Exhibit 10.16
-------------
December 8, 1994
▇▇▇ Technologies
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Re: New York CBIC Funding
-------------------------
Dear Denis:
The New York Department of Social Services executed a contract dated as of
November 2, 1994 with Continental Currency Services, Inc. ("Continental") under
which Transactive Corporation ("Transactive") will subcontract with Continental
for the provision of common benefit identification cards ("CBICs") and related
services. As we have discussed, it is contemplated that ▇▇▇ will act as a
subcontractor to Transactive pursuant to a subcontract to be negotiated in good
faith between us. In light of the immediate need for ▇▇▇ to begin performance,
which includes ordering substantial equipment from ▇▇▇'▇ suppliers, before our
subcontract can be completed, this interim letter agreement is required.
1. Funding Authorization. Transactive hereby authorizes ▇▇▇ to make
---------------------
expenditures and incur obligations of up to $1,862,039 for the purchase of
equipment and supplies for the CBICs system. ▇▇▇ is not authorized to make
expenditures or incur obligations which exceed this funding limitation without
the prior written consent of Transactive. The estimated schedule of
expenditures by milestones is attached as Exhibit A to this letter agreement.
---------
▇▇▇ will provide Transactive with copies of the invoices evidencing the
expenditures authorized herein and Transactive will pay ▇▇▇ the invoiced amount
within 20 days of receipt. All amounts which are not paid when due will bear
interest at the then current prime rate published in The Wall Street Journal
-----------------------
plus one percent per annum.
2. Termination Liability. In the event that Transactive and ▇▇▇ fail to
---------------------
enter into a mutually agreeable subcontract by February 1, 1995 (which date may
be extended by the mutual agreement of Transactive and ▇▇▇), (i) Transactive
will be entitled to all equipment and supplies acquired by ▇▇▇ for the CBICs
system with the funding authorized above (with transportation and delivery costs
to be paid by Transactive), (ii) ▇▇▇ will be responsible for paying its
suppliers for such equipment and supplies, and (iii) Transactive will pay ▇▇▇,
within three business days of the termination date, a termination payment which
is based on expenditures in accordance with the termination liability schedule
attached as Exhibit B to this letter agreement. If the expenditure is between
---------
the milestone amounts set forth on Exhibit A, the termination payment will be
---------
subject to equitable pro rata adjustment using the schedule on Exhibit B.
--- ---- ---------
3. Definitive Agreement. We will endeavor to negotiate a definitive
--------------------
subcontract as promptly as possible which will more completely set forth our
respective obligations regarding the CBICs system for the New York Department of
Social Services and supersede this interim agreement.
Please acknowledge your agreement as to the foregoing by executing this
letter agreement in the space provided below.
Very truly yours,
TRANSACTIVE CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
AGREED TO AND ACCEPTED:
▇▇▇ TECHNOLOGIES
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
EXHIBIT A
---------
▇▇▇ TECHNOLOGIES
FUNDING AUTHORIZATION AMOUNT
GTECH - NY DSS ID CARD SYSTEM
12/08/94
FUNDING AUTHORIZATION
-----------------------
INCREMENTAL CUMULATIVE
EVENT AMT AMT
MILESTONE 1 293,999 293,999
MILESTONE 2 596,908 890,907
MILESTONE 3 142,813 1,033,720
MILESTONE 4 238,022 1,271,743
MILESTONE 5 238,022 1,509,765
MILESTONE 6 233,262 1,743,027
MILESTONE 7 119,011 1,862,039
---------
1,862,039
August 8, 1996
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Vice President
Transactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: ▇▇▇/Transactive Contract for New York DSS CBIC Program
-----------------------------------------------------------
Subject: Contract Modification
-------------------------------
Dear ▇▇▇:
In order to move the above referenced contract forward, and meet what is
estimated to be a very aggressive implementation schedule desired by the New
York Department of Social Services ("DSS"), we are proposing the following
modification to the attached letter agreement dated December 8, 1994 ("Letter
Agreement"). That Letter Agreement authorized ▇▇▇ to make expenditures and
incur obligations up to a specified amount in preparation for its acting as a
subcontractor for Transactive under the Common Benefit Identification Card
("CBIC") contract between DSS and Continental Currency Services, Inc. (the "CBIC
Contract"). It further set a date (which has since been extended by the
parties) for execution of a subcontract between ▇▇▇ and Transactive, and
indicated ▇▇▇'▇ rights in the event that the parties fail to reach agreement.
We acknowledge that Transactive is presently negotiating an amendment to the
CBIC Contract, which has been necessitated as a result of material changes by
DSS to the equipment and services to be provided by Transactive (and therefore
▇▇▇). These discussions between Transactive and DSS include negotiations
regarding the amounts to be reimbursed to Transactive for amounts expended in
connection with DSS' unsuccessful efforts to develop a combined AFIS/CBIC
workstation. ▇▇▇ has provided Transactive with a breakdown of its costs
incurred, and proposed future costs, in support of the CBIC Contract, which are
summarized below in Section 1, and Transactive has submitted those costs, along
with its own, to DSS approval. However, it is possible that DSS may reject some
or all of such costs. Therefore, we acknowledge and agree that the proposed
amendments that follow are contingent upon the amount for reimbursed costs which
Transactive is able to collect from DSS, and that the sums set forth below will
be reduced proportionately based upon those ▇▇▇ costs actually reimbursed. The
following amounts may be further subject to change based upon implementation
schedule modifications agreed to by Transactive and DSS. In no event will
Transactive be entitled to the return of any amounts previously paid by
Transactive to ▇▇▇ pursuant to the Letter Agreement.
Conditional upon the foregoing and upon your acceptance by signing below, we
propose the following changes to the Letter Agreement.
1.0 FUNDING AUTHORIZATION
-------------------------
It is agreed that the maximum amount which Transactive will owe ▇▇▇ for
costs incurred is as follows:
1.1 Workstation and initial Interface phase (Base amount before Finance
costs for late payment following receipt of invoice assessed according to
Section 1 of the Letter Agreement, such invoices not to be delivered to
Transactive until completion of negotiations between Transactive and DSS and the
receipt by Transactive of reimbursement by DSS for Transactive's and ▇▇▇'▇
costs).
Not-to-Exceed $4,190,305 ($618,723 of which has already been paid)
1.2 CBIC Program - System Implementation & Card Consumables delivery
Not-to-Exceed $13,032,216 ($1,243,315 of which has already been paid,
and excluding any card security options which may be requested by DSS
and which are separately priced)
1.3 AFIS/CBIC Combined Workstation Evaluation
$465,925
TOTAL MAXIMUM CONTRACT VALUE $17,688,446 ($1,862,038 of which has already
been paid)
2.0 TERMINATION LIABILITY
--------------------------
It is agreed that the maximum amount of expenditures payable as a
termination payment under Section 2 of the Letter Agreement will not exceed
Contract Value of $17,688,446 ($1,862,038 of which has already been paid). This
amount replaces the original Letter Agreement amount of $2,714,844. The parties
agree and confirm that the date set forth in Section 2 of the Letter Agreement
for execution of the Transactive-▇▇▇ subcontract is hereby deleted, and that the
termination liability provisions set forth in Section 2 shall apply in the event
that the CBIC Contract is terminated, or in the event that following good faith
negotiations as set forth in Section 3 below, the parties agree that they are
unable to reach agreement as to a final Transactive-▇▇▇ subcontract.
3.0 DEFINITIVE AGREEMENT
-------------------------
▇▇▇ and Transactive agree to complete negotiations for a final
subcontract, including payment terms, as promptly as possible after the current
CBIC Contract negotiations between Transactive and DSS are completed.
Please acknowledge your agreement to the foregoing by executing the enclosed
duplicate copy of this letter in the space provided below.
Sincerely yours, AGREED AND ACCEPTED
▇▇▇ Technologies Transactive Corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------- ------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Chief Financial Officer Vice President
October 18, 1996
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vice President
Transactive Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: ▇▇▇/Transactive Contract for New York State DSS CBIC Program
Subject: Contract Modification No. 2
Dear ▇▇▇:
In order to meet the very aggressive implementation schedule that is in the
process of being finalized with the New York State Department of Social Services
("DSS") in connection with your negotiations of a contract amendment to the
original Common Benefit Identification Card ("CBIC") contract between DSS and
Continental Currency Services, Inc. (the "CBIC Contract"), we are proposing the
following modifications to the Letter Agreement between the Transactive and ▇▇▇
dated December 8, 1994 (the "Letter Agreement"), as modified by subsequent
letter agreement dated August 8, 1996 ("Original Contract Modification"). The
Letter Agreement authorized ▇▇▇ Technologies (▇▇▇) to make expenditures and
incur obligations up to a specified amount as a subcontractor for Transactive
Corporation under the CBIC Contract. It further set a date (which has since
been extended by the parties) for execution of a subcontract between ▇▇▇ and
Transactive, and indicated ▇▇▇'▇ rights in the event that the parties fail to
reach agreement. The Original Contract Modification, among other things,
increased the funding authorization to a total of $17,688,446, subject to final
negotiations with DSS, increased the termination payment under section 2 of the
Letter Agreement to a maximum of $17,688,446, and provided that ▇▇▇ and
Transactive would negotiate a final subcontract as soon as possible after
completion of negotiations with DSS.
We have agreed to the following changes to the Letter Agreement and the Original
Contract Modification in order for additional expenditures and obligations to be
incurred. As with the Original Contract Modification, the amendments that
follow are contingent upon the amounts which DSS has currently agreed to pay in
negotiations of the amendment to the CBIC contract.
1.0 FUNDING AUTHORIZATION
--- ---------------------
It is agreed that the total amount which Transactive will owe ▇▇▇ for costs
incurred related to 1.1 Workstation and Initial Interface Phase, 1.2 CBIC
Program-System Implementation and Card Consumables Delivery and 1.3 AFIS/CBIC
Combined Workstation Evaluation, as defined in the Original Contract
Modification, will be $13,662,555 of which $1,862,038 has already been paid.
This amount replaces the Original Contract Modification total maximum amount of
$17,688,446. The revised amount of $13,662,555 excludes separately priced
options that DSS may elect and any subsequent change orders negotiated between
Transactive and ▇▇▇ for additional work and assumes that only 10,400,000 cards
will be produced.
2.0 TERMINATION LIABILITY
--- ---------------------
If DSS terminates the CBIC Contract in accordance with Article XIII, section C
thereof, Transactive will reimburse ▇▇▇ for its portion of reasonable and
appropriate expenses, including reasonable and appropriate profit, incurred in
good faith, for which Transactive is paid by DSS pursuant to that CBIC Contract
provision, not to exceed the total maximum amount of $13,662,555 (of which
$1,862,038 has already been paid), reduced by any payments received by ▇▇▇ from
Transactive related to this Contract Modification No. 2 (excluding the Progress
Payment). ▇▇▇ will provide Transactive with detailed support for the expenses
it claims, and will assist and support Transactive in justifying said amounts to
DSS, including taking part in negotiations with DSS as requested by Transactive.
Transactive agrees that it shall not, without ▇▇▇'▇ prior written consent, which
shall not be unreasonably withheld, settle with DSS for reimbursement of ▇▇▇
expenses less than the amount claimed by ▇▇▇. In the event that Transactive
agrees to a termination settlement with DSS without obtaining ▇▇▇'▇ prior
written consent, then ▇▇▇ will not be bound or limited to amounts approved by
DSS. In addition, Transactive will be entitled to all equipment and supplies
acquired by ▇▇▇ for the CBIC system with the funding authorized pursuant to the
Letter Agreement. This section 2.0 supersedes the similar section 2.0 in the
Letter Agreement and the Original Contract Modification.
3.0 DEFINITIVE AGREEMENT
--- --------------------
▇▇▇ and Transactive agree to complete negotiations and execute a final
subcontract, including all terms specified in the Letter Agreement, as modified
by the Original Contract Modification and this Contract Modification No. 2,
within 30 days of the signing of this Contract Modification No. 2.
4.0 CONTRACT PAYMENT TERMS
--- ----------------------
Transactive has previously paid to ▇▇▇ $1,862,038 of the minimum subcontract
value of $13,662,555, leaving a remaining balance due of $11,800,517.
Transactive shall pay ▇▇▇ the balance due of $11,800,517 by monthly payments
based on a per card price as set
forth below.
Additionally, in exchange for a pricing discount, Transactive agrees to make a
progress payment to ▇▇▇ in the amount of $1,327,961 ("Progress Payment"), which
shall be paid to ▇▇▇ immediately upon execution by both parties of this Contract
Modification No. 2. The pricing discount will be equivalent to a 14% annual
rate on the unliquidated portion of the Progress Payment, to be calculated
starting as of the date of receipt by ▇▇▇ of the Progress Payment. The
following sets forth the per card price and liquidation schedule for the
Progress Payment:
(1) In the event that DSS makes an up front payment to Transactive, ▇▇▇ will be
entitled to receive their portion of the up front payment, which is
expected to be $1,276,984. Such up front payment will reduce the remaining
contract value from $11,800,517 to $10,523,533, which shall be paid monthly
based on a per card price of $1.0119. The $1,327,961 Progress Payment,
plus the pricing discount, will be substantially liquidated by ▇▇▇'▇
portion of the up front payment made by DSS. The remaining balance will be
liquidated based on card production as Transactive will not be required to
pay ▇▇▇ for cards produced until the remaining Progress Payment, plus the
pricing discount, has been liquidated.
(2) In the event that DSS does not make an up front payment to Transactive, ▇▇▇
will be paid monthly based on a per card price of $1.1347. The $1,327,961
Progress Payment, plus the pricing discount, will be liquidated based on
card production as described in (1) above.
(3) In the event that (i) DSS terminates the CBIC Contract; or (ii) ▇▇▇
terminates this Letter Agreement, as amended, or the subcontract when
executed; or (iii) Transactive terminates this Letter Agreement, as
amended, or the subcontract when executed, in accordance with the terms
thereof as a result of the default of ▇▇▇, then ▇▇▇ will, within ten (10)
calendar days following such termination, refund to Transactive any
remaining unliquidated Progress Payment plus pricing discount.
The minimum amount due for monthly card ▇▇▇▇▇▇▇▇ is $11,800,517 which represents
a minimum card volume of 10,400,000 DSS cards. Additional DSS cards in excess
of 10,400,000 will be billed separately at the rate of $0.400 per card. The
amount of $11,800,517 for card production is guaranteed by Transactive and GTECH
Corporation (GTECH). Payment to ▇▇▇ for monthly card ▇▇▇▇▇▇▇▇ will be due
within 10 days after Transactive's receipt from DSS of their corresponding
monthly card billing. If DSS is late in payment of their monthly card billing
and pays Transactive interest on amounts due in accordance with the CBIC
Contract and Article XI-A of the New York State Finance Law, Transactive will
pay ▇▇▇ a pro rata share of such interest payment equal to the percentage of
▇▇▇'▇ pro rata share of the contract payment. Transactive shall make such
interest payment to ▇▇▇ within ten (10)
days of Transactive's receipt of such interest from DSS.
▇▇▇ will be paid for such cards in accordance with the yearly guaranteed card
volumes that Transactive has agreed to with DSS.
5.0 LIQUIDATED DAMAGES
--- ------------------
The CBIC Contract sets forth certain liquidated damages payable by Transactive
in the event of certain failures to perform, including failure to conduct the
contingency test in connection with the ability to cut over to the back-up site
or to respond to deficiencies identified in that test. ▇▇▇ shall demonstrate
the ability to cut over to the back-up site in a contingency test within the
time period required by the CBIC Contract and annually thereafter. If ▇▇▇ fails
to conduct such contingency tests as required under the CBIC Contract, or
reasonably respond to deficiencies identified in said required contingency tests
(unless ▇▇▇ is prevented from doing so by Transactive or DSS), then ▇▇▇ shall
indemnify and hold harmless Transactive for liquidated damages assessed against
Transactive as a result of said failures pursuant to the CBIC Contract.
In addition, DSS and Transactive have tentatively reached agreement that
Transactive will be assessed liquidated damages in an amount up to $10,000 per
day for each day that specified milestone performance dates and the scheduled
card production start date are not met based on dates expected to be set forth
in Appendix D to the amended CBIC Contract. ▇▇▇ agrees to comply with those
milestone performance dates and scheduled card production date. ▇▇▇ agrees
that Transactive may assess ▇▇▇ up to 50% of the per day liquidated damages
assessments by DSS to Transactive that relate to ▇▇▇'▇ failure to meet any of
the agreed upon milestone performance dates or the scheduled card production
start date, provided that no damages will be assessed to ▇▇▇ if the failure to
meet the milestone performance dates or the scheduled card production start date
is caused by (i) factors beyond ▇▇▇'▇ control or (ii) if ▇▇▇ has met its
requirements, based on approved test plans, and the failure to meet a specific
date is not ▇▇▇'▇ responsibility. The maximum per day liquidated damages that
may be assessed by Transactive to ▇▇▇ under this provision of the amended CBIC
Contract will be 50% of $10,000 or $5,000, up to a total maximum of $1 million.
No liquidated damages will be assessed to ▇▇▇ unless liquidated damages are
assessed to Transactive by DSS and paid by Transactive. ▇▇▇ and Transactive
also agree that any liquidated damages that are assessed to ▇▇▇ will be paid for
by the same means as Transactive is required to pay such liquidated damages to
the DSS (e.g., by a lump sum if Transactive pays said damages by a lump sum).
In addition, ▇▇▇ and Transactive may agree to substitute additional services in
lieu of any cash assessment if DSS agrees that Transactive may pay liquidated
damages in such manner.
If either party terminates this Letter Agreement, as amended, or
the subcontract when executed, for any reason other than termination for the
default of the other party in accordance with the terms thereof, the terminating
party agrees that it shall defend, indemnify and hold harmless the other party
for any loss, liability, damage, fee or expense (collectively, "loss") incurred
by, or claimed by any third party or entity (including without limitation DSS)
against the indemnified party as a result of or arising out of said termination,
said indemnification not to exceed the value of this agreement as set forth
herein. The indemnified party shall promptly notify the indemnifying party, in
writing, of any such claim and shall reasonably cooperate with the indemnifying
party in the defense and settlement thereof.
Transactive has endeavored in its final negotiations with DSS to reduce the
amount of liquidated damages by proposing to DSS, among other things, that the
$10,000 per day be applicable only to business days (which DSS has declined to
accept) or in the alternative that they will provide reasonable cooperation
should nonbusiness day work be necessary to minimize liquidated damages. DSS is
considering language under which liquidated damages for failure to meet specific
milestone performance dates will be reduced or waived in the event that the
scheduled card production start date is met.
Upon receipt of an executed copy of this agreement and of the Progress Payment
of $1,327,961 outlined in section 4.0, ▇▇▇ will restart the program for a period
of 30 days during which time the final subcontract will be negotiated.
Please acknowledge your agreement to the foregoing by executing the enclosed
duplicate copy of this letter in the spaces provided below.
Sincerely yours,
▇▇▇ Technologies
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
AGREED TO AND ACCEPTED: AGREED TO AND ACCEPTED:
Transactive Corporation GTECH Corporation
By/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------- -------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vice President Title Treasurer
---------------------