $138.1 million in fiscal
2001 to $143.6 million for the year ended June 30, 2002, due to decrease in
amortization expense relating to goodwill as a result of the impact of
adopting SFAS No. 142 and the overall cost control measures put in place by
management. The slight increases, which are significantly lower than
historical levels, are primarily due to the industry trend of an overall
decrease in capital spending for the year, which continued to be impacted by
the events of September 11th and the weakened ongoing economy.
Revenues in the credit union systems and services business segment increased
from $48.9 million in fiscal 2001 to $57.3 million in fiscal 2002,
representing a 17% increase. Gross profit in this business segment
increased from $13.5 million in fiscal 2001 to $17.7 million or a 31%
increase for the year ended June 30, 2002. Gross profit margin remained
strong due to decrease in amortization expense relating to goodwill as a
result of the impact of adopting SFAS No. 142 and the overall cost control
measures put in place by management. Despite the sluggish economy, the
credit union segment had significant growth in revenue. The increase in
revenue was due to the addition of core customers during the year.
Liquidity and Capital Resources
We have historically generated positive cash flow from operations and have
generally used existing resources and funds generated from operations to
meet capital requirements. We expect this trend to continue in the future.
The Company's cash and cash equivalents and investments increased to $32.0
million at June 30, 2003, from $17.8 million at June 30, 2002. Cash provided
by operations was $98.9 million for the fiscal year ended June 2003 as
compared to $89.9 million for the fiscal year ended 2002. Included in our
June 30, 2003 annual in-house support billing was an increase of $25.0
million because of a shift in billing cycles for our previously acquired
customers to our fiscal year-end from a calendar year. This shift in
billing from the prior year was the primary reason for the increase in
accounts receivable of $19.7 million and deferred revenues of $23.1 million.
In 2003, there was additional depreciation expense of $3.1 million and a
$6.5 million decrease in accounts payable and accrued expenses. Cash used in
investing activities for the fiscal year ended June 2003 was $58.5 million,
which included capital expenditures of $46.0 million, primarily for
expansion at our Monett complex and a new facility in Birmingham, AL., $6.5
million for acquisitions and $5.2 million for capitalization of software
development costs. Financing activities used cash of $26.1 million, of
which the majority was used to purchase treasury stock for $18.2 million,
and to pay dividends of $12.3 million for the fiscal year ended 2003.
At June 30, 2003, the Company is in negotiations to acquire two buildings in
San Diego, CA., which when completed will have a total cost of
approximately $29 million, and one building in Charlotte, NC., which will
have a total cost of approximately $8.0 million. The Company expects total
capital expenditures to increase to approximately $61 million in fiscal year
2004.
On September 21, 2001, the Company's Board of Directors approved a stock
buyback of the Company's common stock of up to 3.0 million shares, and
approved an increase to 6.0 million shares on October 4, 2002. The buyback
has been funded with cash from continuing operations. As of June 30, 2003,
3,012,933 shares have been purchased for $49,218,870. During fiscal 2003
there were 501,740 shares and 60,249 shares reissued from treasury stock for
the shares exercised in the employee stock option plan and the employee
stock purchase plan, respectively. At June 30, 2003, there were 2,363,121
shares remaining in treasury stock. As of June 30, 2002, 1,656,733 shares
had been purchased for $31,054,139 and 1,568,910 shares remained in treasury
stock.
We currently have two bank credit lines upon which we can draw an aggregate
amount at any one time outstanding of $58.0 million. The major credit line
provides for funding of up to $50.0 million and bears interest at variable
LIBOR-based rates (1.87% at June 30, 2003). The second credit line
provides for funding of up to $8.0 million and bears interest at the prime
rate (4.0% at June 30, 2003). Currently there are no amounts outstanding
under either line.
Subsequent to June 30, 2003, the Company's Board of Directors declared a
cash dividend of $.035 per share on its common stock payable on September
19, 2003, to stockholders of record on September 5, 2003. Current funds
from operations are adequate for this purpose. The Board has indicated that
it plans to continue paying dividends as long as the Company's financial
picture continues to be favorable.
Contractual Obligations and Other Commitments
At June 30, 2003, the Company's total off-balance sheet contractual
obligations of $5.2 million consists of long-term operating leases for
various facilities. The leases expire from 2004 to 2008.
Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which is effective for
any activity initiated after December 31, 2002. This standard addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies the Emerging Issues Task Force ("EITF")
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). This standard requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The accounting
for similar events and circumstances will be the same, thereby improving the
comparability and representational faithfulness of reported financial
information. The adoption of this standard on January 1, 2003, did not have
a material impact on the Company's consolidated financial position or
results of operations.
In November 2002, the EITF reached a consensus regarding EITF Issue No. 02-
16, Accounting by a Customer, Including a Reseller, for Cash Consideration
Received from a Vendor. This consensus requires that payments from a vendor
be classified as a reduction to the price of the vendor's goods and taken as
a reduction to cost of sales unless the payments are: (1) a reimbursement
for costs incurred to sell the product, or (2) a payment for assets or
services provided. The consensus also requires that payments from a vendor
be recognized as a reduction to cost of sales on a rational and systematic
basis. This consensus is effective for fiscal years beginning after
December 15, 2002 (July 1, 2003 for JHA). The adoption of this consensus on
July 1, 2003, did not have a material effect on the Company's consolidated
financial position or results of operation.
In November 2002, FASB Interpretations No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and
107 ("FIN 45") was issued. FIN 45 elaborates on the disclosures to be made
by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing a
guarantee. The initial recognition and initial measurement provisions of
this Interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, irrespective of the guarantor's
fiscal year-end. The disclosure requirements in this Interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of this Interpretation on January 1, 2003,
did not have a material effect on the Company's consolidated financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123. SFAS No. 148 amends SFAS No. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 was effective for the
Company's financial statements for fiscal year ended June 30, 2003. The
Company has elected to continue to account for its stock-based compensation
in accordance with the provisions of APB No. 25 as interpreted by FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25, ("FIN 44") and
present the pro forma disclosures required by SFAS No. 123.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, which addresses consolidation
by business enterprises of variable interest entities that either: (1) do
not have sufficient equity investment at risk to permit the entity to
finance its activities without additional subordinated financial support, or
(2) the equity investors lack an essential characteristic of a controlling
financial interest. FIN 46 requires disclosure of Variable Interest
Entities (VIEs) in financial statements issued after January 31, 2003, if it
is reasonably possible that as of the transition date: (1) the company will
be the primary beneficiary of an existing VIE that will require
consolidation or, (2) the company will hold a significant variable interest
in, or have significant involvement with, an existing VIE. Pursuant to the
transitional requirements of FIN 46, the company will adopt the
consolidation guidance applicable to existing VIEs as of the reporting
period beginning July 1, 2003. Any VIEs created after January 31, 2003, are
immediately subject to the consolidation guidance in FIN 46. The adoption
of this interpretation did not have a material effect on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 states that companies which issue financial instruments that have
characteristics of both liabilities and equity will have to determine if the
instrument should be classified as a liability or equity for financial
instruments entered into or modified after May 31, 2003. The Company does
not expect the adoption of FASB No. 150 to have a material effect on our
operating results or financial condition.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States. The
significant accounting policies are discussed in Note 1 to the consolidated
financial statements. Certain of these accounting policies as discussed
below require management to make estimates and assumptions about future
events that could materially affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
We record revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended. We recognize revenue from sales
of hardware, software and services and from arrangements involving multiple
elements of each of the above. Revenue for multiple element arrangements
are recorded based on contractual amounts, which are determined based upon
the price charged when sold separately. Revenue is not recognized until
persuasive evidence of an arrangement exists, delivery has occurred, the fee
is fixed and determinable, and collectibility is probable. Sales of
hardware and equipment are recorded when title and risk of loss transfers.
Licensing revenues are recorded upon delivery and acceptance of the
software. Service fees for training and installation are recognized as the
services are provided. Support revenues are recorded evenly over the
related contract period.
As discussed previously in the overview, the Company has established VSOE
separately for all the individual components of licensing, installation,
support, and hardware and recognizes revenue separately for the various
components. The components are all independently priced and consistent with
pricing when each element is sold separately. There are no rights of
return, conditions of acceptance or price protections in our contracts.
The calculation of depreciation and amortization expense is based on the
estimated economic lives of the underlying property, plant and equipment and
intangibles. We believe it is unlikely that any significant changes to the
useful lives of our tangible and intangible assets will occur in the near
term, but rapid changes in technology or changes in market conditions could
result in revisions to such estimates that could materially affect the
carrying value of these assets and the Company's future consolidated
operating results.
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in the Management's Discussion and Analysis of Financial Condition
and Results of Operations and other portions of this report contain forward-
looking statements within the meaning of federal securities laws. Actual
results are subject to risks and uncertainties, including both those
specific to the Company and those specific to the industry, which could
cause results to differ materially from those contemplated. The risks and
uncertainties include, but are not limited to, the matters detailed in "Risk
Factors" in Item 1 of the Company's 2003 Form 10-K annual report filed with
the Securities and Exchange Commission. Undue reliance should not be placed
on the forward-looking statements. The Company does not undertake any
obligation to publicly update any forward-looking statements.
Potential risks and uncertainties which could adversely affect the Company
include: the financial health of the banking industry, our ability to
continue or effectively manage growth, adapting our products and services to
changes in technology, changes in our strategic relationships, price
competition, loss of key employees, consolidation in the banking industry,
increased government regulation, network or internet security problems,
declining computer hardware prices, and operational problems in our
outsourcing facilities.
Item 7A Quantitative and Qualitative Disclosures about Market Risk
------- ----------------------------------------------------------
Market risk refers to the risk that a change in the level of one or more
market prices, interest rates, indices, volatilities, correlations or other
market factors such as liquidity, will result in losses for a certain
financial instrument or group of financial instruments. We are currently
exposed to credit risk on credit extended to customers and interest risk on
investments in U.S. government securities. We actively monitor these risks
through a variety of controlled procedures involving senior management. We
do not currently use any derivative financial instruments. Based on the
controls in place, credit worthiness of the customer base and the relative
size of these financial instruments, we believe the risk associated with
these instruments will not have a material adverse effect on our
consolidated financial position or results of operations.
Item 8 Financial Statements and Supplementary Data
------ -------------------------------------------
Financial Statements
Consolidated Statements of Income,
Years Ended June 30, 2003, 2002, and 2001 24
Consolidated Balance Sheets, June 30, 2003 and 2002 25
Consolidated Statements of Changes in Stockholders' Equity,
Years Ended June 30, 2003, 2002, and 2001 26
Consolidated Statement of Cash Flows,
Years Ended June 30, 2003, 2002, and 2001 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedules
There are no schedules included because they are not applicable or the
required information is shown in the consolidated financial statements or
notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Jack Henry & Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Jack Henry &
Associates, Inc. and Subsidiaries (the "Company") as of June 30, 2003 and
2002, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements present fairly, in
all material respects, the financial position of Jack Henry & Associates,
Inc. and Subsidiaries at June 30, 2003, and 2002, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 2003, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 15, 2003
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
YEAR ENDED JUNE 30,
-------------------------------
2003 2002 2001
------- ------- -------
REVENUE
License $ 48,284 $ 66,576 $ 70,132
Support and service 260,452 228,744 185,763
Hardware 95,891 101,337 111,008
------- ------- -------
Total 404,627 396,657 366,903
COST OF SALES
Cost of license 3,890 2,509 2,532
Cost of support and service 178,256 161,523 136,208
Cost of hardware 69,145 71,405 76,566
------- ------- -------
Total 251,291 235,437 215,306
------- ------- -------
GROSS PROFIT $153,336 $161,220 $151,597
OPERATING EXPENSES
Selling and marketing 30,664 29,380 27,770
Research and development 15,892 12,526 10,871
General and administrative 29,509 32,668 27,216
------- ------- -------
Total 76,065 74,574 65,857
------- ------- -------
OPERATING INCOME $ 77,271 $ 86,646 $ 85,740
INTEREST INCOME (EXPENSE)
Interest income 630 2,018 2,103
Interest expense (110) (191) (920)
------- ------- -------
Total 520 1,827 1,183
------- ------- -------
INCOME BEFORE INCOME TAXES $ 77,791 $ 88,473 $ 86,923
PROVISION FOR INCOME TAXES 28,394 31,408 31,292
------- ------- -------
NET INCOME $ 49,397 $ 57,065 $ 55,631
======= ======= =======
Diluted net income per share $ 0.55 $ 0.62 $ 0.61
======= ======= =======
Diluted weighted average shares outstanding 89,270 92,367 91,344
======= ======= =======
Basic net income per share $ 0.56 $ 0.64 $ 0.64
======= ======= =======
Basic weighted average shares outstanding 87,866 89,316 86,834
======= ======= =======
See notes to consolidated financial statements
JACK HENRY & ASSOCIATES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
JUNE 30,
-------------------------
2003 2002
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,014 $ 17,765
Investments, at amortized cost 998 997
Trade receivables 150,951 131,431
Prepaid cost of product 18,483 17,663
Prepaid expenses and other 13,816 11,221
Deferred income taxes 1,000 900
--------- ---------
Total $ 217,262 $ 179,977
PROPERTY AND EQUIPMENT, net $ 196,046 $ 173,775
OTHER ASSETS:
Goodwill $ 44,543 $ 40,335
Trade names 3,699 3,699
Customer relationships, net of amortization 59,358 63,130
Computer software, net of amortization 12,500 7,499
Prepaid cost of product 10,021 12,992
Other non-current assets 5,146 4,735
--------- ---------
Total $ 135,267 $ 132,390
--------- ---------
Total assets $ 548,575 $ 486,142
========= =========
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,617 $ 9,051
Accrued expenses 17,250 11,352
Accrued income taxes 421 225
Deferred revenues 119,492 92,028
--------- ---------
Total $ 146,780 $ 112,656
DEFERRED REVENUES 12,732 16,947
DEFERRED INCOME TAXES 23,840 15,800
--------- ---------
Total liabilities $ 183,352 $ 145,403
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 500,000
shares authorized, none issued $ - $ -
Common stock - $0.01 par value: 250,000,000
shares authorized; Shares issued at
06/30/03 and 6/30/02 were 90,519,856 905 905
Additional paid-in capital 169,299 168,061
Retained earnings 233,396 201,162
Less Treasury stock at cost 2,363,121 shares
issued at 6/30/03, 1,568,910 shares issued
at 6/30/02 (38,377) (29,389)
--------- ---------
Total stockholders' equity $ 365,223 $ 340,739
--------- ---------
Total liabilities and stockholders' equity $ 548,575 $ 486,142
========= =========
See notes to consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
YEAR ENDED JUNE 30,
------------------------------------
2003 2002 2001
---------- ---------- ----------
PREFERRED SHARES: - - -
========== ========== ==========
COMMON SHARES:
Shares, beginning of year 90,519,856 88,846,710 41,357,853
Shares issued upon exercise of options - 1,523,446 3,097,363
Shares issued for Employee Stock
Purchase Plan - 31,962 21,267
Shares issued in secondary offering - - 1,500,000
Shares issued in acquisition - 117,738 -
Stock dividend - - 42,870,227
---------- ---------- ----------
Shares, end of year 90,519,856 90,519,856 88,846,710
========== ========== ==========
COMMON STOCK - PAR VALUE $.01 PER SHARE:
Balance, beginning of year $ 905 $ 888 $ 414
Shares issued upon exercise of options - 15 30
Shares issued for Employee Stock
Purchase Plan - 1 -
Shares issued in secondary offering - - 15
Shares issued in acquisition - 1 -
Stock dividend - - 429
---------- ---------- ----------
Balance, end of year $ 905 $ 905 $ 888
========== ========== ==========
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 168,061 $ 145,211 $ 43,753
Shares issued upon exercise of options 3,539 13,650 18,274
Shares issued for Employee Stock
Purchase Plan 771 792 818
Shares issued in secondary offering - - 60,510
Shares issued in acquisition - 2,399 -
Stock dividend - - (429)
Tax benefit on exercise of options 1,227 6,992 22,285
Cost of treasury shares reissued (4,299) (983) -
---------- ---------- ----------
Balance, end of year $ 169,299 $ 168,061 $ 145,211
---------- ---------- ----------
RETAINED EARNINGS:
Balance, beginning of year $ 201,162 156,405 $ 110,378
Net income 49,397 57,065 55,631
Reissuance of treasury shares, net (4,873) (682) -
Dividends (2003-$.14 per share;
2002-$.13 per share;
2001-$.11 per share) (12,290) (11,626) (9,604)
---------- ---------- ----------
Balance, end of year $ 233,396 $ 201,162 $ 156,405
---------- ---------- ----------
TREASURY STOCK:
Balance, beginning of year $ (29,389) $ - $ -
Purchase of treasury shares (18,165) (31,054) -
Reissuance of treasury shares
upon exercise of stock 8,187 1,601 -
Reissuance of treasury shares
for Employee Stock Purchase Plan 990 64 -
---------- ---------- ----------
Balance, end of year $ (38,377) $ (29,389) $ -
========== ========== ==========
TOTAL STOCKHOLDERS' EQUITY $ 365,223 $ 340,739 $ 302,504
========== ========== ==========
See notes to consolidated financial statements
JACK HENRY AND ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED JUNE 30,
------------------------------------
2003 2002 2001
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 49,397 $ 57,065 $ 55,631
Adjustments to reconcile net income
from continuing operations to cash
from operating activities:
Depreciation 24,025 20,885 12,539
Amortization 6,169 6,585 9,349
Deferred income taxes 7,940 7,793 2,800
Other, net 642 (58) (3)
Changes in:
Trade receivables (19,675) (14,858) (42,633)
Prepaid expenses and other (647) (1,621) (22,069)
Accounts payable 555 (8,795) 8,591
Accrued expenses 5,896 1,546 (155)
Income taxes (including tax benefit
from exercise of stock options) 1,428 7,428 25,225
Deferred revenues 23,131 13,971 23,547
---------- ---------- ----------
Net cash from operating activities $ 98,861 $ 89,941 $ 72,822
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (45,958) $ (49,509) $ (57,781)
Purchase of investments (3,988) (2,987) (982)
Purchase of customer contracts (304) - -
Proceeds from maturity of investments 4,000 3,000 1,000
Computer software developed (5,162) (1,895) (1,447)
Payment for acquisitions, net (6,537) (11,111) -
Other, net (523) 274 375
---------- ---------- ----------
Net cash from investing activities $ (58,472) $ (62,228) $ (58,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock upon exercise of stock options $ 3,539 $ 13,666 $ 18,304
Proceeds from sale of
common stock, net 776 792 61,344
Dividends paid (12,290) (11,626) (9,604)
Change in short-term borrowings, net - - (70,500)
Principal payments on long-term debt - (315) (128)
Purchase of treasury stock (18,165) (31,054) -
---------- ---------- ----------
Net cash from financing activities $ (26,140) $ (28,537) $ (584)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 14,249 $ (824) $ 13,403
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR $ 17,765 $ 18,589 $ 5,186
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 32,014 $ 17,765 $ 18,589
========== ========== ==========
See notes to consolidated financial statements
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Jack Henry & Associates, Inc. ("JHA" or the "Company") is a leading provider
of integrated computer systems that has developed or acquired several
banking and credit union software systems. The Company's revenues are
predominately earned by marketing those systems to financial institutions
nationwide along with the computer equipment (hardware) and by providing the
conversion and software installation services for a financial institution to
install a JHA software system. JHA also provides continuing support and
services to customers using the systems either in-house or outsourced.
CONSOLIDATION
The consolidated financial statements include the accounts of JHA and all of
its wholly-owned subsidiaries and all significant intercompany accounts and
transactions have been eliminated.
STOCK OPTIONS
As permitted under Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, the Company has elected
to follow Accounting Principles Board Opinion ("APB") No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based awards
to employees. Under APB No. 25, the Company generally recognizes no
compensation expense with respect to such awards, since the exercise price
of the stock options awarded are equal to the fair market value of the
underlying security on the grant date.
Pro forma information regarding net income and earnings per share is
required in financial statements for periods beginning after December 15,
2002, by SFAS No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure, an amendment of FASB Statement No. 123, for awards granted
after December 31, 1994, as if the Company had accounted for its stock-based
awards to employees under the fair value method of SFAS No. 123. The fair
value of the Company's stock-based awards to employees was estimated as of
the date of the grant using a Black-Scholes option pricing model. The
Company's pro forma information is as follows:
(In Thousands, Except Per Share Data)
Year Ended June 30,
-----------------------------------
2003 2002 2001
--------- --------- ---------
Net income, as reported $ 49,397 $ 57,065 $ 55,631
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 6,572 9,394 19,181
--------- --------- ---------
Pro forma net income $ 42,825 $ 47,671 $ 36,450
========= ========= =========
Diluted net income per share
As reported $ 0.55 $ 0.62 $ 0.61
Pro forma $ 0.48 $ 0.52 $ 0.40
Basic net income per share
As reported $ 0.56 $ 0.64 $ 0.64
Pro forma $ 0.49 $ 0.53 $ 0.42
During fiscal year 2003, all the shares exercised came from treasury stock.
The weighted fair value of options granted was $4.68, $10.63 and $9.58 for
2003, 2002, and 2001, respectively.
Assumptions:
Expected life (years) 2.35 3.10 2.92
Volatility 55% 55% 54%
Risk free interest rate 1.3% 3.2% 4.4%
Dividend yield 1.16% 0.78% 0.36%
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
REVENUE RECOGNITION
In October, 1997, the Accounting Standards Executive Committee of the
American Institute of Public Accountants ("AcSEC") issued Statement of
Position ("SOP") 97-2, Software Revenue Recognition. The Company adopted SOP
97-2 effective July 1, 1998. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements.
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, on
December 3, 1999. SAB No. 101, as amended, provides the SEC Staff's views
on selected revenue recognition issues and was adopted by the Company in the
fourth fiscal quarter of fiscal year 2001. The adoption of SAB No. 101 did
not have a material effect on the Company's consolidated financial
statements.
For multiple element arrangements the Company has established Vendor
Specific Objective Evidence ("VSOE") separately for all the individual
components of licensing, installation, support, and hardware and recognizes
revenue separately for the various components. The components are all
independently priced and consistent with pricing when each element is sold
separately. There are no rights of return, condition of acceptance or price
protection in our contracts.
The Company's various sources of revenue and the methods of revenue
recognition are as follows:
License - Licensing fees are recognized upon delivery and acceptance
of the software. All software of the Company is sold unmodified.
Software installation and related services - Fees for these services
are recognized as the services are performed on hourly contracts and
at completion and acceptance on fixed-fee contracts.
Support and service - Fees from these contracts are recognized ratably
over the life of the in-house support or outsourcing service contract.
Regulatory requirement changes and technical enhancements to the
software are specifically referenced and included in the annual
support contracts.
Hardware - Revenues from sales of hardware are recognized upon direct
shipment to the Company's customers from the supplier. Costs of items
purchased and remarketed are reported as cost of hardware in cost of
sales. Revenues and related costs of hardware maintenance are
recognized ratably over the life of the contract.
Customer reimbursements - Direct costs paid to third parties for
expenses incurred for customers are billed and recognized as revenue
in accordance with Emerging Issues Task Force ("EITF") Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for 'Out
of Pocket' Expenses Incurred. These revenues are included and reported
in the respective lines of support and service or hardware revenue.
RECLASSIFICATION
To improve reporting disclosure, the Company has changed its reporting line
items, with installation revenue moving from license revenue to support and
service revenue and a new line item for license cost of sales. Gross
customer reimbursements are now included and presented in the correlating
line items of support and services and hardware revenues and costs,
respectively. Where appropriate, prior year's financial information has
been reclassified to conform with the current year's presentation.
PREPAID COST OF PRODUCT
Costs for remarketed hardware and software maintenance contracts, which are
prepaid, are recognized ratably over the life of the contract, generally one
to five years, with the related revenue amortized from deferred revenues.
DEFERRED REVENUES
Deferred revenues consist primarily of prepaid annual software support fees
and prepaid hardware maintenance fees. Hardware maintenance contracts are
multi-year, therefore, the deferred revenue and prepaid maintenance are
classified in accordance with the terms of the contract. Software and
hardware deposits received are also reflected as deferred revenues.
COMPUTER SOFTWARE DEVELOPMENT
The Company capitalizes new product development costs incurred from the
point at which technological feasibility has been established through the
point at which the product is ready for general availability. Software
development costs that are capitalized are evaluated on a product-by-product
basis annually and are assigned an estimated economic life based on the type
of product, market characteristics and maturity of the market for that
particular product. The Company's amortization policy for these capitalized
costs is to amortize the costs in accordance with SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Generally, these costs are initially amortized on a straight-line
basis, and are monitored on a regular basis to assess that the amortization
method is still appropriate and that the remaining estimated life of the
asset is reasonable (generally five to ten years).
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the time of acquisition to be cash equivalents.
INVESTMENTS
The Company invests its cash that is not required for current operations
primarily in U.S. government securities and money market accounts. The
Company has the positive intent and ability to hold its debt securities
until maturity and accordingly, these securities are classified as held-to-
maturity and are carried at historical cost adjusted for amortization of
premiums and accretion of discounts. Premiums and discounts are amortized
and accreted, respectively, to interest income using the level-yield method
over the period to maturity. The held-to-maturity securities typically
mature in less than one year. Interest on investments in debt securities is
included in income when earned.
The amortized cost of held-to-maturity securities is $998,000 and $997,000
at June 30, 2003 and 2002, respectively. Fair market values of these
securities did not differ significantly from amortized cost due to the
nature of the securities and minor interest rate fluctuations during the
periods.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated principally using
the straight-line method over the estimated useful lives of the assets.
INTANGIBLE ASSETS
Intangible assets consist of goodwill, customer relationships, software and
trade names acquired in business acquisitions. The amounts are amortized,
with the exception of goodwill and trade names, over an estimated economic
benefit period, generally five to twenty years, using the straight-line
method.
The Company reviews its long-lived assets and identifiable intangible assets
with finite lives for impairment whenever events or changes in circumstances
have indicated that the carrying amount of its assets might not be
recoverable. The Company evaluates goodwill and trade names for impairment
of value on an annual basis and between annual tests if events or changes in
circumstances indicate that the asset might be impaired.
COMPREHENSIVE INCOME
Comprehensive income for each of the three years ended June 30, 2003 equals
the Company's net income.
BUSINESS SEGMENT INFORMATION
In accordance with SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, the Company's operations are classified as two
business segments: bank systems and services and credit union systems and
services (see Note 13). Revenue by type of product and service is presented
on the face of the consolidated statements of income. Substantially all the
Company's revenues are derived from operations and assets located within the
United States of America.
COMMON STOCK
On September 21, 2001, the Company's Board of Directors approved a stock
buyback of the Company's common stock of up to 3.0 million shares, and
approved an increase on October 4, 2002 to 6.0 million shares. As of June
30, 2003, 3,012,933 shares have been purchased for $49,218,870. During
fiscal 2003 there were 501,740 shares and 60,249 shares reissued from
treasury stock for the shares exercised in the employee stock option plan
and the employee stock purchase plan, respectively. At June 30, 2003, there
were 2,363,121 shares of treasury stock remaining. As of June 30, 2002,
1,656,733 shares had been purchased for $31,054,139 and 1,568,910 shares
remained in treasury stock.
On January 29, 2001, the Company's Board of Directors declared a 100% stock
dividend on its common stock, effectively a 2 for 1 stock split. The stock
dividend was paid March 2, 2001, to stockholders of record at the close of
business on February 15, 2001. All affected per share and shares
outstanding data in the consolidated statements of income and the notes to
the consolidated financial statements were retroactively restated to reflect
this stock split.
INCOME PER SHARE
Per share information is based on the weighted average number of common
shares outstanding during the year. Stock options have been included in the
calculation of income per diluted share to the extent they are dilutive.
The difference between basic and diluted weighted average shares outstanding
is the dilutive effect of outstanding stock options (see Note 10).
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance would be established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not
be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which is effective for
any activity initiated after December 31, 2002. This standard addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies the Emerging Issues Task Force ("EITF")
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). This standard requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The accounting
for similar events and circumstances will be the same, thereby improving the
comparability and representational faithfulness of reported financial
information. The adoption of this standard on January 1, 2003, did not have
a material impact on the Company's consolidated financial position or
results of operations.
In November 2002, the EITF reached a consensus regarding EITF Issue No. 02-
16, Accounting by a Customer, Including a Reseller, for Cash Consideration
Received from a Vendor. This consensus requires that payments from a vendor
be classified as a reduction to the price of the vendor's goods and taken as
a reduction to cost of sales unless the payments are: (1) a reimbursement
for costs incurred to sell the product, or (2) a payment for assets or
services provided. The consensus also requires that payments from a vendor
be recognized as a reduction to cost of sales on a rational and systematic
basis. This consensus is effective for fiscal years beginning after
December 15, 2002 (July 1, 2003 for JHA). The adoption of this consensus on
July 1, 2003, did not have a material effect on the Company's consolidated
financial position or results of operation.
In November 2002, FASB Interpretations No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and
107 ("FIN 45") was issued. FIN 45 elaborates on the disclosures to be made
by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing a
guarantee. The initial recognition and initial measurement provisions of
this Interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, irrespective of the guarantor's
fiscal year-end. The disclosure requirements in this Interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of this Interpretation on January 1, 2003,
did not have a material effect on the Company's consolidated financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure-an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 was effective for the
Company's financial statements for fiscal year ended June 30, 2003. The
Company has elected to continue to account for its stock-based compensation
in accordance with the provisions of APB No. 25 as interpreted by FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25, ("FIN 44") and
present the pro forma disclosures required by SFAS No. 123.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, which addresses consolidation
by business enterprises of variable interest entities that either: (1) do
not have sufficient equity investment at risk to permit the entity to
finance its activities without additional subordinated financial support, or
(2) the equity investors lack an essential characteristic of a controlling
financial interest. FIN 46 requires disclosure of Variable Interest
Entities (VIEs) in financial statements issued after January 31, 2003, if it
is reasonably possible that as of the transition date: (1) the company will
be the primary beneficiary of an existing VIE that will require
consolidation or, (2) the company will hold a significant variable interest
in, or have significant involvement with, an existing VIE. Pursuant to the
transitional requirements of FIN 46, the company will adopt the
consolidation guidance applicable to existing VIEs as of the reporting
period beginning July 1, 2003. Any VIEs created after January 31, 2003, are
immediately subject to the consolidation guidance in FIN 46. The adoption
of this interpretation did not have a material effect on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 states that companies which issue financial instruments that have
characteristics of both liabilities and equity will have to determine if the
instrument should be classified as a liability or equity for financial
instruments entered into or modified after May 31, 2003. The Company does
not expect the adoption of FASB No. 150 to have a material effect on our
operating results or financial condition.
NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values for held-to-maturity securities are based on quoted market
prices. For all other financial instruments, including amounts receivable
or payable and short-term borrowings, fair values approximate carrying
value, based on the short-term nature of the assets and liabilities and the
variability of the interest rates on the borrowings.
NOTE 3: PROPERTY AND EQUIPMENT
The classification of property and equipment, together with their estimated
useful lives is as follows:
(In Thousands)
June 30,
----------------------- Estimated
2003 2002 Useful Life
--------- --------- -----------
Land $ 6,519 $ 6,519
Land improvements 16,050 8,774 5-20 years
Buildings 76,891 57,636 25-30 years
Equipment and furniture 104,528 100,309 5-8 years
Aircraft and equipment 48,542 41,633 8-10 years
Construction in progress 4,834 17,028
--------- ---------
$ 257,364 $ 231,899
Less accumulated depreciation 61,318 58,124
--------- ---------
Propery and equipment, net $ 196,046 $ 173,775
========= =========
NOTE 4: OTHER ASSETS
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective July 1, 2001. Under SFAS No. 142, goodwill and trade names are no
longer amortized but reviewed for impairment annually, or more frequently if
certain indicators arise. The Company completed the transitional impairment
tests for trade names with indefinite useful lives during the quarter ended
September 30, 2001, for goodwill during the quarter ended December 31, 2001,
and its annual impairment tests during 2003 and 2002 and has determined that
no impairment exists. Had the Company been accounting for its goodwill and
trade names under SFAS No. 142 for all periods presented, the Company's net
income and net income per share would have been adjusted as follows:
(In Thousands, Except Per Share Data)
Year Ended June 30,
-----------------------------------
2003 2002 2001
--------- --------- ---------
Reported net income $ 49,397 $ 57,065 $ 55,631
Goodwill and trade names amortization,
net of tax - - 1,108
--------- --------- ---------
Adjusted net income $ 49,397 $ 57,065 $ 56,739
========= ========= =========
Reported diluted net income per share $ 0.55 $ 0.62 $ 0.61
Goodwill and trade names amortization,
net of tax - - 0.01
--------- --------- ---------
Adjusted diluted net income per share $ 0.55 $ 0.62 $ 0.62
========= ========= =========
Reported basic net income per share $ 0.56 $ 0.64 $ 0.64
Goodwill and trade names amortization,
net of tax - - 0.01
--------- --------- ---------
Adjusted basic net income per share $ 0.56 $ 0.64 $ 0.65
========= ========= =========
Changes in the carrying amount of goodwill for the years ended June 30, 2003
and 2002, by reportable segments, are:
(In Thousands)
Banking Credit Union
Systems Systems
and and
Services Services Total
-------- -------- ---------
Balance, for the year
ended June 30, 2001 $ 14,508 $ 14,840 $ 29,348
Goodwill acquired during the year 10,987 - 10,987
-------- -------- ---------
Balance, for the year
ended June 30, 2002 $ 25,495 $ 14,840 $ 40,335
Goodwill acquired during the year 1,819 2,389 4,208
-------- -------- ---------
Balance, for the year
ended June 30, 2003 $ 27,314 $ 17,229 $ 44,543
======== ======== =========
Information regarding other identifiable intangible assets is as follows:
(In Thousands)
Year Ended June 30,
-------------------
2003 2002
---------------------------- -----------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------- --------- ------- ------- --------- -------
Customer
Relationships $89,212 $(29,854) $59,358 $88,197 $(25,067) $63,130
Trade names 3,699 - 3,699 3,699 - 3,699
------- --------- ------- ------- --------- -------
Totals $92,911 $(29,854) $63,057 $91,896 $(25,067) $66,829
======= ========= ======= ======= ========= =======
Trade names have been determined to have indefinite lives and therefore as
of July 1, 2001, are no longer amortized. Customer relationships have lives
ranging from 5 to 20 years.
Computer software includes the unamortized cost of software products
developed or acquired by the Company, which are required to be capitalized
by accounting principles generally accepted in the United States of America.
Following is an analysis of the computer software costs:
(In Thousands)
Carrying Accumulated
Amount Amortization Total
-------- -------- ---------
Balance, June 30, 2001 $ 9,199 $ (3,393) $ 5,806
Acquired Software 1,376 - 1,376
Capitalizated development cost 1,895 - 1,895
Amortization expense - (1,578) (1,578)
-------- -------- ---------
Balance, June 30, 2002 $ 12,470 $ (4,971) $ 7,499
Acquired Software 1,222 - 1,222
Capitalizated development cost 5,162 - 5,162
Amortization expense - (1,383) (1,383)
-------- -------- ---------
Balance, June 30, 2003 $ 18,854 $ (6,354) $ 12,500
======== ======== =========
Amortization expense for all intangible assets was $6,169,000, $6,585,000
and $9,349,000 for the fiscal years ended June 30, 2003, 2002, and 2001
respectively. The estimated aggregate future amortization expense for each
of the next five years for all intangible assets remaining as of June 30,
2003, is as follows:
(In Thousands)
Customer
Year Relationships Software Total
---- ------------- -------- -----
2004 $ 4,679 $ 1,239 $ 5,918
2005 $ 4,201 $ 1,144 $ 5,345
2006 $ 4,197 $ 842 $ 5,039
2007 $ 4,156 $ 568 $ 4,724
2008 $ 4,115 $ 567 $ 4,682
NOTE 5: LINES OF CREDIT AND LONG-TERM DEBT
LINES OF CREDIT
JHA currently has two bank credit lines upon which it can draw an aggregate
amount at any one time outstanding of $58.0 million. The major unsecured
credit line provides for funding of up to $50.0 million and bears interest
at variable LIBOR-based rates (1.87% at June 30, 2003, and weighted average
interest rates of 2.23% and 3.07% for the years ended June 30, 2003, and
2002, respectively) and expires December 15, 2004. The line has an unused
commitment fee of .25% annually.
The second credit line provides for funding of up to $8.0 million and bears
interest at the prime rate (4.00% at June 30, 2003) and expires March 15,
2004, and is secured by $1.0 million of investments with the remainder
unsecured. There were no amounts outstanding under either line at June 30,
2003, or 2002.
The Company paid interest of $110,000, $126,000 and $1,150,000 in 2003,
2002, and 2001, respectively.
NOTE 6: LEASE COMMITMENTS
The Company leases certain property under operating leases which expire over
the next six years. As of June 30, 2003, net future minimum lease payments
under non-cancelable terms are as follows: $3,096,000, $1,443,000, $437,000,
$163,000, $15,000 in 2004, 2005, 2006, 2007, and 2008, respectively. Rent
expense for all operating leases amount to $3,921,000, $4,093,000, and
$3,400,000 in 2003, 2002, and 2001, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes consists of the following:
(In Thousands)
Year Ended June 30,
-----------------------------------
2003 2002 2001
-------- -------- --------
Current:
Federal $ 19,001 $ 22,387 $ 26,817
State 1,453 1,228 1,675
Deferred:
Federal 7,577 7,548 2,200
State 363 245 600
-------- -------- --------
$ 28,394 $ 31,408 $ 31,292
======== ======== ========
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
(In Thousands)
June 30,
--------------------
2003 2002
------- -------
Deferred tax assets:
Carryforwards (operating losses and credits) $ 155 $ 205
Expense reserves (bad debts, insurance,
franchise tax and vacation) 705 710
Intagible assets 680 840
Other, net 295 195
------- -------
1,835 1,950
------- -------
Deferred tax liabilities:
Accelerated tax depreciation (19,450) (14,330)
Accelerated tax amortization (5,225) (2,520)
------- -------
(24,675) (16,850)
------- -------
Net deferred tax liability $(22,840) $(14,900)
======= =======
The deferred taxes are classified on the balance sheet as follows:
(In Thousands)
June 30,
--------------------
2003 2002
------- -------
Deferred income taxes (current) $ 1,000 $ 900
Deferred income taxes (long-term) (23,840) (15,800)
------- -------
$(22,840) $(14,900)
======= =======
The following analysis reconciles the statutory federal income tax rate to
the effective income tax rates reflected above:
(In Thousands)
Year Ended June 30,
----------------------------
2003 2002 2001
---- ---- ----
Computed "expected" tax expense (benefit) 35.0% 35.0% 35.0%
Increase (reduction) in taxes
resulting from:
State income taxes, net of federal
income tax benefits 2.5% 2.0% 2.0%
Research and development credit -1.0% -1.0% -1.0%
---- ---- ----
36.5% 36.0% 36.0%
==== ==== ====
Net operating loss carryforwards of $433,000 (from acquisitions) expire
through the year 2014. The Company paid income taxes of $19,025,000,
$15,900,000, and $3,580,000 in 2003, 2002, and 2001, respectively.
The Company's federal income tax returns for the years ended June 30, 1999 -
June 30, 2001, are currently under examination by the Internal Revenue
Service ("IRS"). In connection with the examination of these returns, the
IRS is proposing to disallow research & experimentation ("R&E") credits
claimed on these returns. The complete disallowance of these credits would
increase the Company's federal income tax liability by approximately $1.5
million plus interest. The Company believes that the R&E credits claimed
for these years are appropriate and intends to contest any disallowance of
these credits. While there can be no assurance that the Company would
prevail in contesting any disallowance, it believes any such disallowance is
not supported by the facts or the relevant tax law. Consequently, the
Company has not accrued any liability in connection with this matter.
NOTE 8: INDUSTRY AND SUPPLIER CONCENTRATIONS
The Company sells its products to banks, credit unions and financial
institutions throughout the United States and generally does not require
collateral. All billings to customers are due net 30 days from date of
billing. Reserves (which are insignificant at June 30, 2003 and 2002) are
maintained for potential credit losses.
In addition, the Company purchases most of its computer hardware and related
maintenance for resale in relation to installation of JHA software systems
from one supplier. There are a limited number of hardware suppliers for
these required materials. If this relationship was terminated, it could
have a significant negative impact on the future operations of the Company.
NOTE 9: STOCK OPTION PLANS
The Company currently issues options under two stock option plans: the 1996
Stock Option Plan ("1996 SOP") and the Non-Qualified Stock Option Plan
("NSOP").
1996 SOP
The 1996 SOP was adopted by the Company on October 29, 1996, for its
employees. This plan replaced the terminating 1987 SOP. Terms and vesting
periods of the options are determined by the Compensation Committee of the
Board of Directors when granted and for options outstanding include vesting
periods up to 4 years. Shares of common stock are reserved for issuance
under this plan at the time of each grant, which must be at or above fair
market value of the stock at the grant date. The options terminate 30 days
after termination of employment, three months after retirement, one year
after death or ten years after grant. In October 2002, the stockholders
approved an increase in the number of stock options available from 13.0
million to 18.0 million shares.
On April 11, 2003, the Company granted approximately 3,670,000 stock options
to approximately 2,100 full time employees, or 94% of all full time
employees as of that date. The options were issued at the exercise price of
$10.84 per share, which represented the fair market value of the stock as of
that date and vest in two equal portions based on stock price performance or
on specific dates. The first portion vests and becomes fully exercisable
two years following the grant date, but may vest earlier if the Company's
common stock achieves a closing market price of 125% or more of the exercise
price for 10 consecutive trading days. Such options vested prior to June
30, 2003. The second portion vests four years following the grant date, but
may vest earlier if the common stock achieves a closing market price of 150%
or more of the exercise price on 10 or more consecutive trading days. As of
June 30, 2003, there were 2,420,815 shares available for future grants under
the plan from the 18,000,000 shares approved by the stockholders.
NSOP
The NSOP was adopted by the Company on October 31, 1995, for its outside
directors. Options are exercisable beginning six months after grant at a
price equal to 100% of the fair market value of the stock at the grant date.
The options terminate when director status ends, upon surrender of the
option or ten years after grant. A total of 1,200,000 shares of common stock
have been reserved for issuance under this plan with a maximum of 300,000
for each director. As of June 30, 2003, there were 532,500 shares available
for future grants under the plan.
Changes in stock options outstanding are as follows:
Number of Weighted Average
Shares Exercise Price
---------- ------
Outstanding July 1, 2000 13,257,568 $ 10.12
Granted 1,422,280 23.57
Forfeited (104,616) 18.39
Exercised (3,285,433) 6.89
---------- ------
Outstanding June 30, 2001 11,289,799 12.68
Granted 618,116 23.26
Forfeited (82,500) 22.26
Exercised (1,607,846) 8.50
---------- ------
Outstanding June 30, 2002 10,217,569 13.90
Granted 3,897,150 10.92
Forfeited (313,925) 17.89
Exercised (501,740) 7.04
Expired 1,200 6.39
---------- ------
Outstanding June 30, 2003 13,300,254 $ 13.19
========== ======
For the year ended June 30, 2003, there were 501,740 shares and 60,249
shares reissued from treasury stock for the shares exercised in the employee
stock option plan and the employee stock purchase plan (See Note 11),
respectively. For the year ended June 30, 2002, there were 84,400 shares
and 3,423 shares reissued from treasury stock for the shares exercised in
the employee stock option plan and the employee stock purchase plan,
respectively.
Following is an analysis of stock options outstanding and exercisable as of
June 30, 2003:
Weighted-Average
Remaining
Range of Contractural Weighted-Average
Exercise Prices Shares Life in Years Exercise Price
--------------- ------------------------ ------------- ------------------------
Outstanding Exercisable Outstanding Outstanding Exercisable
----------- ----------- ----------- ----------- -----------
$ 1.67 - $ 6.03 2,262,210 2,262,210 3.22 $ 4.59 $ 4.59
$ 6.04 - $10.75 1,296,534 1,296,534 5.52 9.13 9.13
$10.76 - $10.84 3,538,550 1,714,775 9.78 10.84 10.84
$10.85 - $11.95 308,700 179,700 7.46 11.52 11.53
$11.96 - $16.88 4,044,760 3,977,910 6.80 16.81 16.86
$16.89 - $31.00 1,849,500 1,493,917 7.73 23.42 23.60
----------- ----------- ----------- ----------- -----------
$ 1.67 - $31.00 13,300,254 10,925,046 7.00 $13.19 $13.29
=============== =========== =========== =========== =========== ===========
NOTE 10: EARNINGS PER SHARE
The following table reflects the reconciliation between Basic and Diluted
net income per share:
(In Thousands, Except Per Share Data)
Year ended June 30,
-------------------
2003 2002 2001
--------------------------- ---------------------------- ----------------------------
Net Weighted Per Share Net Weighted Per Share Net Weighted Per Share
Income Average Amount Income Average Amount Income Average Amount
Shares Shares Shares
------ ------ ---- ------ ------ ---- ------ ------ ----
Basic Income Per Share:
Net income available to
stockholders $49,397 87,866 $0.56 $57,065 89,316 $0.64 $55,631 86,834 $0.64
Effect of dilutive
securities:
Stock options $ - 1,404 $0.01 $ - 3,051 $0.02 $ - 4,510 $0.03
------ ------ ---- ------ ------ ---- ------ ------ ----
Diluted Income Per Share:
Net income available to
common stockholders $49,397 89,270 $0.55 $57,065 92,367 $0.62 $55,631 91,344 $0.61
====== ====== ==== ====== ====== ==== ====== ====== ====
Stock options to purchase approximately 5,972,949 shares for fiscal 2003,
690,858 shares for fiscal 2002, and 102,591 shares for fiscal 2001, were not
dilutive and therefore, were not included in the computations of diluted
income per common share amounts.
NOTE 11: EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan - The Company established an employee stock
purchase plan on January 1, 1996. The plan allows the majority of employees
the opportunity to directly purchase shares of the Company. Purchase prices
for all participants are based on the closing bid price on the last business
day of the month.
401(k) Employee Stock Ownership Plan - The Company had a 401(k) Employee
Stock Ownership Plan (the "Predecessor Plan") covering substantially all
employees of the Company and its subsidiaries. As of July 1, 1987, the
Predecessor Plan was amended and restated to include most of the existing
ESOP provisions, to add salary reduction contributions allowed under Section
401(k) of the Internal Revenue Code and to require employer matching
contributions. In June 2002, the Company's Board of Directors approved an
action to separate the Predecessor Plan into the Employee Stock Ownership
Plan (The "ESOP" Plan) and the 401(k) Retirement Savings Plan (the "Plan").
The separation of plans was effective on July 1, 2002. Both plans are
subject to the Employee Retirement Income Security Act of 1975 ("ERISA") as
amended.
Under the Plan, the Company matches 100% of full time employee contributions
up to 5% of compensation subject to a maximum of $5,000. Employees must be
18 years of age and be employed for at least six months. Under the ESOP
plan, employees must be 21 years of age and employed full time for at least
six months. Under the ESOP Plan and the Plan, the Company has the option of
making a discretionary contribution; however, none has been made for any of
the three most recent fiscal years. The total matching contributions for
both the ESOP Plan and the Plan were $4,139,000, $3,862,000, and $2,986,000
for fiscal 2003, 2002, and 2001, respectively.
NOTE 12: BUSINESS ACQUISITIONS
PURCHASE TRANSACTIONS
On January 1, 2003, the Company acquired all the outstanding membership
interests in National Bancorp Data Services, LLC ("NBDS") for $2.1 million
in cash. NBDS provides item processing and imaging services to financial
institutions in the greater Chicago, Illinois area. This acquisition
expanded the geographic footprint for item processing centers and expands
the potential market for outsourcing customers. The purchase price for NBDS
was allocated to the assets and liabilities acquired based on then estimated
fair values at the acquisition date resulting in allocation to goodwill of
$1.8 million.
On November 15, 2002, the Company acquired all the outstanding shares
of Credit Union Solutions, Inc. ("CUSI") for $5.0 million in cash. CUSI
provides in-house data processing software, related hardware and services to
smaller credit unions, primarily those with assets less than $50 million.
This acquisition expanded the potential market for the Company, as the
Company's existing core products were too expensive to sell to credit unions
of this size. The purchase price for CUSI was allocated to the assets and
liabilities acquired based on then estimated fair values at the acquisition
date, resulting in allocation to goodwill of $2.4 million, software of $1.2
million, and customer contracts of $0.7 million, of which software and
customer contracts are being amortized on a straight-line basis over periods
of ten and twenty years, respectively.
On January 1, 2002, the Company acquired all the outstanding shares of
Transcend Systems Group ("TSG") for $7.3 million in cash and 117,738
restricted shares of the Company's common stock valued at $2.4 million, for
a total consideration to the TSG shareholders of $9.7 million. As part of
the purchase price, the Company also advanced to TSG $.85 million for the
repayment of bank debt and certain TSG obligations to its shareholders. TSG
provides customer relationship management software and related services to
financial institutions. The purchase price for TSG was allocated to the
assets and liabilities acquired based on the estimated fair values at the
acquisition date, resulting in allocation to goodwill of $8.5 million,
software of $.9 million, and customer contracts of $1.1 million, of which
software and customer contracts are being amortized on a straight-line basis
over 10 years.
On December 1, 2001, the Company acquired all the outstanding shares of
System Legacy Solutions ("SLS") for $3 million in cash. SLS provides
technology to convert data from legacy systems into formats that can be used
by newer technologies. The purchase price for SLS was allocated to the
assets and liabilities acquired based on the estimated fair values at the
acquisition date, resulting in allocation to goodwill of $2.6 million and
software $.45 million of which software is being amortized on a straight-
line basis over 10 years.
The four acquisitions discussed above were accounted for using the purchase
method. Accordingly, the accompanying consolidated financial statements do
not include any revenues and expenses related to these acquisitions prior to
their respective closing dates.
NOTE 13: BUSINESS SEGMENT INFORMATION
The Company is a leading provider of integrated computer systems that
perform data processing (available for in-house or service bureau
installations) for banks and credit unions. The Company's operations are
classified into two business segments: bank systems and services and credit
union systems and services. The Company evaluates the performance of its
segments and allocates resources to them based on various factors, including
prospects for growth, return on investment and return on revenue.
(In Thousands)
For The Year Ended June 30,
-----------------------------------
2003 2002 2001
--------- --------- ---------
Revenue
Bank systems and services $ 343,126 $ 339,342 $ 318,011
Credit Unions systems and services 61,501 57,315 48,892
--------- --------- ---------
Total $ 404,627 $ 396,657 $ 366,903
========= ========= =========
Gross Profit
Bank systems and services $ 134,995 $ 143,555 $ 138,143
Credit Unions systems and services 18,341 17,665 13,454
--------- --------- ---------
Total $ 153,336 $ 161,220 $ 151,597
========= ========= =========
Property and equipment, net
Bank systems and services $ 192,846 $ 170,882 $ 136,166
Credit Unions systems and services 3,200 2,893 2,273
--------- --------- ---------
Total $ 196,046 $ 173,775 $ 138,439
========= ========= =========
Identified Intangible assets, net
Bank systems and services $ 77,520 $ 75,022 $ 66,264
Credit Unions systems and services 42,580 39,641 40,931
--------- --------- ---------
Total $ 120,100 $ 114,663 $ 107,195
========= ========= =========
Depreciation expense, net
Bank systems and services $ 23,370 $ 20,328 $ 12,148
Credit Unions systems and services 655 557 391
--------- --------- ---------
Total $ 24,025 $ 20,885 $ 12,539
========= ========= =========
Amortization expense, net
Bank systems and services $ 4,787 $ 5,295 $ 7,077
Credit Unions systems and services 1,382 1,290 2,272
--------- --------- ---------
Total $ 6,169 $ 6,585 $ 9,349
========= ========= =========
Captial expenditures, net
Bank systems and services $ 45,759 $ 48,451 $ 55,474
Credit Unions systems and services 199 1,058 2,307
--------- --------- ---------
Total $ 45,958 $ 49,509 $ 57,781
========= ========= =========
The Company has not disclosed any additional asset information by segment,
as the information is not produced internally and its preparation is
impracticable.
NOTE 14: SECONDARY OFFERING
On August 16, 2000, the Company completed a secondary offering of 3.0
million shares of its common stock at $21.50 per share less a 5%
underwriters discount and offering expenses paid by the Company. The net
proceeds of approximately $60.5 million was used to retire all outstanding
debt under lines of credit as of that date, with the remaining balance
available for working capital, capital expenditures and other general
corporate purposes.
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL INFORMATION
(In Thousands, Except Per Share Data)
(Unaudited)
FY 2003 First Second Third Fourth
Quarter Quarter Quarter Quarter
9-30-02 12-31-02 03-31-03 06-30-03 Total
------- ------- ------- ------- --------
REVENUE
License $ 12,069 $ 13,807 $ 10,446 $ 11,962 $ 48,284
Support and service 59,884 64,252 66,552 69,764 260,452
Hardware 22,025 24,504 21,900 27,462 95,891
------- ------- ------- ------- --------
Total $ 93,978 $102,563 $ 98,898 $109,188 $ 404,627
------- ------- ------- ------- --------
COST OF SALES
Cost of license $ 791 $ 975 $ 829 $ 1,295 $ 3,890
Cost of support and service 41,455 46,518 43,870 46,413 178,256
Cost of hardware 16,619 18,204 15,796 18,526 69,145
------- ------- ------- ------- --------
Total $ 58,865 $ 65,697 $ 60,495 $ 66,234 $ 251,291
------- ------- ------- ------- --------
GROSS PROFIT $ 35,113 $ 36,866 $ 38,403 $ 42,954 $ 153,336
Income before taxes $ 17,791 $ 18,390 $ 19,396 $ 22,214 $ 77,791
Net Income $ 11,298 $ 11,677 $ 12,316 $ 14,106 $ 49,397
Diluted income per share $ 0.13 $ 0.13 $ 0.14 $ 0.16 $ 0.55
FY 2002 First Second Third Fourth
Quarter Quarter Quarter Quarter
9-30-01 12-31-01 03-31-02 06-30-02 Total
------- ------- ------- ------- --------
REVENUE
License $ 14,771 $ 16,017 $ 17,657 $ 18,131 $ 66,576
Support and service 55,322 55,166 57,044 61,212 228,744
Hardware 22,474 27,044 25,083 26,736 101,337
------- ------- ------- ------- --------
Total $ 92,567 $ 98,227 $ 99,784 $106,079 $ 396,657
------- ------- ------- ------- --------
COST OF SALES
Cost of license $ 257 $ 131 $ 1,070 $ 1,051 $ 2,509
Cost of support and service 38,164 40,453 41,121 41,785 161,523
Cost of hardware 15,097 18,632 17,501 20,175 71,405
------- ------- ------- ------- --------
Total $ 53,518 $ 59,216 $ 59,692 $ 63,011 $ 235,437
------- ------- ------- ------- --------
GROSS PROFIT $ 39,049 $ 39,011 $ 40,092 $ 43,068 $ 161,220
Income before taxes $ 22,837 $ 20,366 $ 21,184 $ 24,086 $ 88,473
Net Income $ 14,616 $ 13,034 $ 13,558 $ 15,857 $ 57,065
Diluted income per share $ 0.16 $ 0.14 $ 0.15 $ 0.17 $ 0.62
FY 2001 First Second Third Fourth
Quarter Quarter Quarter Quarter
9-30-00 12-31-00 3-31-01 6-30-01 Total
------- ------- ------- ------- --------
REVENUE
License $ 16,277 $ 17,035 $ 18,376 $ 18,444 $ 70,132
Support and service 42,154 44,508 47,229 51,872 185,763
Hardware 23,239 24,206 32,598 30,965 111,008
------- ------- ------- ------- --------
Total $ 81,670 $ 85,749 $ 98,203 $101,281 $ 366,903
------- ------- ------- ------- --------
COST OF SALES
Cost of license $ 236 $ 1,141 $ 547 $ 608 $ 2,532
Cost of support and service 30,644 33,930 34,771 36,863 136,208
Cost of hardware 16,158 15,911 23,203 21,294 76,566
------- ------- ------- ------- --------
Total $ 47,038 $ 50,982 $ 58,521 $ 58,765 $ 215,306
------- ------- ------- ------- --------
GROSS PROFIT $ 34,632 $ 34,767 $ 39,682 $ 42,516 $ 151,597
Income before taxes $ 18,569 $ 20,125 $ 23,966 $ 24,263 $ 86,923
Net Income $ 11,884 $ 12,880 $ 15,338 $ 15,529 $ 55,631
Diluted income per share $ 0.13 $ 0.14 $ 0.17 $ 0.17 $ 0.61
FY 2000 First Second Third Fourth
Quarter Quarter Quarter Quarter
9-30-99 12-31-99 3-31-00 6-30-00 Total
------- ------- ------- ------- --------
REVENUE
License $ 7,842 $ 5,815 $ 10,337 $ 15,161 $ 39,155
Support and service 27,059 30,464 33,658 38,822 130,003
Hardware 11,572 20,937 18,144 20,030 70,683
------- ------- ------- ------- --------
Total $ 46,473 $ 57,216 $ 62,139 $ 74,013 $ 239,841
------- ------- ------- ------- --------
COST OF SALES
Cost of license $ 75 $ 441 $ 256 $ 245 $ 1,017
Cost of support and service 18,152 23,450 21,966 25,505 89,073
Cost of hardware 8,240 15,341 12,761 15,293 51,635
------- ------- ------- ------- --------
Total $ 26,467 $ 39,232 $ 34,983 $ 41,043 $ 141,725
------- ------- ------- ------- --------
GROSS PROFIT $ 20,006 $ 17,984 $ 27,156 $ 32,970 $ 98,116
Income before taxes $ 12,734 $ 6,260 $ 15,390 $ 17,381 $ 51,765
Net Income $ 8,207 $ 4,201 $ 10,176 $ 11,434 $ 34,018
Diluted income per share $ 0.09 $ 0.05 $ 0.12 $ 0.13 $ 0.40
Item 9 Changes in and Disagreements With Accountants on Accounting and
------ ---------------------------------------------------------------
Financial Disclosures
---------------------
None.
Item 9A Controls and Procedures
------- -----------------------
An evaluation was carried out under the supervision and with the
participation of our management, including our Company's Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operations of our disclosure controls and procedures pursuant to
Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation as of the
end of the period covered by this report, the CEO and CFO concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings. There
have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of evaluation.
PART III
Item 10 Directors and Executive Officers of the Registrant
------- --------------------------------------------------
See the information under the captions "Election of Directors", "Corporate
Governance", "Audit Committee Report", "Executive Officers and Significant
Employees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's definitive Proxy Statement which is incorporated herein by
reference.*
Item 11 Executive Compensation
------- ----------------------
See the information under captions "Executive Compensation", "Compensation
Committee Report" and "Company Performance" in the Company's definitive
Proxy Statement which is incorporated herein by reference.*
Item 12 Security Ownership of Certain Beneficial Owners and Management and
------- ------------------------------------------------------------------
Related Stockholder Matters
---------------------------
See the information under the captions "Stock Ownership of Certain
Stockholders" , "Election of Directors" and "Equity Compensation Plan
Information" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
Item 13 Certain Relationships and Related Transactions
------- ----------------------------------------------
See the information under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement which is
incorporated herein by reference.*
Item 14. Principal Accountant Fees and Services
-------- --------------------------------------
See the information under the captions "Audit Committee Report" and
"Independent Auditors - Audit and Non-Audit Fees" in the Company's
definitive Proxy Statement which is incorporated herein by reference.*
*Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(3) to Form 10-K.
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
------- ---------------------------------------------------------------
(a) The following documents are filed as part of this Report:
(1) The following Consolidated Financial Statements of the Company and its
subsidiaries and the Report of Independent Auditors' thereon appear under
Item 8 of this Report:
- Independent Auditors' Report.
- Consolidated Statements of Income for the Years Ended June 30, 2003,
2002 and 2001.
- Consolidated Balance Sheets as of June 30, 2003 and 2002.
- Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 2003, 2002 and 2001.
- Consolidated Statements of Cash Flows for the Years Ended June 30,
2003, 2002 and 2001.
- Notes to the Consolidated Financial Statements.
(2) The following Financial Statement Schedules filed as part of this Report
appear under Item 8 of this Report:
There are no schedules included because they are not applicable or the
required information is shown in the Consolidated Financial Statements
or Notes thereto.
(3) All exhibits not followed herewith are incorporated by reference to a
prior filing as indicated, pursuant to Rule 12b-32:
Index to Exhibits
-----------------
Exhibit No. Description
----------- -----------
3.1.7 Restated Certificate of Incorporation.
3.2.1 Amended and Restated Bylaws, attached as Exhibit A to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1996.
10.1 The Company's 1987 Stock Option Plan, as amended as of
October 27, 1992, attached as Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended September
30, 1992.
10.3 The Company's 1995 Non-Qualified Stock Option Plan, attached
as Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the Year Ended June 30, 1996.
10.8 Form of Indemnity Agreement which has been entered into as of
August 27, 1996, between the Company and each of its
Directors and Executive Officers, attached as Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the Year Ended
June 30, 1996.
10.9 The Company's 1996 Stock Option Plan, attached as Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for the
Year Ended June 30, 1997.
10.11 Line of Credit Agreement dated September 7, 1999, between the
Company and Commerce Bank, N.A., attached as Exhibit 10.11 to
the Company's current report on Form 8-K filed September 20,
1999.
10.16 Loan and Note Modification Agreement dated March 14, 2003,
between the Company and Commerce Bank, N.A.
10.17 IBM Business Partner Agreement dated January 1, 2003. *
21.1 List of the Company's subsidiaries.
23.1 Consent of Independent Auditors.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
32.2 Written Statement of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
* Confidential treatment requested for portions of this exhibit.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of the
period covered by this report:
- On April 18, 2003, the Company filed a report on Form 8-K which
reported fiscal 2003 third quarter financial results under Item 12.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized this
22nd day of September, 2003.
JACK HENRY & ASSOCIATES, INC., Registrant
By /s/ Michael E. Henry
---------------------
Michael E. Henry
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ Michael E. Henry Chairman of the Board and September 22, 2003
---------------------- Chief Executive Officer
Michael E. Henry and Director
/s/ Kevin D. Williams Chief Financial Officer September 22, 2003
---------------------- and Treasurer (Principal
Kevin D. Williams Accounting Officer)
/s/ John W. Henry Vice Chairman, Senior Vice September 22, 2003
---------------------- President and Director
/s/ Jerry D. Hall Executive Vice President September 22, 2003
---------------------- and Director
Jerry D. Hall
/s/ Joseph J. Maliekel Director September 22, 2003
----------------------
Joseph J. Maliekel
/s/ James J. Ellis Director September 22, 2003
----------------------
James J. Ellis
/s/ Burton O. George Director September 22, 2003
----------------------
Burton O. George
/s/ George R. Curry Director September 22, 2003
----------------------
George R. Curry
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report on Form 10-K to be signed
on behalf of the undersigned thereunto duly authorized.
JACK HENRY & ASSOCIATES, INC.
Date: September 22, 2003 /s/ Michael E. Henry
--------------------
Michael E. Henry
Chairman of the Board
Chief Executive Officer
Date: September 22, 2003 /s/ Kevin D. Williams
---------------------
Kevin D. Williams
Chief Financial Officer and Treasurer
Exhibit 3.1.7
STATE of DELAWARE
RESTATED CERTIFICATE of INCORPORATION
of
JACK HENRY & ASSOCIATES, INC.
At a meeting of the Board of Directors of Jack Henry & Associates, Inc.
held on August 26, 2003, a resolution was duly adopted setting forth a
proposed restatement of the Certificate of Incorporation of said corporation
and declaring said restatement to be advisable. The Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Section
245 of the General Corporation Law of the State of Delaware.
The restatement merely restates and integrates but does not further
amend the Certificate of Incorporation as theretofore amended or
supplemented, and there is no discrepancy between those provisions and the
provisions of this restated certificate. The capital of said corporation
shall not be reduced under or by reason of this restatement.
The original Certificate of Incorporation of Jack Henry & Associates,
Inc. was issued by the Secretary of State of Delaware on October 4, 1985.
The resolution adopted by the Board of Directors restating the
Certificate of Incorporation is as follows:
RESOLVED, that the Board of Directors finds it advisable and
convenient to restate but not amend the Certificate of Incorporation of
the corporation, and that the Restated Certificate of Incorporation
shall be as follows:
FIRST: This corporation is organized and will exist under the
laws of the State of Delaware.
SECOND: The name of the corporation is Jack Henry & Associates,
Inc.
THIRD: The location of the registered office of this
corporation within the State of Delaware is 30 Old Rudnick Lane, City of
Dover, County of Kent, Zip Code 19901. The name of its registered agent at
such address is LexisNexis Document Solutions, Inc.
FOURTH: The nature of the business of the corporation and the
purposes for which it is organized are to engage in any business and in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware, and to possess and employ all powers
now or hereafter granted or available under the laws of the State of
Delaware to such corporations.
FIFTH: 5.1. The total number of shares which the corporation
shall have authority to issue is 250,500,000 shares, which shall consist of
two classes. One class, designated "common stock, " shall consist of
250,000,000 shares, each of which shall have a par value of $.01 per share.
The other class, designated "preferred stock," shall consist of 500,000
shares, each of which shall have a par value of $1.00 per share.
5.2. The board of directors is hereby authorized to establish,
out of authorized but unissued shares of preferred stock, series of
preferred stock and to fix and determine the relative rights and preferences
of the shares of any series of preferred stock so established. Each of such
series may have such voting powers, full or limited, or no voting power, and
such dividend rights, conversion rights, rights and terms of redemption,
preferences, and relative participating optional or other special rights and
qualifications, relative participating options or other specific rights and
qualifications, limitations or restrictions thereof, and may be comprised of
such number of shares and designated in such manner as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
series as duly adopted by the board of directors.
5.3 The corporation shall have the right to impose restrictions
on the transfer of all, or any part of, its share and may become party to
agreements entered into by any of its shareholders restricting transfer or
encumbrance of any of its shares, or subjecting any of its shares to
repurchase or resale obligations.
SIXTH: Except as otherwise provided herein or in the bylaws,
every decision by a majority of the shares represented at the meeting and
entitled to vote on the subject matter shall constitute a valid corporate
act.
6.2 The corporation reserves the right to amend or repeal any
provisions contained in these articles of incorporation or any amendments
thereto; provided, however, that any proposed amendment shall be approved by
vote of the holders of two-thirds of the corporation's stock entitled to
vote. However, in the event any amendment to these articles of
incorporation or amendments thereto are recommended to the shareholders by
at least two-thirds of the corporation's board of directors, then the
affirmative vote of two-thirds of the shareholders of the corporation shall
not be required to adopt that amendment and only the vote of a simple
majority of the corporations' stock entitled to vote will be required.
6.3. The affirmative vote of the holders of two-thirds of the
corporation's stock entitled to vote shall be required to approve an
acquisition of the corporation by another person or entity by merger,
consolidation or otherwise and to approve a sale, lease or transfer of all
or substantially all of the assets of the corporation. However, in the
event any of these actions is recommended to the shareholders by at least
two-thirds of the members of the board of directors then the affirmative
vote of two-thirds of the shareholders of the corporation shall not be
required to adopt such action and only the vote of a simple majority of the
corporation's stock entitled to vote will be required.
SEVENTH: [omitted]
EIGHTH: [omitted]
NINTH: The number of directors of the corporation shall be
fixed from time to time in the manner provided in the bylaws and may be
increased or decreased from time to time in the manner provided in the
bylaws.
TENTH: The board of directors of the corporation is expressly
authorized to make, alter or repeal the bylaws of the corporation. The
bylaws of the corporation may also be adopted, altered, amended or repealed
by the affirmative vote of the holders of two-thirds of the corporation's
stock entitled to vote.
ELEVENTH: The corporation shall, to the fullest extent permitted
by Delaware law as in effect from time to time, indemnify any person against
all liability and expense (including attorneys' fees) incurred by reason of
the fact that he is or was a director or officer of the corporation or,
while serving as a director or officer of the corporation, he is or was
serving at the request of the corporation as a director, officer, partner or
trustee of, or in any similar managerial or fiduciary position of, or as an
employee or agent of, another corporation, partnership, joint venture,
trust, association or other entity. Expenses (including attorneys' fees)
incurred in defending an action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding to the full extent and under the circumstances permitted by
Delaware law. The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, fiduciary or
agent of the corporation against any liability asserted against and incurred
by such person in any such capacity or arising out of such person's
position, whether or not the corporation would have the power to indemnify
against such liability under the provisions of this Section Eleventh. The
indemnification provided by this Section Eleventh shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under this certificate of incorporation, any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise, and shall inure to
the benefit of their heirs, executors and administrators. The provisions of
this Section Eleventh shall not be deemed to preclude the corporation from
indemnifying other persons from similar or other expenses and liabilities as
the board of directors or the stockholders may determine in a specific
instance or by resolution of general application.
TWELFTH: The corporation shall have authority, to the fullest
extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, or by any other applicable law, to enter into any
contract or transaction with one or more of its directors or officers, or
with any corporation, partnership, association or other organization in
which one or more of its directors or officers are directors or officers, or
have a financial interest, notwithstanding such relationships and
notwithstanding the fact that the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction and notwithstanding the fact
that his or their votes are counted for such purpose. Both common and
interested directors may be counted in determining the presence of a quorum
at a meeting of the board of directors or of a committee which authorizes
the contract or transaction.
THIRTEENTH: Election of directors need not be by written ballot
except and to the extent provided in the bylaws of the corporation.
FOURTEENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this corporation or any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of section 291 of Title
8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned
by the court to which the said reorganization has been made, be binding on
all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this corporation, as the case may be, and also on
this corporation.
FIFTEENTH: To the fullest extent permitted by the Delaware
General Corporation Law and any amendments thereto, no director of the
corporation shall be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
SIXTEENTH: Any action required or permitted to be taken by the
stockholders of the corporation must be taken at an annual or special
meeting of the stockholders and may not be taken by any consent in writing
in lieu of a meeting of such stockholders.
SEVENTEENTH: The Board of Directors of the corporation, when
evaluating any offer of another party to (i) purchase or exchange any
securities or property for any outstanding equity securities of the
corporation, (ii) merge or consolidate the corporation with another
corporation, or (iii) purchase or otherwise acquire all or substantially all
of the properties and assets of the corporation, shall, in connection with
the exercise of its judgment in determining what is in the best interests of
the corporation and its stockholders, give due consideration to all relevant
factors, including without limitation: (a) not only the price or other
consideration being offered in relation to the then current market price of
the corporation's outstanding shares of capital stock, but also the Board of
Directors' estimate of the future value of the corporation as an independent
going concern and the unrealized value of its property and assets; (b) the
financial and managerial resources and future prospects of the other party;
and (c) the possible social, legal, environmental and economic effects of
the transaction on the business of the corporation and its subsidiaries and
on the employees, customers and creditors of the corporation and its
subsidiaries and the effects on the communities in which the corporation's
offices are located. In evaluating any such offer on the basis of the
foregoing factors, the directors shall be deemed to be performing their duly
authorized duties and acting in good faith and in the best interests of the
corporation within the meaning of Section 145 of the General Corporation Law
of Delaware, as it may be amended from time to time.
In Witness Whereof, said Jack Henry & Associates, Inc. has caused this
certificate to be signed by Michael E. Henry, an Authorized Officer, this
26th day of August, A.D. 2003.
By:/s/ Michael E. Henry
--------------------
Michael E. Henry
Chairman of the Board
Exhibit 10.16
LOAN AND NOTE MODIFICATION AGREEMENT
THIS LOAN AND NOTE MODIFICATION AGREEMENT (the "Amendment") is entered
into as of this 14th day of March, 2003, by and between JACK HENRY &
ASSOCIATES, INC., a Delaware corporation ("Company"), and COMMERCE BANK,
N.A., a national banking association ("Bank").
WHEREAS, (i) Company and Bank entered into that certain Line of Credit
Loan Agreement dated September 7, 1999, as amended June 6, 2000, June 15,
2001, December 15, 2001, and December 14, 2002 (collectively the "Loan
Agreement"), and (ii) Company executed and delivered to Bank that certain
Line of Credit Note of even date therewith in the aggregate principal amount
of $40,000,000, as amended June 6, 2000, June 15, 2001, and December 14,
2002 (collectively the "Note), in connection with the Loan Agreement; and
WHEREAS, Company and Bank desire to modify and amend certain provisions
of the Loan Agreement and the Note to extend the Termination Date.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendments of the Loan Agreement. The Loan Agreement is hereby
amended as follows:
(a) Section 1.1 of the Loan Agreement is amended and restated to
read as follows:
1.1 Line of Credit. Subject to the terms of this
Agreement, Bank shall lend Company from time to
time until the termination hereof, such sums as
Company may request, but which shall not exceed the
aggregate principal amount of Fifty Million and
No/100 Dollars ($50,000,000) from September 15,
2000 to, but not including, December 14, 2003,
unless renewed by written agreement between Bank
and Company (the "Termination Date"). In addition
to the foregoing, the Line of Credit shall be
deemed to automatically terminate if the occurrence
of an Event of Default (as defined under Article V
hereof) causes the principal balance and all
accrued interest under the Line of Credit Note (as
defined in Section 1.2) to become immediately due
and payable.
2. Amendment of the Note. The last sentence of the second paragraph
of the Note is amended and restated to read as follows:
All outstanding principal and any unpaid interest thereon
under this Line of Credit Note is due and payable on December
14, 2003.
3. Representations and Warranties. Company hereby represents and
warrants to Bank as follows:
(a) No default currently exists under the Loan Agreement, the Note
or the other Loan Documents and no event has occurred which with the
passage of time or the giving of notice, or both, would constitute a
default under the Loan Documents.
(b) The Certificate of Incorporation and Bylaws of Company, the
Articles of Incorporation or Certificate of Limited Partnership, as
applicable, for each Guarantor, and the Bylaws or Partnership
Agreement, as applicable, for each Guarantor have in each case not been
amended, modified or supplemented since September 7, 1999.
(c) All of the representations and warranties made by Company in
the Loan Documents are true as if made on the date hereof.
4. Conditions Precedent. Closing of this Amendment and the
transactions contemplated hereunder is conditioned on the following:
(a) Receipt by Bank of Certificates of Good Standing, dated not
more than ten (10) days prior to the date of this Amendment for Company
and each Guarantor from their respective states of organization.
(b) An opinion of counsel to Company and the Guarantors, with
respect to such matters as requested by Bank.
(c) Certified copies of each resolution of (i) Company's Board of
Directors duly authorizing the execution and delivery of this Amendment
and the consummation of the transactions contemplated herein and (ii)
each Guarantor's Board of Directors approving this Amendment and the
consummation of the transactions contemplated herein.
(d) Receipt by Bank of each Acknowledgement and Consent attached
hereto, executed by each of the Guarantors.
(e) Any other documents, instruments and reports as Bank shall
reasonably request.
5. Interpretation. From and after the execution of this Amendment by
all of the parties hereto, all references in the Loan Agreement, the Note,
the Guaranty and the other Loan Documents to "this Agreement," "hereof,"
"herein," and similar terms shall mean or refer to such Loan Documents as
amended by this Amendment, and all references in other Loan Documents to
such documents shall mean such Loan Documents as amended by this Amendment.
Unless otherwise specifically defined herein, all defined terms shall have
the meaning given them in the Loan Agreement. Section headings are inserted
in this Amendment for convenience of reference only and shall not be used in
the interpretation of this Amendment.
6. Ratification. Unless specifically amended or modified by the terms
of this Amendment, all other terms of the Loan Agreement, the Note and the
other Loan Documents shall remain unchanged and in full force and effect and
are hereby ratified and confirmed.
7. Counterparts. This Amendment may be executed in counterparts, which
when taken together, shall constitute one and the same document.
8. Statutory Notice. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US
EXCEPT AS WE MAY LATER AGREE IN WRITING.
BY SIGNING BELOW, YOU AND WE AGREE THAT THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN US.
9. Waiver of Jury Trial. COMPANY HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH COMPANY AND BANK MAY BE PARTIES ARISING OUT
OF, IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO, THIS AMENDMENT, THE
LOAN AGREEMENT, THE NOTE AND ANY OTHER LOAN DOCUMENT. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL
CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY COMPANY, AND COMPANY HEREBY
REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. COMPANY FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN
REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE
REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers on the day and year first above
written.
JACK HENRY & ASSOCIATES, INC.
By: /s/ Michael E. Henry
--------------------
Name: Michael E. Henry
Title: Chief Executive Officer
COMMERCE BANK, N.A.
By: /s/ Joe McCaddon
----------------
Name: Joe McCaddon
Title: Senior Vice President
GUARANTOR'S ACKNOWLEDGEMENT AND CONSENT
The undersigned has heretofore executed and delivered to Bank a
Guaranty dated September 7, 1999, and hereby consents to the Loan and Note
Modification Agreement as set forth above, including without limitation the
extension of the Termination Date, and, subject to such Amendment, confirms
that the Guaranty and all of the undersigned's obligations thereunder remain
in full force and effect. The undersigned further agrees that its consent
to any further amendments to the Loan Agreement shall not be required as a
result of this consent having been obtained.
OPEN SYSTEMS GROUP, INC.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
GUARANTORS' ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned has heretofore executed and delivered to
Bank a Guaranty dated July 20, 2000, and hereby consents to the Loan and
Note Modification Agreement as set forth above, including without limitation
the extension of the Termination Date, and, subject to such Amendment,
confirms that the Guaranty and all of the undersigneds' obligations
thereunder remain in full force and effect. Each of the undersigned further
agrees that its consent to any further amendments to the Loan Agreement
shall not be required as a result of this consent having been obtained.
SYS-TECH, INC. OF KANSAS
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
SYMITAR SYSTEMS, INC.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
JACK HENRY, L.L.C.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
JACK HENRY SYSTEMS, L.P.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
JACK HENRY SOFTWARE/COMMLINK L.P.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
JACK HENRY SERVICES L.P.
By: /s/ Kevin D. Williams
---------------------
Name: Kevin D. Williams
Title: Chief Financial Officer and Treasurer
Exhibit 10.17
[Confidential materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.]
IBM Business Partner Agreement
Solution Provider Profile
----------------------------------------------------------------------------
We welcome you as an IBM Business Partner-Solution Provider.
This Profile covers the details of your approval to actively market
Products and Services. As our Solution Provider, you enhance Products
and Services with your solution to provide Products and Services capable
of satisfying the Customer's requirements.
By signing below, each of us agrees to the terms of the following
(collectively called the "Agreement"):
(a) this Profile;
(b) General Terms (Z125-5478-07 08/2002);
(c) the applicable Attachments referred to in this Profile; and
(d) the Exhibit.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship, and replace any prior oral or
written communications between us. Once this Profile is signed, 1) any
reproduction of this Agreement or a transaction document made by reliable
means (for example, photocopy or facsimile) is considered an original, to
the extent permissible under applicable law, and 2) all Products and
Services you market and Services you perform under this Agreement are
subject to it. If you have not already signed an Agreement for Exchange
of Confidential Information (AECI), your signature on this Profile
includes your acceptance of the AECI.
After signing this Profile, please return a copy to the IBM address shown
below.
Revised Profile (yes/no): YES Date received by IBM: _______________
Date received by IBM:
Agreed t: Agreed to:
Jack Henry & Associates, Inc. International Business
Machines Corporation
By_____________________________ By_____________________________
Authorized Signature Authorized signature
Name (type or print): Name (type or print):
Date: Date:
IBM Business Partner Number: 1004727
IBM Business Partner address: IBM address:
663 W. Highway 60 4111 Northside Parkway Suite
Monett, MO 65708 Atlanta, GA 30327
ASPID: 18784
DETAILS OF OUR RELATIONSHIP
Contract Period Start Date (month/year): 01/03 Duration: 24
Relationship Approval/Acceptance of Additional Terms:
For each approved relationship, each of us agrees to the terms of the
following by signing this Profile. Copies of the Attachments are included.
Approved Relationship Applicable Attachment
(yes/no)
Solution Provider Attachment Yes Z125-5480-05 08/2002
Complementary Marketing Terms Attachment Yes Z125-5498-03 03/2001
Remarketer Terms Attachment Yes Z125-5497-06 08/2002
North American Marketing Attachment Yes Z125-5891-02 01/2000
Federal Remarketer Attachment Yes Z125-5514-02 05/2002
Additional Terms
Federal Certification Attachment Yes Z125-5515-02 04/99
Federal GSA Contract Attachment No Z125-6016-00 03/99
Attachment for Services Marketing
for Remarketers Yes Z125-5750-00 11/1997
Attachment for IBM as Subcontractor
for Services Yes Z125-5718-00 12/97
Attachment for Network and e-business
Services for Remarketers No Z125-5744-01 12/2001
Attachment for ServiceSuite - Remarketer Yes Z125-5767-03 01/2001
Attachment for Finance Services from
IBM Credit Corporation Yes Z125-5795-04 06/2002
Marketing of Used Equipment Attachment Yes Z125-5595-02 06/2000
Attachment for Acquisition of IBM Personal
Computer Products & Services from IBM
PartnerChoice Yes Z125-6646-01 07/2002
Internet Service Provider Agreement Yes Z125-6130-01 06/2000
e-business Hosting Services Attachment
for Remarketers No Z125-6627-01 07/2002
You are approved to market to: End Users Only
Approved Only for Development System (yes/no): NO
You are approved to use the Products identified in this section, including
their associated Programs and peripherals, for development purposes. This
section is approval for development use and is not approval to market these
Products. The Products and Services section on the next page is approval
for both marketing and development.
Development System Products:
_________________________________ _____________________________________
_________________________________ _____________________________________
_________________________________ _____________________________________
Product and Service Approval:
The following Products and Services are listed in the Exhibit. The terms of
the Exhibit apply to the Products and Services listed in it.
When we approve you for Products listed in the Exhibit, you are also
approved to market their associated
Programs and peripherals.
Approved to Market
under Remarketer Terms
Approved to Market under Acquire Acquire
Complementary Marketing From From
Terms IBM Distributor Name of
(yes/no) (yes/no) (yes/no) Distributor Effective Date
System Types
1) IBM eServer
zSeries System/390 (1) (2) No No No _________________________________
2) IBM eServer
pSeries RS/6000 (1)(3)(4)(8) No Yes No _________________________________
7040 (1) (3) (4) (5) No No No _________________________________
708X CLUSTER 1300 (1)(3)(5)(8) No No No _________________________________
IBM RS/6000 SP (1)(3)(4)(5) No No No _________________________________
3) IBM eServer iSeries AS/400 (1)(3)(8)
9406 (14) No Yes No _________________________________
9406-250 (14) N/A N/A No _________________________________
9406-270 (14) No No No _________________________________
4) IBM Retail Point of
Sale Products (1)(3)
4694 Point of Sale Terminal No No No _________________________________
4800 SurePOS 700 No No No _________________________________
4810 Sure POS 300 No No No _________________________________
4835 Netvista Kiosk No No No _________________________________
4840 SurePOS500 No No No _________________________________
5) IBM 4614 SureOne (3) N/A No Yes AVNET____________________________
IBM Personal Computer Products (3) (6)
1) IBM PC Desktop N/A No Yes N/A
2) IBM PC Server N/A No Yes N/A
3) IBM Mobile N/A No Yes N/A
4) PC Features and Options N/A No Yes N/A
Additional Products
1) IBM Network Integration Products (1) No No No _________________________________
2) 3745 Communications Controller No No No _________________________________
3) 3746 Expansion Unit/Controller No No No _________________________________
4) Graphics No No N/A N/A
5) Finance Products Category J1 No No No _________________________________
6) Finance Products Category J2 N/A Yes No _________________________________
7) IBM Storage Products (3)
Category S1 Products Yes Yes No _________________________________
Category S2 Products Yes Yes No _________________________________
Category S3 Products No No No _________________________________
Category S5 Products Yes Yes No _________________________________
Category S6 Products No No No _________________________________
Category S7 Products No No No _________________________________
Category S9 Products Yes Yes No _________________________________
8) IBM 8690 Kiosk (5) No N/A N/A N/A
9) IBM 389X Document Processors No N/A N/A N/A
10) Multimedia No N/A N/A N/A
11) IBM Printing Systems Products
Industrial N/A No No _________________________________
Workgroup N/A No No _________________________________
Production N/A No No _________________________________
Software N/A No No _________________________________
Availability Services N/A No No _________________________________
Professional Services N/A No No _________________________________
Approved to Market
under Remarketer Terms
Approved to Market under Acquire Acquire
Complementary Marketing From From
Terms IBM Distributor Name of
(yes/no) (yes/no) (yes/no) Distributor Effective Date
Software Only
1) Tivoli Enterprise Software
Category SWI Dl- Tivoli
Storage Mgt Software NO NO _________________________________
Category SWI D2- Tivoli
Storage Mgt SW NO NO _________________________________
2) IBM Voice Systems Software
Category SW2AI-IBM Voice
Systems Software Technologies NO NO NO _________________________________
3) S/390 and zSeries IPLA Software
Category SW3AI-Data Management Tools NO NO _________________________________
Category SW3BI -Application and
Integration Middleware NO NO _________________________________
Category SW3CI-Tivoli Products NO NO _________________________________
(1) When we approve you to market these Products you are also approved
for IBM Personal Computer and associated Products included in the IBM
Business Partner Exhibit as listed in PARTNERlnfo.
(2) When we approve you to market these Products, you are also approved
to market the associated Programs under complementary marketing terms.
Unless specified otherwise, these Programs are not available for
marketing under remarketer terms.
(3) These Products (including Used Equipment) are eligible for
marketing under the terms of the North American Marketing Attachment.
Used Equipment is not eligible for export.
For Products and Services we specify under "Approved to Market Under
Remarketer Terms", we will specify if you are approved to acquire such
Products and Services from us or from the Distributor we specify in this
Profile (personal computer Products may be acquired from any IBM
Remarketer).
For Products and Services we specify you acquire from us, we may specify
in your Exhibit that you acquire the Products and Services from a
supplier instead of from us. When you acquire the Products and Services
from a Distributor or supplier, the terms of the Agreement relating to
your acquisition of Products and Services directly from us (for example,
terms relating to the return of Products and Services, and terms relating
to the ordering of Products and Services) are not applicable. All other
terms apply.
Approved to Market
under Complementary
Marketing Terms
(yes/no) (7)
Non-IBM Products
1) Local Vendor (LVP) Products (9) NO
IBM CAD/CAM Programs
1) CATIA (10) (11) NO
2) IGES Processor/6000 NO
3) Numerical Control PostProcessor Generator NO
4) Product Manager (10) NO
5) ENOVIA (10) (11) NO
You are also approved for the programs (if any) listed below:
_______________________________________________________________________
_______________________________________________________________________
(4) Your approval to market the IBM eServer p Series RS/6000 is a
prerequisite for approval to market the RS/6000 SP and the IBM
pSeries RS/6000 7040. However, approval for the pSeries RS/6000
does not constitute approval for you to market the RS/6000 SP or
the pSeries RS/6000 7040.
(5) Not available for Central Order. A Project Form is required.
(6) These Products have unique revenue requirements to enable direct
acquisition from IBM.
(7) Approval for the System or lndustry Product includes approval for the
programs, peripherals and other offerings associated with it. This
excludes the programs listed in the Application Programs section of
this Profile, for which specific approval is required.
(8) When marketing under the Complementary Marketing Terms, a Project
Form is not required when marketing with an eligible value added
enhancement.
(9) We will specify each LVP Product that applies to you.
(10) A Complex Operating Environment addendum must be completed.
(11) Registered trademark of Dassault Systemes of America.
(12) You may market these Services to an End User without the
requirement to have marketed a Machine or Program to the End User.
(13) The terms for remarketing Services (other than shrink-wrap
Services) are contained in other documents which we provide to you.
(14) Your approval to market the IBM eServer iSeries 9406 is also
approval to market the iSeries AS/400 9406-250 which may only be
acquired from a Distributor, and the 9406-270. However, approval to
market the iSeries 9406-250 or the 9406-2 70 does not constitute
approval for you to market the IBM eServer iSeries 9406.
(15) Approvals in these categories permit the marketing of Services
specified on the Exhibit, independent of a system sale and hardware
Value Added Enhancement (VAE). There is also no requirement for a
separate Services VAE.
Approved to Market Approved to Market
under Complementary under Remarketer
Marketing Terms Terms
(yeslno) (yes/no)
IBM Global Services (12) (13)
1) Integrated Technology Services
a) Maintenance Services NO NO
b) Software Services (15) NO NO
c) Site & Connectivity Services (15) NO NO
d) Backup and Recovery Services NO NO
2) Managed e-business Services NO NO
a) Managed Data Network Services NO NO
b) e-business Hosting
Interchange Services for e-business NO NO
Hosting Services for e-business NO NO
c) SHOWBBS NO NO
d) Software Mall NO NO
3) Learning Services N/A NO
4) Business Innovation Services N/A NO
Certified Products you are approved to market.
_________________________________ ___________________________________
_________________________________ ___________________________________
_________________________________ ___________________________________
Exclusions, if applicable:
Although included by reference in Product and Services approval, you are
not approved to market these individual Products or Services.
Minimum Attainment:
Product/Service Volume/Revenue Measurement
Period Dates
Storage, iSeries. pSeries $2000000 01/01/2003 to 12/31/2004
_________________________ ________ ________________________
_________________________ ________ ________________________
_________________________ ________ ________________________
Locations:
Loc. lD Location (street address, city, state, ZlP code)
31422 404 Camino Del Rio South
San Diego, CA 92108
Loc. lD Location (street address, city, state, Zip code)
62707 663 W Highway 60
Monett, MO 65708
Your Commitment, if applicable:
This section identifies by System Type/System Unit or IBM Managed e-
business Services (Eligible Products) as applicable, your Annual System
Revenue Performance (ASRP) Commitment (Revenue Commitment) and the
Applicable Discount Percentage. At your request we will review your revenue
attainment at any time to determine if you qualify for a higher Applicable
Discount Percentage.
After each annual measurement period, IBM will review your revenue
attainment by Eligible Product. lf your revenue attainment is less than your
Revenue Commitment, your Applicable Discount Percentage will be adjusted
downward to the appropriate level. lf your revenue attainment is greater
than your Revenue Commitment, your Applicable Discount Percentage will be
adjusted upward as appropriate.
Eligible Revenue Applicable Discount
Products Commitment Percentage
(annual)
----------------------------------------------------------
IBM pSeries [*] [*]%
RS/6000 (1) Federal (2) Discount for:
Machines *% Programs *%
----------------------------------------------------------
IBM Series [*] [*]%
AS/400: (1)
----------------------------------------------------------
IBM Storage Entry Cat SI & S6 *% Cat S2 *%
Products Cat S3 ___ Cat 57 ___
----------------------------------------------------------
IBM Point of Sale N/A ______________
Products (1)
----------------------------------------------------------
This section identifies your Revenue Commitment and the applicable discount
percentage. At your request we will review your revenue attainment against
your Revenue Commitment at any time to determine if you qualify for a higher
applicable discount percentage.
After each measurement period, IBM will review your revenue attainment.
If your revenue attainment is less than your Revenue Commitment, your
applicable discount percentage will be adjusted downward to the appropriate
level. Additionally, if your revenue attainment is greater than your Revenue
Commitment, your applicable discount percentage will be adjusted upward as
appropriate.
--------------------------------------------------
IBM Network Revenue Applicable Additional
Integration Commitment Discount Percentage
Products (Annual) (3)
N/A ______________
--------------------------------------------------
IBM 3746 Revenue Applicable
Communications Commitment Discount
Controller (Annual) Percentage
N/A _______________
--------------------------------------------------
Managed Revenue Applicable
e-business Commitment Discount
Services for Percentage
Contract
Period
N/A ________________
--------------------------------------------------
(1) Your ASRP Commitment is the aggregate of such Commitment for the U.S.
and Canada. Your Applicable Discount Percentage is based on the
aggregate of your ASRP Commitment for the U.S. and Canada.
(2) The Products eligible for the Federal discount are identified in the
IBM Business Partner Exhibit.
(3) The Products eligible for the Applicable Additional Discount Percentage
are identified in the Business Partner Exhibit
Assignment of Warranty Service Responsibility, if applicable:
You assign to us, or an IBM Premier Personal Computer Servicer, Warranty
Service responsibility for the following Machines.
Type/Model Type/Model Type/Model Type/Model
---------- ---------- ---------- ----------
______________ ______________ ______________ ________________
______________ ______________ ______________ ________________
______________ ______________ ______________ ________________
______________ ______________ ______________ ________________
Unless you are assigning to us, please specify the name of the IBM
Premier Personal Computer Servicer:
________________________________________________________________
Value Added Enhancement Descriptions:
The following is a description of each of your value added enhancements,
including an indication of the relationship (Complementary or Remarketer)
to which it pertains.
See attached (VAEATT)
IBM Business Partner Agreement -
General Terms
----------------------------------------------------------------------------
Table of Contents
Section Title Page
1. Definitions 2
2. Agreement Structure and Contract Duration 3
3. Our Relationship 4
4. Status Change 6
5. Confidential Information 6
6. Marketing Funds and Promotional Offerings 6
7. Production Status 6
8. Patents and Copyrights 6
9. Liability 7
10. Trademarks 8
11. Changes to the Agreement Terms 8
12. Internal Use Products 8
13. Demonstration, Development and Evaluation
Products 9
14. Electronic Communications 9
15. Geographic Scope 9
16. Governing Law 9
IBM Business Partner Agreement -
General Terms
----------------------------------------------------------------------------
1. Definitions
Business Partner is a business entity which is approved by us to market
Products and Services under this Agreement.
Customer is either an End User or a Remarketer. We specify in your
Profile if we approve you to market to End Users or Remarketers, or
both.
End User is anyone, who is not part of the Enterprise of which you are
a part, who uses Services or acquires Products for its own use and not
for resale.
Enterprise is any legal entity (such as a corporation) and the
subsidiaries it owns by more than 50 percent.
Licensed Internal Code (LIC) is Machine Code used by certain Machines
IBM specifies (Specific Machines).
Machine is a machine, its features, conversions, upgrades, elements,
accessories, or any combination of them. The term "Machine" includes an
IBM Machine and any non-IBM Machine (including other equipment) that we
approve you to market.
Machine Code is micro code, basic input/output system code (BIOS),
utility programs, device drivers, and diagnostics delivered by an IBM
Machine.
Product is a Machine or Program, that we approve you to market, as we
specify in your Profile.
Program is an IBM Program or a non-IBM Program provided by us, under
its applicable license terms, that we approve you to market. The term
"Program" does not include LIC or Machine Code.
Related Company is any corporation, company or other business entity:
1. more than 50 percent of whose voting shares are owned or controlled,
directly or indirectly, by either of us, or
2. which owns or controls, directly or indirectly, more than 50 percent
of the voting shares of either of us, or
3. more than 50 percent of whose voting shares are under common
ownership or control, directly or indirectly, with the voting shares
of either of us.
However, any such corporation, company or other business entity is
considered to be a Related Company only so long as such ownership or
control exists. "Voting shares" are outstanding shares or securities
representing the right to vote for the election of directors or other
managing authority.
Remarketer is a business entity which acquires Products and Services,
as applicable, for the purpose of marketing.
Service is performance of a task, provision of advice and counsel,
assistance, support or access to a resource (such as a network and
associated enhanced communication and support) that we approve you to
market.
2. Agreement Structure and Contract Duration
Profiles
We specify the details of our relationship (for example, the type of
Business Partner you are) in a document called a "Profile." Each of us
agrees to the terms of the Profile, the General Terms, the applicable
Attachments referred to in the Profile, and the Exhibit (collectively
called the "Agreement") by signing the Profile.
General Terms
The General Terms apply to all of our Business Partners.
Attachments
We describe, in a document entitled an "Attachment", additional terms
that apply. Attachments may include, for example, terms that apply to
the method of Product distribution (Remarketer Terms Attachment or
Complementary Marketing Terms Attachment) and terms that apply to the
type of Business Partner you are, for example, the terms that apply to
a Distributor relationship as described in the Distributor Attachment.
We specify in your Profile the Attachments that apply.
Exhibits
We describe in an Exhibit, specific information about Products and
Services, for example, the list of Products and Services you may
market, and warranty information about the Products.
Transaction Documents
We will provide to you the appropriate "transaction documents." The
following are examples of transaction documents, with examples of the
information and responsibilities they may contain:
1. invoices (item, quantity, payment terms and amount due); and
2. order acknowledgements (confirmation of Products and quantities
ordered).
Conflicting Terms
If there is a conflict among the terms in the various documents, the
terms of:
1. a transaction document prevail over those of all the documents;
2. an Exhibit prevail over the terms of the Profile, Attachments and the
General Terms;
3. a Profile prevail over the terms of an Attachment and the General
Terms; and
4. an Attachment prevail over the terms of the General Terms.
If there is an order of precedence within a type of document, such
order will be stated in the document (for example, the terms of the
Distributor Attachment prevail over the terms of the Remarketer Terms
Attachment, and will be so stated in the Distributor Attachment).
Our Acceptance of Your Order
Products and Services become subject to this Agreement when we accept
your order by:
1. sending you a transaction document; or
2. providing the Products or Services.
Acceptance of the Terms in a Transaction Document
You accept the terms in a transaction document by doing any of the
following:
1. signing it (those requiring a signature must be signed);
2. accepting the Product or Services;
3. providing the Product or Services to your Customer; or
4. making any payment for the Product or Services.
Contract Duration
We specify the contract start date and the duration in your Profile.
Unless we specify otherwise in writing, the Agreement will be renewed
automatically for subsequent two year periods. However, you may advise
us in writing not to renew the Agreement. Each of us is responsible to
provide the other three months written notice if this Agreement will
not be renewed.
3. Our Relationship
Responsibilities
Each of us agrees that:
1. both of us are independent contractors, and this Agreement is non-
exclusive. Neither of us is a legal representative or legal 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 neither of us is an employee or franchise of the other,
nor does this Agreement create a joint venture between us;
2. each of us is responsible for our own expenses regarding fulfillment
of our responsibilities and obligations under the terms of this
Agreement;
3. neither of us will disclose the terms of this Agreement, unless both
of us agree in writing to do so, or unless required by law;
4. neither of us will assume or create any obligations on behalf of the
other or make any representations or warranties about the other,
other than those authorized;
5. any terms of this Agreement, which by their nature extend beyond the
date this Agreement ends, remain in effect until fulfilled and apply
to respective successors and assignees;
6. we may withdraw a Product or Service from marketing at any time;
7. we will allow the other a reasonable opportunity to comply before it
claims the other has not met its obligations, unless we specify
otherwise in the Agreement;
8. 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 the possibility of contractual waiver;
9. failure by either of us to insist on strict performance or to
exercise a right when entitled does not prevent either of us from
doing so at a later time, either in relation to that default or any
subsequent one;
10. neither of us is responsible for failure to fulfill obligations
due to causes beyond the reasonable control of either of us;
11. IBM reserves the right to assign, in whole or in part, this
Agreement, to a Related Company, but may assign its rights to payment
or orders to any third party;
12. IBM does not guarantee the results of any of its marketing plans;
13. each of us will comply with all applicable laws and regulations
(such as those governing consumer transactions); and
14. if any provision of this Agreement is determined to be invalid or
otherwise unenforceable, such provision will be deemed deleted from
this Agreement, while the remainder of this Agreement will remain in
full force and effect as written.
Other Responsibilities
You agree:
1. to be responsible for customer satisfaction for all your activities,
and to participate in customer satisfaction programs as we determine;
2. that your rights under this Agreement are not property rights and,
therefore, you can not transfer them to anyone else or encumber them
in any way. For example, you can not sell your approval to market our
Products or Services or your rights to use our Trademarks;
3. to maintain the criteria we specified when we approved you;
4. to achieve and maintain the certification requirements for the
Products and Services you are approved to market, as we specify in
your Profile;
5. not to assign or otherwise transfer this Agreement, your rights under
this Agreement, or any of its approvals, or delegate any duties,
unless expressly permitted to do so in this Agreement. Otherwise, any
attempt to do so is void;
6. to conduct business activities with us (including placing orders)
which we specify in the operations guide, using our automated
electronic system if available. You agree to pay all your expenses
associated with it such as your equipment and communication costs;
7. that when we provide you with access to our information systems, it
is only in support of your marketing activities. Programs we provide
to you for your use with our information systems, which are in
support of your marketing activities, are subject to the terms of
their applicable license agreements, except you may not transfer
them;
8. to promptly provide us with documents we may require from you or the
End User (for example, our license agreement signed by the End User)
when applicable;
9. that you will not offer or make payments or gifts (monetary or
otherwise) to anyone for the purpose of wrongfully influencing
decisions in favor of IBM, directly or indirectly. IBM may terminate
this Agreement immediately in case of 1) a breach of this clause or
2) when IBM reasonably believes such a breach has occurred, or is
likely to occur;
10. that your conduct under this Agreement will be consistent with the
antiboycott laws and regulations of the United States; and
11. International Business Machines Corporation and entities within
its Enterprise are allowed to store and use your contact information,
including names, phone numbers and e-mail addresses, anywhere they do
business. Such information will be processed and used in connection
with our business relationship, and may be provided to contractors,
Business Partners, and assignees of International Business Machines
Corporation and entities within its Enterprise for uses consistent
with their collective business activities, including communicating
with you (for example, for processing orders, for promotions and for
market research).
Our Review of Your Compliance with this Agreement
We may periodically review your compliance with this Agreement. You
agree to provide us with relevant records on request. We may reproduce
and retain copies of these records. We, or an independent auditor, may
conduct a review of your compliance with this Agreement on your
premises during your normal business hours.
If, during our review of your compliance with this Agreement, we find
you have materially breached the terms of this relationship, in
addition to our rights under law and the terms of this Agreement, for
transactions that are the subject of the breach, you agree to refund
the amount equal to the discount (or fee, if applicable) we gave you
for the Products or Services or we may offset any amounts due to you
from us.
4. Status Change
You agree to give us prompt written notice (unless precluded by law or
regulation) of any 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 substantive
change to information supplied in your application). Upon notification
of such change, (or in the event of failure to give notice of such
change) IBM may, at its sole discretion, immediately terminate this
Agreement.
5. Confidential Information
With reference to the IBM Agreement for Exchange of Confidential
Information, the following is confidential information (Information):
1. all information IBM marks or otherwise states to be confidential;
2. any information we identify as "Confidential" on a Web site. Your
access of such information is considered your agreement to accept it
as confidential;
3. any of the following prepared or provided by IBM:
a. sales leads,
b. information regarding prospects or Customers,
c. unannounced information about Products and Services,
d. business plans, or
e. market intelligence;
4. any of the following written information you provide to us on our
request and which you mark as confidential:
a. reporting data,
b. financial data,
c. the business plan,
d. customer satisfaction data; or
e. sales information.
All other information exchanged between us is nonconfidential, unless
disclosed as specified in the IBM Agreement for Exchange of
Confidential Information.
6. Marketing Funds and Promotional Offerings
We may provide marketing funds and promotional offerings to you. If we
do, you agree to use them according to our guidelines and to maintain
records of your activities regarding the use of such funds and
offerings for three years. We may withdraw or recover marketing funds
and promotional offerings from you if you breach any terms of the
Agreement. Upon notification of termination of the Agreement, marketing
funds and promotional offerings will no longer be available for use by
you, unless we specify otherwise in writing.
7. Production Status
Each IBM Machine is manufactured from new parts, or new and used parts.
In some cases, the IBM Machine may not be new and may have been
previously installed. Regardless of the IBM Machine's production
status, our appropriate warranty terms apply. You agree to inform your
Customer of these terms in writing (for example, in your proposal or
brochure).
8. Patents and Copyrights
For the purpose of this section only, the term Product includes, if
applicable, Licensed Internal Code and Machine Code.
If a third party claims that a Product we provide under this Agreement
infringes that party's patents or copyrights, we will defend you
against that claim at our expense and pay all costs, damages, and
attorneys' fees that a court finally awards, or that are included in a
settlement approved by IBM, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.
If you maintain an inventory, and such a claim is made or appears
likely to be made about a Product in your inventory, you agree to
permit us either to enable you to continue to market and use the
Product, or to modify or replace it with one that is at least
functionally. equivalent. If we determine that none of these
alternatives is reasonably available, you agree to return the Product
to us on our written request. We will then give you a credit, as we
determine, which will be either 1) the price you paid us for the
Product (less any price-reduction credit), or 2) the depreciated price.
This is our entire obligation to you regarding any claim of
infringement.
Claims for Which We Are Not Responsible
We have no obligation regarding any claim based on any of the
following:
1. anything you provide which is incorporated into a Product;
2. your modification of a Product, or a Program's use in other than its
specified operating environment;
3. the combination, operation, or use of a Product with any Products not
provided by us as a system, or the combination, operation, or use of
a Product with any product, data, apparatus or business method that
we did not provide; or
4. infringement by a non-IBM Product alone, as opposed to its
combination with Products we provide to you as a system.
9. 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 damages can be claimed, the
following terms apply as your exclusive remedy and our exclusive
liability.
Our Liability
IBM is responsible only for:
1. payments referred to in the "Patents and Copyrights" section above;
2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products; and
3. the amount of any other actual loss or damage, up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply) for
the Product or Service that is the subject of the claim.
Items for Which We Are Not Liable
Under no circumstances (except as required by law) is IBM, its
subcontractors, or Program developers liable for any of the following
even if informed of their possibility:
1. third-party claims against you for damages (other than those under
the first two items above in the subsection entitled 'Our
Liability');
2. loss of, or damage to, your records or data; or
3. special, incidental, or indirect damages, or for any economic
consequential damages or lost profits, business, revenue, goodwill or
anticipated savings.
Your Liability
In addition to damages for which you are liable under law and the terms
of this Agreement, you will indemnify us for claims made against us by
others (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.
10. Trademarks
We will notify you in writing of the applicable Business Partner title
and emblem which you are authorized to use. We will provide you with
written guidelines, which may periodically modify, regarding the use of
the Business Partner title and emblem. You may not modify the emblem in
any way. You may use our Trademarks (which include the title, emblem,
IBM trade marks and service marks) only:
1. within the geographic scope of this Agreement;
2. in association with Products and Services we approve you to market;
and
3. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the
Trademarks will be waived, since the use of this asset is in
conjunction with marketing activities for Products and Services.
You agree to promptly modify, at your expense, any advertising or
promotional materials that do not comply with our guidelines. If you
receive any complaints about your use of a Trademark, you agree to
promptly notify us. When this Agreement ends, you agree to promptly
stop using our Trademarks. If you do not, you agree to pay any expenses
and fees we incur in getting you to stop.
You agree not to register or use any mark that is confusingly similar
to any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them,
belong to us.
11. Changes to the Agreement Terms
We may change the terms of this Agreement by giving you one month's
written notice.
We may, however, change the following terms without advance notice:
1. those we specify in this Agreement as not requiring advance notice;
2. those of the Exhibit unless otherwise limited by this Agreement; and
3. those relating to safety and security.
Otherwise, for any other change to be valid, both of us must agree in
writing. Changes are not retroactive. Additional or different terms in
any written communication from you (such as an order), are void.
12. Internal Use Products
You may acquire Products you are approved to market for your internal
use within your Business Partner operations. Except for personal
computer Products, you are required to advise us when you order
Products for your internal use.
We will specify in your Exhibit the discount or price, as applicable,
at which you may acquire the Products for internal use. Such Products
do not count, unless we specify otherwise in the Exhibit, toward 1)
your minimum annual attainment, 2) determination of your discount or
price, as applicable, or 3) determining your marketing or promotional
funds.
Any value added enhancement or systems integration services otherwise
required by your relationship is not applicable when you acquire
Products for internal use. You must retain such Products for a minimum
of 12 months, unless we specify otherwise in the Exhibit. Products
acquired for internal use may not be used for work-for-charge.
13. Demonstration, Development and Evaluation Products
You may acquire Products you are approved to market for
demonstration, development and evaluation purposes, unless we
specify otherwise in the Exhibit. Such Products must be used
primarily in support of your Product marketing activities.
Additionally, such Products do not count unless we specify otherwise
in the Exhibit, toward 1) your minimum annual attainment, 2)
determination of your discount or price, as applicable, or 3)
determining your marketing or promotional funds.
We will specify in your Exhibit the Products we make available to
you for such purposes, the applicable discount or price, and the
maximum quantity of such Products you may acquire and the period
they are to be retained. The maximum number of input/output devices
you may acquire is the number supported by the system to which they
attach.
If you acquired the maximum quantity of Machines, you may still
acquire a field upgrade, if available.
We may decrease the discount we provide for such Products on one
month's written notice.
You may make these Products available to a Customer for the purpose
of demonstration and evaluation. Such Products may be provided to an
End User for no more than three months. For a Program, you agree to
ensure the Customer has been advised of the requirement to accept
the terms of a license agreement before using the Program. Products
acquired for demonstration, development and evaluation use may not
be used for work-for-charge.
14. Electronic Communications
Each of us may communicate with the other by electronic means, and
such communication is acceptable as a signed writing to the extent
permissible under applicable law. Both of us agree that for all
electronic communications, an identification code (called a "user
ID") contained in an electronic document is sufficient to verify the
sender's identity and the document's authenticity.
15. Geographic Scope
The rights, duties and obligations of both of us are valid only in
the United States and Puerto Rico.
16. Governing Law
The laws of the State of New York will govern, construe, and enforce
all the rights, duties and obligations arising under, or relating in
any manner to, the subject matter of this Agreement, notwithstanding
conflicts of laws principles.
The "United Nations Convention on Contracts for the International
Sale of Goods" does not apply.
IBM Business Partner Agreement
Solution Provider Attachment
----------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer
Terms Attachment and the Complementary Marketing Terms Attachment.
1. Marketing Approval
You may be approved as a Solution Provider under a remarketer
relationship or under a complementary marketing relationship, or both.
If we approve you to market the same Products and Services under both
remarketer and complementary marketing terms, all transactions will be
under remarketer terms. You may unilaterally elect not to participate
under remarketer terms for a specific transaction or business segment
by providing us a signed IBM Business Partner Statement of Election. If
you meet the requirements of the Marketing Approval section of the
Complementary Marketing Terms Attachment, you may participate under
those terms.
We may specify the specific industry codes to which you may market
Products and Services. If we do so, you agree to comply.
2. Value Added Enhancement
For Products we specify in the Exhibit, you are required to have a
solution which is a value added enhancement that we approve and specify
on your Profile and which significantly adds to the Product's function
and capability.
You agree to market Products and Services only with your approved value
added enhancement as part of an integrated solution for End Users.
Certain Products we specify do not require a value added enhancement.
In the event we withdraw approval of your value added enhancement, we
also withdraw your approval as an IBM Business Partner for that value
added enhancement.
We may, at any time, modify the criteria for approval of your value
added enhancement. You are responsible to modify your value added
enhancement to meet these criteria.
You agree to market Products, including processor upgrades requiring a
processor serial number change, to only End Users for whom your value
added enhancement is their primary reason for acquiring the Products,
and who intend the on-going use of such enhancement. A sale to an End
User without a value added enhancement, when required, is a material
breach of the Agreement.
However, your value added enhancement is not required to be the End
User's primary reason for acquiring upgrades to systems you previously
installed with your enhancement and where your enhancement is still in
productive use. Upgrades include processor upgrades (non-serial number
change), peripherals and programs.
Unless we specify otherwise in writing, you may market upgrades only to
those End Users where you have installed your value added enhancement,
and who intend on-going use of that value added enhancement.
3. Your Responsibilities To IBM
You agree:
1. to develop a mutually acceptable business plan with us, if we
require one. Such plan will document each of our marketing plans as
they apply to our relationship. We will review the plan, at a minimum,
once a year;
2. that, unless precluded by applicable law, one of the requirements
for you to retain this relationship is that you achieve the minimum
attainment we specify in your Profile;
3. to order Products and Services, as we specify in the operations
guide;
4. to maintain trained personnel, as we specify in your Profile or
Exhibit, as applicable;
5. to provide us, on our request, relevant financial information
about your business so we may, for example, use this information in our
consideration to extend credit terms to you;
6. to have access to the Products you are approved to market for 1)
demonstration purposes, 2) providing support to your End Users and 3)
supporting your value added enhancement; and
7. to maintain the capability to demonstrate Products we approve you
to market.
4. Your Responsibilities To End Users
When you market Products and Services under complementary marketing
terms, items 10 and 11 do not apply and items 2 and 5 only apply when
you use our central order facility.
You agree to:
1. assist the End User to achieve productive use of your solution and
the Products and Services you marketed;
2. configure Products we approve you to market. On your request, we may
assist you;
3. identify and select the required technology based upon the End
User's requirements, and confirm that the Product configuration is
fully capable of the satisfactory performance of your solution;
4. not make representations that IBM is responsible for the Products'
configuration and their ability to satisfy the End User's
requirements;
5. advise the End User of Product installation requirements;
6. develop a plan, agreed to by the End User, for installation and
post-installation support for the offering you market. For Products
and Services we approve you to market, such support includes your
being the primary contact for Product and Services information,
technical advice and operational advice associated with the
offering.
However, you may delegate these support responsibilities for
Products and any other associated products to another IBM Business
Partner who is approved to market such Products. If you do, you
retain customer satisfaction responsibility. Alternatively, such
support responsibilities will be provided by IBM if you market the
applicable IBM Services to the End User. If you do, we assume
customer satisfaction responsibility for such support;
7. assist the End User in Product problem determination and resolution,
unless this responsibility is delegated as specified in item 6
above;
8. give written notice to the End User of any modification you make to
a Product and the name of the warranty service provider and advise
that such modification may void the warranty for the Product;
9. support the End User in planning fulfillment of Product
training and education requirements, including informing the
End User of educational offerings, as applicable;
10. inform the End User that the sales receipt (or other documentation
such as Proof of Entitlement, if it is required) will be necessary
for proof of warranty entitlement or for Program upgrades;
11. provide warranty information to the End User; and
12. upon our request, for Products and Services we specify, participate
in or conduct solution and system assurance
IBM Business Partner Agreement
Complementary Marketing Terms Attachment
----------------------------------------------------------------------------
1. Our Relationship
As our IBM Business Partner under the complementary marketing terms,
you market to End Users the Products and Services we approve you to
market on our behalf at prices and terms established by IBM. We manage
the Product ordering process from ordering to delivery. We pay you a
fee as we specify in your Exhibit.
2. Marketing Approval
You may market Products and Services to an End User as specified 1) in
a Project Form we provide to you or, when we approve in writing, one we
receive from you, or 2) in the non-exclusive territory we specify in a
Territory Supplement.
You may market Products and Services to an End User for a period of
three months unless we specify otherwise in a Project Form, or as long
as the End User is specified in your Territory Supplement.
If you are a Solution Provider, you may market Products and Services to
an End User without our approval of a Project Form if you submit the
End User's order directly to our central order facility. However, for a
specific End User opportunity, you may not use our central order
facility if you 1) have a Project Form in effect or 2) have submitted
one to us and we have not responded.
In addition, if you are a Solution Provider, you may market Products
and Services to an End User without our approval of a Project Form when
1) the Machine is an AS/400 or RS/6OOO (excluding POWERparallel Systems
SP2), and 2) we specify in your Profile that the value added
enhancement you market is eligible. You agree that, if we accept fee
requests from other Solution Providers for the same opportunity, we may
split the fee between you and them.
We may withdraw, in writing, our approval for you to market to an End
User or remove an End User from your territory for any of the following
reasons and, if we do. you agree to stop your marketing activities with
the End User:
1. we decide not to accept the order (for example, if the End User's
credit is inadequate);
2. the End User cancels the order;
3. the End User makes a firm commitment to another vendor for the
Products and Services;
4. you or the End User requests termination of the approval; or
5. we determine, during our periodic reviews, that your sales
progress with the opportunity is not satisfactory.
3. Your Responsibilities To IBM
You agree to:
1. actively market Products and Services;
2. upon our request, participate in configuration, solution assurance,
and system assurance reviews;
3. distinguish to the End User between those activities you perform on
your own behalf and those you perform on IBM's behalf;
4. advise us of the Product's planned installation dates and
dependencies;
5. as required, prepare IBM documents, provide them to the End User and,
if applicable, secure the End User's signature on such documents, and
promptly provide them to us; and
6. assist us on our request in the collection of the accounts receivable
for Products and Services for which you earned a fee.
4. Your Responsibilities To End Users
You agree to provide support to your End User for 1) the period specified
on the Project Form or your Territory Supplement, 2) for one year if you
used our central order facility, or 3) for six months if the value added
enhancement you market is eligible.
5. Fees and Compensation
We may increase fees or compensation at any time. We may decrease fees or
compensation on one month's written notice.
You earn your fee on the date of our invoice to the End User. We will pay
you within one month after you earn your fee and we receive your request,
formatted as we specify in the operations guide. If we do not receive your
request within four months from when you earn your fee, no payment will be
made. You are only entitled to compensation for orders IBM accepts during
the contract duration.
You agree to reimburse us the applicable fees we paid to you, if for any
reason the Product you marketed is returned to us or a Service is
terminated within three months of the date the payment from the End User
was due us. The reimbursement may be prorated if the Product or Service is
on a recurring charge basis.
We periodically reconcile amounts we paid you to amounts you actually
earned. We may deduct amounts due us from future payments we make to you,
or ask you to pay amounts due us. Each of us agrees to promptly pay the
other any amounts due.
In addition to any other rights under law or this Agreement, we may
recover fees paid to you for an amount equal to our loss or damage we
suffer as a result of your breach of the terms of the Agreement.
If any authority requires us to include in our invoice to you, a duty,
tax, levy or fee, which they impose, excluding those based on our net
income, upon any transaction under this Agreement, then you agree to pay
that amount as specified in the invoice.
6. Marketing of Services
If you marketed a Product to an End User under this Agreement, or if you
are approved in your Profile to market a Service, you may, as we specify
in the Exhibit, either market Services, or provide a qualified lead to us
so that we may market Services to the End User on any machine or program
and receive a fee from us. We provide Services to the End User under the
terms of our applicable agreement, signed by the End User.
You will receive a fee for a lead when it 1) is submitted on the form we
provide to you, 2) is for an opportunity which is not known to us, and 3)
results in the End User ordering the Service from us within six months
from the date we received the lead.
Alternatively, you will receive a fee for marketing when 1) you identify
the opportunity and perform the marketing activities, 2) you provide us
with the order and any required documents signed by the End User, and 3)
if a standard Statement of Work is used, there are no changes and no
marketing assistance from us is required.
You may market Services on eligible non-IBM Products regardless of whether
you marketed a Machine or Program to the End User.
We will not pay you a fee if 1) the Machine or Program is already under
applicable Service, 2) we have an agreement with the End User to place the
Machine or Program under the applicable Service, or 3) if the Service was
terminated by the End User within the last six months.
7. Marketing of Financing
If we approve you on your Profile, you may market our Financing
Services for Products and Services and any associated products and
services you market to the End User. If you market our Financing
Services, we will pay you a fee as we specify in your Territory
Supplement or the Exhibit.
We provide Financing Services to the End User under the terms of our
applicable agreements signed by the End User. You agree, that for the
items that will be financed, 1) you will promptly provide us any
required documents including invoices, with serial numbers, if
applicable, 2) the supplier will transfer clear title to us, and 3) you
will not transfer to us any obligations under your agreements with the
End User.
We will pay you or the supplier when the End User has initiated
financing and acknowledged acceptance of the items being financed.
8. Ending the Agreement
Either of us may terminate this Agreement, with or without cause, on
three months' written notice. If, under applicable law, a longer period
is mandatory, then the notice period is the minimum notice period
allowable.
If we terminate for cause (such as your not meeting your minimum annual
attainment), 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, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of
such breach by you are: if you do not maintain customer satisfaction;
if you repudiate this Agreement; or if you make any material
misrepresentations to us. 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.
At the end of this Agreement, each of us agrees to immediately settle
any accounts with the other. We may offset any amounts due you against
amounts due us or any of our Related Companies as allowable under
applicable law.
You agree that if we permit you to perform certain activities after
this Agreement ends, you will do so under the terms of this Agreement.
IBM Business Partner Agreement
Remarketer Terms Attachment
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Table of Contents
Section Title Page
1. Our Relationship 2
2. Ordering and Delivery 2
3. Inventory Adjustments 3
4. Price, Invoicing, Payment and Taxes 3
5. Licensed Internal Code 5
6. Machine Code 5
7. Programs 5
8. Export and Import 6
9. Title 6
10. Risk of Loss 7
11. Installation and Warranty 7
12. Warranty Service 8
13. Marketing of Services 8
14. Marketing of Financing 9
15. Engineering Changes 9
16. Ending the Agreement 9
IBM Business Partner Agreement
Remarketer Terms Attachment
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1. Our Relationship
As our IBM Business Partner, you market to your Customers Products and
Services (including "shrink-wrap" Services). These terms apply to a
Business Partner whose method of distribution is under our remarketer
terms, and includes Distributors, Resellers, Solution Providers, and
Systems Integrators.
Responsibilities
Each of us agrees:
1. we offer a money-back guarantee to End Users for certain Products.
You agree to inform the End User of the terms of this guarantee before
the applicable sale. For any such Product, you agree to 1) accept its
return in the time frame we specify, 2) refund the full amount paid to
you for it, and 3) dispose of it (including all its components) as we
specify. We will pay a transportation charge for return of the Product
to us and will give you an appropriate credit.
2. each of us is free to set its own prices and terms;
3. neither of us will discuss its Customer prices and terms in the
presence of the other; and
4. that the terms of the Agreement related to your acquisition of
Products or Services directly from us (for example, those in the
sections entitled "Ordering and Delivery", "Inventory Adjustments" and
"Price, Invoicing, Payment and Taxes") are not applicable for Products
and Services you acquire from a source, other than us, we approve. All
other terms apply.
Other Responsibilities
You agree to:
1. refund the amount paid for a Product or Service returned to you if
such return is provided for in its warranty or license. You may return
the Product to us for credit at our expense, as we specify in the
operations guide;
2. provide us with sufficient, free and safe access to your
facilities, at a mutually convenient time, for us to fulfill our
obligations;
3. retain records, as we specify in the operations guide, of each
Product and Service transaction (for example, a sale or credit) for
three years;
4. provide us with marketing, sales, installation reporting and
inventory information for our Products and Services, as we specify in
the operations guide;
5. when you are approved to market to Remarketers, market Products
and Services which require certification, only to Remarketers who are
certified to market them;
6. comply with all terms regarding Program upgrades;
7. provide a dated sales receipt (or its equivalent, such as an
invoice) as we specify in the operations guide, to your Customers,
before or upon delivery of Products and Services; and
8. report to us any suspected Product defects or safety problems, and
to assist us in tracing and locating Products.
2. Ordering and Delivery
You may order Products and Services from us as we specify in the
operations guide. You agree to order them in sufficient time to count
toward your minimum attainment, if applicable.
We will agree to a location to which we will ship. We may establish
criteria for you to maintain at such location (for example, certain
physical characteristics, such as a loading dock), as we specify in the
operations guide.
Upon becoming aware of any discrepancy between our shipping manifest
and the Products and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
Although we do not warrant delivery dates, we will use reasonable
efforts to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Products and Services we ship.
We may not be able to honor your request for modification or
cancellation of an order. We may apply a cancellation charge for orders
you cancel within 10 business days before the order is scheduled to be
shipped. The Exhibit will specify if a cancellation charge applies and
where we will specify the charge.
If we are unable to stop shipment of an order you cancel, and you
return such Product to us after shipment, our inventory adjustment
terms apply.
3. Inventory Adjustments
We will specify in your Exhibit the Products and Services to which this
section applies.
Products and Services you return to us for credit must have been
acquired directly from us. You must request and receive approval from
us to return the Products and Services.
Products and Services must be received by us within one month of our
approving their return, unless we specify otherwise to you in writing.
We will issue a credit to you when we accept the returned Products and
Services.
Certain Products may be acquired only as Machines and Programs packaged
together as a solution. These Products must be returned with all their
components intact.
For certain Products and Services you return, a handling charge
applies. We will specify the handling charge percentage in the Exhibit.
We determine your total handling charge by multiplying the inventory
adjustment credit amount for the Products and Services by the handling
charge percent.
You agree to pay transportation and associated charges for Products and
Services you return.
Unless we specify otherwise, returned Products and Services must be in
their unopened and undamaged packages.
You agree to ensure the returned Products and Services are free of any
legal obligations or restrictions that prevent their return. We accept
them only from locations within the country to which we ship Products
and Services.
We will reject any returned Products and Services that do not comply
with these terms.
4. Price, Invoicing, Payment and Taxes
Price and Discount
The price, and discount if we specify one, for each Product and Service
will be made available to you in a communication which we provide to
you in published form or through our electronic information systems or
a combination of both. Unless we specify otherwise, discounts do not
apply to Program upgrades, accessories, or field-installed Machine
features, conversions, or upgrades.
The price for each Product and Service is the lower of the price in
effect on the date we receive your order, or the date we ship a product
or "shrink-wrap" Service, or the start date of a Service, if it is
within six months of the date we receive your order.
Price and Discount Changes
We may change prices and increase discounts at any time. We may
decrease discounts on one month's written notice.
We will specify in your Exhibit if the following credit terms do not
apply to Products and
Services we approve you to market.
If we decrease the price or increase the discount for a Product or
Service, you will be eligible to receive a price decrease credit or a
discount increase credit for those you acquired directly from us that
are in your inventory, or in transit, or if the Product's date of
installation or Service start date has not occurred. However, Products
acquired from us under a special offering (for example, a promotional
price or a special incentive) may not be eligible for a full credit.
You must certify your inventory to us in writing within one month of
the effective date of the change. The credit is the difference between
the price you paid, after any adjustments, and the new price.
The following terms apply to Programs licensed on a recurring-charge
basis:
We may increase a recurring charge for a Program by giving you three
months' written notice. An increase applies on the first day of the
invoice or charging period on or after the effective date we specify in
the notice.
Invoicing, Payment and Taxes
Amounts are due upon receipt of invoice and payable as specified in a
transaction document. You agree to pay accordingly, including any late
payment fee. Details of any late payment fee will be provided upon
request at the time of order and will be included in the notice.
You may use a credit only after we issue it.
If any authority requires us to include in our invoice to you a duty,
tax, levy, or fee which they impose, excluding those based on our net
income, upon any transaction under this Agreement, then you agree to
pay that amount.
Reseller Tax Exemption
You agree to provide us with your valid reseller exemption
documentation for each applicable taxing jurisdiction to which we ship
Products and Services. If we do not receive such documentation, we will
charge you applicable taxes and duties. You agree to notify us promptly
if this documentation is rescinded or modified. You are liable for any
claims or assessments that result from any taxing jurisdiction refusing
to recognize your exemption.
Purchase Money Security Interest
You grant us a purchase money security interest in your proceeds from
the sale of, and your accounts receivable for, Products and Services,
until we receive the amounts due. You agree to sign an appropriate
document (for example, a "UCC-1") to permit us to perfect our purchase
money security interest.
Failure to Pay Any Amounts Due
If you fail to pay any amounts due in the required period of time, you
agree that we may do one or more of the following, unless precluded by
law:
1. impose a finance charge, as we specify to you in writing, up to
the maximum permitted by law, on the portion which was not paid during
the required period;
2. require payment on or before delivery of Products and Services;
3. repossess any Products and Services for which you have not paid.
If we do so, you agree to pay all expenses associated with repossession
and collection, including reasonable attorneys' fees. You agree to make
the Products and Services available to us at a site that is mutually
convenient;
4. not accept your order until any amounts due are paid;
5. terminate this Agreement; or
6. pursue any other remedy available at law.
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 Related Companies.
In addition, if your account with any of our Related Companies becomes
delinquent, we may invoke any of these options when allowable by
applicable law.
5. Licensed Internal Code
Machines (Specific Machines) containing Licensed Internal Code (Code)
will be identified in the Exhibit. We grant the rightful possessor of a
Specific Machine a license to use the Code (or any replacement we
provide) on, or in conjunction with, only the Specific Machine,
designated by serial number, for which the Code is provided. We license
the Code to only one rightful possessor at a time. You agree that you
are bound by the terms of the separate license agreement that we will
provide to you.
Your Responsibilities
You agree to inform your Customer, and record on the sales receipt,
that the Machine you provide is a Specific Machine using Licensed
Internal Code. The license agreement must be provided to the Customer
before the sale is finalized.
6. Machine Code
Machine Code is licensed to the End User under the terms of the
agreement provided with it. You agree to ensure the End User is
provided such agreement.
7. Programs
You agree to ensure the End User has signed the license agreement for a
Program requiring a signature, as we specify in the Exhibit, before
such Program is provided to the End User, and to provide any required
documentation to us. All other Programs are licensed under the terms of
the agreement provided with them. You agree, where applicable, to
provide the Program license to the End User before such Program is
provided to the End User.
We will designate in the Exhibit if 1) we will ship the media and
documentation to you or, if you request and we agree, to the End User,
2) you may copy and redistribute the media and documentation to the End
User, or 3) you must copy and redistribute the media and documentation
to the End User. If we ship the media and documentation, we may charge
you. We will specify such charge to you in writing. If you copy and
redistribute, you must be licensed to use the Program from which you
make the copies. A Program license you acquired for use under the
Demonstration, Development and Evaluation Products terms fulfill this
requirement.
Programs licensed to you on a recurring-charge basis are licensed for
the period indicated in our invoice. You may market such Programs only
on the same basis as licensed to you. You may not charge an End User a
one-time charge for a Program you license from us on a recurring-charge
basis. However, you may charge the End User whatever amount you wish
for the recurring-charge.
Program Services
Program Services are described in the Program's license agreement. You
are responsible to provide your Customers, who are licensed for a
Program, the Program Services we make available to you.
If the End User Agrees in writing, you may:
1. delegate this responsibility to another IBM Business Partner who
is approved to market the Program, or
2. provide an enhanced version of this support through the
applicable IBM Service you market to the End User.
If you delegate your support responsibilities to another IBM Business
Partner, you retain customer satisfaction responsibility. However, if
you market our applicable Services to the End User, we assume customer
satisfaction responsibility for such support.
8. Export and Import
You may actively market Products and Services only within the
geographic scope of the Agreement. You may not market outside this
scope, and you agree not to use anyone else to do so.
Export and Import Laws
You warrant that you will comply with all applicable export and import
laws (which in some instances prohibit or restrict in-country marketing
to certain Customers), when you market Products, Services and technical
data. You agree that if you export or import Products, Services and
technical data, you, and not IBM, will act as the exporter or importer.
Further, you warrant that you are knowledgeable with, and will remain
in full compliance with, the applicable export and import laws,
regulations, orders and policies (including, but not limited to, making
all proper filings). We may, at our sole discretion, require you from
time to time to provide us with written certification relating to your
compliance with applicable export and import laws or prohibit you from
doing business with certain Customers in order to ensure that you and
IBM comply with applicable export and import laws.
You will indemnify us for claims made against us for your failure to
comply with applicable export and import laws, regulations or orders.
Customer Exports
If a Customer acquires a Product for export, our responsibilities, if
any, under this Agreement no longer apply to that Product unless the
Product's warranty or license terms state otherwise. You agree to use
your best efforts to ensure that your Customer complies with all
applicable export and import laws including those of the United States.
Before your sale of such Product, you agree to prepare a support plan
for it and obtain your Customer's agreement to that plan. Within one
month of sale, you agree to provide us with the Customer's name and
address, Machine type/model, and serial number if applicable, date of
sale, and destination country.
Attainment
Products you export (or which are acquired by a Customer for export)
outside the geographic scope of the Agreement will not count toward
attainment of your objectives and will not qualify for applicable
promotional offerings and marketing funds. We may also reduce future
supply allocations to you by the number of exported Products.
9. Title
When you order a Machine, we transfer title to you when we ship the
Machine.
Any prior transfer to you of title to a Machine reverts back to IBM
when it is accepted by us as a returned Machine.
We do not transfer a Program's title.
10. Risk of Loss
For each Machine, IBM bears the risk of loss or damage up to the
time it is delivered to the IBM-designated carrier for shipment to
you, or if you request, and IBM agrees, your customer. Thereafter,
you assume the risk. Each Machine will be covered by insurance,
arranged and paid for by IBM for you, covering the period until it
is delivered to you or your customer. For any loss or damage, you
must 1) report the loss or damage in writing to IBM within 10
business days of delivery and 2) follow the applicable claim
procedure.
11. Installation and Warranty
We will ensure that Machines we install are free from defects in
materials and workmanship and conform to their specifications. We
provide instructions to enable the set-up of Customer-Set-Up
Machines. We are not responsible for the installation of Programs
or non-IBM Machines. We do, however, preload Programs onto certain
Machines. We provide a copy of our applicable warranty statement
to you. You agree to provide it to the End User for review before
the sale is finalized, unless we specify otherwise.
We calculate the expiration date of an IBM Machine's warranty
period from the Machine's Date of Installation. Warranty terms for
Programs are described in the Programs' license terms.
We provide non-IBM Products WITHOUT WARRANTIES OF ANY KIND, unless
we specify otherwise. However, non-IBM manufacturers, suppliers,
or publishers may provide their own warranties to you.
For non-IBM Products we approve you to market, you agree to inform
your Customer in writing 1) that the Products are non-IBM, 2) the
manufacturer or supplier who is responsible for warranty (if any),
and 3) of the procedure to obtain any warranty service.
Date of Installation for a Machine We are Responsible to Install
The Date of Installation for a Machine we are responsible to
install is the business day after the day 1) we install it or, 2)
it is made available for installation, if you (or the End User)
defer installation. Otherwise (for example, if others install or
break its warranty seal), it is the day we deliver the Machine to
you (or the End User). In such event, we reserve the right to
inspect the Machine to ensure its qualification for warranty
entitlement.
The Date of Installation for a Customer-Set-Up Machine
The Date of Installation for a Customer-Set-Up Machine is the date
the Machine is installed which you or your Remarketer, if
applicable, record on the End User's sales receipt. You must also
notify us of this date upon our request.
Installation of Machine Features, Conversions, and Upgrades
We sell features, conversions and upgrades for installation on
Machines, and, in certain instances, only for installation on a
designated, serial numbered Machine. Many of these transactions
involve the removal of parts and their return to us. As
applicable, you represent that you have the permission from the
owner and any lien holders to 1) install features, conversions and
upgrades and 2) transfer the ownership and possession of removed
parts (which become our property) to us. You further represent
that all removed parts are genuine, and unaltered, and free from
defects in materials and workmanship and conform to
specifications. A part that replaces a removed part will assume
the warranty and maintenance Service status of the replaced part.
You agree to allow us to install the feature, conversion, or
upgrade within 30 days of its delivery. Otherwise, we may
terminate the transaction and you must return the feature,
conversion, or upgrade to us at your expense.
12. Warranty Service
We will specify in the Exhibit whether you or we are responsible to
provide Warranty Service for a Machine.
When we are responsible for providing Warranty Service for Machines,
you are not authorized to provide such Service, unless we specify
otherwise in the Exhibit.
When you are responsible for providing Warranty Service, you agree to
do so according to the terms we specify in the Warranty Service
Attachment.
13. Marketing of Services
The following are the conditions under which you may market Services;
1.if you marketed a Product to the End User, you may market the
Services, specified in the Exhibit; or
2.regardless of whether you marketed a Product to the End User you may
market the Services we specify in your Profile.
If you are an IBM Distributor the following paragraph applies:
The following are the conditions under which you may market Services:
1. if your Remarketer marketed a Product to the End User, you may
market the Services, specified in the Exhibit, to your Remarketer only
for the Remarketer's marketing to such End User; and
2. regardless of whether your Remarketer marketed a Product to the End
User you may market the Services we specify in your Profile to your
Remarketer, who may market such Services.
You may market Services on eligible non-IBM Products regardless of
whether you marketed a Machine or Program to the End User.
Marketing of Services for a Fee
The terms of this subsection apply when we perform the Services to the
End User at prices we set and under the terms of our Service agreement,
signed by the End User. We pay you a fee for marketing such Services.
You will receive a fee for marketing eligible Services when 1) you
identify the opportunity and perform the marketing activities, 2) you
provide us with the order and any required documents signed by the End
User, and 3) a standard Statement of Work is used and there are no
changes, and no marketing assistance from us is required.
Alternatively, you will receive a fee for a lead for eligible Services
when it 1) is submitted on the form we provide to you, 2) is for an
opportunity which is not known to us, and 3) results in the End User
ordering the Service from us within six months from the date we receive
the lead from you.
We will not pay you the fee if 1) the machine or program is already
under the applicable Service, 2) we have an agreement with the End User
to place the machine or program under the applicable Service, or 3) the
Service was terminated by the End User within the last six months.
If the Service is terminated within three months of the date payment
from the End User was due us, you agree to reimburse us for any
associated payments we made to you. The reimbursement may be prorated
if the Service is on a recurring charge basis.
We periodically reconcile amounts we paid you to amounts you actually
earned. We may deduct amounts due us from future payments we make to
you, or ask you to pay amounts due us. Each of us agrees to promptly
pay the other any amounts due.
Remarketing of Services
We provide terms in an applicable Service Attachment governing your
remarketing of eligible Services the End User acquires from you and
which we perform under the terms of the IBM Service agreement with the
End User.
Shrink-wrap Services are performed under the terms of the agreement
provided with them. If the terms of the agreement are not visible on
the shrink-wrap package, you agree to provide (or, if applicable,
request your Remarketer to provide) the Services terms to the End User
before such Services are acquired by the End User.
Services We Perform As Your Subcontractor
If approved on your Profile, we will provide terms in an applicable
Service Attachment governing our provision of the Services we perform
as your subcontractor. Such Services are those an End User purchases
from you under the terms of your service agreement.
14. Marketing of Financing
If we approve you on your Profile, you may market our Financing
Services for Products and Services and any associated products and
services you market to the End User. If you market our Financing
Services, we will pay you a fee as we specify to you in your Exhibit.
We provide Financing Services to the End User under the terms of our
applicable agreements signed by the End User. You agree, that for the
items that will be financed, 1) you will promptly provide us any
required documents including invoices, with serial numbers, if
applicable, 2) the supplier will transfer clear title to us, and 3) you
will not transfer to us any obligations under your agreements with the
End User.
We will make payment for the items to be financed when the End User has
initiated financing and acknowledged acceptance of the items being
financed. Payment will be made to you, or the supplier, as appropriate.
15. Engineering Changes
You agree to allow us to install mandatory engineering changes (such as
those required for safety) on all Machines in your inventory, and to
use your best efforts to enable us to install such engineering changes
on your Customers' Machines. Mandatory engineering changes are
installed at our expense and any removed parts become our property.
During the warranty period, we manage and install engineering changes
at:
1. your or your Customer's location for Machines for which we
provide Warranty Service; and
2. your location for other Machines.
Alternatively, we may provide you with the parts (at no charge) and
instructions to do the installation yourself. We will reimburse you for
your labor as we specify.
16. Ending the Agreement
Regardless of the contract duration specified in the Profile, or any
renewal period in effect, either of us may terminate this Agreement,
with or without cause, on three months' written notice. If, under
applicable law, a longer period is mandatory, then the notice period is
the minimum notice period allowable.
If we terminate for cause (such as you not meeting your minimum
attainment), 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, if either party breaches a material term of the Agreement,
the other party may terminate the Agreement on written notice.
Examples of such breach by you are: if you do not maintain customer
satisfaction; if you do not comply with the terms of a transaction
document; if you repudiate this Agreement; or if you make any
material misrepresentations to us. 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.
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Products or
shrink-wrap Services for which you have not paid; and
2. allow us, at our discretion, to acquire any that are in your
possession or control, at the price you paid us, less any credits
issued to you.
Products and shrink-wrap Services to be returned must be in their
unopened and undamaged packages and in your inventory (or in transit
from us) on the day this Agreement ends. We will inspect them, and
reserve the right of rejection. You agree to pay all the shipping
charges.
At the end of this Agreement, each of us agrees to immediately
settle any accounts with the other. We may offset any amounts due
you against amounts due us, or any of our Related Companies as
allowable under applicable law.
You agree that if we permit you to perform certain activities after
this Agreement ends, you will do so under the terms of this
Agreement.
IBM Business Partner Agreement
North American Marketing Attachment
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The terms of this Attachment are in addition to or modify and prevail over
the terms of the IBM Business Partner Agreement General Terms, the
Remarketer Terms Attachment, the Solution Provider Attachment, the Reseller
Attachment, the Systems Integrator Attachment, and the Attachment For
Financing Services From IBM Credit Corporation, as applicable.
1. Product Source
You may acquire Products from us in Canada and the United States.
2. Marketing of Products
You are approved to market Products, specified in your Profile in the
United States and Canada. Unless we specify otherwise when we approve
your value-added enhancement or solution, as applicable, if either is
required under the terms of the applicable Attachment, it is approved
in Canada and the United States.
3. Aggregation
Unless we specify otherwise in the Business Partner Exhibit, Products
acquired in either or both countries, will count toward your 1) minimum
attainment, and 2) determination of your discount, if applicable.
4. Export of Products
The "home country" is the country (either Canada or the United States)
1) in which you sign the IBM Business Partner Agreement or 2) which you
designate to us in writing is the "home country". The "alternate
country" (either Canada or the United States) is the other country in
which you are approved to market under the terms of this Attachment.
We will not export Products.
We will specify in the Exhibit the Products that are eligible for
export between the home country and the alternate country under the
terms of this Attachment. You may only export Products from your home
country. Products acquired in the alternate country must be shipped
from IBM to an End User in that country.
We will ship Products to you or your End User only in the country in
which you acquire the Products from us.
You are responsible for all costs and expenses associated with
exporting Products. This includes payment of transportation, duties and
other expenses resulting from the export of the Products.
You are responsible for complying with all applicable United States and
Canadian laws and regulations including, without limitation, United
States Department of Commerce regulations regarding the export of
restricted technology.
You are responsible for obtaining the necessary clearances required to
export or re-export from the country from which the Product was
acquired from IBM and import into the country of installation.
Within seven days of the date you export a Product, you agree to
provide to us the specific Product type/model and serial number of the
exported Product.
You agree to notify us in writing of the name and address of each End
User at which an exported Product has been installed within 10 days of
the Date of Installation.
5. Marketing of Services
You are approved to market Services under the terms available in the
country in which the Products are installed.
When you market Services with a Product which is installed in Canada,
IBM Canada Ltd. will pay you the applicable Canadian fee. Likewise,
when you market Services with a Product which is installed in the
United States, IBM Corporation will pay you the applicable fee.
6. Geographic Scope
All your rights and all IBM Canada's obligations are valid only in
Canada for Products installed, and for Services performed, in Canada.
All your rights and all IBM Corporation's (U.S.A.) obligations are
valid only in the United States and Puerto Rico for Products installed,
and for Services performed, in the United States and Puerto Rico.
7. Governing Law
For Products and Services acquired from us in Canada, the laws of the
Province of Ontario govern this Agreement.
For Products and Services acquired from us in the United States and
Puerto Rico, the laws of the State of New York govern this Agreement.
Unique Terms For Canada
Revision to the Remarketer Terms Attachment
If your Profile is signed in the United States, the following terms modify
the Remarketer Terms Attachment for the Products you acquire from us in
Canada:
Add the following as an additional section:
Order Acceptance
Subject to IBM Canada Ltd's. acceptance of your orders, transactions
between you and IBM Canada Ltd., and related local transaction documents
issued in Canada such as invoices, will be subject to the terms of the
Agreement.
When IBM Canada Ltd. believes it is required to withhold tax from IBM
Canada Ltd. payments to you under Canadian federal or provincial tax laws.
IBM Canada Ltd. will withhold and remit tax to the Canadian federal and
provincial governments, If IBM Canada Ltd. is assessed withholding taxes,
interest or penalties by such governments, with respect to payments made
to you, then you agree to reimburse IBM Canada Ltd. for such taxes,
interest and penalties.
Revision to the General Terms
The following terms are revised for the Products you acquire from us in
Canada:
Section 9 - Liability
In the subsection entitled "Our Liability":
1. In item 2, change "Products" to "negligence"
2. In item 3, change "loss or" to "direct"
3. In item 3, after "damage" add "arising from our negligence or
breach of this agreement, including fundamental breach, tort or
our misrepresentation,"
Revision to the Attachment For Financing Services From IBM Credit
Corporation
The following replaces the name of the document:
Attachment for Financing Services From IBM
The following replaces the last sentence of the first paragraph:
"We" refers to IBM.
Section 1 - Appointment as an Agent
In the first sentence delete "Credit Corporation".
After the word "Attachment" in the last line of the first paragraph
replace 'including its attached Exhibit "A".' with 'and IBM Canada
Financing Exhibit "A"."'
Section 2 - Our Relationship
In the subsection entitled "Other Responsibilities" in item g, replace
"Credit" with "Canada Financing".
In item r, replace "Credit" with "Canada Financing".
In the subsection entitled "We agree to:" in item b, replace "Credit" with
"Canada Financing".
Unique Terms For the United States
Revision to the Remarketer Terms Attachment
If your Profile is signed in Canada the following terms modify the
Remarketer Terms Attachment for the Products you acquire from us in the
United States:
Add the following as an additional section:
Order Acceptance
Subject to IBM Corporation's acceptance of your orders, transactions
between you and IBM Corporation, and related local transaction documents
issued in the United States, such as invoices, will be subject to the
terms of the Agreement.
When IBM Corporation believes it is required to withhold tax from IBM
Corporation payments to you under United States federal, state or local
tax laws, IBM Corporation will withhold and remit tax to the United States
federal, state or local governments. If IBM Corporation is assessed
withholding taxes, interest or penalties by such governments, with respect
to payments made to you, then you agree to reimburse IBM Corporation for
such taxes, interest and penalties.
Revision to the General Terms
The following terms are revised for the Products you acquire from us in
the United States:
Section 9 - Liability
In the subsection entitled "Our Liability":
1. In item 2, change "negligence" to "Products"
2. In item 3, change "direct" to "loss or"
3 In item 3, after "damage" delete "arising from our negligence or
breach of this agreement, including fundamental breach, tort or our
misrepresentation." Revision to the Attachment for Financing Services
from IBM
The following replaces the name of the document:
Attachment for Financing From IBM Credit Corporation
The following replaces the last sentence of the first paragraph:
"We" refers to IBM Credit Corporation.
Section 1 - Appointment as an Agent
In the first sentence change "Canada Financing" to "IBM Credit".
After the word "Attachment" in the last line of the first paragraph
replace "and IBM Canada Financing Exhibit "A"." with 'including its
attached Exhibit "A".
Section 2 - Our Relationship
In the subsection entitled "Other Responsibilities" in item g, replace
"Canada Financing" with "Credit".
In item r, replace "Canada Financing" with "Credit".
In the subsection entitled "We agree to." in item b, replace "Canada
Financing" with "IBM Credit".
Add the following as an additional section:
Remuneration
Replace "Exhibit A" with: "the IBM Canada Financing Exhibit A".
LIST OF BUSINESS PARTNER LEGAL NAMES IN CANADA OR THE UNITED STATES
Business Partner Country
Legal Name (U.S. or Canada)
----------------------------------------------------------------------------
You are authorized to operate under this Agreement using the following legal
names in the Canada or the United States, as specified below:
IBM Business Partner Agreement
Federal Government Remarketer Attachment
----------------------------------------------------------------------------
These terms are in addition to or modify the Remarketer Terms Attachment,
the Remarketer Terms Attachment for Workstation Software, the Business
Partner Agreement for Solution Providers, the Business Partner Agreement
for Resellers and the Service Provider-Remarketer Terms Attachment
for Managed Services Solution. These terms apply only when you market
Products and Services to a Federal Government End User.
1. FEDERAL GOVERNMENT END USER
"Federal Government End User" includes federal government agencies or
any other entity listed in GSA Order ADM 4800.2D, including those
entities listed in Appendices A, B, and C of the Order, and any
successor Order which may be published by the GSA in the Federal
Register. The term Federal Government End User also includes federal
government cost reimbursement prime contractors and management and
operating contractors that receive proper authorization under FAR
Part 51 from federal agencies to make federal purchases or
acquisitions where licenses granted and title to equipment vest in
the Federal Government End User.
2. TITLE
You may propose an integrated solution through a higher-tier federal
contractor in fulfillment of a specific government procurement where
title to the Machine passes ultimately to the federal government. In
no event shall you permit transfer of title for any Machine purchased
under this Agreement to other than the federal government. Under no
circumstances may you assign any of your responsibilities under this
Agreement to the Federal Government End User.
3. BUY AMERICAN ACT I TRADE AGREEMENTS ACT (BAA/TAA)
We make no representation or certification regarding the domestic or
foreign origin of Products we provide.
4. EXPORT OF PRODUCTS
When the federal government purchases Products and Services for its
own use outside the United States, (i.e., an embassy or military
installation) they do count 1) toward your minimum annual attainment
2) toward determination of your discount or price if the Products and
Services were acquired directly from IBM by you or 3) for determining
your marketing or promotional funds. Also, your future supply
allocations from IBM, if applicable, will not be affected. The
warranty for such Products will be voided unless the Product is
returned to the United States for warranty service. Title to the
Products must reside with the United States government, and the
United States government must be responsible for the Program
licenses.
5. ENDING THE AGREEMENT
If we terminate the Agreement without cause, we will permit you to
continue to market under the terms of the Agreement for 90 days after
the termination date. You agree to promptly withdraw any bids that
include Products and Services which were anticipated to have been
obtained under this Attachment unless we agree to terms and
conditions under the Federal Systems Integrator (FSI) Program (or
similar or successor program) for the bid as offered.
IBM Business Partner Agreement
Federal Government Certification Attachment
----------------------------------------------------------------------------
These terms apply only when you market to a Federal Government End User
under complementary marketing terms. This Attachment contains a summary of
certain federal government laws and regulations that apply when you market
to a Federal Government End User. Copies of these laws and regulations may
be obtained from us at your request. It is important that you understand
your responsibilities under them, since the federal government has a number
of remedies (such as levying fines and denying federal government
procurement awards) when a violation occurs. Please contact us if you have
any questions regarding this certification.
1. DEFINITIONS
Federal Government End User - is the federal government; a federal
government owned or affiliated (or sponsored) corporation; an organization
involved in federal procurement activities that are approved to procure
using our GSA Schedule Contract; and federal prime contractors and
subcontractors who are engaged in a specific federal procurement
opportunity.
Lobbying - is any communication you have with the federal government to
influence the award of a Federal Government End User contract to us.
Contractor Bid or Proposal Information - is a competitor's information
(including extracts), marked "Proprietary", which has been submitted
confidentially to the Federal Government End User by the competitor. It
includes information such as:
1. cost or pricing data;
2. indirect costs and direct labor rates;
3. proprietary information about manufacturing processes, operations or
techniques; and
4. information legended "Contractor Bid or Proposal Information" or marked
in accordance with FAR 52.215-12.
Source Selection Information is the following federal government information
(including extracts):
1. documents marked "Source Selection Information";
2. source selection plans;
3. source selection board, panel, or advisory reports;
4. bid prices or costs;
5. technical evaluation plans;
6. evaluation of proposals;
7. competitive range determination;
8. rankings of bids, proposals, or competitors; and
9. reports and evaluations of source selection panels, boards or advisory
councils.
2. FEDERAL GOVERNMENT LAWS AND REGULATIONS
Conflict of Interest
Certain conflict of interest laws and regulations limit our ability to do
business with Federal Government End Users if we have an unfair competitive
advantage because of a conflict of interest. We may have an unfair
competitive advantage if you (or anyone who you engage to assist you in
performing marketing for us):
1. have worked, or are working, with the federal government on a Federal
Government End User procurement opportunity for which you will provide
marketing for us;
2. have worked, or are working, with an anticipated or known bidder who
will compete at any contract level as a prime or subcontractor on a
Federal Government End User procurement opportunity for which you provide
marketing for us; or
3. have had, or have, access to Contractor Bid or Proposal or Source
Selection Information
Concerning a Federal Government End User procurement opportunity for which
you will provide marketing for us. If any of the above applies, provide us
with a nonconfidential description of each situation in the space provided
below. You agree to update this information in writing immediately when you
become aware of "Possible Conflicts of Interests" not already reported to us.
Possible Conflict of Interest
Procurement Integrity
The Procurement Integrity Act and regulations (collectively called the "PI")
prohibit certain activities during the federal government procurement
process.
The PI generally prohibits engaging in the following conduct during the
course of a Federal Government End User procurement:
1. discussing future employment or business opportunities with a federal
government employee who is personally and substantially involved in a
procurement unless special procedures are followed; and
2. obtaining, or disclosing any Contractor Bid or Proposal Information or
Source Selection Information without written federal government approval
from the head of the federal agency or designee.
In addition certain federal government employees may not accept compensation
from the contractor for a period of one year after participating in a $10
million transaction with the contractor.
For this purpose, a transaction includes participation in awarding a
contractor or subcontractor, establishing overhead or other rates and making
payments or settling a claim.
Lobbying
you agree that you will not lobby on behalf of IBM within the meaning of the
Lobbying Disclosure Act of 1995.
The following are not considered Lobbying, and do not have to be reported:
1. communications with a federal government agency that are required (for
example, by federal law or regulation) to receive an award.
2. certain marketing performed by you prior to formal solicitation by a
federal government agency. These include all pre-Request for Proposal
discussions regarding the qualities, characteristics, application,
adaptation, and terms of sales or service of our products; and
3. professional and technical services provided after a solicitation has
been issued. Such services, however, must be directly related to the
preparation, submission, or negotiation of the Federal Government End User
contract.
3. YOUR RESPONSIBILITIES
You agree to:
1. obtain Worker's Compensation and Employer's Liability Insurance;
2. comply with, and assist us in complying with all applicable federal laws
and regulations, including the federal regulations listed in this
Attachment. You agree to notify us in writing immediately if you believe
that you, or anyone assisting you to perform marketing may have violated
any of them;
3. provide us with the certifications and related information we request;
and
4. provide the Letter of Information for Federal Government Customers to
your End User.
Please return a copy of this Attachment to the IBM address specified in your
Profile.
IBM Business Partner name: _____________________________________
(type or print)
Date:
IBM Business Partner number:
IBM Business Partner address:
Any questions you have concerning this certification, or your
responsibilities under it, should be directed to IBM U.S. Federal Contracts
Relations Department.
List of Applicable Federal Regulations
Federal Acquisition Regulations (FAR)
52.203-3 Gratuities
52.203-5 Covenant Against Contingent Fees
52.203-6 Restrictions on Subcontractor Sales to the Government
52.203-7 Anti-Kickback Procedures
52.203-10 Price or Fee Adjustment for Illegal or Improper Activity
52.203-11 Certification and Disclosure Regarding Payments to Influence
Certain Federal Transactions
52.203-12 Limitation on Payments to Influence Certain Federal Transactions
52.204-2 Security Requirements
52.209-5 Certification Regarding Debarment, Suspension. Proposed
Debarment And Other Responsibility Matters
52.209-6 Protecting the Government's Interest when Subcontracting with
Contractors Debarred, Suspended, or Proposed for Debarment
52.222-1 Notice to the Government of Labor Disputes
52.222-3 Convict Labor
52.222-21 Certification of Nonsegregated Facilities
52.222-26 Equal Opportunity
52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans
52.222-36 Affirmative Action for Handicapped Workers
52.222-37 Employment Reports on Special Disabled Veterans and Veterans of
the Vietnam Era
52.223-1 Clean Air and Water Certification
52.223-2 Clean Air and Water
52.223-5 Certification Regarding a Drug Free Workplace
52.227-2 Notice and Assistance Regarding Patent and Copyright
Infringement
52.228-5 Insurance - Work on a Government Installation
52.233-3 Protest After Award
52.249-1 Termination for Convenience of the Government (Fixed Price)
(Short Form)
52.249-2 Termination for Convenience of the Government (Fixed Price)
General Services Administration Regulations (GSAR)
552.215-70 Examination of Records by GSA
IBM Business Partner Agreement
Attachment for Services Marketing for Remarketers
----------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer
Terms Attachment.
The following terms govern your marketing of Services the End User purchases
from you (or if you are our Distributor, from your Remarketer), and which we
perform under the terms of the IBM Agreement for Services Acquired from an
IBM Business Partner (IBM Service Agreement). We provide additional terms to
you, if any, in specific Service Attachments, or transaction documents.
1. IBM Services
Services may be either standard offerings or customized to the End
User's specific requirements. Each Service transaction may include one
or more Services that:
1. expire at task completion or an agreed upon date;
2. automatically renew as another transaction with a specified
contract period. Renewals will continue until the Service is
terminated; or
3. do not expire and are available for use until either of us
terminates the Service, or we withdraw the Service.
If we make a change to the terms of a renewable Service that affects
the End User's current Service Agreement contract period and the End
User considers it unfavorable and you advise us in writing, we will
defer the change until the end of that contract period.
2. Prices and Payment
The amount payable for a Service will be based on one or more of the
following types of charges:
1. recurring (for example, a periodic charge for support Services).
2. time and materials (for example, charges for hourly Services); or
3. fixed price (for example, a specific amount agreed to between us
for a custom Service).
Services we make available to you on a recurring-charge basis are made
available for the period indicated in our invoice, statement of work,
or other transaction document, as applicable. You may market such
Services only on a recurring charge basis.
We may increase recurring charges for Services, as well as hourly or
daily rates and minimums for Services we perform under the IBM Service
Agreement, by giving you three month's written notice. An increase
applies on the first day of the applicable invoice or charging period,
on or after the effective date we specify in the notice;
We may increase one time charges 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 within three months of our receipt of your order.
Charges for Services are billed as we specify, which may be 1) in
advance, 2) periodically during the performance of the Service, or 3)
after the Service is completed.
Prepaid Services must be used within the applicable contract period. If
we withdraw a Service for which you prepaid, and we have not fully
provided such Service, we will give a prorated refund. Unless we
specify otherwise, we do not give credits or refunds for unused prepaid
Services.
If an End User is eligible for a credit under the terms of the IBM
Service Agreement (for example, a satisfaction guarantee credit, or a
credit for withdrawn Services not fulfilled), you agree to ensure the
applicable prorated credit is issued to the End User. We will issue the
appropriate credit to you. If you are our Distributor, you agree to
issue the applicable credit to your Remarketer.
Additional Charges
We specify in the IBM Service Agreement additional charges that apply
under specific conditions. When applicable, such charges apply to you.
Depending on the particular Service or circumstance, if other charges
apply we will inform you in advance.
3. Notices
Each of us agrees to give the other a copy of notices or requests
received from or sent to an End User applicable to the IBM Service
Agreement.
You agree to ensure certain Services Attachments and transaction
documents, if any, are made available to End Users for their signature,
if required. Such documents may have terms in addition to those we
specify in the IBM Service Agreement.
4. Services Requirements Changes
During the Service period you may update the requirements, including
adding Products to be covered by the Service, as well as increasing the
Service requirements. We will adjust our invoicing to you accordingly.
5. Termination of Services
If either IBM or the End User does not meet its obligations concerning
a Service, the other party may terminate the Service. We will inform
you of any such termination.
For a Service the End User terminates, you agree to ensure we are
provided one month's written notice from the End User. For a Service
you decide to terminate, you agree to provide one month's written
notice to us and the End User.
When an expiring or renewable Service transaction is terminated, such
termination will result in an adjustment charge equal to the lesser of:
1. the charges remaining to complete the contract period; or
2. one of the following if specified in the transaction document -
a. the charges remaining to complete the contract period multiplied
by the adjustment factor specified; or
b. the amount specified.
You also agree to pay us for all Services we provide and any Material
we deliver through Service termination and any charges we incur in
terminating subcontracts.
Adjustment charges do not apply if you terminate:
1. a non-expiring Service on one month's written notice provided the
End User has met all minimum requirements specified in the
applicable Attachments and transaction documents, if any,
2. a renewable Service or a non-expiring maintenance Service on
written notice, provided the End User has met the minimum
requirements specified in the applicable Attachments and transaction
documents, if any, and any of the following circumstances occur:
a. the eligible Product for which the Service is provided is
permanently removed from productive use within the End User's
enterprise;
b. an increase in the Service charges, either alone or in
combination with prior increases over the previous twelve months, is
more than the maximum specified in
the applicable transaction document. If no maximum is specified,
then the circumstance does not apply;
c. the eligible location, for which the Service is provided, is no
longer controlled by the End User (for example, because of sale or
closing of the facility), or
d. the machine has been under maintenance Services for at least six
months and you ensure, for a Service the End User terminates, we
have been provided one month's written notice by the End User
prior to terminating the maintenance Service. For such Service
which you decide to terminate, you agree to provide one month's
written notice to us.
IBM Business Partner Agreement
Attachment for IBM as Subcontractor for Services
----------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Remarketer
Terms Attachment
IBM Services
1. Services
When you engage IBM as a subcontractor, Services may be either standard
offerings or customized to your specific requirements. Each Service
transaction is described in a statement of work and may include one or
more Services that:
1. expire at task completion or an agreed upon date;
2. automatically renew as another transaction with a specified
contract period. Renewals will continue until either of us
terminates the Service; or
3. do not expire and are available for your use until either of us
terminates the Service, or we withdraw the Service.
2. Personnel
Each of us is responsible for the supervision, direction, and control of
our respective personnel. We reserve the right to determine the assignment
of our personnel.
We may subcontract a Service, or any part of it, to subcontractors
selected by us.
3. Commitment of IBM Resources
You must obtain our written consent prior to each offer or commitment of
our resources you make.
4. Exclusive Remedy
You will include the following statement in your contract with your End
User:
(End User name)'s exclusive remedy for any and all damages under this
Agreement, including, but not limited to, consequential, indirect, or
special damages, is against (IBM Business Partner name) and not any
subcontractors.
5. Trademarks and Trade Names
Under this Attachment, i.e., when IBM provides Services as a
subcontractor, neither of us grants the other the right to use its (or any
of the Enterprise's) trademarks, trade names, or other designations in any
promotion or publication without prior written consent.
6. Price and Payment
The amount payable for a Service will be based on one or more of the
following types of charges:
1. recurring (for example, a periodic charge for support Services);
2. time and materials (for example, charges for hourly Services); or
3. fixed price (for example, a specific amount agreed to between us for a
custom Service).
Depending on the particular Service, or circumstance, additional charges
may apply (such as special handling or travel related expenses). We will
inform you in advance whenever additional charges apply.
Charges for Services are billed as we specify which may be in advance,
periodically during the performance of the Service, or after the Service
is completed.
Amounts are due upon receipt of invoice and payable as we specify in a
transaction document. You agree to pay accordingly, including any late
payment fee.
If any authority imposes a duty, tax, levy, or fee, excluding those based
on our net income, upon any transaction under this Agreement, then you
agree to pay that amount as specified in the invoice or supply exemption
documentation.
Recurring charges may be based on measurements of actual or authorized use
(for example, meter readings for maintenance Services). You agree to
provide actual usage data as we specify.
We may increase recurring charges for Services, as well as labor rates and
minimums for Services provided under this Agreement, by giving you three
months' written notice. An increase applies on the first day of the
invoice or charging period on or after the effective date we specify in
the notice.
You receive the benefit of a decrease in charges for amounts which become
due on or after the effective date of the decrease.
Services for which you prepay must be used within the applicable contract
period. Unless we specify otherwise, we do not give credits or refunds
for unused prepaid Services.
7. Materials Ownership and License
"Materials" are literary works or other works of authorship (such as
programs, program listings, programming tools, documentation, reports,
drawings and similar works) that we may deliver to you as part of a
Service. The term "Materials" does not include licensed program products
available under their own license agreement. We will specify Materials to
be delivered to you. We or third parties have all right, title, and
interest (including ownership of copyright) in Materials created during
the Service performance period or otherwise (such as those that preexist
the Service). We will deliver one copy of the specified Materials to you.
We authorize you to grant your End User an irrevocable, nonexclusive,
worldwide, paid-up license to use, execute, reproduce, display, perform,
and distribute, within their Enterprise only, copies of these Materials.
No other licenses or rights (including licenses or rights under patents)
are granted to you or your End User.
You agree to require your End User in any resulting contract to reproduce
the copyright notice and any other legend of ownership on any copies made
under the license granted in this Section.
Any idea, concept, know-how, or technique which relates to the subject
matter of a Service and is developed or provided by either of us, or
jointly by both of us, in the performance of a Service may (subject to
applicable patents and copyrights) be freely used by either of us.
8. Changes to Service Terms
We may change the terms of Services that are renewable or non-expiring by
giving you three months' written notice. However, these changes are not
retroactive. They apply immediately to renewal transactions and as of the
effective date we specify in the notice to all existing transactions. If
we make a change to the terms of a renewable Service that 1) affects your
current contract period and 2) you consider unfavorable, at your request,
we will defer it until the end of that contract period.
When both of us agree to change any Services statement of work other than
as described above, we will prepare a written description at the agreed
change (called a "Change Authorization"), which both of us must sign. The
terms of a Change Authorization prevail over those of the statement of
work and any of its previous Change Authorizations.
9. Automatic Renewal
We will renew automatically all Renewable Services for a same length
contract period unless either of us provides written notification (at
least one month prior to the end of the current contract period) to the
other, of its intent not to renew.
10. Termination and Withdrawal
Either of us may terminate a Service if the other does not meet its
obligations concerning the Service.
You may terminate a non-expiring Service, without adjustment charge, on
one month's written notice to us, provided you have met all minimum
requirements specified in the applicable Attachments and transaction
documents.
You may terminate a renewable Service and a non-expiring maintenance
Service without adjustment charge, on written notice to us, provided you
have met all minimum requirements specified in the applicable Attachments
and transaction documents and any of the following circumstances occur:
1. your End User permanently removes the eligible Product, for
which the Service is provided, from productive use within your End
User's Enterprise;
2. the eligible location, for which the Service is provided, is
no longer controlled by your End User (for example, because of
sale or closing of the facility); or
3. the machine has been under maintenance Services for at least
six months and you give us one month's written notice prior to
terminating the maintenance Service.
For all other circumstances, you may terminate an expiring or renewable
Service transaction on one month's written notice to us, but such
termination will result in adjustment charges equal to the lesser of:
1. the charges remaining to complete the contract period; or
2. one of the following if specified in the transaction document -
a. the charges remaining to complete the contract period
multiplied by the adjustment factor specified, or
b. the amount specified.
You agree to pay us for all Services we provide and any Materials we
deliver through Service termination and any charges we incur in
terminating subcontracts.
We may withdraw a renewable or non-expiring Service or support for an
eligible Product on three month's written notice to you. If we withdraw a
Service for which you have prepaid and we have not yet fully provided it
to your End User, we will give you a prorated refund. If we withdraw a
Service or terminate your IBM Business Partner Agreement, we may continue
to provide Services for the remainder of the contract period for which
you have already paid. However, no additional Services may be added.
Any terms which by their nature extend beyond termination or withdrawal
remain in effect until fulfilled and apply to respective successors and
assignees.
11. Service for Machines
We provide certain types of repair and exchange Service either at your
End User's or your location or at a service center to keep machines in,
or restore them to, conformance with their official published
specifications. We may repair the failing machine or exchange it at our
discretion.
When the type of Service requires that you or your End User deliver the
failing machine to us, you agree to ship it or have it shipped suitably
packaged (prepaid unless we specify otherwise) to a location we
designate. After we have repaired or exchanged the machine, we will
return it to you or your End User at our expense unless we specify
otherwise. We are responsible for loss of, or damage to, your End User's
machine while it is 1) in our possession or 2) in transit in those cases
where we are responsible for the transportation charges.
You agree to:
1. obtain authorization from the owner to have us service a machine
that your End User does not own; and
2. where applicable, before we provide Service -
a. follow the problem determination, problem analysis, and service
request procedures that we provide,
b. secure all programs, data, and funds contained in a machine, and
c. inform us of changes in a machine's location.
When Service involves the exchange of a machine or part, the item we
replace becomes our property and the replacement becomes your End User's.
You represent that all removed items are genuine and unaltered. The
replacement may not be new, but will be in good working order and at
least functionally equivalent to the item replaced. The replacement
assumes the warranty or Service status of the replaced item. Before we
exchange a machine or part, you agree to remove, or have removed, all
features, parts, options, alterations, and attachments not under our
service. You also agree to ensure that the item is free of any legal
obligations or restrictions that prevent its exchange.
Any feature, conversion, or upgrade we service must be installed on a
machine which is 1) for certain machines, the designated, serial-numbered
machine and 2) at an engineering-change level compatible with the
feature, conversion, or upgrade.
Repair and exchange Services do not cover:
1. accessories, supply items, and certain parts, such as batteries,
frames, and covers;
2. Machines damaged by misuse, accident, modification, unsuitable
physical or operating environment, or improper maintenance by you
or your End User;
3. Machines with removed or altered machine or parts identification
labels;
4. failures caused by a product for which we are not responsible; or
5. service of machine alterations.
We manage and install engineering changes that apply to IBM machines and
may also perform preventive maintenance.
We provide maintenance Services for selected non-IBM machines.
12. Other Maintenance Coverage
Whenever you order maintenance Services for machines, we will inform you
of the date on which maintenance Services will begin. We may inspect the
machine within one month following that date. If the machine is not in an
acceptable condition for service, you may have us restore it for a
charge. Alternatively, you may withdraw your request for maintenance
Services. However, you will be charged for any maintenance Services which
we have performed at your request.
13. Warranty for IBM Services
For each IBM Service, we warrant that we perform it:
1. using reasonable care and skill; and
2. according to its current description (including any completion
criteria) contained in an Attachment, or a transaction document.
14. Extent of Warranty
THIS WARRANTY IS YOUR EXCLUSIVE WARRANTY AND REPLACES ALL OTHER
WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
15. Items Not Covered by Warranty
We do not warrant uninterrupted or error-free operation of any
deliverable or Service.
Unless we specify otherwise, we provide Materials and non-IBM Services
WITHOUT WARRANTIES OF ANY KIND. However, non-IBM suppliers may provide
their own warranties to you.
IBM Business Partner Agreement
Attachment for ServiceSuite for Remarketers
----------------------------------------------------------------------------
These terms prevail over and are in addition to or modify the Attachment for
Services Marketing for Remarketers.
The following terms govern your marketing of ServiceSuite the End User
acquires from you or if you are our Distributor, from your Remarketer.
1. Scope of Services
We will provide to the End User the Services, selected by the End User
and described in the Statement of Work for Services Acquired from a
Business Partner - ServiceSuite (called "Statement of Work"), for the
Machines we specify (called "Eligible Machines"). The Eligible Machines,
the Services that apply to them, and the charges for these will be
identified in a Schedule. The Schedule will also identify the Specified
Locations at which the Services will be provided. A Specified Location
may be the End User's entire information processing environment, or a
portion thereof, which may be resident at multiple sites or a single
building.
2. Contract Period
Where the End User has selected a commitment of two, three, four, or five
years, Eligible Machines, Specified Locations, or new Services added to
the Statement of Work following its start date will assume the remaining
portion of the existing contract period.
Note: The phrase "contract period" in this Attachment refers only to
contract period of the Statement of Work and not to any contract period
referenced in the IBM Business Partner Agreement, including any of its
other attachments.
We will renew the Services that apply for each Specified Location on the
contract period end date for the number of years (called the "Renewal
Contract Period") specified. Thereafter, we will automatically renew for
same length periods unless you notify us in advance of the End User's
desire to change the length of the renewal. Charges will be recalculated
based on the length of the Renewal Contract Period and each subsequent
renewal period. Either of us can select not to renew by providing written
notification (at least one month prior to the end of the current contract
period) to the other of their decision not to renew.
3. Your Responsibilities
You agree to:
1. provide us with an inventory in which the End User has identified
all Eligible Machines to be covered at each Specified Location. All
Eligible Machines of the same type at a Specified Location must be
included in the coverage. You also agree to ensure that the End User
identifies all Eligible Machines for which we are to provide warranty
service;
2. notify us whenever the End User wishes to add Eligible Machine
types to an existing Specified Location or set up new Specified
Locations; and
3. provide us with information we request which is related to our
provision of these Services to the End User and notify us of any
changes.
4. Mutual Responsibilities
If at any time either of us or the End User requests a review of the
inventory count, each of us will cooperate in updating the last formal
inventory.
5. Automatic Inventory Increases
We will automatically increase the inventory count at a Specified
Location whenever:
1. an Eligible IBM Machine is added to the End User's inventory. If
the Machine is under warranty when added, maintenance Services will
commence at warranty exit. If the Machine is not under warranty when
added, maintenance Services will commence at the later of a) the date
of installation or b) the previous yearly anniversary of the start of
the contract period. IBM Machines specifically excluded from coverage
at contract period start will remain outside the scope of the contract
unless you request we add them during thecontract period. However, all
Eligible IBM Machines added to the End User's inventory during the
contract period will be included in the inventory count and receive
maintenance Services as set out in this Section; or
2. an Eligible Non-IBM Machine, of the same type as other Non-IBM
Machines already covered at that Specified Location, is added to the
End User's inventory. If the Machine is under warranty when added,
maintenance Services will commence at the later of a) the date of
installation or b) the previous yearly anniversary of the start of the
contract period.
The maintenance Services that apply for these Machines will be the same
as that which the End User is receiving for all other Eligible Machines
of the same type.
Newly installed IBM Machines of the same type for which the End User is
already receiving Warranty Service Upgrade will be added at date of
actual installation and will be covered at the same Warranty Service
Upgrade support level.
6. Charges and Payment
We specify applicable charges for the current contract year and the
associated payment option in the Schedule. We calculate our charges to
you based the End User's Machine volumes, Service selections, and payment
options.
You have one of three price protection options:
1. Price Protection for Each Contract Year Only
We may revise charges to you however, any rate increase will not take
effect until the next yearly anniversary of the start of the contract
period. At the start of each contract year, you will be invoiced at the
charge rates that are then in effect. We will not issue advance notice of
charge rate changes.
All newly added Eligible Machines and Services, as well as changes to
existing Eligible Machine configurations and Services, will assume the
charge rate that applied for these at the previous yearly anniversary of
the start of the contract period. Eligible Machines and Services that
become generally available during the contract period will be added at
the charge rate that applied on their initial availability date.
2. Price Protection for the Entire Contract Period
We will not increase charges for included Eligible Machine configurations
and Services for the entire contract period. All newly added Eligible
Machines and Services, as well as changes to existing Eligible Machine
configurations and Services, will assume the charge rate that applied for
these at contract period start. We will add Eligible Machines and
Services that become generally available during the contract period at
the charge rate that applied on their initial availability date. You will
receive the benefit of a decrease in applicable charges for amounts which
become due on or after the effective date of the decrease.
3. Price Protection for Contract Period Prepayment
If you elect to prepay for the entire contract period, you will not be
subject to increases in charges (during that period) for included
Eligible Machine configurations and Services. All newly added Eligible
Machines and Services, as well as changes to existing Eligible Machine
configurations and Services, will assume the charge rate that applied for
these at contract period start. Eligible Machines and Services that
become generally available during the contract period will be added at
the charge rate that applied on their initial availability date. If you
elect to have these charge terms apply for the Renewal Contract Period
charges (as recalculated at the start of each renewal period), you must
provide us written notification (at least one month prior to the start of
the renewal period) and prepayment for the entire renewal period.
Otherwise, charges for the renewal period will revert to a quarterly
billing cycle and the following will apply throughout the renewal period:
1. we may revise charges to you however, any rate increase will not
take effect until the next yearly anniversary of the start of the
contract period. At the start of each contract year, you will be
invoiced at the charge rates that are then in effect. We will not
issue advance notice of charge rate changes;
2. all newly added Eligible Machines and Services, as well as changes
to existing Eligible Machine configurations and Services, will assume
the charge rate that applied for these at the previous yearly
anniversary of the start of the contract period; and
3. Eligible Machines and Services that become generally available
during the renewal period will be added at the charge rate that
applied on their initial availability date.
Total Services charges may be adjusted whenever:
1. a review of the inventory count indicates a change from the last
accounting; or
2. a Specified Location, Eligible Machine type, or Service is added,
deleted, or changed.
For all Service charges based on usage, upon our request you will provide
us with the End User's actual meter reading recording the actual usage.
7. Termination
If a contract period of one contract year with a one year renewal is
selected, you may terminate Services for an Eligible Machine, on notice
to us, if the End User permanently removes it from productive use within
the End User's Enterprise. You or the End User may also terminate
Services for any or all Eligible Machines by providing us one month's
written notice, after they have been covered under the Statement of Work
for at least one year. You will receive a credit for any remaining
prepaid period associated with Services you or the End User terminate in
accordance with the provisions of the Statement of Work.
If a commitment of two, three, four, or five years is selected for all
Eligible Machines identified in the initial inventory, you or the End
User may terminate Services for an Eligible Machine (which is not being
removed from productive use within the End User's Enterprise or replaced
by an equivalent Eligible Machine or Service), you or the End User may do
so by providing us one month's written notice, after it has been covered
under this Statement of Work for at least one year, and paying an
adjustment fee. The adjustment fee is calculated by multiplying the
monthly charge by the number of years of the commitment, e.g., if the
number of years of the commitment is three, then the adjustment fee is
equal to the result of multiplying the monthly fee by the number three.
After allowing for applicable adjustments, you will receive a credit for
any remaining prepaid period associated with Services you terminate in
accordance with the provisions of the Statement of Work.
8. Satisfaction Guarantee
If, for any reason, the End User 1) is not completely satisfied with a
Service we provide to the
End User under the Statement of Work, 2) notifies us in writing within
one month of the time the End User first becomes dissatisfied and 3) we
are unable to resolve the problem to the End User's satisfaction, you
will receive a credit equal to the prorated charge for the Service for
the period of time the End User is dissatisfied.
9. ServiceSuite Service Packages
Detailed descriptions of the ServiceSuite Service Packages are available
from your IBM representative.
IBM Business Partner Agreement
Exhibit for ServiceSuite for Remarketers
----------------------------------------------------------------------------
Exhibit No.: SSR-029 Effective Date: December 1, 2002
When identified with an "A" In the "Distributor" column, the service Is
available to Distributors at the discount specified in the Distributor
Schedule A. When identified with a "--" in this column, the service is
available to Distributors at the remarketing discount specified in this
table.
[* 6 pages of tables omitted]
IBM Business Partner Agreement
Attachment for Financing Services
From IBM Credit Corporation
----------------------------------------------------------------------------
The terms of this Attachment modify or are in addition to and prevail over
the IBM Business Partner Agreement - General Terms, the IBM Business Partner
Agreement for Solution Providers, the IBM Business Partner Agreement for
Resellers, and the Service Provider-Remarketer Terms Attachment for Managed
Services Solution, as applicable. "We" refers to IBM Credit Corporation.
If you are an IBM Distributor, any term regarding your activities or
responsibilities with an End User may be performed by you. Alternatively,
such activities may be performed by your IBM approved Solution Provider or
Reseller, as applicable. In such case, you are responsible to ensure the
Solution Provider or Reseller has been approved under the terms of this
Attachment.
1. Appointment as Agent
We appoint you as our agent under the terms of this Attachment solely
for the purpose of offering to End Users IBM Credit Corporation
financial products ("Financing Services") for Products and Services and
any associated products and services you market, and to advertise
availability of our offerings; both subject to terms in this Attachment
including its attached Exhibit "A".
This relationship between you and us is that of agent and principal, and
is not a joint venture, partnership, employer/employee relationship or a
joint enterprise of any kind. Except as specifically permitted herein,
neither of us is permitted to represent the other, bind the other by its
own acts, or control the manner, means or prices of such other's
business.
2. Our Relationship
Responsibilities
Each of us agrees that:
a. we reserve the right, without liability to you, to discontinue or
vary availability of Financing Services to you, a specific End User or
End Users generally:
b. we reserve the right for any reason not to accept all or part of
any proposed Financing Services proposal;
c. we may issue, without notice under this Attachment, additional
Exhibits, which will apply to Financing Services proposals you submit
to us following the effective date of such Exhibit;
d. we have no right to affect your pricing of products and services
and items which are to be financed under this Agreement;
e. you will not make any representations, warranties or promises of
any type on our behalf to End Users or any other parties, unless
specifically authorized by us; and
f. you have no authority to negotiate terms or conditions of our
financing agreements, or to change or alter any prices provided by us.
Other Responsibilities
You agree:
a. to designate a point of contact within your organization who will
serve as the primary point of contact for matters relating to the
business relationship with us;
b. to present to each End User interested in obtaining financing for
information technology equipment and related programs and services,
a Financing Services proposal approved in advance by us. You will
ensure that the End User clearly understands that Financing Services
are being provided directly from us as lessor or, in the case of
government or government sub-contractor End Users, as financier.
Unless we specify otherwise you will also attach a copy of our
standard financing agreement and make certain that the End User
agrees that only our terms will apply to the Financing Services being
provided;
c. to encourage participation in education which we provide for your
employees involved in the selling of our Financing Services;
d. to assist us in obtaining financial information we require from a
potential End User in order to perform a credit evaluation;
e. to provide administrative assistance to ensure completion of
transactions, e.g., provide us with information required to generate
financing rates and financing contracts, including hardware
configurations and descriptions of charges for programs and
services, and ensure that documentation we require to initiate the
financing transactions is executed by the End User;
f. to make End Users aware that their signature on our financing
agreement is an offer looking to financing from us and is not
binding on us unless and until accepted by us in writing;
g. to comply with our procedures relating to financing originations,
including providing End Users, before obtaining their signatures,
with the current version of any financing agreement and
documentation we supply, and any relevant IBM Credit customer
brochures;
h. to resolve any End User issues or questions relating to supply and
performance of Machines, Programs, or Services arising during your
relationship with the End User;
i. to warrant to us that products to be sold by you and financed by us
are new and if not new, then identified as such and conveyed to us
with good and valid title, free of all encumbrances;
j. to warrant to us that you will remain fully responsible for all
warranty and similar obligations to the End User, in the same manner
and to the same extent as if the End User acquired the products from
you without any financing from us;
k. if you request that program costs or fees be included in the
Financial Services proposal and we approve and pay you directly, that
all obligations concerning the program and its use, remain between
the End User and either you or the program provider, and not us;
l. that, aside from the End User's obligation to pay us, no rights or
duties as to the program apply to us and you will take no action
which contradicts this;
m. to provide us with, or assist us in obtaining, your invoices and
invoicing documentation for all machines, programs and services being
provided to the End User and financed by us. Invoices must accurately
provide description of the machines, programs and services, End User
name, invoice number, purchase amount and payee name and address;
n. to ensure your invoices or invoicing documentation accurately
provides machine's serial number, and the detail of the machines,
programs and services you have sold, along with the specific End
User price associated with each;
o. to report, collect and remit any taxes you are responsible for
levied in connection with your licensing programs, selling machines
and providing services;
p. to warrant to us that all services to be performed by you or your
designees and financed by us were bargained for by the End User and
if for any reason the services are not performed you will immediately
notify us and we will negotiate appropriate adjustments with you or
the End User;
q. to ensure that no misleading or false representations are made in
relation to the Financing Services arrangements; and
r. to ensure that all advertising which references our offerings
conforms to the IBM Credit Advertising Guidelines for Business
Partners, and to review with us any advertising not conforming to
such guidelines prior to presentation.
We agree to:
a. designate a point of contact within our financing organization to
serve as the primary point of contact for you;
b. provide financing to your IBM Credit approved End Users for their
information technology equipment and related programs and services;
c. deliver financing proposals to you in a timely fashion;
d. provide appropriate educational offerings for your personnel in
order to help them more effectively market our Financing Services;
and
e. provide payment of the documented purchase price and programs and
services charges for any financing transaction with the End User.
Payment will be made during the settlement period upon our receipt
of the required documentation.
3. Remuneration
If we offer you fees for End User financing transactions under the terms
of this Attachment, we will specify such fees in Exhibit A.
4. Trademarks
Under the terms of this Attachment, neither party shall have, without
the other party's prior written consent, the right to use the other's
trademarks or trade names, or to refer to the other party directly or
indirectly in connection with any product, promotion or publication.
5. Termination of Appointment
You may terminate this appointment at any time by providing written
notice to us. We may terminate this appointment at any time by providing
you with 30 days prior written notice. We may terminate this Attachment
if the Business Partner Agreement between you and IBM ends. No further
Financing Services transactions initiated by you and submitted to us
after we provide such notice will qualify for the terms in this
Attachment.
IBM Business Partner Agreement
Marketing of Used Equipment Attachment
----------------------------------------------------------------------------
The terms of this Attachment apply to Used Equipment Products (Used
Equipment) you acquire from the IBM Credit Corporation under the terms of
its Agreement (IBM Credit Corporation Agreement). The terms regarding your
acquisition of Used Equipment from IBM Credit Corporation are covered by the
terms of the IBM Credit Corporation Agreement between you and the IBM Credit
Corporation.
All acquisition terms (for example, ordering and delivery, price, and
inventory adjustment) of the IBM Business Partner Agreement are not
applicable to Used Equipment. The terms of the IBM Business Partner
Agreement apply only to the marketing of Used Equipment.
A breach of the terms of the IBM Credit Corporation Agreement is grounds for
us to terminate our approval of you under the terms of this Attachment as
well as our approval of you under the terms of your IBM Business Partner
Agreement.
Exclusions
Used Equipment sales revenue and volumes do not count toward any of
your measurements (for example, Minimum Annual Attainment or marketing
funds) nor towards determining your discount
----------------------------------------------------------------------------
This Attachment and the referenced IBM Business Partner Agreement are the
complete agreement regarding this relationship, and replace any oral or
written communications between us. By signing below, each of us agrees to
the terms of this Attachment. Once signed, 1) any reproduction of this
Attachment made by reliable means (for example, photocopy or facsimile) is
considered an original, to the extent permitted under applicable law, and 2)
all activities you perform under this Attachment are subject to it.
Agreed to: Business Partner Agreed to:
Country Organization name)
By __________________________ By __________________________
Authorized Signature Authorized Signature
Name (type or print): Name (type or print):
Date: Date:
IBM Business Partner address: IBM Address:
After signing, please return a copy of this Attachment to the IBM address
shown above.
IBM Business Partner Agreement
Attachment for the Acquisition of IBM Personal
Computer Products and Services from IBM PartnerChoice
----------------------------------------------------------------------------
The terms of this Attachment are in addition to or modify and prevail
over the terms of the IBM Business Partner Agreement for Resellers, the
IBM Business Partner Agreement for Solution Providers, and the Remarketer
Terms Attachment.
Under the terms of this Attachment, you may acquire IBM Personal Computer
Products and Services we specify, from IBM PartnerChoice. If applicable,
you remain eligible to acquire these Products and Services from any IBM
Personal Computer Distributor.
Prices
We may approve additional discounted pricing for a specific End User
opportunity you identify at the time of order. Sale of discounted
Products and Services to an End User other than the specified End User,
if applicable, or to an End User for other than its own internal use, or
other sales in violation of the IBM Business Partner Agreement are
ineligible for discounts. Such sales may result in the termination of
this Attachment and your Business Partner Agreement and recovery by IBM
of the discount amount, in addition to any other remedies available to
IBM under the Business Partner Agreement.
Our price to you is the price in effect on the date we receive your
order. However, a price credit adjustment will be made for Products and
Services where the ibm.com price has been reduced prior to or on the date
of shipment or the Service start date, as applicable.
Products and Services are not eligible for price adjustment if we
decrease the price after shipment.
Ordering and Delivery
We will ship Products and Services, to your address, your End Users
address, or if you are an IBM Distributor, your resellers address, as you
specify in your order.
Upon becoming aware of any discrepancy between our shipping manifest and
the Products and Services received from us, you agree to notify us
immediately. We will work with you to reconcile any differences.
Although we do not warrant delivery dates we will use reasonable efforts
to meet your requested delivery dates.
We select the method of transportation and pay associated charges for
Products and Services we ship. Other transportation options may be
available. If you select any such option, we will specify if you are
responsible for any applicable charges.
We will use reasonable efforts to meet your request for modification or
cancellation of an order if we receive your request a minimum of 10
business days before the order is scheduled to be shipped. We may apply a
cancellation charge for any such orders we cancel. We will inform you if
a cancellation charge applies and where such charge is specified.
We transfer a Machine's title to you upon shipment. Any prior transfer of
title to a Machine reverts back to IBM when it is accepted by us as a
returned Machine.
We do not transfer title to Programs.
For each Machine, IBM bears the risk of loss or damage up to the time it
is delivered to the IBM-designated carrier for shipment to you or, if you
request and IBM agrees, your Customer. Thereafter, you assume the risk.
The Machine will be covered by insurance, arranged and paid for by IBM
for you, covering the period until it is delivered to you or your
Customer. For any loss or damage, you must 1) report the loss or damage
in writing to IBM within 30 calendar days of delivery and 2) follow the
applicable claim procedure.
Reseller Tax Exemption
You agree to provide us with your valid reseller exemption document for
each applicable taxing jurisdiction to which we ship Products and
Services. If we do not receive such documentation, we will charge you
applicable taxes and duties. You agree to notify us promptly if this
documentation is rescinded or modified. You are liable for any claims or
assessments that result from any taxing jurisdiction refusing to
recognize your exemption.
Installation and Warranty
We provide instructions to enable the setup of Customer-Set-Up-Machines.
We are not responsible for the installation of Programs on non-IBM
Machines. We do, however, pre load Programs onto certain Machines. We
provide a copy of our applicable warranty statement to you. You agree to
provide it to the customer for review before the sale is finalized,
unless we specify otherwise.
We calculate the expiration date of an IBM Machine's warranty period from
the Machine's Date of Installation. Warranty terms for Programs are
described in the programs' license terms. We provide non-IBM Products
WITHOUT WARRANTIES OF ANY KIND, unless we specify otherwise. However,
non-IBM manufacturers, suppliers or publishers may provide their own
warranties to you.
For non-IBM Products we approve you to market, you agree to inform your
customer in writing 1) that the Products are non-IBM, 2) the manufacturer
or supplier who is responsible for warranty (if any), and 3) of the
procedure to obtain any warranty service.
The Date of Installation for a Customer-Set-Up Machine
The Date of Installation for a Customer-Set-Up-Machine is the date the
Machine is installed which you or your Remarketer, if applicable, record
on the End Users sales receipt. You must notify us of this date upon our
request.
General
We may audit your records regarding your marketing of the IBM Personal
Computer Products and Services you acquire from IBM PartnerChoice. You
agree to provide us with copies of invoices, delivery documents and other
related documents on our request.
Products and Services you order under the terms of this Attachment:
1. may not be returned to us, other than those determined to be
defective on arrival (DOA); and
2. are eligible for applicable marketing and promotional offerings.
If we terminate this Attachment, we may do so without prior notice.
We may modify the terms of this Attachment on one months written notice.
Such changes are not retroactive.
____________________________________________________________________________
By signing below, you agree that you have read and agree to the terms and
conditions that govern acquisition of IBM Personal Computer Products and
Services from IBM PartnerChoice.
Agreed to: Agreed to:
IBM Business Partner Organization International Business Machines
By:__________________________ By:_________________________
Name (type or print): Name (type or print):
Date: Date:
Address: Address:
IBM Location ID: ________________
Phone Number: _______________________
e-Mail Address: _____________________________
IBM Business Partner Agreement
Internet Service Provider Attachment
----------------------------------------------------------------------------
The applicable terms of this Attachment apply to Business Partners approved
for Products and Services we specify as available for marketing as part of a
Managed Services Solution.
The following are additional terms to the Business Partner Agreement.
Managed Services Solution
Managed Services Solutions include those solutions for which you a)
manage a revenue generating network and b) provide solutions that
operate exclusively on End User data.
You may either retain title to the Machines which are used in
conjunction with your Managed Services Solution or pass title to the
End User.
Such solutions must connect to and utilize the revenue generating
network and include at least one of the following 1) Internet access,
2) Web e-commerce, or application hosting or 3) Internet, intranet, or
extranet services.
Use of an Agent
Under the terms of this Attachment, you may engage an agent only to
assist you in your marketing activities for your approved Managed
Services Solution. You retain all responsibilities and obligations of
your IBM Business Partner Agreement.
You agree to inform your agent that regardless of the relationship they
may have with IBM, if any, when they are acting on your behalf, they
may not use the IBM logo, IBM Business Partner Emblem, represent
themselves as an IBM Business Partner or make any representations on
behalf of IBM. You are responsible for all their activities when they
are acting on your behalf under the terms of this Attachment.
Programs
When, as part of your Managed Services Solution, you acquire an IBM
Program for installation on a machine and you control the Program and
you and the End User have access to such Program, regardless of the
machine's physical location, you are the Program's licensee.
When, as part of your Managed Services Solution, you acquire an IBM
Program for installation on a machine and the End User has access to
and control of the Program, regardless of the machine's physical
location, the End User is the Program's licensee. You market such
Programs under the applicable remarketer terms of the Agreement.
Ordering and Delivery
You must advise us at the time of order if you will retain title for
the Products you are ordering.
IBM
APPROVED VALUE ADDED ENHANCEMENTS
----------------------------------------------------------------------------
The following listing confirms the IBM approved Value Added Enhancements
(VAE) or Approved Solutions (AS) your firm is approved to market under
the terms and conditions of your authorized IBM Business Partner Agreement
and Profile.
Jack Henry & Associates, Inc.
Product
VAE or AS
Exhibit Approval Date
RS6O 10-30-02
Episys
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
pSeries and RS/6000 - all models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or
If jointly marketing - installation and implementation of an eligible
IBM product when sold by Jack Henry & Associates, Inc.; with the
following application and listed modules:
Episys
Modules: Share Accounting, Share Draft Account, General
Ledger, Loan Accounting, Certificates of Deposit
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates. Inc. to
jointly market
A400 10-30-02
RS60
Internet Managed Services
INDUSTRY: Outsourcing
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
o Netfinity - All models
o pSeries and RS/6000 - All models
o Storage - All models
o POS - 4614, 4694, 4800, 4840
o zSeries and S/390 --All models
MINIMUM VAE SOLUTION REQUIREMENTS
o To meet the requirements of this VAE, the Business Partner
- Manage a revenue generating network
- Provide solutions that connect to and utilize the network
- Manage and deliver solutions/services that fall into
one or more of the following areas:
1. Internet Access
Basic Access: dial-up, dedicated line, or wholesale bandwidth:
-- Search and navigation
-- Advanced media
-- IP backbone
-- Connectivity services
2. Web e-commerce, or application hosting services
Shared, dedicated, or co-located hosting, such as:
-- Content hosting
-- Collaboration hosting
-- Commerce hosting, e-payments, electronic storefront
-- Multimedia hosting
-- Transaction hosting
-- Application hosting
3. Internet, intranet, or extranet services:
Internet Protocol (IP)-based higher value added
services, such as:
-- Virtual Private Networks
-- Voice over Internet Protocol (VoIP)
-- Message services: e-mail, fax, telex, unified messaging
-- Content aggregation; portals, vertical portals
-- Trading networks
-- Exchanges, auctions, marketplaces
-- Security services
-- Application services
-- Internet network management
-- Subscriber services and billing
o Configuration, integration, implementation, and customization of the
VAE's solutions/offerings with the eligible products.
o Billed Value Measurement required: No (BVM is not applicable to
zSeries, S/390, storage or Netfinity products)
o Face-to-Face Meeting required: No
o zSeries Face-to-Face Meeting required: No
o zSeries Operating System Currency required: No
MINIMUM FIRM ELIGIBILITY REQUIREMENTS
o Approval by the Director, Global Services Provider Sales, IBM Global
Channel Sales
o zSeries Brand approval for zSeries or S/390 products
Competitive System Conversion
INDUSTRY: Cross
ELIGIBLE PRODUCTS:
o iSeries -- Entry and Growth models
o pSeries and RS/6000 --All models
o MES Processor/Model Upgrades -- No
MINIMUM VAE SOLUTION REQUIREMENTS:
o Sale, installation, and implementation of an eligible product and
associated operating system at a customer establishment where you
convert and/or port one or more programs or applications and data
from a competitive vendor's system to a current-technology IBM system
o Perform pre-procurement marketing activities, such as analyzing
customer requirements, mapping to IBM solutions, and recommending
appropriate alternatives
o Proposal to the customer must include the new system configuration in
detail: a complete listing of the hardware, software, and services to
be provided
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Certification Requirements: One IBM eServer sales and technical
certification at the firm level for each server product applicable
to the end-user solution
o Sales Location Required: No
o Business Partners approved for this VAE may compete equally with
all other VAEs
A400 11-16-02
CIF 20/20
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry
& Associates, Inc.; with the following application and listed modules:
CIF 20/20
Modules: Customer Information File and at least four of the
following: Customer Profitability, Demand Deposit Accounting,
Savings Accounting, Club Accounting, Account Analysis,
Overdraft Protection, Cash Sweep, Account Reconciliation,
Time Deposit Accounting, Repurchase Agreements, Individual
Retirement Accounting, Automatic Funds Transfer, ACH
Origination, General Ledger, Accounts Payable, Equity Loans,
Loan Pricing, Safe Deposit Box Accounting, Audit Confirmations,
Stockholder Accounting, Executive Reminder System, Loan
Collections, Cash Reserve, Loan System, Gap Analysis, Report
Distribution System, Job Accounting, Collateral Tracking,
Enhanced Statement, Enhanced Account Analysis, Cash
Management, JHA StreamLine Platform System
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry &
Associates, Inc. to jointly market
A400 11-16-02
SilverLake System
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
SilverLake System
Modules: Customer Information File and at least four of the
following: Customer Profitability, Demand Deposit Accounting,
Savings Accounting, Club Accounting, Account Analysis,
Overdraft Protection, Cash Sweep. Account Reconciliation,
Time Deposit Accounting, Repurchase Agreements, Individual
Retirement Accounting, Automatic Funds Transfer, ACH
Origination, General Ledger, Accounts Payable, Equity Loans,
Loan Pricing, Safe Deposit Box Accounting, Executive Reminder
System, Loan Collections, Cash Reserve, Loan System, Gap
Analysis, Report Distribution System, Job Accounting, Collateral
Tracking, Enhanced Statement, Enhanced Account Analysis.
Cash Management, JHA StreamLine Platform System
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
PassPort.pro
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM Product when sold by Jack Henry
& Associates, Inc.; with the following application and listed modules:
PassPort.pro
Modules: Communications link between the core processing
systems and the ATMs and at least four of the following: On-line
Memo Posting, Stand-in Processing, Automatic Negative File
Update, Switched Network Support, Switch Certification,
Hardware Encryption/Decryption, Multiple PC Support, Pager
Support, Full Message Logging, Automatic Settlement, Full
Transaction Logging, ARM Status Inquiry, Up to 99 Service
Charge Combinations, Card Maintenance, ATM and Customer
History Inquiries, Settlement/Maintenance/Exception Reports,
Cash and POS Withdrawal Limits
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
Liberty
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
Liberty
Modules: Customer Information File and at least four of the
following: Customer Profitability, Demand Deposit Accounting,
Savings Accounting, Certificate of Deposit Accounting,
Individual Retirement Accounting, Commercial Loan
Accounting, Installment Loan Accounting, Mortgage Loan
Accounting, Account Reconciliation, Automatic Clearing
House, On-line Proof of Deposit. Financial Information System,
Asset and Liability Management, Executive Information System
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-15-02
SuperCheck Proof of Deposit
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
SuperChek Proof of Deposit
Modules: On-line Reject Re-entry, On-line Balancing, Cash
Letters, High Dollar Cutoff, Transit/Routing Number Repair,
Process Control, Programmable Ink Jet Messages, Audit Trail,
U.S. and Canadian Item Capabilities, Interface, Remote Job
Entry and Printback, User Defined Tables
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
SuperSORT
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o Series and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
SuperSORT
Modules: Cycle Sort, Bulk Filing of Checks, Fine Sorts,
Exception Sorts, Statement Sorts, User Defined Special
Sorts, Menu Driven Operations, Check Sorting
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
SuperIMAGE
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
SuperIMAGE
Modules: Check Sorting, Proof of Deposit, Image Archive,
Image Statements, Remote Image Capture, Statement
Preparation/Rendition
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
TimeTrack
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
TimeTrack
Modules: Electronic Time and Attendance, Multi-Company
Processing, Electronic Deposit, Voluntary Deductions, 401K
Processing, On-line Inquiry, Quarter-end/Year-end Processing,
EEO Reporting, Applicant Tracking, COBRA Tracking, Job
Posting Tracking
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
lmageMAX
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
ImageMAX
Modules: Check Sorting, Exception Item Processing, Proof of
Deposit, Image Archive, Image Statements, Check Transaction
Processing
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
Vertex Teller
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
Vertex Teller
Modules: Customized Transaction Setup, Balancing Functions,
Research Functions, Electronic Journal, Statistical Reports,
Branch Comparisons, Performance Recap, Alert and CIF
Message, Memo Posting and Host Application Inquiry
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
Peerless2l
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o iSeries and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
Peerless2l
Modules: Customer Information File, Demand Accounting,
Bulk Filing, Savings Accounting, Certificate of Deposit
Deposit, Safe Deposit Box Rental, Stockholder Accounting,
Installment Loans, Mortgage Loans, Commercial Loans,
Loan Pricing, Asset/Liability Management, Account Analysis,
Automatic Funds Transfer, Automatic Clearing House, Audit
Confirmation
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
A400 11-16-02
Conductor
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o Series and AS/400 - Entry and Growth models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
Conductor
Modules: Share Accounting, Loan Accounting, Share Drafts,
Certificates of Deposit, Payroll, Automatic Funds Transfer,
Subsidiary Shares, General Ledger
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
RS60 11-15-02
Core Director
INDUSTRY: Finance
ELIGIBLE PRODUCTS:
o pSeries and RS/6000 - all models
MINIMUM VAE SOLUTION REQUIREMENTS:
o If marketing rights - sale, installation and implementation of an
eligible IBM product; or If jointly marketing - installation and
implementation of an eligible IBM product when sold by Jack Henry &
Associates, Inc.; with the following application and listed modules:
Core Director
Modules: Central/Personal File and at least four of the
following: Demand Deposit Accounting, Account Analysis,
Certificates of Deposit, Loan Accounting, Individual Retirement
Accounting, Savings Accounting, Inter Branch Accounting,
General Ledger, Report Generator
o Billed Value Measurement required: No
o Face-to-Face Meeting required: Yes
MINIMUM FIRM ELIGIBILITY REQUIREMENTS:
o Marketing rights from or selected by Jack Henry & Associates, Inc.
to jointly market
---------------------------------------------------------------------------
The following listing confirms the IBM approved VAEs that require an
authorized sales location. You are approved to market under the terms and
conditions of your authorized IBM Business Partner Agreement and Profile
at these authorized sales locations. VAEs that do not require an
authorized sales location may be marketed by any sales location for your
firm under the terms and conditions of your IBM Business Partner
Agreement, Profile and applicable Attachments and Exhibits.
Location ID
City VAE
Location ID Product State or Approval
LOC/ID Exhibit Province Date VAE Title
------ ------- -------- ---- ---------
Exhibit 21.1
Jack Henry Services, L.P.
Jack Henry Systems, L.P.
Jack Henry Software/Commlink, L.P.
Open Systems Group, Inc.
Symitar Systems, Inc.
Sys-Tech, Inc.
Jack Henry, L.L.C.
Jack Henry International, Ltd.
Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Numbers 33-16989, 33-65231, 33-65251, 33-63912, 33-55358 and 333-101680 all on Form S-8 pertaining to the Jack Henry & Associates, Inc. 1996 Stock Option Plan, 1987 Stock Option Plan, Employee Stock Purchase Plan, 1995 Non-Qualified Stock Option Plan and 401(k) Retirement Savings Plan (formerly Jack Henry and Associates, Inc. 401(k) Employee Stock Ownership Plan) respectively, of our report dated August 15, 2003, appearing in the Annual Report on Form 10-K of Jack Henry & Associates, Inc. for the year ended June 30, 2003. /s/ Deloitte & Touche LLP St. Louis, Missouri September 18, 2003
Exhibit 31.1
CERTIFICATION
-------------
I, Michael E. Henry, certify that:
1. I have reviewed this annual report on Form 10-K of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter, (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: September 22, 2003
/s/ Michael E. Henry
------------------------------
Michael E. Henry
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
-------------
I, Kevin D. Williams, certify that:
1. I have reviewed this annual report on Form 10-K of Jack Henry &
Associates, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter, (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information ; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: September 22, 2003
/s/ Kevin D. Williams
-------------------------------
Kevin D. Williams
Chief Financial Officer
EXHIBIT 32.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Executive Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Annual Report on Form 10-K of the
Company for the fiscal year ended June 30, 2003 (the "Report") fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of
the Company.
Dated: September 22, 2003
*/s/ Michel E. Henry
------------------------------------
Michael E. Henry
Chief Executive Officer
* "A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request."
EXHIBIT 32.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the
undersigned Chief Financial Officer of Jack Henry & Associates, Inc. (the
"Company"), hereby certify that the Annual Report on Form 10-K of the
Company for the fiscal year ended June 30, 2003 (the "Report") fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of
the Company.
Dated: September 22, 2003
*/s/ Kevin D. Williams
------------------------------------
Kevin D. Williams
Chief Financial Officer
* "A signed original of this written statement required by Section 906 has
been provided to Jack Henry & Associates, Inc. and will be retained by Jack
Henry & Associates, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request."