EXHIBIT 10.46
SECOND AMENDED AND RESTATED
AGREEMENT FOR
EPI OPERATIONAL MANAGEMENT SERVICES
THIS SECOND AMENDED AND RESTATED AGREEMENT FOR EPI OPERATIONAL MANAGEMENT
SERVICES (as amended, modified and supplemented from time to time, this "EPI
Agreement"), dated as of June 28, 1998, to be effective as of the Merger Date
(as defined below), is between Swiss Bank Corporation, a banking corporation
organized under the laws of Switzerland ("SBC"), and ▇▇▇▇▇ Systems Corporation,
a corporation organized under the laws of the State of Delaware ("PSC").
WITNESSETH
WHEREAS, SBC and PSC entered into the Agreement for Operational Management
Services (the "Original EPI Agreement") dated as of January 1, 1996 (the
"Original Agreement Date");
WHEREAS, SBC and PSC entered into the Amended and Restated Agreement for EPI
Operational Management Services (the "Amended and Restated EPI Agreement") dated
as of January 1, 1997 (the "Adjustment Date");
WHEREAS, SBC and PSC now desire to amend and restate the Amended and Restated
EPI Agreement to read in its entirety as set forth herein;
WHEREAS, contemporaneously with the execution of this EPI Agreement, PSC and SBC
are entering into the Second Amended and Restated Master Agreement, dated as of
the date hereof (the "Master Agreement"); and
WHEREAS, SBC, on behalf of the SBC Warburg Division, desires to obtain from PSC,
and PSC is willing to provide to SBC, the SBC Warburg Division's requirements
for the services described in this EPI Agreement, on the terms and conditions
set forth in the Master Operating Agreement and this EPI Agreement;
NOW, THEREFORE, SBC and PSC hereby agree as follows:
1. Master Operating Agreement. Other than Sections 2.1, 3.1, 3.2, 3.3 and
11.4 of the Master Operating Agreement and except as otherwise
expressly set forth in this EPI Agreement, all the terms and conditions
of the Master Operating Agreement will apply to this EPI Agreement as
if fully set forth herein. In the event of any conflict or
inconsistency between the terms and conditions of this EPI Agreement
and the terms and conditions of the Master Operating Agreement, the
terms and conditions of this EPI Agreement will apply.
1
2. EPI Agreement. During the term of this EPI Agreement and except as
otherwise provided in Schedule F hereto, PSC will provide to the SBC
Warburg Division, and SBC will obtain from PSC, the SBC Warburg
Division's requirements for the Services, all upon and subject to the
terms and conditions specified in this EPI Agreement.
3. Definitions. As used in this EPI Agreement:
(a) "Budget Period" means (i) the period commencing on the
Adjustment Date and ending on December 31, 1997, and (ii) each
twelve (12) month period thereafter.
(b) "Merger Date" means June 29, 1998, the date of the merger of
SBC and Union Bank of Switzerland through UBS AG.
(c) "Moves and Restacks" means the process of relocating the staff
of the SBC Warburg Division and its contractors within and
among the offices of the SBC Warburg Division, including
without limitation moving network voice connections and
Equipment.
(d) "Performance Metric" means, with respect to each Budget
Period, each qualitative or quantitative standard of
performance applicable to the Services for that Budget Period
which the parties may mutually establish from time to time in
accordance with the terms of this EPI Agreement. The
Performance Metrics for the Budget Period commencing on the
Merger Date are as designated on Schedule G hereto.
(e) "SBC Warburg Infrastructure" means the Equipment, Licensed SBC
Systems, SBC Facilities and non-personnel services provided
pursuant to Third Party Service Contracts that SBC makes
available to PSC for PSC's use in connection with this EPI
Agreement.
(f) "SBC Warburg Division Member" means any entity included within
the SBC Warburg Division.
(g) "Scope of Services" means, collectively, the services PSC is
generally performing at the locations at which PSC is
performing services as of the Merger Date on behalf of the SBC
Warburg Division, except with respect to the SBC Private
Banking Division, in which case Scope of Services shall refer
only to locations outside of Switzerland at which PSC is
performing services as of the Merger Date and the SBC ▇▇▇▇▇▇▇
Division, in which case Scope of Services shall refer only to
locations outside of Chicago, Illinois at which PSC is
performing services, as of the Merger Date. The Scope of
Services shall include those services required to support the
normal technological evolution of the SBC Warburg
Infrastructure and the ordinary growth of the business of the
SBC Warburg Division (at the locations at which PSC is
performing such services as of the Merger Date) being
supported by
2
PSC as defined in Schedule A hereto. The Scope of Services is
more specifically defined to include and exclude the services
described on Schedule A hereto as being either included or
excluded.
(h) "Service Level" means each qualitative or quantitative
standard of performance applicable to the Services, which the
parties may mutually establish from time to time in connection
with unit pricing in accordance with the terms of this EPI
Agreement and which are called "Service Levels".
(i) "Services" mean, collectively, the services required for the
Operational Management of the EPI of each SBC Warburg Division
Member, including the services described in Schedule A hereto.
4. Term. The term of this EPI Agreement will commence on the Adjustment
Date and, unless earlier terminated in accordance with the terms of the
Master Operating Agreement, will continue until the tenth (10th)
anniversary of the Adjustment Date or such later date as the parties
may mutually agree.
5. PSC Obligations and Performance Metrics. During the term of this EPI
Agreement:
(a) PSC will make available to the SBC Warburg Division, for the
SBC Warburg Division's use in accordance with Article IV of
the Master Operating Agreement, any PSC Systems used by PSC in
the Operational Management of the EPI of the SBC Warburg
Division.
(b) PSC will provide the Services (including making available in a
timely fashion qualified people to perform, and to respond to
SBC's reasonable requests for, Services) (i) contemplated by
the PSC Costs Budget or Equipment and Facilities Budget (as
each such term is defined in Schedule F hereto) and, where
applicable, will use reasonable efforts to meet any Service
Levels mutually established for those Services or (ii) for
which SBC agrees to otherwise pay PSC in accordance with
Schedule F hereto. Additionally, and notwithstanding anything
else in this EPI Agreement to the contrary, SBC will pay PSC
in accordance with Schedule F, including the quarterly
adjustment provisions thereof, for any Services required to be
provided and which are provided by PSC to the SBC Warburg
Division whether the amounts for those Services are or are not
included in a PSC Costs Budget. Subject to the foregoing, PSC
agrees that it will abide by any cost approval processes of
which PSC may receive notice from SBC from time to time,
including the SBC Warburg Central Approval and Order Process,
within a reasonable period of time after receipt thereof.
(c) The Performance Metrics contained in Schedule G hereto shall
continue in effect until changed by the parties by mutual
agreement:
(1) [Intentionally omitted]
3
(2) [Intentionally omitted]
(3) Subject to the SBC Operational Manager's rights and
obligations under Section 2 of Schedule G hereto, if
PSC's actual level of performance meets the
anticipated typical or median (neither superior nor
inferior) performance expected by the parties, it is
expected that PSC will be paid an amount equal to the
Annual Profit Amount (as defined in Schedule F
hereto).
(4) [Intentionally omitted]
(5) On or before December 15 of each Budget Period, PSC
will deliver to the SBC Operational Manager in
writing its estimate of the total PSC Costs for the
current Budget Period. Within seven (7) days
thereafter, the SBC Operational Manager and the PSC
Relationship Manager will meet at a mutually agreed
time to discuss SBC's good faith estimate of the
Annual Profit Amount for such Budget Period.
Thereafter, PSC will deliver to SBC its final invoice
for the Budget Period and within seven (7) days of
receipt thereof SBC will deliver its final
determination of the Annual Profit Amount, as
adjusted in accordance with Schedule G.
(6) [Intentionally omitted]
(7) Upon the request of the PSC CEO no more frequently
than once per calendar quarter, the SBC Operational
Manager will provide the PSC CEO with a good faith
outlook with respect to PSC performance on the
Performance Metrics for the remainder of the
then-current Budget Period.
(d) [Intentionally omitted]
(e) [Intentionally omitted]
(f) PSC will timely provide SBC with a quarterly performance
report, in a form and with content mutually established by the
parties, documenting PSC's performance with respect to the
Performance Metrics.
(g) It is PSC's intention to use the SBC Warburg Infrastructure
and the Transitioned Employees in order to provide services to
other PSC customers, subject to the security and
confidentiality provisions of the Master Operating Agreement
and this EPI Agreement. Prior to any use of the SBC Warburg
Infrastructure in connection with the provision of services to
a third party by PSC, PSC must comply with the provisions of
Section 6 of Appendix 1 to Schedule F hereto. Nothing in this
EPI Agreement will limit PSC's rights to use the Licensed SBC
Systems in accordance with the Master Operating Agreement.
4
(h) With respect to those PSC employees that have a significant,
direct working relationship with the SBC Warburg Division
business units, SBC will provide to PSC specific criteria for
the comprehensive incentive based compensation program
established for those PSC employees that will be designed to
reward those employees for performance that, while not
disadvantaging PSC, directly benefits those areas of SBC's
business deemed important to SBC. During PSC's annual review
of those PSC employees, SBC will provide PSC with SBC's
assessment of those PSC employees based upon the specific
criteria provided by SBC. Notwithstanding the foregoing, PSC
employees shall remain employees of PSC.
(i) PSC will also have responsibility for the functions and
obligations set forth on Schedule D hereto.
(j) PSC will use all reasonable efforts to maintain an errors and
omissions insurance policy with one hundred million dollars
($100,000,000) of coverage and the cost of the policy will be
a direct PSC Cost. Other policies of insurance maintained by
PSC with coverage above the coverage maintained by PSC prior
to the Original Agreement Date, up to an aggregate of
seventy-five million dollars ($75,000,000) in coverage, will
be a direct PSC Cost until the time that those other policies
of insurance can be used by PSC to insure against risks
incurred by PSC as a result of its relationships with other
customers of PSC, at which time the costs of that insurance
will be allocated among all PSC accounts for which such
insurance can be used in accordance with the amount of
insurance coverage that can be used with respect to such
customer. SBC and PSC will periodically determine whether
these limits should be adjusted to take into account the
effects of inflation.
6. SBC Obligations. Commencing on the Original Agreement Date:
(a) SBC has and will continue to make available to PSC, for PSC's
use in accordance with Article IV of the Master Operating
Agreement, the SBC Warburg Infrastructure. Other than as sold
or terminated in the ordinary course of business with the
consent of both parties prior to the date of delivery of this
Agreement, SBC represents to PSC that the SBC Warburg
Infrastructure made available to PSC hereunder includes all of
the Equipment, SBC Systems, SBC Facilities and services from
Third Party Service Contracts used by or on behalf of the SBC
Warburg Division as of the Original Agreement Date to provide
the Services to the SBC Warburg Division that PSC is obligated
to provide under this EPI Agreement.
(b) Except as expressly permitted by this EPI Agreement, the
Master Agreement (herein so called), executed by SBC and PSC
as of the Adjustment Date, or the Master Operating Agreement,
neither SBC nor the SBC Warburg Division Members will enter
into any agreements with third parties relating to any
products or services for which PSC has
5
responsibility hereunder. SBC agrees that it will not enter
into any Third Party Service Contracts for services relating
to the Operational Management of the EPI of the SBC Warburg
Division during the term of this EPI Agreement, except as
otherwise approved by PSC or authorized by the terms of this
EPI Agreement.
(c) SBC will retain responsibility for the functions and
obligations set forth on Schedule C hereto.
(d) SBC will use all commercially reasonable efforts to cause the
SBC Warburg Division to standardize the products and services
for which PSC has responsibility hereunder within the SBC
Warburg Division as soon as reasonably practicable.
7. PSC's Charges. SBC will pay PSC for the Services in accordance with
Schedule F hereto.
8. Operational Manager of SBC. SBC agrees that the Operational Manager of
SBC (as defined in the Master Operating Agreement) for SBC will be
▇▇▇▇▇ Solo, ▇▇▇▇▇ ▇▇▇▇▇▇, or another individual satisfactory to the
Operational Manager of PSC; provided that should PSC not consent to the
designation of any Operational Manager designated pursuant to the
Master Operating Agreement other than ▇▇▇▇▇ Solo or ▇▇▇▇▇ ▇▇▇▇▇▇, then
the following shall apply: The matter of who shall serve as the
Operational Manager for SBC under this EPI Agreement will be referred
to the CEO's of PSC and SBC who will discuss the issue and negotiate in
good faith to resolve the dispute or controversy. The specific format
for such discussions and negotiations will be left to the CEO's. In the
event that the CEO's do not agree on the individual who shall serve as
the Operational Manager for SBC, then for the first twelve (12) months
during which such disagreement as to the Operational Manager for SBC
continues, PSC shall be deemed to have performed under the terms of
this EPI Agreement each of the Performance Metrics to the extent
necessary so that PSC will be entitled to receive the Annual Profit
Amount on a pro rata basis for each of such twelve (12) months without
adjustment pursuant to Schedule G of this EPI Agreement. Thereafter, so
long as such disagreement continues, and notwithstanding Schedule G
hereto, the Reward Pool will be an amount equal to seven and one half
percent (7.5%) of the Annual Profit Amount and the Penalty Pool will be
an amount equal to seven and one half percent (7.5%) of the Annual
Profit Amount.
9. Notices. Wherever under this EPI Agreement one party is required or
permitted to give notice to the other, such notice shall be deemed
given when delivered by hand or when mailed by registered or certified
mail, return receipt requested, postage prepaid, and addressed as
follows:
6
In the case of PSC:
▇▇▇▇▇ Systems Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Division President - Global Financial Services Division
with a copy to:
▇▇▇▇▇ Systems Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
In the case of SBC:
Swiss Bank Corporation
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇
Attention: Operational Manager - SBC Warburg
with a copy to:
Swiss Bank Corporation
Legal Services SBC Group
▇▇▇▇▇▇▇▇▇ ▇▇-▇▇
▇▇-▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
Attention: General Counsel
Either party hereto may from time to time change its address for
notification purposes by giving the other prior written notice of the
new address and the date upon which it will become effective.
10. Entire Agreement. Except as set forth in the Principal Agreements (as
defined in the Master Agreement), this EPI Agreement, including any
Schedules referred to herein and attached hereto, and the terms and
conditions of the Master Operating Agreement, each of which is
incorporated herein for all purposes, constitutes, together with any
other written agreement or letter between SBC and PSC dated the
Adjustment Date or as of the Adjustment Date, or the Original Agreement
Date or as of the Original Agreement Date (not including agreements or
letters amended, or restated or superseded as of the Adjustment Date)
that relates to this EPI Agreement, the entire agreement between the
parties hereto with respect to the subject matter hereof and thereof
and there are no representations, understandings or agreements relative
hereto and thereto, written or oral, which are not fully expressed
herein or therein. No change, waiver, or discharge hereof shall be
valid unless in writing and signed by an authorized representative of
the party against which such change, waiver, or discharge is sought to
be enforced.
7
IN WITNESS WHEREOF, PSC and SBC have each caused this EPI Agreement to be signed
and delivered by its duly authorized officer(s), all as of the Adjustment Date.
▇▇▇▇▇ SYSTEMS CORPORATION SWISS BANK CORPORATION
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
By:
----------------------------
Title:
-------------------------
8
SCHEDULE A
PSC SERVICES
The Services included within the Scope of Services collectively make up data
processing services and specifically center on the support of: the entire wide
and local area communication network software and hardware; all data centers and
network, file and data servers; all desktop computer support, office automation
tools (specifically global email design, operation and support), the work to
ensure global connectivity and relatively free-seating capability; customer help
desk for non application specific problems; design, staging, installation and
restacking of an appropriate range of workstation offerings (fixed and
portable); design and support expertise for the inevitably evolving standards of
institutional process automation infrastructure (such as Internet standards and
Web technology).
The Scope of Services does not include services required for the design or
implementation of software packages ("Excluded Software Packages") for
transaction processing, custody, settlement/payments services, pricing tools,
risk control, customer MIS, financial reporting, general ledgers, payment
systems or other applications or business systems. However, the Scope of
Services does include the Services necessary for operating the systems that run
the Excluded Software Packages, to include appropriate monitoring of task
completion, etc. PSC will, within the Scope of Services, facilitate the normal
restack and periodic site relocation (to include the Stamford and Stardust work
contemplated as of the Adjustment Date), though a major relocation project
(excluding the currently configured Stamford and Stardust moves) or the support
of a new geographic office would be outside the Scope of Services and require
additional compensation as described in Schedule F to this EPI Agreement.
Likewise, if there is a substantial increase in the services necessary to
support services in the Scope of Services beyond the level of services as of the
Merger Date, as requested by SBC (for example, such as an increase of more than
7% during any Budget Period or 35% in the aggregate in the number of
workstations (not bandwidth) currently supported by PSC), or if the services are
required to support the SBC Private Banking Division in Switzerland or the SBC
▇▇▇▇▇▇▇ Division in Chicago then these additional services would be outside the
Scope of Services and require additional compensation as described in Schedule F
to this EPI Agreement. Additionally, any offices of the SBC Private Banking
Division and the SBC ▇▇▇▇▇▇▇ Division not serviced on the Merger Date are also
outside the Scope of Services and require additional compensation as described
in Schedule F to the EPI Agreement.
A-1
SCHEDULE B
EXCLUSIONS TO REQUIREMENTS
[Intentionally omitted]
B-1
SCHEDULE C
SBC RESPONSIBILITIES
1. Establish appropriate requirements and priorities for the SBC Warburg
Division's requirements for the Services, including business
projections relating to such requirements, and communicate the same to
PSC.
2. Subject to the terms and conditions of this EPI Agreement and the
Master Operating Agreement, make available to PSC, as reasonably
requested by PSC, management decisions, personnel, information,
approvals, acceptances, and access to the SBC Facilities in order that
the Services may be properly performed.
3. Cooperate with PSC in establishing mutually acceptable procedures and
timing for the processing of non-scheduled, special request, or other
user-initiated services and change control activities, and modifying
those procedures as reasonably requested from time to time.
4. Supply to PSC for processing required data with applicable control
totals as such data is currently used by the SBC Warburg Division and
as may be required by PSC to provide the Services.
5. Identify a mutually acceptable number of delivery points for report
distribution within each location at which PSC is required to deliver
reports and timely notify PSC of any report distribution schedule
changes or problems which may arise from time to time.
6. Inspect and review all reports prepared by PSC as soon as reasonably
practicable after receipt and promptly notify PSC as to any required
corrections.
7. Periodically provide to PSC an updated list of SBC personnel authorized
to access data and system functions designated as restricted by SBC.
8. Provide access control and physical security at locations provided or
controlled by the SBC Warburg Division, including such security as may
be required in connection with the installation, operation, maintenance
and removal of communication and computer equipment to, at or from any
such location.
9. Cooperate and assist PSC in instructing SBC personnel to adhere to
applicable PSC security policies and standards as necessary to protect
the information and assets of PSC and its customers.
10. Provide to PSC and the end-users the consumables, such as toner and
paper, required for all desk-top devices maintained by PSC in
connection with the Services provided hereunder.
C-1
SCHEDULE D
ADDITIONAL PSC RESPONSIBILITIES
1. Use its commercially reasonable efforts to meet or exceed each of the
applicable Service Levels, subject to the terms and conditions of this
EPI Agreement.
2. Cooperate and consult with and assist SBC in establishing the PSC Costs
Budget and the Equipment and Facilities Budget as described in Appendix
1 to Schedule F to this EPI Agreement.
3. Provide SBC or its representatives with reasonable access to PSC's
books and records as required for SBC to exercise its audit rights as
described in this EPI Agreement and the Master Operating Agreement.
4. Use reasonable efforts to meet or exceed applicable budget targets,
subject to the terms and conditions of this EPI Agreement.
D-1
SCHEDULE E
LICENSED SBC SYSTEMS
[Intentionally omitted]
E-1
SCHEDULE F
PSC CHARGES
1. Definitions. For purposes of this Schedule:
(a) "Annual Profit Amount" means, with respect to the first Budget
Period, an amount equal to Forty Million Five Hundred Thousand
Dollars ($40,500,000) and for each subsequent Budget Period,
an amount equal to Forty Six Million Dollars ($46,000,000)
which will be adjusted in accordance with Appendix 2 to this
Schedule F.
(b) "Cost Plus Service" means all Services provided by PSC
pursuant to this EPI Agreement, excluding any Services for
which PSC is being paid by SBC on other than a cost
reimbursement basis as described in Section 4 of this Schedule
F.
(c) "Equipment and Facilities Budget" means, with respect to each
Budget Period, each budget relating to SBC Warburg Division
capital expenses developed for that Budget Period in the form
finally approved by SBC in accordance with Section 2 of
Appendix 1 to this Schedule F.
(d) "PSC Costs" mean all costs, excluding Corporate Overhead,
incurred by PSC in the performance and provision of the
Services pursuant to this EPI Agreement. To be chargeable to
SBC, costs shall, unless otherwise mutually agreed, be
accounted for using (i) generally accepted accounting
principles, and (ii) using reasonable cost accounting
practices. "Corporate Overhead" means the costs of the Office
of PSC Chairman, Office of the PSC CEO and President, Office
of the Global Financial Services Industry, and the corporate
(as contrasted with SBC Account) costs of the Marketing,
Finance, HR, Legal, Internal Audit, Travel, Sales Procurement,
Real Estate, Internal Systems and Recruiting Departments, all
to the extent such costs are for the general support of PSC on
a corporate-wide basis, and not for the direct support of
providing the Services pursuant to this EPI Agreement where
such direct support costs are allocated on a use, consumption
or incurrence of cost basis.
SBC will notify PSC within nine (9) months of receipt by SBC
of any invoice containing a cost item that SBC reasonably
believes to be of a class or character (but not an amount)
that SBC or a third Person similarly situated with PSC could
not reasonably be expected to incur in performing the
Services. Such written notice will set forth the basis for
SBC's belief in reasonable detail. SBC and PSC will discuss
the issues raised in such notice for a period of up to thirty
(30) days following its delivery to PSC, and if not resolved
during the first twenty (20) days of such period, there will
be a meeting between the CEO of ▇▇▇▇▇ Systems and the
Operational Manager of SBC prior to the end of such thirty
(30) day period. Any dispute between PSC and SBC with respect
to the
F-1
foregoing that is not mutually resolved by PSC and SBC within
such thirty (30) day period will be resolved in accordance
with Section 7.4 of the Master Operating Agreement with the
"arbitration panel" referred to in that Section being one of
the six (6) largest internationally recognized firms of public
accountants.
PSC Costs will include:
(1) With respect to taxes, all Taxes
attributable to the Services and the
resources utilized therefor but only to the
extent that those Taxes, or the withholding
or collection thereof, are the legal
obligation of PSC, such as employee
withholding taxes and sales taxes for
products or services purchased by PSC on its
own behalf to provide the Services. All
other Taxes will be paid or reimbursed by
SBC to PSC but will not be included in PSC
Costs.
(2) To the extent that PSC presents invoices for
Services in local currency, the costs of
hedging against and otherwise prudently
managing the risk of currency fluctuations,
but excluding currency profits and/or losses
from such hedging or other management
activities.
(3) To the extent that PSC presents invoices for
Services in U.S. Dollars, the costs of
hedging against and otherwise prudently
managing the risk of currency fluctuations
and any profits and/or losses from such
hedging or other management activities and
profits and/or losses from currency
fluctuations measured against the U.S.
Dollar.
(e) "PSC Costs Budget" means, with respect to each Budget Period,
each budget developed for that Budget Period in the form
finally approved by SBC in accordance with Section 1 of
Appendix 1 to this Schedule F.
(f) "PSC Interest Payment" means, with respect to any amount owed
by SBC to PSC under this EPI Agreement and for which this EPI
Agreement expressly provides for an interest payment equal to
the PSC Interest Payment:
(1) An amount equal to the fees and expenses incurred by
PSC in connection with PSC's financing of the amount
owed by SBC; or
(2) If PSC does not finance the amount owed by SBC, an
amount equal to the PSC Interest Rate on the amount
owed by SBC calculated from the date the amount owed
by SBC was due and payable until the date it is paid
to PSC.
(g) "PSC Interest Rate" means the London Interbank Offered Rate as
published in the Wall Street Journal (national edition) for
three (3) month U.S. Dollar deposits, plus two percent (2%),
or if no such rate is
F-2
quoted, the rate for certificates of deposit of major New York
banks as quoted in the Wall Street Journal (national edition)
for three (3) month certificates of deposit plus two percent
(2%). PSC and SBC will adjust the PSC Interest Rate for each
Budget Period as necessary to reflect changed circumstances.
(h) "SBC Interest Payment" means, with respect to any amount
overpaid by SBC and reimbursable by PSC to SBC under this EPI
Agreement and for which this EPI Agreement expressly provides
for an interest payment equal to the SBC Interest Payment, an
amount equal to the SBC Interest Rate on the amount
reimbursable by PSC calculated from the date the amount
reimbursable by PSC was overpaid by SBC until the date it is
reimbursed to SBC.
(i) "SBC Interest Rate" means the London Interbank Offered Rate as
published in the Wall Street Journal (national edition) for
three (3) month U.S. Dollar deposits, plus two percent (2%) or
if no such rate is quoted, the rate for certificates of
deposit of major New York banks as quoted in the Wall Street
Journal (national edition) for three (3) month certificates of
deposit plus two percent (2%). PSC and SBC will adjust the SBC
Interest Rate for each Budget Period as necessary to reflect
changed circumstances.
(j) "Special Profit Fee" means a one time payment of Three Million
Dollars ($3,000,000) payable from SBC to PSC.
(k) "Taxes" means all foreign, federal, state, county, local and
other taxes of every kind and however measured, including,
without limitation, income, capital, gross receipts, excise,
stamp, franchise, business privilege, property, value added,
import duties, employment, withholding, payroll, sales, ad
valorem, use, leasing, profits, excess profits, occupational,
telephony, transfer, levies, imposts, duties, charges, fees,
assessments, or withholdings of any nature whatsoever, general
or special, ordinary or extraordinary, and any transaction
privilege or similar taxes together with any and all
penalties, fines, surcharges, additions to tax and interest
thereon; but excluding any taxes based on the net income (or
gross income, profits or franchise taxes in lieu of or in
conjunction with net income) of PSC imposed by any federal,
state, provincial, cantonal, local or any similar
jurisdiction, and any withholding tax associated with the
distribution of that net income (or gross income, profits or
franchise taxes in lieu of or in conjunction with net income).
2. Budget and Capacity Planning. The PSC Costs Budget and the Equipment
and Facilities Budget will be established in accordance with Appendix 1
to this Schedule F.
3. Cost Plus Services. During each Budget Period:
(a) PSC's estimated and budgeted charges to SBC for the Cost Plus
Services will be an amount equal to (i) the PSC Costs
reflected in the PSC Costs
F-3
Budget for that Budget Period that it is estimated PSC will
incur during that Budget Period relating to the Cost Plus
Services, plus (ii) the then current Annual Profit Amount.
(b) Subject to receipt of an invoice pursuant to Section 6 hereof,
on the tenth day (or, if not a business day, the first
business day thereafter) of each month during that Budget
Period, SBC will pay to PSC, by wire transfer to a bank
account designated by PSC, an amount equal to the Monthly Run
Rate (as defined in Section 1(b)(3) of Appendix 1 to this
Schedule F) applicable to the Cost Plus Services for that
month.
(c) At the end of each calendar quarter during that Budget Period
(or, at the request of either party, more often than quarterly
to take into account significant differences between actual
PSC Costs and the Monthly Run Rate), PSC will determine the
actual PSC Costs and the pro rata portion of the Annual Profit
Amount relating to the Cost Plus Services for all prior
periods. To the extent the actual PSC Costs for the Cost Plus
Services for prior periods varied from the estimated amounts
paid under Section 3(b) with respect to those prior periods
and such variance has not been taken into account in
connection with prior adjustments under this Section 3(c), PSC
will either issue to SBC (i) an invoice for additional amounts
owed by SBC, plus the PSC Interest Payment, or (ii) a credit
against the next month's invoice for amounts overpaid by SBC
as a result of such variances, plus the SBC Interest Payment.
(d) In a given budget year, PSC has the right to limit the growth
in the PSC Costs Budget by not providing expanded services or
by ceasing to provide services in specific functional or
geographic areas. In such case, SBC has the right to perform
such services itself, and PSC and SBC shall mutually agree on
which services or functional areas shall no longer be
supported by PSC, and to the extent that PSC is no longer
providing such services in such functional or geographic area,
PSC shall accommodate SBC by permitting SBC to hire the
permanent, full-time PSC employees who were providing such
services.
4. Services Not Within the Scope of Services. PSC shall not be required to
provide any services outside of the Scope of Services defined in
Section 3(f) and Schedule A hereto unless SBC and PSC mutually agree on
the compensation for such additional services; provided, however, that
PSC shall not be entitled to withhold or withdraw any services
previously provided except to the extent that PSC may determines to
stop performing services which it deems to be outside the Scope of
Services and for which compensation has not been established, in which
case SBC shall be free to hire the permanent, full-time PSC employees
who are performing such services for SBC. Anything to the contrary
notwithstanding, SBC shall have the right in its sole discretion to
perform for itself services outside the Scope of Services except to the
extent that such services are specifically contracted for with PSC for
additional compensation. Upon the occurrence of any event or events
that would provide PSC with the opportunity to provide services outside
the Scope of Services or development,
F-4
maintenance or enhancement services related to the Restricted
Application Systems, PSC will so notify SBC and unless SBC, in its sole
discretion, determines to perform such services itself, SBC will pay
PSC for the resources required to provide those services as set out
below.
If PSC and SBC are unable to agree on an amount to be paid for the
required resources, PSC will be relieved of any responsibility for the
services with respect to the required resources and SBC may, in its
sole discretion, perform the services itself; provided, however, that
if SBC desires to have the right to have another third party provide
the services that are not within the Scope of Services, subject to
PSC's final right of refusal in the case that SBC elects to use a third
party, PSC will have a final right of refusal as follows:
(a) SBC will give PSC notice of the services and related resources
that it is proposing be provided by a third party. The notice
will include the amounts that the third party proposes to
charge for those services and related resources.
(b) PSC will be given thirty (30) days to respond to the notice by
notifying SBC whether it desires to provide those services and
related resources and the price it offers to charge for those
services.
(c) Within thirty (30) days of receiving PSC's response, SBC will
grant PSC the right to provide those services and related
resources, unless either the price for such services offered
by PSC is meaningfully worse or SBC in good faith believes
that PSC has not demonstrated proficiency in the area of the
applicable services.
(d) SBC may use a PSC Competitor to provide the applicable
services only if SBC and the PSC Competitor act in good faith
and not with the intent to have the PSC Competitor "buy" the
business and the PSC Competitor charges SBC no less than its
typical retail rates for similar services.
5. [Intentionally omitted]
6. Invoices and Time of Payment. The amounts payable to PSC hereunder will
be invoiced and paid as set out below.
(a) PSC will submit invoices to SBC for each month during the term
of this EPI Agreement. Invoices will be submitted in the name
of any SBC Warburg Division Member and for any location that
is requested by SBC to cover Services delivered in that
location to that SBC Warburg Division Member, in a form that
is acceptable to the taxing authorities in the applicable
location. Each invoice will contain information in a format
and with such detail as is reasonably necessary for SBC to
verify PSC's charges and to allocate PSC's charges among the
appropriate SBC Warburg Division Members. PSC will also
provide an analysis of the charges in a manner consistent with
SBC's reasonable requests from time to time.
F-5
(b) Invoices for the amounts due pursuant to Sections 3(b), 4(b),
5(b) and 6(b) of this Schedule F will be submitted on or
before the first day of each calendar month and will be
payable by the tenth day of that calendar month. Any amount
due PSC hereunder for which a time for payment is not
otherwise specified will be due and payable within thirty (30)
days after receipt by SBC of a PSC invoice therefor. PSC will
submit such invoices on a timely basis promptly after
performing the Services or incurring the expenses that are
being invoiced.
(c) If SBC reasonably disputes any invoice in good faith, as SBC's
sole means of obtaining relief related to the invoice, SBC
must provide to PSC within nine (9) months of receipt of the
invoice concerning such dispute a detailed written reason for
its dispute and will pay to PSC all amounts due on the
invoice, except SBC may withhold a portion of the Annual
Profit Amount having the same ratio to the Annual Profit
Amount invoiced for the month as to which a dispute exists as
the ratio of the amount in dispute to all amounts due to PSC
for the month associated with the PSC Costs being disputed by
SBC. SBC will pay to PSC the PSC Interest Payment for any late
payments and withheld Annual Profit Amounts that are
ultimately determined to be due. PSC will pay to SBC the SBC
Interest Payment for any amounts required to be reimbursed by
PSC to SBC as a result of SBC's payment to PSC of amounts that
are ultimately determined not to have been due.
(d) PSC's monthly invoices will include a pro-rata portion of the
Annual Profit Amount. Adjustment to the Annual Profit Amount
pursuant to Schedule G will be determined by SBC and notified
to PSC in writing in accordance with Section 5(c)(5) of the
EPI Agreement. Payment of any reward amount by SBC will be
made simultaneously with delivery of such notice to PSC.
Credit for any penalty amount will by applied by PSC to the
Monthly Run Rate for the subsequent Budget Period.
(e) SBC will pay PSC the Special Profit Fee on or before May 31,
1997.
7. Currency of Payment. All charges to SBC will be invoiced in the
currency of the country or countries, as the case may be, in which the
PSC Costs related to the charges were incurred, and SBC will pay those
PSC charges in the currency so denominated. Upon the agreement of SBC
and PSC at the beginning of any Budget Period, charges to SBC may be
invoiced in U.S. Dollars. The Annual Profit Amount will be invoiced in
U.S. Dollars.
8. Tax Credit. As a reduction to any amounts billed to SBC under this
Schedule F, PSC will apply a credit equal to the reduction in "Income
Tax" resulting from the use of an "Existing Tax Asset" to the extent
that "SBC Taxable Income" in any jurisdiction enables PSC to "Utilize"
such Existing Tax Asset. For purposes of this Section 8:
F-6
(a) "Income Tax" means the tax liability required to be calculated
under the relevant jurisdiction's income, profits or franchise
tax laws for any tax year.
(b) "Existing Tax Asset" means a net operating loss carryover, as
defined in the relevant jurisdiction's income, profits or
franchise tax laws, that exists at December 31, 1995.
(c) "SBC Taxable Income" means the portion of PSC Group taxable
income before net operating loss carryover as presented on any
PSC Group final tax return for any tax year in any
jurisdiction that PSC allocates to this Agreement, using any
reasonable, good faith method.
(d) "Utilize" means to use the Existing Tax Asset on any PSC Group
final income tax return for any tax year in any jurisdiction,
but only to the extent that the Existing Tax Asset would not
otherwise be offset by non-SBC Taxable Income in the current
tax year or in any subsequent tax years. For these purposes,
an Existing Tax Asset shall not be considered Utilized until a
final determination can be made that the Existing Tax Asset
would have expired unused but for availability of SBC Taxable
Income. In making this determination, non-SBC Taxable Income
shall be applied to the oldest net operating loss carryovers
first. Non-SBC Taxable Income shall mean any PSC Group taxable
income that is not SBC Taxable Income.
9. Audit of Charges. Upon the reasonable request of SBC, PSC will permit
SBC or its designated representatives (who will not be PSC Competitors
or Affiliates of PSC Competitors, other than the reporting auditors of
any SBC Warburg Division Member) access to PSC's books and records to
perform an audit up to four (4) times per Budget Period to the extent
necessary to verify PSC's charges to SBC under this EPI Agreement. SBC
will provide to PSC a copy of the audit report resulting from each such
audit upon its completion. As promptly as practicable thereafter, but
within nine (9) months of the receipt by SBC of the invoice concerning
the disputed cost, SBC must provide notice to PSC of a dispute and the
parties will then review the audit report and work in good faith to
agree upon any reimbursement of charges due to SBC and any appropriate
future adjustments to PSC's charges and practices under this EPI
Agreement. Subject to the delivery of the notice referred to above, if
such audit demonstrates that PSC's invoiced charges for that period
differ from the correct charges for that period, PSC will either (i)
issue a credit to SBC against the next succeeding monthly invoice for
the amount of any overpayments, or (ii) issue an invoice to SBC for any
underpayments, plus in the event of (i) above, interest on the credited
amounts equal to the SBC Interest Rate calculated from the date such
amounts were overpaid, and in the event of (ii) above, interest on the
invoiced amounts equal to the PSC Interest Rate calculated from the
date such amounts should have been paid. If PSC's invoiced charges for
the applicable period exceed the correct charges for that period by
more than ten percent (10%), PSC will pay or reimburse SBC for the
reasonable costs of such audit. In the event PSC reasonably desires to
limit the scope of SBC's audit rights in order to
F-7
protect confidential or proprietary information, the audit will be
conducted by an independent third party auditor mutually acceptable to
PSC and SBC who will verify PSC's charges to SBC for the relevant
period without disclosing any Confidential Information of any member of
the PSC Group to any member of the SBC Group or any other party.
F-8
APPENDIX 1
TO
SCHEDULE F
BUDGET AND CAPACITY PLANNING
1. PSC Costs Budget. The PSC Costs Budget will be established for each
Budget Period as follows:
(a) SBC, in consultation with PSC, will determine the estimated
requirements of the SBC Warburg Division during that Budget
Period for the Cost Plus Services (the "Estimated Services").
(b) Following determination of the Estimated Services, PSC, in
consultation with SBC, will establish a proposed budget for
that Budget Period and PSC will submit the proposed budget to
SBC for SBC's written approval. The budget submitted by PSC
will:
(1) Reference the aggregate amount of PSC Costs that PSC
estimates it will incur in connection with providing
the Estimated Services.
(2) Itemize the aggregate PSC Costs by a number and type
of expense categories to be mutually established from
time to time.
(3) Allocate the budget over the total number of months
in that Budget Period (the "Monthly Run Rate") by
considering the month in which the various PSC Costs
will be incurred by PSC and allocate the Annual
Profit Amount on a pro-rata basis.
(4) Take into account providing the Estimated Services in
accordance with any Performance Metrics that may have
been established.
(c) Upon receipt of PSC's proposed budget, SBC will either approve
the budget as submitted or disapprove the budget as submitted
and provide to PSC the aggregate amount of PSC Costs that SBC
will approve for the budget. If SBC does not approve PSC's
proposed budget, PSC and SBC will work together to adjust the
Services and, where applicable, the Performance Metrics, and
to make any other appropriate adjustments, all as necessary to
cause the budget to meet the total PSC Costs that SBC will
approve for the budget.
(d) The final budget (the "PSC Costs Budget"), along with the
Monthly Run Rate, for each Budget Period will be subject to
SBC's final approval and will become the basis for PSC's
determination of its estimated monthly charges to SBC for the
Cost Plus Services.
2. Equipment and Facilities Budget. An Equipment and Facilities Budget
will be established for each Budget Period as follows:
1-F-1
(a) PSC, in consultation with SBC, will establish a proposed
budget for that Budget Period covering the aggregate amount of
equipment and facilities expenditures that PSC estimates SBC
must directly incur in connection with the Services
contemplated by the PSC Costs Budget for that Budget Period
and PSC will submit the proposed budget to SBC for SBC's
written approval. The budget submitted by PSC will:
(1) itemize the aggregate equipment and facilities
expenditures by expense category to be mutually
established from time to time; and
(2) allocate the budget over the total number of months
in that Budget Period (the "Monthly Capital Rate") by
considering the month in which the various equipment
and facilities expenditures will be incurred.
(b) Upon receipt of PSC's proposed budget, SBC will either approve
the budget as submitted or disapprove the budget as submitted
and provide to PSC the aggregate amount of equipment and
facilities expenditures that SBC will approve for the budget.
If SBC does not approve PSC's proposed budget, PSC and SBC
will work together to adjust the PSC Costs Budget, the
Services and, where applicable, the Performance Metrics
reflected in the applicable PSC Costs Budget, and to make any
other appropriate adjustments, all as necessary to cause the
Equipment and Facilities Budget to meet the total equipment
and facilities expenditures that SBC will approve for the
budget.
(c) The final budget (the "Equipment and Facilities Budget") for
each Budget Period will be subject to SBC's final approval.
3. Quarterly Budget Review. At the end of each calendar quarter during a
Budget Period, PSC and SBC will jointly review (i) the Equipment and
Facilities Budget and (ii) the PSC Costs Budget, by comparing the
budgeted Monthly Run Rate and Monthly Capital Rate for that Budget
Period to the actual monthly costs incurred during that Budget Period
for each expense category reflected in the PSC Costs Budget or the
Equipment and Facilities Budget, as applicable. Based upon that review,
SBC may make adjustments to the Monthly Run Rate, the PSC Costs Budget
and the Equipment and Facilities Budget for the remainder of the Budget
Period. Additionally, based upon these quarterly reviews, PSC's charges
to SBC will be adjusted as provided in Section 3 to Schedule F. Either
party may request that adjustments occur more often than quarterly to
take into account significant differences between actual PSC Costs and
the Monthly Run Rate.
4. Changes to Budgets. PSC acknowledges and agrees that SBC may make
changes to the PSC Costs Budget and the Equipment and Facilities Budget
by providing prior notice to PSC. SBC acknowledges and agrees that
changes to either the PSC Costs Budget or the Equipment and Facilities
Budget may result
1-F-2
in changes to the Services and, where applicable, the Performance
Metrics that SBC anticipates PSC will provide during the applicable
Budget Period. Subject to Section 8 of this Appendix, if PSC desires to
make any changes to either the PSC Costs Budget or the Equipment and
Facilities Budget, PSC will first obtain the prior approval of SBC.
5. Additional Equipment. If at any time during the term of this EPI
Agreement, PSC elects to add any Equipment (excluding any personal
computers, modems, printers or other related personal Equipment for use
by PSC personnel) to the SBC Warburg Infrastructure, and the cost of
the Equipment has been included in the Equipment and Facilities Budget
covering the Budget Period in which the Equipment is to be purchased,
PSC may purchase the Equipment, and the cost thereof will be chargeable
to SBC. If the cost of the Equipment has not been included in the
Equipment and Facilities Budget covering the Budget Period in which the
Equipment is to be purchased, PSC will notify SBC of its desire to add
the Equipment to the SBC Warburg Infrastructure and the date by which
PSC desires to order the Equipment, and if SBC consents to the purchase
of the Equipment prior to the desired order date, PSC will purchase the
Equipment on behalf of SBC and SBC will pay PSC therefor in accordance
with this Schedule F. Subject to the foregoing, PSC agrees that it will
abide by any cost approval process of which PSC may receive notice from
SBC from time to time, including the SBC Warburg Central Approval and
Order Process, within a reasonable period of time after receipt
thereof.
6. Use of SBC Warburg Infrastructure. Prior to the use by PSC of the SBC
Warburg Infrastructure for any customer of PSC (other than an SBC
Warburg Division Member), PSC will obtain the consent of SBC based upon
a business case prepared by PSC for SBC's review and approval
specifying (i) any capital investment that will be required from SBC to
obtain any additional resources to provide services to the PSC customer
and, if so, any payments that will be made to SBC in connection with or
attributable to the use of the SBC Warburg Infrastructure, (ii) any
impact on the overall operating expenses of the SBC Warburg
Infrastructure, (iii) any impact the introduction of the third party
customer would have on existing Performance Metrics and (iv) any impact
on PSC's charges to SBC for the Services. PSC shall also satisfy SBC,
in SBC's sole discretion, that adequate security procedures have been
instituted to prevent disclosure of any Confidential Information of SBC
to the third party customer.
7. Operational Plan. PSC, on an annual basis, will update and provide to
SBC a twelve (12) month operational plan for the Services to be
provided by PSC under this Agreement, which will include plans for
reducing PSC Costs and will establish suggested Performance Metrics for
the Services.
8. Assignment of Costs. Notwithstanding anything to the contrary in this
Appendix or elsewhere in the EPI Agreement, SBC acknowledges and agrees
that PSC may assign to SBC, and SBC will assume from PSC,
responsibility for paying directly to the applicable third party vendor
any costs that are then included in the PSC Costs. In such event, the
PSC Costs, the PSC Costs Budget, and the Monthly Run Rate will be
decreased to reflect any such
1-F-3
assignment. Notwithstanding any assignment by PSC to SBC of any
third-party costs pursuant to this Section 8, PSC will remain
responsible for continuing to manage the Services to which the assigned
costs are applicable.
1-F-4
APPENDIX 2
TO
SCHEDULE F
INFLATION ADJUSTMENT
1. Index. As used in this Appendix, (i) the "Index" means the Implicit
Price Deflator for the Gross Domestic Product, published by the Bureau
of Economic Analysis, an agency of the U.S. Department of Commerce,
(ii) the "Base Index" is the Index applicable to the Original Agreement
Date and (iii) the "Base Profit Amount" means $46,000,000.
2. Adjustment.
(a) Effective as of the third anniversary of the Original
Agreement Date,the Annual Profit Amount will be increased by
the percentage increase in the Index as of such date over the
Base Index.
(b) If, on any anniversary of the Original Agreement Date during
the term of this EPI Agreement after the third anniversary
referred to in clause (a) above (each, an "Inflation
Adjustment Date") the Index (the "Applicable Index") is higher
than the Base Index, then, effective as of such Inflation
Adjustment Date the Annual Profit Amount will be an amount
equal to (i) the Base Profit Amount plus (ii) the percentage
by which the Applicable Index exceeds the Base Index as of
such Inflation Adjustment Date multiplied by the Base Profit
Amount.
(c) Notwithstanding any other provision of this Appendix 2 to
Schedule F, the Annual Profit Amount will never be less than
$46,000,000 (other than for the first Budget Period, for which
it will be $40,500,000.
3. Change of Index. In the event that the Bureau of Economic Analysis
should stop publishing the Index or should substantially change the
content or format thereof, PSC and SBC will substitute therefor another
comparable measure published by a mutually acceptable source.
2-F-1
SCHEDULE G
PERFORMANCE METRICS
1. Definitions. For purposes of this Schedule G, the following definitions
will apply:
a. [Intentionally omitted]
b. "Penalty Pool" is, with respect to any Budget Period during
the term of this EPI Agreement, an amount equal to fifteen
percent (15%) of the Annual Profit Amount.
c. [Intentionally omitted]
d. "Reward Pool" is, with respect to any Budget Period during the
term of this EPI Agreement, an amount equal to fifteen percent
(15%) of the Annual Profit Amount.
2. Performance Metrics Mechanics. The Performance Metrics listed below are
in effect at the Merger Date:
o Service Quality/Product Delivery
o Business User Satisfaction
o Cost Effectiveness
o Corporate Level Support
Each of the four metrics above is a subjective criteria, and the SBC
Operational Manager will make a good faith assessment of PSC's
performance under the foregoing metrics taking into consideration all
information and factors he deems appropriate. The SBC Operational
Manager will also provide the PSC CEO or his designee with his good
faith outlook in accordance with any request made pursuant to Section
5(c)(7) of this EPI Agreement.
3. Penalty Amount. With respect to each Budget Period in which PSC's
performance of the Services fails to meet or fails to exceed the
standards which have been mutually established for a Performance
Metric, PSC will provide to SBC a credit in an amount, as determined
hereunder by the SBC Operational Manager, not to exceed the Penalty
Pool for that Budget Period; provided, however, that the maximum amount
of credit that PSC is obligated to provide to SBC pursuant to this
Section 3 in any one Budget Period with respect to all Performance
Metrics shall not exceed, in the aggregate, the Penalty Pool for that
Budget Period.
G-1
4. Reward Amount. With respect to each Budget Period in which PSC's
performance of the Services meets or exceeds the standards which have
been mutually established for a Performance Metric, SBC will pay to PSC
an amount, as determined hereunder by the SBC Operational Manager, not
to exceed the Reward Pool for that Budget Period; provided, however,
that the maximum additional amount that SBC is obligated to pay to PSC
pursuant to this Section 4 in any one Budget Period with respect to all
Performance Metrics shall not exceed, in the aggregate, the Reward Pool
for that Budget Period.
G-2