-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qx02i3gEIHRx+oapGkHNqZOPkR/hKrSoVFTUQ697pZYWVLe+r6wpuosqBAs2rv0h FAKMB7jiyOsqw+t/R5qorw== 0000914317-01-500476.txt : 20020410 0000914317-01-500476.hdr.sgml : 20020410 ACCESSION NUMBER: 0000914317-01-500476 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IPSWICH BANCSHARES INC CENTRAL INDEX KEY: 0001089857 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 043459169 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26663 FILM NUMBER: 1788304 BUSINESS ADDRESS: STREET 1: 23 MARKET STREET CITY: IPSWICH STATE: MA ZIP: 01938 BUSINESS PHONE: 9783567777 MAIL ADDRESS: STREET 1: 23 MARKET STREET CITY: IPSWICH STATE: MA ZIP: 01938 10-Q 1 form10q-41499_117.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001. [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________. Commission File Number: (0-26663) IPSWICH BANCSHARES, INC. --------------------------------------------------------- (Exact name of Registrant as specified in its charter) Massachusetts 04-3459169 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23 Market Street, Ipswich, Massachusetts 01938 - ------------------------------------------------------ ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (978) 356-7777 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $0.10 par value NASDAQ National Market 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 requirement for the past 90 days. Yes [ X ] No [ ] The number of shares outstanding of the Registrant's common stock as of November 9, 2001 was 1,930,102. IPSWICH BANCSHARES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except per share data)
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------- ------------- (unaudited) (unaudited) Assets Cash and due from banks $ 7,174 $ 8,836 Federal funds and other short-term investments 1,500 0 Securities available for sale, at market value 47,968 34,228 Securities held to maturity, at amortized cost 27,895 30,282 Loans held for sale 2,562 5,003 Loans: Residential fixed rate 70,975 62,707 Residential adjustable rate 97,602 102,218 Home equity 32,525 31,212 Commercial 8,081 5,698 Consumer 1,074 1,302 ----------- ----------- Total gross loans 210,257 203,137 Allowance for loan losses (2,053) (1,803) ----------- ----------- Net loans 208,204 201,334 ----------- ----------- Stock in FHLB of Boston 3,000 3,000 Premises and equipment, net 2,937 2,983 Accrued interest receivable 1,564 1,435 Other assets 828 733 ----------- ----------- Total assets $ 303,632 $ 287,834 =========== =========== Liabilities and Stockholders' Equity Liabilities: Deposits: Non-interest-bearing checking accounts $ 26,222 $ 22,855 Interest-bearing checking accounts 34,830 34,871 Savings accounts 45,477 39,531 Money market accounts 73,259 66,083 Certificates of deposit 65,161 73,897 ----------- ----------- Total deposits 244,949 237,237 Borrowed funds 34,849 32,108 Mortgagors' escrow accounts 956 972 Deferred income tax liability and other liabilities 4,149 2,398 ----------- ----------- Total liabilities 284,903 272,715 ----------- ----------- Company obligated, mandatorily redeemable capital securities 3,500 0 Equity capital 20,154 18,700 Treasury stock (583,100 and 454,000 shares at September 30, (5,515) (4,054) 2001 and December 31, 2000 respectively) Unrealized gain on investment securities available for sale, net 590 473 ----------- ----------- Total stockholders' equity 15,229 15,119 ----------- ----------- Total liabilities and stockholders' equity $ 303,632 $ 287,834 =========== =========== Shares outstanding 1,945,002 2,071,552 Selected data (end of period): Regulatory tier 1 leverage capital ratio (in %) 5.98% 5.04 Book value per share $ 7.83 $ 7.30
2 IPSWICH BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTH ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Interest and dividend income: Loans $ 3,641 $ 3,854 $ 11,141 $ 10,993 Investment securities available for sale 707 719 1,843 2,089 Investment securities held to maturity 513 467 1,531 1,410 Federal funds and interest bearing deposits 39 74 200 266 ----------- ----------- ----------- ----------- Total interest and dividend income 4,900 5,114 14,715 14,758 Interest expense: Deposits 1,844 2,076 5,980 5,876 Borrowed funds 491 790 1,642 2,230 ----------- ----------- ----------- ----------- Total interest expense 2,335 2,866 7,622 8,106 ----------- ----------- ----------- ----------- Net interest and dividend income 2,565 2,248 7,093 6,652 Provision for loan losses 25 15 75 45 ----------- ----------- ----------- ----------- Net interest and dividend income after provision for loan losses 2,540 2,233 7,018 6,607 Non-interest income: Mortgage banking revenues, net 165 (78) 389 14 Retail banking fees 577 448 1,567 1,260 Net gain/(loss) on sales of securities 0 0 182 2 ----------- ----------- ----------- ----------- Total non-interest income 742 370 2,138 1,276 ----------- ----------- ----------- ----------- Net interest, dividend and non-interest income 3,282 2,603 9,156 7,883 Non-interest expenses: Salaries and employee benefits 926 834 2,681 2,483 Occupancy and equipment 257 229 785 681 Data processing services 240 211 801 655 Marketing 141 103 365 407 Audit, legal and consulting 72 82 247 260 Postage, telephone, supplies 109 92 330 276 Distribution on securities of subsidiary trust 92 0 219 0 Other 247 103 527 323 ----------- ----------- ----------- ----------- Total non-interest expenses 2,084 1,654 5,955 5,085 Income before income taxes 1,198 949 3,201 2,798 Income tax expense 420 332 1,120 789 ----------- ----------- ----------- ----------- Net income $ 778 $ 617 $ 2,081 $ 2,009 =========== =========== =========== =========== Basic earnings per share $ 0.39 $ 0.26 $ 1.03 $ 0.82 Diluted earnings per share $ 0.38 $ 0.26 $ 1.01 $ 0.81 Dividends per share $ 0.11 $ 0.10 $ 0.33 $ 0.30 =========== =========== =========== =========== Weighted average shares outstanding (basic) 2,000,877 2,376,908 2,026,928 2,460,534 Weighted average shares outstanding (diluted) 2,059,125 2,395,805 2,064,223 2,478,903
3 IPSWICH BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Nine Months Ended September 30, 2001 and 2000 (Dollars in thousands, except for share data) (unaudited)
Accumulated Additional other Total Shares Common paid-in Retained Treasury comprehensive stockholders' issued stock capital earnings stock income equity ---------- ------- ------- -------- ---------- ------------- -------------- Balance at December 31, 1999 2,525,427 $253 $2,262 $14,450 $0 $10 $16,975 Issuance of stock rights 27 27 Cash dividends (723) (723) Treasury stock purchased (262,400 shares at an average price of $8.74) (2,295) (2,295) Comprehensive income: Net income 2,009 2,009 Other comprehensive income: Unrealized holding gains on securities, net of taxes of $178 267 Reclassification adjustment for amounts included in net income, net of taxes of $10 26 ----------- Other comprehensive income 293 293 ----------- Total comprehensive income 2,302 ----------- ------- ------- -------- ---------- ---------- ----------- Balance at September 30, 2000 2,525,427 253 2,289 15,736 (2,295) 303 16,286 Stock options exercised 125 1 1 Issuance of stock rights 8 8 Cash dividends (233) (233) Treasury stock purchased (191,600 shares at an average price of $9.18) (1,759) (1,759) Comprehensive income: Net income 646 646 Other comprehensive income: Unrealized holding gains on securities, net of taxes of $108 179 Reclassification adjustment for amounts included in net income, net of taxes of $0 (9) ----------- Other comprehensive income 170 170 ----------- Total comprehensive income 816 ----------- ------- ------- -------- ---------- ---------- ----------- Balance at December 31, 2000 2,525,552 253 2,298 16,149 (4,054) 473 15,119 Stock options exercised 2,550 19 19 Issuance of stock rights 13 13 Cash dividends (659) (659) Treasury stock purchased (129,100 shares at an average price of $11.33) (1,461) (1,461) Comprehensive income: Net income 2,081 2,081 Other comprehensive income: Unrealized holding gains on securities, net of taxes of $147 176 Reclassification adjustment for amounts included in net income, net of taxes of ($41) (59) ----------- Other comprehensive income 117 117 ----------- Total comprehensive income 2,198 ----------- ------- ------- -------- ---------- ---------- ----------- Balance at September 30, 2001 2,528,102 $253 $2,330 $17,571 ($5,515) $590 $15,229 ========= ==== ====== ======= ======= ==== =======
4 IPSWICH BANCSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 (Dollars in thousands) (unaudited)
2001 2000 ------- ------- Net cash flows from operating activities: Net income $ 2,081 $ 2,009 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 75 45 Depreciation expense 267 259 Amortization of premiums on investment securities, net 82 41 (Gain) loss on sale of loans, net (324) 78 Loss on sale of real estate acquired by foreclosure 0 1 (Gain) on sale of investment securities available for sale, net (182) (2) Origination of loans held for sale (30,866) (16,014) Proceeds from sale of loans 28,641 3,459 Proceeds from sale of securitized loans 4,990 9,544 (Increase) in loan origination fees (95) (275) Increase (decrease) in loan discounts 47 (4) (Increase) in deferred premium on loans sold and mortgage servicing rights (2) (97) (Increase) in accrued interest receivable (129) (367) (Increase) decrease in other assets, net (93) (77) Increase (decrease) in accrued expenses and other liabilities 1,645 (5) -------- -------- Net cash provided (used) by operating activities 6,137 (1,405) Net cash flows from investing activities: Purchase of investment securities available for sale (33,205) (13,329) Principal paydowns on mortgage-backed investment securities available for sale 16,143 7,197 Proceeds from the sale of investment securities available for sale 3,642 6,985 Purchase of investment securities held to maturity (8,974) 0 Principal paydowns on mortgage-backed investment securities held to maturity 1,614 743 Principal from the call of investment securities held to maturity 9,750 0 Redemption of stock in FHLB of Boston 0 977 Net (increase) in loans (6,897) (10,619) Proceeds from sale of real estate acquired by foreclosure 0 110 Purchases of equipment, net (221) (137) -------- -------- Net cash (used) by investing activities (18,148) (8,073) Cash flows from financing activities: Net proceeds from the issuance of common stock 32 27 Net proceeds from the issuance of trust preferred securities 3,500 0 Purchase of treasury stock (1,461) (2,295) Cash dividends (659) (723) Net increase in deposits 7,712 15,194 Proceeds from Federal Home Loan Bank advances 20,849 53,454 Repayment of Federal Home Loan Bank advances (18,108) (55,870) (Decrease) in mortgagors' escrow accounts (16) (21) -------- -------- Net cash provided by financing activities 11,849 9,766 -------- -------- Net (decrease) increase in cash and cash equivalents (162) 288 Cash and cash equivalents at beginning of period 8,836 8,259 -------- -------- Cash and cash equivalents at end of period $ 8,674 $ 8,547 ======== ======== Supplemental disclosure of cash flow information: Cash paid for: Interest on deposit accounts $ 5,980 $ 5,876 Interest on borrowed funds 1,482 2,230 Income tax expense, net 140 789 Supplemental schedule of non-cash investing and financing activities: Net change required by Statement of Financial Accounting Standards No. 115: Investment securities 223 483 Deferred income tax liability 106 190 Net unrealized gain (loss) on investment securities available for sale 117 293 Transfer of securitized mortgage loans to mortgage-backed securities available for sale 0 575 Conversion of residential real estate loans to mortgage-backed securities $ 5,030 $ 3,276
5 IPSWICH BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 2001 and 2000 Basis of Presentation - --------------------- The consolidated financial statements include the accounts of Ipswich Bancshares, Inc. and its wholly owned subsidiaries, Ipswich Statutory Trust I and Ipswich Savings Bank (the Bank) and the Bank's subsidiaries, Ipswich Preferred Capital Corporation, Ipswich Securities Corporation and North Shore Financial Services, Inc. (collectively herein referred to as the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Ipswich Statutory Trust I was formed in February 2001 to issue and sell common securities to the Company and preferred securities to the public. Ipswich Preferred Capital Corporation (IPCC) was formed in 1999 as a Massachusetts business corporation which elected to be taxed as a real estate investment trust for Federal and Massachusetts tax purposes. IPCC is 99% owned by Ipswich Savings Bank. IPCC holds mortgage loans which were previously originated by the Company. Ipswich Securities Corporation was formed to exclusively transact in securities on its own behalf as a wholly-owned subsidiary of the Bank. North Shore Financial Services, Inc. was incorporated for the purpose of holding direct investments in real estate and foreclosed real estate. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of real estate acquired by foreclosure, and the valuation of originated mortgage servicing rights. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. For further information, refer to the audited consolidated financial statements and footnotes thereto for the fiscal year ended December 31, 2000 included in the Company's Annual Report on Form 10-K. A substantial portion of the Company's loans are secured by real estate in Essex County in Massachusetts. In addition, other real estate owned is located in that market. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of the carrying amount of other real estate owned are susceptible to changes in market conditions in its geographic area. 6 Earnings Per Share - ------------------ The computation of basic earnings per share is based on the weighted average number of shares of common stock outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of shares of common stock outstanding and dilutive potential common stock equivalents outstanding during each period. Nine Months Ended September 30, 2001 Income Shares Per-Share ---- (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS $2,081 2,027 $ 1.03 Effect of stock options -- 37 (.02) ------ ------ -------- Diluted EPS $2,081 2,064 $ 1.01 ====== ====== ======== 2000 ---- Basic EPS $2,009 2,461 $ 0.82 Effect of stock options -- 18 (.01) ------ ------ -------- Diluted EPS $2,009 2,479 $ 0.81 ====== ====== ======== Three Months Ended September 30, 2001 Income Shares Per-Share ---- (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS $ 778 2,001 $ 0.39 Effect of stock options -- 58 (.01) ----- ----- -------- Diluted EPS $ 778 2,059 $ 0.38 ====== ====== ======== 2000 ---- Basic EPS $ 617 2,377 $ 0.26 Effect of stock options -- 19 -- ------ ----- -------- Diluted EPS $ 617 2,396 $ 0.26 ====== ====== ======== Other Comprehensive Income Accumulated other comprehensive income consists solely of unrealized appreciation on investment securities available for sale, net of taxes. 7 ITEM 2 - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - -------------------------------------------------------------------------- OPERATIONS - ---------- Certain statements in this Form 10-Q constitute "forward looking statements", as that term is defined under the Private Securities Litigation Reform Act of 1995. The words "believe", "expect", "anticipate", "intend", "plan", "assume", and other similar expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward looking statements. Reliance should not be placed on forward looking statements because they involve known and unknown risks, uncertainties and other factors, which are in some cases beyond the control of the Company and may cause the actual results, performance, or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward looking statements. Certain factors that may cause such differences include, but are not limited to the following: interest rates may increase, adversely affecting the ability of borrowers to repay adjustable rate loans and the Company's earnings and income which derive in significant part from loans to borrowers; unemployment in the Company's market area may increase, adversely affecting the ability of individual borrowers to re-pay loans; property values may decline, adversely affecting the ability of borrowers to re-pay loans and the value of real estate securing repayment of loans; general economic and market conditions in the Company's market area may decline, adversely affecting the ability of borrowers to re-pay loans, the value of real estate securing payment of loans and the Company's ability to make profitable loans; adverse legislation or regulatory requirements may be adopted; and competitive pressure among depository institutions may increase. Any of the above may also result in lower interest income, increased loan losses, additional charge-offs and write-downs and higher operating expenses. The Company disclaims any intent or obligation to update publicly any of the forward looking statements herein, whether in response to new information, future events or otherwise. GENERAL - ------- Ipswich Bancshares, Inc. (the Company) is a Massachusetts corporation whose primary business is serving as the holding company for Ipswich Savings Bank (the Bank) and Ipswich Statutory Trust I. The Company's operating results for the three and nine months ended September 30, 2001 reflect the operations of the Company and its direct and indirect subsidiaries, Ipswich Statutory Trust I, Ipswich Savings Bank, Ipswich Preferred Capital Corporation, Ipswich Securities Corporation and North Shore Financial Services. The Company is in the business of making residential mortgage loans, while attracting deposits from the general public to fund those loans. The Company operates out of its main office located at 23 Market Street, Ipswich, Essex County, Massachusetts, and its seven full-service retail branch offices, located in Beverly, Essex, Marblehead, North Andover, Rowley, Reading and Salem, Massachusetts. The Company operates Automatic Teller Machines at its Main Office and each of its full-service retail branch offices. As a bank holding company, the Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve (the Federal Reserve) and the Bank is subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the FDIC) and the Massachusetts Commissioner of Banks (the Commissioner). 8 ASSET / LIABILITY MANAGEMENT - ---------------------------- The Company does not use static GAP analysis to manage its interest rate risk. It believes that simulation modeling more accurately encompasses the impact of changes in interest rates on the earnings of the Company over time. However, the Company prepares a GAP schedule to measure its static position. Assets and liabilities are classified as interest rate sensitive if they have a remaining term to maturity of 0-12 months, or are subject to interest rate adjustment in those time periods. Adjustable rate loans and adjustable rate mortgage backed securities are shown as if the entire balance comes due on the repricing date. Estimates of fixed rate loan and fixed rate mortgage backed securities amortization prepayments are included with rate sensitive assets. Because regular savings, demand deposits, money market accounts and NOW accounts may be withdrawn at any time and are subject to interest rate adjustments at any time, they are presented based upon assumed maturity structures. As a result of this analysis, the static GAP position in the 0 to 12 months range is a negative $14.7 million at September 30, 2001. Interest rate sensitivity statistics are static measures that do not necessarily take into consideration external factors which may affect the sensitivity of assets and liabilities, and consequently can not be used alone to predict the operating results of a financial institution in a changing environment. LIQUIDITY - --------- The Company seeks to ensure that sufficient liquidity is available to meet cash requirements while earning a return on liquid assets. The Company uses its liquidity primarily to fund loans and investment commitments, to supplement deposit outflows, to fund its share repurchase program and to meet operating expenses. The primary sources of liquidity are interest and principal amortization from loans, mortgage backed securities and investments, the sales and maturities of investments, loan sales, deposits, and Federal Home Loan Bank of Boston (the FHLBB) advances, which includes a $3.2 million overnight line of credit. The Company also uses longer term borrowed facilities within its total available credit line with the FHLBB. Advances from the FHLBB were $34.8 million at September 30, 2001. During 2001 the primary sources of liquidity were $33.6 million in loan sales, principal amortization from mortgage backed securities of $17.8 million, payoffs and principal amortization in the loan portfolio of $45.7 million and the sale/call of investment securities of $13.4 million. The primary uses of funds were $83.4 million in residential and home equity mortgage loan originations and $42.2 million in investment purchases. CAPITAL RESOURCES - ----------------- Total stockholders' equity at September 30, 2001 was $15.2 million, an increase of $110,000 from $15.1 million at the end of 2000. Included in stockholders' equity at September 30, 2001 is an unrealized gain on marketable securities available for sale, net of taxes, of $590,000, an increase of $117,000 as compared to $473,000 at December 31, 2000. Future interest rate increases could reduce the market value of these securities and reduce stockholders' equity. The Company announced three stock repurchase plans of 10% each since March 2000. Through September 30, 2001, the Company had repurchased 583,100 or 23% of the outstanding shares at an average price of $9.46 totaling $5.5 million, which is reflected as a 9 decrease to equity. There remains approximately 98,000 shares left to complete the third repurchase program. The Federal Reserve's and the FDIC's capital guidelines require the Company and the Bank, respectively, generally to maintain a minimum Tier 1 leverage capital ratio of at least 4% (5% to be classified as "well-capitalized"). At September 30, 2001 Tier 1 leverage capital ratio for the Company was 5.98% compared to 5.04% at December 31, 2000 and 5.52% and 5.14% for the Bank on September 30, 2001 and December 31, 2000, respectively. The Federal Reserve and the FDIC have also imposed risk-based capital requirements on the Company and the Bank, respectively, which give different risk weightings to assets and to off balance sheet assets, such as loan commitments. The Federal Reserve's and the FDIC's risk-based capital guidelines require the Company and the Bank, respectively, to maintain a minimum total risk-based capital ratio of 8% (10% to be classified as "well-capitalized") and a Tier 1 risk-based capital ratio of 4% (6% to be classified as "well-capitalized"). At September 30, 2001, the Company's total and Tier 1 risk-based capital ratios were 11.85% and 10.64% (compared to 11.53% and 10.28% at December 31, 2000). At September 30, 2001, the Bank's total and Tier 1 risk based capital ratios were 10.94% and 9.73% (compared to 11.72% and 10.47% at December 31, 2000). As of September 30, 2001, the Bank was considered "well-capitalized" under applicable regulatory capital guidelines. FINANCIAL CONDITION - ------------------- The Company's total assets at September 30, 2001 were $303.6 million, an increase of $15.8 million from December 31, 2000 assets of $287.8 million. The increase was largely due to the addition of $7.1 million in total loans and $13.7 million in securities available for sale. Funding the increase in assets for the first nine months of 2001 was deposit growth of $7.7 million, primarily in checking accounts, savings, money market accounts and borrowed funds of $2.7 million. Federal Funds Sold - ------------------ Interest-bearing deposits and federal funds sold at September 30, 2001 was $1.5 million versus zero at December 31, 2000. The increase in fed funds sold was primarily due to accelerated cash flows during the year acerbated by the decline in interest rates during the year. Investment and Mortgage-Backed Securities - ----------------------------------------- Total investments and mortgage backed securities available for sale at September 30, 2001 was $48 million, an increase of $13.7 million in 2001. The increase was primarily the result of the purchase of $33.2 million of fixed rate mortgage-backed securities, offset by $3.6 million in sales and $16.1 million in principal amortization. The unrealized gain on the portfolio of available for sale securities was $999,000 at September 30, 2001. Total investments and mortgage-backed securities held to maturity were $27.9 million at September 30, 2001, versus $30.3 million at December 31, 2000. The decline is due to principal amortization on the portfolio of mortgage-backed securities of $1.6 million. Loans and Loans Held for Sale - ----------------------------- Loans held for sale decreased to $2.6 million at September 30, 2001, versus $5 million at year-end 2000. The Company's portfolio of mortgages held for sale decreased due to the delivery of loans into sale commitments. 10 The loan portfolio at September 30, 2001 was $210.3 million, an increase of $7.1 million in comparison to the portfolio at December 31, 2000 of $203.1 million. The increase was principally in fixed rate mortgages, primarily 15-year, as a result of an asset liability strategy to retain fixed rate loans in the portfolio. CREDIT QUALITY - -------------- Non-Performing Loans - -------------------- Loans placed on non-performing status at September 30, 2001 was $221,000, substantially unchanged since year-end. Accrual of interest on loans is discontinued either when a reasonable doubt exists, as to the full timely collection of principal and interest, or when a loan comes contractually past due by ninety (90) days or more, unless the loan is adequately secured and in the process of collection. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is recognized to the extent that cash is received and the ultimate collection of principal and interest is probable. Following collection procedures, the Company generally institutes appropriate actions to foreclose the property. Real Estate Acquired by Foreclosure - ----------------------------------- Real estate acquired by foreclosure totaled $2 at September 30, 2001, unchanged since year-end 2000. The Company owns two parcels of land which have previously been written down to $1 each. Real estate acquired by foreclosure is reflected at the lower of the net carrying value, or fair value, of the property, less estimated costs of disposition. Allowance for Loan Loss - ----------------------- The allowance for loan loss at September 30, 2001 was $2.1 million, an increase of $250,000 since year-end 2000. The increase is attributable to a year-to-date provision of $75,000 and net recoveries of $175,000. Charge-offs during 2001 have primarily been contained to consumer over-drafts. The allowance is reviewed on a quarterly basis by the Board of Directors for reasonableness in light of economic conditions that are applicable at the time. The entire allowance for loan losses is available to absorb charge-offs in any category of loans. Loan losses are charged against the allowance when management believes that the collectibility of the loan principal is unlikely. The allowance for loan losses is established by management to absorb future charge-offs of loans deemed uncollectible. The allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off. In evaluating current information and events regarding borrowers ability to repay their obligations, management considers commercial loans over $200,000 to be impaired when it is probable that the Company will be unable to collect all amounts due, according to the contractual terms of the note agreement; other loans are evaluated collectively for impairment. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of collateral, if the loan is collateral-dependent. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Management believes that the allowance for loan losses is adequate as of September 30, 2001. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary. Liabilities - ----------- Deposits increased by $7.7 million in the nine months of 2001, to end September 30, 2001 at $244.9 million. Deposits totaled $237.2 million at December 31, 2000. The increase in deposits resulted from the Company's ongoing checking account program which generated 11 an increase of $3.3 million in checking account balances in 2001. In addition, savings and money market deposits increased by $13.1 million while certificates of deposit declined by $8.7 million. As a result of the decline in interest rates during 2001, deposit customers have opted for more liquid deposit accounts versus certificate of deposit accounts. Federal Home Loan Bank of Boston advances increased by $2.7 million in 2001 to $34.8 million at September 30, 2001. Borrowed funds are typically used to manage the liquidity of the Company and the utilization of borrowings is dependent on cash flows from other assets and liabilities. The weighted average maturity of its borrowings is approximately 2.1 years at September 30, 2001 with a weighted average rate of 5.71%. Equity Capital - -------------- Equity capital increased by $110,000 to $15.2 million at September 30, 2001. Equity was principally impacted by earnings for the first nine months of the year of $2.1 million and an increase in the unrealized gain on investment securities of $117,000, net of taxes. Offsetting these increases were payments of cash dividends to shareholders which totaled $659,000 in 2001. Additionally, the Company repurchased 129,100 shares of its outstanding shares in executing its previously announced 10% share repurchase plan. The average price per share was $11.33 totaling $1.5 million. The cost of the shares is reflected in the equity capital section of the balance sheet as "Treasury Stock". 12 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000 General - ------- The Company reported net income of $778,000 or $.38 per fully diluted share for the third quarter of 2001. This compares with $617,000 or $.26 per fully diluted share for the third quarter of 2000. The third quarter of 2001 was impacted by the write-off of $106,000 of fixed assets and leasehold improvements as a result of a computer conversion and the renovation of a leased branch. The third quarter 2000 earnings were impacted by a pre-tax charge of $153,000 resulting from a restructuring of a portion of the loan portfolio, consisting of the sale of $6.0 million of below market loans in the secondary market and the reinvestment of these funds in higher rate loans with less interest rate risk. Return on equity for the third quarter of 2001 was 20.32%, versus 14.58% for the same quarter of 2000. The third quarter of 2001 return on assets was 1.03% versus .85% for the same quarter in 2000. Net Interest and Dividend Income - -------------------------------- Net interest income for the third quarter of 2001 was $2.6 million, versus $2.2 million for the same time frame in 2000. The net interest margin percentage was 3.50% for the third quarter of 2001 versus 3.19% for the same quarter the previous year. The Company's net interest margin has benefited from the fall in market interest rates in 2001. Should rates continue to decline, the Company may experience compression of its margin resulting from accelerated prepayments of its mortgage assets. Changes in market interest rates can have a substantial impact on revenues generated from the sale of loans. Non-interest Income - ------------------- Non-interest income for the third quarter of 2001 was $742,000 versus $370,000 in the third quarter of 2000. Non-interest income was substantially higher in 2001, as a result of higher mortgage banking revenues and a pre-tax charge of $153,000 taken from a partial restructuring of the loan portfolio in 2000. Mortgage banking revenues are principally generated from the sale of fixed rate loans in the secondary market. Retail banking fees for the third quarter of 2001 was $577,000 versus $448,000 for the same quarter in 2000. This 28.8% increase is principally the result of the Company's successful efforts to acquire checking account customers in its market place, which generates fee income, as well as increased revenue from debit card transactions and ATM fees. Non-interest Expense - -------------------- Total non-interest expenses were $2.1 million for the third quarter of 2001 versus $1.7 million for the same time frame in 2000. Expenses which exhibited increases included salary and benefit costs which increased $92,000 in the current quarter versus the same quarter in 2000 and the cost of the Company's trust preferred securities issued in February 2001 which totaled $92,000 in the current quarter. The other expense category increased by $144,000 in 2001 versus 2000 principally from the write-off of fixed assets from a computer conversion and leasehold improvements from a branch renovation. Income Tax Expense - ------------------ The effective tax rate was 35% for the third quarter of 2001 and 2000. A tax rate of 35% in 2001 is expected to continue through the remainder of the year. 13 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 General - ------- The Company reported net income of $2.1 million or $1.01 per fully diluted share for the first nine months of 2001. This compares with $2.0 million or $.81 per fully diluted share for the first nine months of 2000. Return on equity for the first nine months of 2001 was 18.23%, versus 15.53% for the same time frame in 2000. The first nine months of 2001 and 2000 return on assets was .94%. Net Interest and Dividend Income - -------------------------------- Net interest income for the first nine months of 2001 was $7.1 million, versus $6.7 million for the same time frame in 2000. The net interest margin percentage was 3.31% versus 3.20% for the same time frame the previous year. The net interest income was positively impacted by growth of the balance sheet from $287.8 million at December 30, 2000 to $303.6 million at September 30, 2001. Non-interest Income - ------------------- Non-interest income for the first nine months of 2001 was $2.1 million versus $1.3 million in the first nine months of 2000. Non-interest income increased as a result of higher mortgage banking revenues and a pre-tax charge of $153,000 resulting from the partial restructuring of the loan portfolio in 2000. Mortgage banking revenues are generated from the sale of fixed rate loans in the secondary market. Retail banking fees totaled $1.6 million for the first nine months of 2001 versus $1.3 million for the same time frame in 2000, an increase of $307,000 or 24%. Retail banking fees have increased as a result of the Company's emphasis on generating checking accounts in its retail branch network which contributes significantly to fee income and increased debit card transactions and ATM fees. Non-interest Expense - -------------------- Total non-interest expense was $6.0 million for the first nine months of 2001 versus $5.1 million for the same time frame in 2000. Non-interest expenses line items which increased in 2001 over 2000 were salaries and benefits, an increase of $198,000; data processing expenses which increased by $146,000 and the cost of the Company's trust preferred securities totaling $219,000 in 2001. Data processing expense increased by $146,000 in 2001 versus 2000 principally from an increase in item processing costs as well as costs related to the sale of the Company's credit card portfolio. Income Tax Expense - ------------------ The first nine months of 2001 effective tax rate was 35% versus 28.2% for the same time frame in 2000. The tax rate in 2000 was impacted by the Company's realization of a $190,000 tax benefit resulting from a reduction in its valuation reserve. Excluding the one-time credit, the tax rate in 2000 was 35%. 14 ITEM 3 - ------ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- The Company's success is dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of the Company's net interest income to adverse movements in interest rates. Although the Company manages other risks, as in credit and liquidity risk, in the normal course of its business, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Company's financial condition and results of operations. Because the Company does not maintain a trading portfolio, it is not exposed to significant market risk from trading activities. The Company's interest rate risk management is the responsibility of the Asset/Liability Management Committee (ALCO). ALCO establishes policies that monitor and coordinate the Company's sources, uses and pricing of funds. The Company utilizes a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on both a rise or fall in interest rates (rate shock) over twelve and twenty-four month periods. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The assumptions are based on nationally published prepayment speeds on assets and liabilities when interest rates increase or decrease by 200 basis points or greater. The model factors in projections for anticipated activity levels by product lines offered by the Company. The simulation model also takes into account the Company's increased ability to control the rates on deposit products more so than adjustable-rate loans tied to published indices. Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change the interest income and expense streams associated with the Company's financial instruments also change, thereby impacting net interest income (NII), which is a substantial component of the Company's earnings. ALCO utilizes the results of the simulation model and static GAP reports to quantify the estimated exposure of NII to sustained interest rate changes. The following reflects the Company's NII sensitivity analysis over a projected twelve month period: Rate Change Estimated NII Sensitivity Over Twelve Months - -------------------------------------------------------------------------- September 30, 2001 September 30, 2000 ------------------ ------------------ +200bp -1.09% -5.05% - -200bp -1.27% -3.88% A sustained decline in rates past the twelve months presented indicate the Company's NII would be further negatively impacted. The preceding sensitivity analysis does not represent the Company's forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the 15 varying impact of interest rate change caps or floors on adjustable-rate assets, the potential effect of changing debt service levels on customers with adjustable-rate loans, depositor early withdrawals and product preference changes, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in responding to or anticipating changes in interest rates. 16 IPSWICH BANCSHARES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------------- None Item 2. Changes in Securities and use of Proceeds - -------------------------------------------------------- None Item 3. Defaults Upon Senior Securities - ---------------------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------------ None Item 5. Other Information - -------------------------------- None Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------------- a. Exhibits b. Reports on Form 8-K None c. Exhibits 2.1 Plan of Reorganization and Acquisition dated as of February 17, 1999 between the Company and Ipswich Savings Bank incorporated by reference to the Company's Form 8-K filed on July 9, 1999. 3.1 Articles of Organization of the Company dated February 12, 1999 and incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 3.2 By-laws of the Company is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 4.1 Specimen stock certificate for the Company's Common Stock is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.1 Lease dated September 15, 2000 for premises located at Route 133 and Route 1, Rowley, Massachusetts is incorporated by reference herein from the Company's September 30, 2000 Form 10-Q. 10.2 Lease dated April 25, 1994 for premises located at 451 Andover Street, North Andover, Massachusetts is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.3 Lease dated March 4, 1996 for premises located at 588 Cabot Street, Beverly, Massachusetts is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 17 10.4 Lease dated July 27, 1997 for premises located at 600 Loring Avenue, Salem, Massachusetts is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.5 Lease dated February 27, 1998 for premises located at 89 Pleasant Street, Marblehead, Massachusetts is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.6 Lease dated June 12, 1998 for premises located at 470 Main Street, Reading, Massachusetts is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.7* Incentive Compensation Plan for Senior Management and certain other officers dated September 15, 1995 is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.8* Director Recognition and Retirement Plan adopted as of May 18, 1999 is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.9* Merger and Severance Benefits Program dated February 18, 1998 is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.10* Amended and Restated Employment and Severance Agreement dated May 18, 1999 between Ipswich Savings Bank and David L. Grey is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.11* Amended and Restated Employment and Severance Agreement dated May 18, 1999 between Ipswich Savings Bank and Francis Kenney is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.12* Amended and Restated Severance Agreement dated May 18, 1999 between Ipswich Savings Bank and Thomas R. Girard is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.13(a)* Amended and Restated Split Dollar Agreement dated May 18, 1999 among Ipswich Savings Bank, Eastern Bank and David L. Grey is incorporated by reference herein from the Company's June 30, 1999 Form 10-Q. 10.13(b)* Amended and Restated Ipswich Irrevocable Insurance Trust dated as of May 18, 1999 by and between Ipswich Savings Bank and Eastern Bank is incorporated by reference herein from the Company's June 30, 1999 Form10-Q. 10.14 Contract with Bank's data processor dated August 31, 2001. 10.15* 1992 Incentive and Non-qualified Stock Option Plan incorporated by reference to the Company's Registration Statement on Form S-8 filed on July 22, 1999. 18 10.16* 1996 Stock Incentive Plan incorporated by reference to the Company's Registration Statement on Form S-8 filed on July 22, 1999. 10.17* 1998 Stock Incentive Plan incorporated by reference to the Company's Registration Statement on Form S-8 filed on July 22, 1999. 10.18* Deferred Compensation Plan for Directors incorporated by reference to the Company's Form S-8 filed on July 22, 1999. 10.19 Contract dated April 6, 2000 with U.S. Bancorp for ATM processing services incorporated by reference to the Company's March 31, 2000 Form 10-Q. 10.20* Severance Agreement dated August 8, 2000 between Ipswich Savings Bank and Mark E. Foley is incorporated by reference herein from the Company's June 30, 2000 Form 10-Q. 10.21* Split Dollar Agreement dated March 30, 2001 between Ipswich Savings Bank and Francis Kenney is incorporated by reference herein from the Company's March 31, 2001 Form 10-Q. 11. A statement regarding the computation of earnings per share is included in the Notes to Consolidated Financial Statements. 12. Not applicable. * Denotes Management Contract or Compensation Plan. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IPSWICH BANCSHARES, INC. By: /s/ David L Grey Date: November 9, 2001 ----------------- David L. Grey President and Chief Executive Officer By: /s/ Francis Kenney Date: November 9, 2001 ------------------- Francis Kenney Treasurer (Principal Financial Officer and Principal Accounting Officer) 19 EX-10.14 3 exhibit1014.txt NCR CORPORATION MASTER AGREEMENT __10180389____ Customer Number ____Ipswich Savings Bank__ Your Business Name ("you") _____23 Market Street____ Street Address ________Ipswich, MA 10938_____ City State Zip Code --------------------------------- Effective Date CONTENTS -------- 1 - Definitions 8 - Your Obligations 2 - Orders, Addenda, and Contract Formation 9 - Product Evaluation 3 - Delivery and Installation 10 - Defense of Infringement Claims 4 - Prices, Invoice, Payment, Taxes, and Title 11 - NCR's Liability 5 - Services 12 - Dispute Resolution 6 - License to Use Software and Deliverables 13 - Miscellaneous Terms 7 - Warranties - -------------------------------------------------------------------------------- 1.0 DEFINITIONS - -------------------------------------------------------------------------------- 1.1 "Agreement" means this Master Agreement. 1.2 "Addendum" is defined in Section 2.1. 1.3 "Contract" is defined in Section 2.3. 1.4 "Deliverables" is defined in Section 5.3. 1.5 "Equipment" means hardware and associated peripherals and features that you acquire from NCR. 1 1.6 "NCR Product Specifications" means NCR's official published specifications for Products when you acquire them (which NCR will provide to you upon request), and the documentation which NCR includes with Products delivered to you. 1.7 "NCR" means NCR Corporation. 1.8 "Policies" is defined in Section 2.2. 1.9 "Products" means Equipment, Software, Services, Deliverables, and Supplies. 1.10 "Services" means those services that you acquire from NCR, including those described in Section 5.0. 1.11 "Software" means computer programs in any form that you acquire from NCR, but does not include diagnostic software as set out in Section 6.3 1.12 "Supplies" means consumable items that you acquire from NCR. - -------------------------------------------------------------------------------- 2.0 ORDERS, ADDENDA, AND CONTRACT FORMATION - -------------------------------------------------------------------------------- 2.1 Scope; Addenda -- This Agreement establishes general terms and conditions that apply to your acquisition (directly or through a leasing company) of Products for your use. This Agreement does not authorize you to acquire Products for resale or redistribution. In the future, you and NCR may agree to additional terms covering a specific transaction. These terms will be contained in an "Addendum" (which may be called an Addendum, "Statement of Work," or other name). 2.2 NCR Policies -- This Agreement refers to a number of NCR policies ("Policies"). These are written policies that apply to NCR's customers generally. They contain supplemental details of NCR's Products (for example, details regarding Services and Software usage terms) and the way that NCR interacts with its customers (for example, NCR's credit policies). These Policies are incorporated into this Agreement as if they were written in it. NCR will give you copies at your request. Changes to these Policies affect only Contracts (defined in the next Section) which you and NCR subsequently create or which renew; they do not change Contracts in place at the time of the change during such Contracts' then-current terms. 2.3 Contracts -- This Agreement, standing alone, does not constitute an obligation to buy or provide Products except and until you and NCR enter into an Addendum, purchase order, or other document that contains terms and conditions, such as Products being ordered, quantities, prices, delivery schedules, and discounts, which apply only to a specific transaction. This Agreement and each set of transaction-specific documentation will together constitute a "Contract" between you and NCR that is a binding agreement separate from other Contracts. NCR may accept written or oral orders. NCR accepts an order when it signs the order or acknowledges it by performance or otherwise. If NCR accepts a written order, the Contract includes the written order, this Agreement, the applicable Policies, and any applicable Addenda. 2 Unless NCR specifically agrees in writing, any preprinted language on your order forms will not be a part of the Contract. If NCR accepts an oral order, the Contract includes this Agreement, the applicable Policies, any applicable Addenda, and the quantities, prices and product identifications confirmed on NCR's invoice or acknowledgment. If there is a conflict within any Contract, the following order of precedence will apply: first, the order, second, any applicable Addenda, third, Policies, and finally, this Agreement. 2.4 Other Software License Terms; Other Company's Products -- If NCR provides Software to you with a "shrink-wrap" or other license, those license terms are included in the Contract rather than the license terms in this Agreement. If NCR provides you with Equipment, Software, Deliverables, or Supplies that bear the logo or copyright of another company with warranty and/or support terms from the other company, the other company's terms are included in the Contract rather than those in this Agreement, and, unless specifically agreed in writing, NCR provides no warranty or support for these products. Upon your request, NCR will give you a copy of the terms discussed in this Section 2.4 before you order these products. 2.5 Invoiced Services -- In order to facilitate the continuation of Services at the end of a warranty period or maintenance Service term, NCR may offer to provide the Services by sending invoices covering them to the person you designate. These invoices will clearly describe the Services and identify the covered Products. If you want the Services, pay the invoices, or let NCR perform the Services. The Contract will include this Agreement, the applicable Policies, and the invoice terms. If you do not want the Services but your employees mistakenly pay the invoice or accept the Services, notify NCR within three months and NCR will cancel the Contract. If you have made any payments, NCR will refund them, less charges for time and materials which NCR has already provided. If you have not made any payments, NCR will charge you for time and materials which NCR has already provided. 2.6 Electronic Data Interchange ("EDI") -- NCR may provide EDI options, including electronic ordering, invoicing and payment. These options and NCR's acceptance of your electronic document will be governed by an EDI Addendum to this Agreement. If, however, you and NCR communicate electronically without executing an EDI Addendum, an identification code contained in an electronic document will be legally sufficient to verify the sender's identity and the document's authenticity as a signed writing. 2.7 Changes -- Each Contract is the complete agreement between you and NCR concerning transactions covered by it, and replaces any prior or contemporary oral or written communications. If you request that NCR cancel or modify a Contract (including changing delivery or installation dates or locations), you and NCR will negotiate in good faith new schedules and/or sufficient compensation to NCR for accommodating you. If no agreement is reached, the Contract will continue unmodified, and if you refuse to perform further or reject NCR's tender of Products, NCR may pursue its available remedies. No change to this Agreement or a Contract will be effective unless it is in writing and signed by authorized representatives of both you and NCR. Changes to Contracts should be made on NCR's change control form. 3 - -------------------------------------------------------------------------------- 3.0 DELIVERY AND INSTALLATION - -------------------------------------------------------------------------------- 3.1 Delivery -- NCR will use commercially reasonable efforts to perform its obligations by dates included in a Contract. These dates are estimates only. NCR will inform you of delays as far in advance as reasonably possible. If NCR's performance is delayed (other than by a force majeure) for an unreasonable time, you may cancel delivery without penalty. 3.2 Location and Risk of Loss -- NCR will deliver Products to the location that you specify. If you select the shipping agent, the agent's receipt of the Products constitutes delivery. Risk of loss passes to you upon delivery. You agree to inspect Products when you receive them and to notify NCR promptly if there is any visible damage. 3.3 Installation -- NCR will notify you if Products require a special physical environment. You agree to provide that environment prior to installation. Upon request, NCR will provide installation Services which may be separately chargeable. - -------------------------------------------------------------------------------- 4.0 PRICES, INVOICE, PAYMENT, TAXES, AND TITLE - -------------------------------------------------------------------------------- 4.1 Prices -- Prices will be included in Contracts. If NCR announces a price increase for a Product which you have ordered and the Contract specifies delivery more than 120 days after the price increase becomes effective, NCR may increase your price for the Product. Price increases for Services or Software licensed for a periodic fee will only apply to subsequent billing periods. 4.2 Invoice and Payment -- Payment is due when you receive the invoice. NCR reserves the right to charge late fees if it does not receive payment within 30 days from the date of the invoice, at the rate of one and one-half percent per month, or up to the maximum allowed by law, whichever is less. If you do not pay after NCR notifies you of your default, NCR also may suspend or terminate applicable Services and repossess or reclaim the applicable Products without waiving NCR's right to payment. 4.3 Taxes and Other Charges -- Product prices exclude delivery and installation charges; charges associated with preparing your site; and all taxes (such as sales, use, and ad valorem taxes, and assessments after audit) other than NCR's net income or franchise taxes. If you qualify for tax exemptions, you must provide NCR with appropriate exemption documentation. 4.4 Title -- Title of Equipment passes to you on delivery, except if NCR stores purchased Equipment for you, title passes to you where and when storage occurs. NCR retains a purchase money security interest in each Product that you purchase until you pay for it. You appoint NCR as your agent to sign and file a financing statement to perfect NCR's security interest. In addition to NCR's retention of a purchase money security interest in Products, NCR may make its acceptance of orders subject to the entering into of additional mutually acceptable credit arrangements, which may include the making of advance payments. 4 - -------------------------------------------------------------------------------- 5.0 SERVICES - -------------------------------------------------------------------------------- 5.1 Equipment Warranty and Maintenance Services 5.1.1 During the term of an Equipment warranty or Contract for Equipment maintenance Services, NCR will maintain the covered Equipment in accordance with this Section and applicable Policies so that it complies with the warranties in Section 7.1.b. Unless otherwise stated, the initial term of a Contract for Equipment maintenance Services is one year and will automatically renew for additional one year terms unless you or NCR terminate it. You or NCR may terminate a Contract for Equipment maintenance Services at any time by providing 30 days advance written notice. On termination under this Section 5.1.1, NCR will refund the unapplied portion of any advance payment. 5.1.2 NCR's Equipment warranty and prepaid or contract maintenance Services include parts and, if labor is included in the Service, labor during covered hours. NCR will charge separately for: (1) Supplies; (2) service calls outside of the applicable scope of contracted Service or coverage hours; (3) service calls for Equipment that was in good operating condition at the time of the call; (4) use of specified types of Equipment above their rated usage levels (which NCR will provide to you at your request); and (5) per-call Services covering Products outside of warranty or not on contract maintenance. NCR will also charge separately to repair Equipment which has failed due to: (i) an alteration to Equipment or Software or attachment not provided by NCR, approved by NCR in writing or compatible with NCR's standard interfaces; (ii) your use of Supplies or products acquired from third parties that are defective or that do not meet NCR standards or specifications; (iii) your or any third party's negligence, misuse, or abuse; or (iv) fire, smoke, water, or acts of God. Replaced parts become or remain NCR's property. 5.1.3 You must maintain the Equipment site consistent with NCR specifications at your expense, and you must provide safe working conditions and appropriate utility services for maintenance personnel. When Equipment is under warranty or a Contract for maintenance Services, or is loaned to you under Section 9.0, you may not allow anyone other than NCR or an authorized NCR warranty service provider to maintain it. Before accepting an order for maintenance Services for Equipment that is not then under maintenance Services or which anyone other than NCR has installed or serviced, NCR may inspect and refurbish it at your expense. Orders for maintenance Services must include all of the same type of Equipment at a location. 5.1.4 If NCR provides Services for products you acquire from third parties, NCR will maintain those products in good operating condition during the term of the Contract for those Services. NCR will not assume the manufacturer's warranty obligations or make modifications specified by the manufacturer unless otherwise agreed in writing. 5.2 Software Services 5.2.1 During the term of a Software warranty or Contract for Software Services, NCR will perform the following in accordance with this Agreement and applicable Policies: (1) 5 provide telephone access to NCR support resources to assist in resolving Software problems; and (2) distribute, at your request, Software updates. NCR will announce the availability of updates via internet postings or otherwise. Unless otherwise stated, the initial term of a Contract for Software Services is one year and will automatically renew for additional one year terms unless you or NCR terminate it. You or NCR may terminate a Software Services Contract at any time by providing 30 days advance written notice. On termination under this Section 5.2.1, NCR will refund the unapplied portion of any advance payment. 5.2.2 NCR will provide Software Services for the most recent release and the prior release of covered Software. Software Services for the prior release may not include updates or code level fixes. When you order Software Services, you must order the same level of service (to the extent available) for all interdependent Software operating on the same Equipment. If you have licensed multiple copies of the same Software, you must order Software Services for each copy used at the same location. 5.2.3 To permit NCR to provide Software Services, upon request you agree to assist in isolating Software problems. You also agree to provide modems and telephone lines for NCR to access your system remotely, to install and test all fixes and updates, and to perform other actions reasonably requested by NCR. 5.3 Professional Services -- When NCR performs Services for you, NCR may provide you with "Deliverables." Deliverables may include: (1) custom or third party Software in executable or source code form; and (2) written, visual, or audio materials such as architectural designs, data models, and training materials in either written or electronic form; which relate to your information processing systems. Software Deliverables may be subject to additional terms and conditions contained in an Addendum. - -------------------------------------------------------------------------------- 6.0 LICENSE TO USE SOFTWARE AND DELIVERABLES - -------------------------------------------------------------------------------- 6.1 Scope -- Subject to your payment of all one-time or periodic license fees, NCR grants you a non-transferable, non-exclusive license to use Software and Deliverables under the terms of this Agreement. Unless the Contract or applicable Policies specify that the license to Software is periodic, your license is perpetual. If the Contract or applicable Policies do not specify usage terms such as the number of users or site license rights, you may use Software at any time on a single processing unit of the class and model for which you originally licensed it. You may use Software in object code only, unless you and NCR agree to additional terms regarding the use of source code. The license term for Software and Deliverables begins on delivery. Your license to use Software or Deliverables terminates automatically if you violate the license terms. When a license terminates, you will immediately stop using the Software or Deliverables and either return or destroy all copies. 6.2 General -- You may not copy Software or Deliverables; transfer, disclose, sublicense or distribute them to any party; or use them other than as allowed by this Agreement or a Contract, except that, subject to Section 2.4, (a) you may transfer Software and Deliverables to your 6 affiliates who agree to be bound by this Agreement, (b) you may give access to the Software and Deliverables to your consultants who agree to be bound by the license terms of this Section 6.0 and the Contract, for the sole purpose of performing consulting services for you, and (c) if you transfer Equipment to a third party, you may transfer Software running on that Equipment to the third party for that party's internal use only (and not for resale or redistribution) if you notify NCR and give the other party a copy of the license terms of the Contract, including this Section 6.0 and all usage limitations. The license transfer will be effective when the third party accepts the terms by initial use of the Software and pays any applicable relicense fees. You will retain copyright notices and proprietary legends on all copies of Software and Deliverables you possess or transfer. Software and Deliverables remain the property of NCR or its licensors. You will not take any steps, such as reverse assembly or reverse compilation, to derive a source code equivalent of Software. 6.3 Diagnostic Software -- NCR may provide Products to you that include software, data, documentation, and other material that NCR uses to diagnose the operation of the Products ("Diagnostic Tools"). Diagnostic software may be firmware or it may be loaded in memory from disks or other media. The Diagnostic Tools are not licensed for use by any person other than NCR Corporation. Diagnostic Tools are the confidential intellectual property of NCR and are provided solely to assist NCR in supporting its Products. They may not be copied, disclosed to any third party (except under the same terms as under Section 6.2(c)), or used by any person for any purpose whatsoever without NCR's express written consent. NCR may delete or remove Diagnostic Tools at any time without notice. NCR PROVIDES NO WARRANTIES FOR DIAGNOSTIC TOOLS AND IS NOT LIABLE FOR THEIR USE BY ANY PERSON OTHER THAN NCR. - -------------------------------------------------------------------------------- 7.0 WARRANTIES - -------------------------------------------------------------------------------- 7.1 Equipment, Supplies, Software, and Services - NCR warrants that: (a) Title in Equipment and Supplies will be free and clear except for NCR's security interest. (b) Equipment, Supplies, and Software media will be free from defects in material and workmanship and will conform to NCR Product Specifications. Software operation will materially conform to NCR Product Specifications (except for Software Deliverables, which are covered in 7.1(c) below). (c) Deliverables, including Software Deliverables, will materially conform to the specifications included in the applicable Addendum. (d) Equipment and Software listed in the "NCR Year 2000 Qualification List" ("Qualified Products") at the time of acquisition from NCR will comply with the "NCR Year 2000 Qualification Requirements Definition" in effect at the time of acquisition. Both the Qualification List and the Qualification Requirements Definition will be made available to you at your request. This warranty applies only to the performance of the 7 Qualified Products themselves, and does not extend to the use of Qualified Products in combination with other products, whether acquired from NCR or not. Notwithstanding Section 7.2, this warranty is not limited in duration. (e) It will provide Services in a professional manner consistent with Section 5.0, any Contract, and applicable Policies in effect at the time the Services are rendered. Equipment may include used components, which will not affect the applicable warranties. 7.2 Warranty Period -- Unless otherwise specified in a Contract or Policies at the time of delivery, the warranty period for Equipment and Supplies is 90 days, and for Software and Deliverables is 30 days. The warranty period begins on delivery of the Product. The warranty for a copy of a piece of Software covers only that specific copy; software fixes supplied under warranty Services may not be incorporated into other copies of the same Software which are not then under warranty or a Contract for Software Services. 7.3 Nonconformance with Warranties -- If Equipment, Software (except Software Deliverables, which are covered by the next sentence), or Supplies do not conform to their warranties during the applicable warranty period, NCR will without charge: (a) under Section 5.1 repair Equipment or replace it with a unit of Equipment that is at least functionally equivalent; (b) under Section 5.2 correct Software; or (c) replace Supplies. If NCR does not perform Services as warranted (including by providing Deliverables that do not conform to their warranties) and you provide prompt notice, NCR will use its best efforts to reperform them. 7.4 Refunds 7.4.1 If NCR is unable to repair, correct, or replace Equipment, Software (except Software Deliverables, which are covered by Section 7.4.2), or Supplies under Section 7.3 within a reasonable time, you may return the defective Product and obtain a refund, within 30 days, or you may accept the Product "as is." 7.4.2 If NCR is unable to reperform Services as warranted under Section 7.3 within a reasonable time (including by correcting any non-conforming Deliverables), you may terminate the Contract and obtain a refund of your payments to NCR for those Services and/or associated Deliverables. Your refund for a fixed term Services Contract will not exceed your most recent payment for such Services. 7.4.3 If NCR makes a warranty in a Contract that does not have a specified remedy for its failure, and a problem arises concerning that warranty, you will notify NCR promptly in writing, and NCR will without charge correct the problem. If NCR is unable to correct the problem within a reasonable time, you may return the affected Product(s) and obtain a refund. 7.4.4 Any refund under this Section 7.0 will be reduced on the same basis as you depreciate the Product(s) in your financial statements, calculated from the delivery date. If you do not depreciate the Product(s), the refund will be reduced on a 5-year straight-line basis. 8 7.5 Warranty Services -- NCR will provide warranty Services under the applicable Policies in effect when it delivers the Products. You may separately purchase expanded warranty Services from NCR, when available. 7.6 EXCEPT FOR WARRANTIES SPECIFICALLY CONTAINED IN THIS AGREEMENT OR A CONTRACT, NCR DISCLAIMS ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND THOSE ARISING FROM A COURSE OF DEALING. NCR DOES NOT WARRANT THAT PRODUCTS WILL OPERATE UNINTERRUPTED OR ERROR FREE, OR THAT ALL DEFICIENCIES, ERRORS, DEFECTS OR NONCONFORMITIES WILL BE CORRECTED. NCR HAS NO WARRANTY OBLIGATION FOR PRODUCTS THAT YOU ACQUIRE FROM THIRD PARTIES, EVEN IF NCR ASSISTED IN EVALUATING OR SELECTING THEM. THE FAILURE OF PRODUCTS YOU ACQUIRE FROM THIRD PARTIES OR THEIR SUPPLIERS WILL NOT AFFECT YOUR OBLIGATIONS TO NCR. IF NCR DESIGNATES THAT PRODUCTS ARE PROVIDED "AS IS," THERE IS NO WARRANTY. 7.7 Exclusive Remedies -- Your rights and remedies set forth in this Agreement or a Contract are exclusive and in lieu of all other rights and remedies related to any Contract or Product (except to the extent that applicable law prohibits agreements to disclaim warranties or limit liabilities). - -------------------------------------------------------------------------------- 8.0 YOUR OBLIGATIONS - -------------------------------------------------------------------------------- The successful performance of our Products depends on your knowledgeable selection and operation of the Products and your reasonable cooperation with NCR. Your obligations include, unless otherwise agreed: (a) determining whether the Products, if they perform as warranted, will meet your specific requirements; (b) giving NCR sufficient, free, and safe access to your facilities, free of any hazardous materials (e.g., asbestos) or conditions; (c) providing back-up equipment and services to safeguard your programs, data and funds; (d) giving NCR reasonable access to your employees, including clearly identified key contacts; (e) obtaining the commitment of your management to the success of the Products and communicating that commitment to all of your employees; (f) appropriately educating your employees on the use of the Products; 9 (g) giving NCR information that it requests that is reasonably relevant to your implementation or operation of the Products; (h) obtaining any necessary governmental permits or consents; (i) implementing and operating the Products; (j) testing and operating Software and all Software updates; and (k) documenting Software problems. If you cause a delay in NCR's performance under a Contract, NCR may charge you a reasonable amount for accommodating you. This reasonable amount is typically a standard $150.00 an hour. - -------------------------------------------------------------------------------- 9.0 PRODUCT EVALUATION - -------------------------------------------------------------------------------- NCR may loan Products to you for your evaluation. You and NCR will agree in advance on: (1) the length of the evaluation period; (2) prices if you elect to acquire the Products; (3) the post-evaluation warranty periods, if any; and (4) who will bear related costs of freight, installation/deinstallation and maintenance. The evaluation period will begin when NCR delivers the Products to you. At the end of the evaluation period, you will make the Products available for return to NCR, or NCR will invoice you for the Products at the agreed prices. You agree not to move the Products to another location during the evaluation without NCR's consent. DURING YOUR EVALUATION, PRODUCTS ARE FURNISHED TO YOU "AS IS." IF YOU ARE DISSATISFIED WITH THEM FOR ANY REASON, YOUR EXCLUSIVE REMEDY WILL BE NCR'S REMOVAL OF THE PRODUCTS FROM YOUR SITE. - -------------------------------------------------------------------------------- 10.0 DEFENSE OF INFRINGEMENT CLAIMS - -------------------------------------------------------------------------------- NCR will defend at its expense any claim or suit brought against you alleging that any Product infringes a patent, copyright or trade secret and will pay all costs and damages finally awarded, if you promptly notify NCR of the claim and give NCR (a) the information and cooperation that NCR reasonably asks for, and (b) sole authority to defend or settle the claim. In handling the claim, NCR will obtain for you the right to continue using the Product or replace or modify the Product so that it becomes non-infringing. If NCR is unable to reasonably secure those remedies, as a last resort NCR will refund the purchase price for infringing Equipment and refund one-time license fees for infringing Software. The refund will be reduced on the same basis as you depreciate the infringing Product in your financial statements. If you do not depreciate it, the refund will be reduced on a 5-year straight-line basis. NCR is not obligated to indemnify you under this Section 10.0 if the alleged infringement is based on the use of the Product with other products not furnished directly by NCR, or on NCR's compliance with any designs, specifications or instructions provided by you, or if anyone other than NCR has 10 modified the Product. THIS SECTION STATES NCR'S ENTIRE LIABILITY FOR INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS, AND OTHER INTELLECTUAL PROPERTY RIGHTS. - -------------------------------------------------------------------------------- 11.0 NCR'S LIABILITY - -------------------------------------------------------------------------------- Circumstances may arise where, because of NCR's default or other liability, you are entitled to recover damages from NCR. In each such instance, regardless of the basis on which you become entitled to claim damages, your sole remedy, and NCR's entire liability (except to the extent that applicable law prohibits agreements to limit liabilities), is as follows: 11.1 For failure (i) of Equipment, Supplies, and Software (other than Software Deliverables, which are covered by the next clause) to conform to their warranties during a warranty period, (ii) to perform Services (including by providing Deliverables that do not conform to their warranties) as warranted, and (iii) any warranty as set out in Section 7.4.3, as stated in Section 7.0. 11.2 For delays in delivery, as stated in Section 3.1 or as otherwise provided in a Contract. 11.3 For your dissatisfaction with Products that NCR loans to you, as stated in Section 9.0. 11.4 For infringement of patents, copyrights, trade secrets, and other intellectual property rights, as stated in Section 10.0. 11.5 For bodily injury, including death, caused by NCR's negligence, NCR's liability will be unlimited, to the extent NCR's negligence caused the injury. For physical damage to tangible property, NCR will be liable for direct damages up to $1,000,000 per occurrence, to the extent NCR's negligence caused the damage. 11.6 FOR ALL CLAIMS NOT EXPRESSLY ADDRESSED IN SECTIONS 11.1 THROUGH 11.5 (OR IF THE REMEDIES IN THOSE SECTIONS ARE HELD TO HAVE FAILED OF THEIR ESSENTIAL PURPOSE OR ARE OTHERWISE HELD TO BE INVALID OR UNENFORCEABLE), INCLUDING BUT NOT LIMITED TO CLAIMS OF FRAUD OR MISREPRESENTATION ARISING OUT OF OR RELATED IN ANY MANNER TO THE PERFORMANCE OF ANY OBLIGATIONS UNDER A CONTRACT, NCR'S CUMULATIVE LIABILITY (INCLUDING REFUNDS AND THE VALUE OF REPLACEMENT PRODUCTS GIVEN TO YOU) WILL BE LIMITED TO YOUR PROVEN DIRECT DAMAGES NOT TO EXCEED THE AMOUNT YOU PAID NCR FOR THE APPLICABLE PRODUCT IN CONTROVERSY. 11.7 UNDER NO CIRCUMSTANCES ARE NCR, OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, SUBCONTRACTORS, OR SUPPLIERS LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES; OR FOR LOSS OF PROFITS, REVENUE, OR DATA; WHETHER IN AN ACTION IN CONTRACT, TORT, 11 PRODUCT LIABILITY, STATUTE OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF THOSE DAMAGES. 11.8 SECTIONS 11.6 AND 11.7 WILL SURVIVE FAILURE OF AN EXCLUSIVE OR LIMITED REMEDY. - -------------------------------------------------------------------------------- 12.0 DISPUTE RESOLUTION - -------------------------------------------------------------------------------- 12.1 Negotiation, Escalation and Mediation -- If any controversy or claim arises relating to this Agreement or any Contract, you and NCR will attempt in good faith to negotiate a solution to our differences, including progressively escalating any controversy or claim through senior levels of management. If negotiation does not result in a resolution within 15 business days of when one party first notifies the other of the controversy or claim, you and NCR will participate in good faith mediation as administered by the American Arbitration Association. 12.2 Arbitration -- Any controversy or claim between you and NCR, whether based on contract, tort, statute, or other legal theory (including but not limited to any claim of infringement, fraud, or misrepresentation) which cannot be resolved by negotiation or mediation will be resolved by binding arbitration under this Section 12.2 and the then-current Commercial Rules and supervision of the American Arbitration Association. The duty to arbitrate will extend to any employee, officer, shareholder, agent, or affiliate of you or NCR making or defending a claim which would be subject to arbitration if brought by you or NCR. If any part of this Section 12.0 is held to be unenforceable, it will be severed and will not affect either the duty to arbitrate or any other part of this Section 12.0. The arbitration will be held in the United States headquarters city of the party not initiating the claim before a sole arbitrator who is knowledgeable in business information and electronic data processing systems. The arbitrator's award will be final and binding and may be entered in any court having jurisdiction. The arbitrator will not have the power to award punitive or exemplary damages, or any damages excluded by, or in excess of, any damage limitations expressed in this Agreement or a Contract. Issues of arbitrability will be determined in accordance solely with the federal substantive and procedural laws relating to arbitration; in all other respects, the arbitrator will be obligated to apply and follow the substantive law of the state of Massachusetts, as provided by Section 13.9. 12.3 Costs -- Each party will bear its own attorney's fees and other costs associated with the negotiation, mediation, and arbitration provided for by this Section 12.0, except that costs and expenses of arbitration other than attorney's fees will be paid as provided by the rules of the American Arbitration Association. If court proceedings to stay litigation or compel arbitration are necessary, the party who unsuccessfully opposes such proceedings will pay all associated costs, expenses and attorney's fees which are reasonably incurred by the other party. 12.4 Two Year Limitation -- Neither you nor NCR may bring a claim or action regardless of form, arising out of or related to this Agreement, including any claim of fraud or misrepresentation, more than two years after the delivery of any Products at issue, or more than two years after cause of action accrues, whichever is later. 12 12.5 Confidentiality - In order to facilitate the resolution of controversies or claims between you and NCR, you and NCR will keep them confidential, including details regarding negotiations, mediation, arbitration, and settlement terms. 12.6 Substitute Products -- Your acceptance of refunds or substitute Products under this Agreement waives all claims relating to the nonperforming Products involved. - -------------------------------------------------------------------------------- 13.0 MISCELLANEOUS TERMS - -------------------------------------------------------------------------------- 13.1 Effective Date; Non-Waiver; Assignment -- The cover page of this Agreement specifies the effective date. If the date is left blank, the date NCR signs this Agreement or first provides Products to you is the effective date. Failure to enforce any term of this Agreement or a Contract is not a waiver of future enforcement of that or any other term. Neither you nor NCR may assign this Agreement, a Contract, or its rights or obligations under them without the express written consent of the other, except NCR may assign this Agreement or a Contract to an affiliate and may use subcontractors or resellers to fulfill its obligations. 13.2 Severability -- If any provision of this Agreement or a Contract is held to be illegal, invalid, or unenforceable, the provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remaining provisions of this Agreement or the Contract will remain in full force and effect. 13.3 Termination -- This Agreement will remain in effect until you or NCR terminate it on 30 days advance written notice. Termination of this Agreement will not terminate any existing Contract. 13.4 Insolvency and Bankruptcy -- On the occurrence of any of the following, all Contracts will automatically terminate unless the non-affected party elects to have any such contract continue: (a) the admission by either party in writing of its inability to pay its debts generally or the making of a general assignment for the benefit of creditors; (b) any affirmative act of insolvency by either party or the filing by or against any party of any petition or action under any bankruptcy, reorganization, insolvency arrangement, liquidation, dissolution or moratorium law, or any other law or laws for the relief of, or relating to, debtors; or (c) the subjection of a material part of either party's property to any levy, seizure, assignment or sale for or by any creditor, third party or governmental agency. 13.5 Confidentiality; Customer References -- Except as required by law, you and NCR will keep the terms and conditions of this Agreement and of Contracts, including pricing, confidential; provided, however, that NCR may without your consent disclose to third parties 13 that you are a customer of NCR without revealing any specific terms of this Agreement or any Contract. 13.6 Notices -- All notices (including requests, consents or waivers) made under this Agreement or any Contract will be in writing and delivered by facsimile, electronic mail, or other electronic means (in which case the recipient will provide acknowledgment within one business day separately from any machine-generated automatic reply); or by prepaid means providing proof of delivery. Notices are effective upon receipt. NCR will send notices to you at the address on the face of this Agreement, and you will send notices to NCR at its local district office or other designated address, with an additional copy to: General Counsel/Notices WHQ-5 NCR Corporation Dayton, OH 45479 Fax: (937) 445-7214 Email: law.notices@daytonOH.ncr.com Either party may change its address upon notice as required by this Section. 13.7 Geographic Scope -- This Agreement applies only to the United States; NCR will not provide Products, including warranty or maintenance Services, outside the United States. You may not export Products without appropriate approvals from the United States and foreign government. 13.8 Force Majeure -- Neither party is liable for failing to fulfill its obligations due to acts of God, civil or military authority, war, riots, strikes, fire, or other causes beyond its reasonable control, except for your obligation to make payments. 13.9 Choice of Law -- New York law governs this Agreement, except for its laws regarding choice of law and as stated in Section 12.2; the United Nations Convention on Contracts for the International Sales of Goods does not apply. THIS AGREEMENT TOGETHER WITH ANY CONTRACTS SETS OUT THE ENTIRE AGREEMENT WITH RESPECT TO YOUR ACQUISITION OF PRODUCTS FROM NCR. YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THE TERMS OF THIS AGREEMENT. 14 Executed on your behalf by: NCR CORPORATION /s/ David L. Grey /s/ George O. Tucker - -------------------- -------------------- Authorized Signature Authorized Signature David L. Grey George O. Tucker Printed Name Printed Name July 17, 2001 August 31,2001 Date Date 15 NCR CORPORATION [GRAPHIC - NCR LOGO] ORDER FOR PROCESSING SERVICES NCR Customer Information Services - -------------------------------------------------------------------------------- Customer Name Ipswich Savings Bank - -------------------------------------------------------------------------------- Street Address 23 Market Street - -------------------------------------------------------------------------------- City, State and Zip Code Ipswich, MA 01938 - -------------------------------------------------------------------------------- Customer Number Initial Term Contract Order Number 10180389 36 months - -------------------------------------------------------------------------------- YOU AGREE TO PURCHASE OR LICENSE AND NCR CUSTOMER INFORMATION SERVICES (CIS), ON ACCEPTANCE, AGREES TO FURNISH THE APPLICATIONS LISTED BELOW FOR THE TERM INDICATED AND THE PRICES SPECIFIED ON THIS ORDER. Term - The term for each processing application will commence upon the first processing of such application by NCR for you and will continue for the period specified. The term for any periodic Software license granted will commence upon delivery of the Software to you and will continue for the period specified. Estimated processing start dates and delivery dates are subject to change. Thereafter, the term for each such processing application and each Software license will renew automatically for a like period unless written notice of termination for each processing application and Software license is given. Notice of termination must be given not less than one hundred eighty (180) days prior to the scheduled end date of the initial term or renewal term when the termination will become effective. Charges - Customer shall pay for Processing Services and Software in accordance with the rates and terms specified in this Order. - ------------------------ -------------- ---------------------- ------------- APPLICATION APPLICATION BILLING REFERENCE ESTIMATED NAME CODE NUMBER NUMBER START DATE - ------------------------ -------------- ---------------------- ------------- SAVINGS ACCOUNTS 5320 - ------------------------ -------------- ---------------------- ------------- CERTIFICATES > 180 DAYS 5320 - ------------------------ -------------- ---------------------- ------------- CERTIFICATES 30-180 DAYS 5320 - ------------------------ -------------- ---------------------- ------------- CERTIFICATES < 30 DAYS 5320 - ------------------------ -------------- ---------------------- ------------- NOW/DDA ACCOUNTS 5320 - ------------------------ -------------- ---------------------- ------------- LOANS 5339 - ------------------------ -------------- ---------------------- ------------- LASER PRINTED BILL 3654 - ------------------------ -------------- ---------------------- ------------- LASER PRINTED STATEMENTS 3654 - ------------------------ -------------- ---------------------- ------------- LASER PRINTED DEL NOTES 3654 - ------------------------ -------------- ---------------------- ------------- - ------------------------ -------------- ---------------------- ------------- 1 Ordered NCR Product and Services are subject to the Addendum, dated ________________, 200___, between You and NCR. - ------------------------------------ ------------------------------------------ Executed by (Type or Print Name and NCR Customer Information Services Title) - ------------------------------------ ------------------------------------------ Authorized Signature Authorized Signature Date Date - ------------------------------------ ------------------------------------------ 2 NCR CORPORATION [GRAPHIC - NCR LOGO] ORDER FOR PROCESSING SERVICES NCR Customer Information Services Page 2 - -------------------------------------------------------------------------------- Hours of On-line Operations Standard hours of on-line system operation and availability are: __8____ a.m. to ___8____ p.m. (_et__) Monday through Thursday __8____ a.m. to ___8____ p.m. (_et__) Friday __8____ a.m. to ___4____ p.m. (_et__) Saturday __8____ a.m. to ___1____ p.m. (_et__) Sunday Additional hours of system operations and availability may be assessed an extra charge. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Data Input and Transmission For Account Processing, you will deliver or complete transmission of input data to NCR no later than ____7_____ p.m. (et___) Monday through Friday, and ___1____ p.m. (_et__) Saturday. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Processing and Delivery NCR will use reasonable efforts to complete the processing of your input transactions and have completed work available for on-line access by you by __8_____ a.m. (_et__) of your next business day. NCR will use reasonable efforts to make available regularly scheduled weekly and monthly reports within __48___ hours of the actual close of the period. Reports to be provided are: Frequency: ____see attached_______________________ _____________ _______________________________________ _____________ _______________________________________ _____________ _______________________________________ _____________ _______________________________________ _____________ _______________________________________ _____________ _______________________________________ _____________ NCR will use reasonable efforts to make available regularly scheduled daily reports by __8____ a.m. (_et__) of your next on-line day. Reports to be provided are: ______see attached_________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________ NCR will use reasonable efforts to make available completed statements within _48__ hours of the end of the actual statement period. - -------------------------------------------------------------------------------- 3 NCR CORPORATION [GRAPHIC - NCR LOGO] ORDER FOR PROCESSING SERVICES NCR Customer Information Services Page 3 - -------------------------------------------------------------------------------- From time to time, NCR upgrades its offerings to bring improved solutions to its customers. During the Order term, NCR may, upon six (6) months advance written notice, replace the specific application it currently uses to provide Processing Services to you with an alternative application. If NCR replaces the processing application, NCR will use commercially reasonable efforts to minimize the disruption to your daily operations and will provide reasonable assistance (e.g, development and implementation of a project plan and appropriate training for your trainers) to facilitate this conversion. Within thirty (30) days of your receipt of NCR's notice of any such change, you agree to either (a) notify NCR in writing of your acceptance of the conversion date provided by NCR, or (b) notify NCR in writing of your intent to perform an evaluation of the replacement application to confirm that the replacement application provides substantially similar functionality as the application you currently utilize. If (1) you do not complete the evaluation within sixty (60) days of receipt of NCR's conversion notice, or (2) after performing such evaluation, you reasonably determine that the replacement application has substantially similar functionality as the application you currently utilize, you will notify NCR in writing of your agreement to complete the conversion as specified in NCR's conversion notice to you. If (a) you notify NCR within the sixty (60) day evaluation period that the replacement application does not contain substantially similar functionality as the application you currently utilize, and (b) any documented missing functionality is not identified (by the NCR user group) in a request for features to be included in a future release of the application for implementation prior to any proposed conversion date, you may terminate this Order at your convenience prior to the end of the Term without payment of early termination charges, provided however, you will pay NCR deconversion charges as indicated on the deconversion pricing schedule provided to you at that time. In the event of your request to terminate, NCR may require you to convert to an alternative service within six (6) months of NCR's notice. - -------------------------------------------------------------------------------- Any Services or Products not listed on this Order but requested by you will be provided at NCR's then-current prices.
- -------------------- ---------------------------------- ---------- ------ ----- -------------- APPL./ITEM PRODUCT DESCRIPTION QTY. PRICE PER MIN/MAX CODE NO. - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5320 SAVINGS ACCOUNTS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5320 CERTIFICATES > 180 DAYS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5320 CERTIFICATES 30-180 DAYS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5320 CERTIFICATES < 30 DAYS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5320 NOW/DDA ACCOUNTS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 5339 LOANS CURRENT .44 ACCT MONTHLY - -------------------- ---------------------------------- ---------- ------ ----- -------------- 3654 LASER PRINTED BILL CURRENT .09 PAGE PAGE - -------------------- ---------------------------------- ---------- ------ ----- -------------- 3654 LASER PRINTED STATEMENTS CURRENT .085 PAGE PAGE - -------------------- ---------------------------------- ---------- ------ ----- -------------- 3654 LASER PRINTED DEL NOTES CURRENT .09 PAGE PAGE - -------------------- ---------------------------------- ---------- ------ ----- --------------
4 NOTES: 1. Term of this agreement is effective with the April 2001 invoice (which covers March activity). 2. If at any time during the current term of this contract, NCR announces that STARCOM will no longer be supported, Ipswich Bank can terminate this contract, without early termination charges, with 180 day written notification. 3. If NCR does not perform Services as warranted to your satisfaction during months 25 through 30 of this 36 month Order, and you provide NCR with prompt written notice, NCR will use its best efforts to remedy the nonconforming Service. If NCR is unable to cure the non-forming Service within 60 days from notice, you may provide NCR written notification of your intent to terminate this Order, without early termination charges. 4. NCR's charges for contract termination can be found on the attached Schedule 2. These charges supersede the early termination fees listed in the Processing Services Addendum, if any. 5. Ipswich Savings Bank may provide written intent to convert to the STARCOM replacement system at any time during the term of this Order. 6. The following offer under this Section 5 is valid through December 14, 2001 only. If Ipswich Savings Bank signs an order for Profile by December 14, 2001, NCR will charge the bank the following for the conversion & education to the Profile system: o Based upon current volumes (April 2001) the bank will pay $29,500.00 (half of the calculated $59,000.00, which represents $14,000.00 for training/education and $45,000.00 for the actual account conversion). o This $29,500.00 includes the conversion of 45,000 accounts (currently bank has 38,648 open accounts). Any additional accounts over 45,000 will be charged .50 cents over and above the $29,500.00. This is to allow for potential account growth and potential account acquisition. 5 SCHEDULE 1 REPORTS AND SERVICES The STARCOM Financial System includes all standard reports listed below. The reports listed below are representative; their titles, contents and frequency are subject to change without notice. I. STARCOM Financial Deposit Account System Reports A. Daily Report Preparation 1. Teller Terminal Proof 2. Daily Transaction Summary Report 3. Savings Transaction Journal 4. Savings Exception Activity Journal 5. NOW/DDA Account: a. Non-Sufficient and Uncollected Funds Report b. Waived Service Charge Journal c. Kiting Suspect Report d. Stop Payment Suspect Report e. Overdraft Journal f. Returned Items Report g. Non-Sufficient Funds (NSF) Notices h. Uncollected Funds Notices 6. Savings Trial Balance (Totals Only) 7. Savings Daily Maintenance Journal 8. CIF N & A Search Key Update 9. Direct Deposit Validation Report 10. NOW Inclearing Validation Report 11. ATM Transaction Validation 12. Savings Exception Recap Report 13. Savings Variable Rate Earnings Report 14. Certificate Maturity Update Journal 15. Permanent Withdrawal Order (PWO) and Income Processing Update Journal 16. Autotrans Reconciliation Report 17. Summary of Month-to-Date Savings Account Activity 18. Misc. Receipts and Checks Issued Register 19. Misc. Receipts and Checks Issued Summary B. Weekly Report Preparation 1. Savings Overdraft Trial Balance 2. Savings Trial Balance (Fiche Only) 6 I. STARCOM Financial Deposit Account System Reports (cont'd) C. Monthly Report Preparation 1. Savings Trial Balance (Detail) (Fiche Only) 2. Certificate of Deposit Recap 3. Dormant and Inactive Report 4. New Account Listing 5. Closed Account Listing 6. Certificate of Deposit - Maturity Summary 7. Combined Statements Register 8. Retirement Account Billing Report 9. Retirement Account Trial Balance 10. Pension Fund Statements Register 11. STARS Overage Report/Notices 12. Investment Changes Report 13. Matured Investment Report 14. Accounts Eligible for Distribution 15. Accounts Requiring Distribution 16. Accounts Over Reinvestment Level 17. Age Summary Report 18. Distribution Summary D. Periodic Report Preparation 1. Anticipated Earnings Recalculation Journal 2. Pre-Check Exception Report 3. Savings History Print 4. Savings Account Type Table Update Report 5. Stop Payment Expiration Report 6. Savings Masterfile Print 7. Parameter Update Journal 8. Check Register 9. Earnings Crediting Exception Report 10. Earnings Transfer Journal 11. Earnings Distribution Journal and Trial Balance (Fiche Only) E. Annual Report Preparation 1. Purged Accounts Listing 2. Earnings Paid YTD Reported to IRS 3. Federal Forms Exception Report 4. STARS Shortage Report/Notices 5. All Federal Forms (see Schedule 2 for pricing) 7 II. STARCOM Financial Loan Account System Reports A. Daily Report Preparation 1. Collateral Loan Transaction Journal 2. Exception Loan Transaction Journal 3. Consumer Loan Transaction Journal 4. Commercial Loan Transaction Journal 5. Loan Transaction Journal 6. Mortgage Loan Active-Delinquent Journal 7. Mortgage Loan Transaction Journal 8. Loan SATT Index Rate Update 9. Loan Maintenance Journal 10. Input Loan Summary Trial Balance 11. Accrual Loan Trial Balance 12. Collection Loan Disbursement Report 13. Loan Trial Balance (Summary) 14. Summary of Month-to-Date Loan 15. Commercial Loan Delinquency Report 16. Commercial Loan New Account Report 17. Commercial Loan Paid-Off Account Report 18. Commercial Loan Line of Credit Report 19. Commercial Loan Collateral Control Report 20. Commercial Loan Maintenance Journal 21. Commercial Loan Review Report 22. Commercial Loan Trial Balance 23. Consumer Loan Exception Journal 24. Single Payment Loan Maturity Report 25. Single Payment Loan Renewal 26. New Consumer Loan Report 27. New Consumer Loan Report 28. Paid Off Consumer Loan Report 29. Subsidiary Journal Participation Loans 30. Subsidiary Journal Update Report 31. Construction Loan Update Report 32. Lot Status Report 8 II. STARCOM Financial Loan Account System Reports (cont'd) B. Monthly Report Preparation 1. New Installation Loans Report 2. New Mortgage - Collateral Loans Report 3. Loans in Foreclosure Report 4. Paid Off Mortgage - Collateral Loans Report 5. Loan Trial Balance (Detail) 6. Accrued/Prepaid Journal 7. Delinquency Summary 8. Pledged Loan Report 9. Pledged Savings on Loan Accounts 10. Analysis of Loans by Asset Limitation Code 11. Analysis of Loans by FSLIC Location Code 12. Analysis of Loans by Interest Rate 13. Analysis of Loans by Location Code 14. Analysis of Loans by Purpose Code 15. Collateral Loan Report 16. Deferred Income and Expense Trailer Print 17. Deferred Expense Journal 18. Deferred Income Journal 19. Schedule RC-J Report 20. Section H Report 21. Maturity Projection Report 22. Commercial Delinquency Summary 23. Commercial Loan Inactive Account Report 24. Consumer Loan Delinquency Summary 25. (Mortgage) Loan Activity Report FNMA LASER 26. (Mortgage) Loan Activity Summary FNMA LASER 27. Monthly Payment/Note Rate Change FNMA LASER 28. Trial Balance FNMA LASER 29. FNMA 2010 Monthly Accounting Report 30. FNMA 2020 Liquidation Schedule 31. FNMA 2030 Monthly Summary Report 32. GNMA 1710A Issuer's Monthly Accounting Report 33. GNMA 1710E Liquidation Schedule 34. GNMA 1710D Issuer's Monthly Summary Report 35. MBS "Other" Detail Report 36. Cash Receipts Serviced Loans 37. Delinquent Serviced Loans 38. New/Closed Accounts Serviced Loans 39. Next Month Prepaid Serviced Loans 40. Prepaid Receipts Serviced Loans 9 II. STARCOM Financial Loan Account System Reports (cont'd) B. Monthly Report Preparation (cont'd) 41. Trial Balance Serviced Loans 42. Remittance Reconciliation 43. Participation Report Summary 44. 308 Group Report (FHLMC MIDANET) C. Periodic Report Preparation 1. Loan Masterfile Print 2. Commercial Loan Masterfile Print 3. Late Charge Journal 4. Delinquency Report 5. Slow Loan Report 6. Delinquency Report by Investor 7. Delinquency Summary by Investor 8. Consumer Loan Delinquency Report 9. Commercial Delinquency by Investor 10. Commercial Delinquency Summary by Investor 11. Consumer Delinquency by Investor 12. Consumer Delinquency Summary by Investor 13. Adjustable Mortgage Loan - Notice Options 14. Alternative Mortgage Instrument Analysis Report 15. Single Payment Loan Maturity Notice 16. Collection Card 17. Paid Off Loan Card 18. FNMA Special Trial Balance 19. Line of Credit Earnings Report 20. Line of Credit Trial Balance 21. Commercial Loan Compensating Balance Report 22. FHA Case Number Listing 23. IRS Report 24. Loan Disclosure Statement 25. Escrow Disbursements Due 26. Insurance Disbursements Due 27. MIP Disbursement Due 28. Taxes Due Report 29. Loan History Print 30. Purged Account Report 31. Pending Payoff Report 32. Loan Portfolio 33. Recycle/Assumption Report 34. Dealer Floorplan Update Report 10 II. STARCOM Financial Loan Account System Reports (cont'd) C. Periodic Report Preparation (cont'd) 35. Dealer Floorplan Collateral Report 36. Dealer Floorplan Report by Collateral Report 37. Dealer Trial Balance 38. Dealer Statistical Loan Volume 39. Dealer Floorplan Purged Collateral Report 40. Dealer Floorplan Report 41. Dealer Floorplan Inventory Report 42. Dealer Funds Report 43. Construction Loan Update Report 44. Construction Loan Builder Summary 45. Construction Loan Bill 46. Construction Loan Billing Summary 47. Construction Loan Summary Report 48. Construction Loan Master File Print 49. Loan Standard Account Type Table 50. Participation Report 51. Loan Totals Only Trial Balance 52. FHLMC Form 11 Detail 53. FHLMC Form 13SF Detail 54. FHLMC Form 381 Detail 55. FHLMC Delivery Detail Report 56. FHLMC Delivery Exception Report 57. FNMA Loan Schedule 1068 58. FNMA Loan Schedule 1069 59. FNMA Delivery Exception Report 60. Loan Masterfile Processing Report 11 III. STARCOM Financial General Ledger System Reports A. Daily Report Preparation 1. Transaction Entry Run Report: Input Source Totals 2. Daily Trial Balance and Posting Run: Detail and Summary 3. G/l Cycle Update Report 4. Trial Balance by Account 5. Trial Balance by Master Record 6. Master File Maintenance Report B. Monthly Report Preparation 1. Monthly Statement of Operations (Income and Expense) 2. Custom Statement of Conditions 3. Custom Statement of Operations 4. G/L Data Extract for Financial Information Plus C. Periodic Report Preparation 1. Snapshot Report 2. Budget Report 3. Standing Journal Entry Snapshot Print Report 4. Account/Department Cross Reference Report 1. Chart of Accounts END OF SCHEDULE 1 12 SCHEDULE 2 Except as otherwise provided for in this Order, in the event that Ipswich Bank terminates the Order prior to the end of the term for convenience, whether prior to or after certification, NCR shall be entitled to retain any deposit previously paid by and/or due from Ipswich Bank, any charges due for the initial conversion and masterfile set up, and in lieu of other damages actually incurred, the early termination charges listed below: Termination During Months - ------------- o Month 1 - 12 Eight times the average monthly billing* For the most recent three month period, or eith times the proposed monthly billing*, whichever is greater. o Month 13 - 24 Six times the average monthly billing* for the most recent three month period. o Month 25 - 36 Four times the average monthly billing* for the most recent three month billing. *Monthly billing - as described above refers to Monthly Base charges and Data Communication charges only. This schedule supersedes the early termination fees listed in the Processing Services Addendum, if any. 13 NCR CORPORATION [GRAPHIC - NCR LOGO] PROCESSING SERVICES ADDENDUM Ipswich Savings Bank This Processing Services Addendum between __Ipswich Savings Bank__ ("You") and NCR Corporation ("NCR") is agreed to on __________, 200___ (the "Effective Date"). Signed: You NCR Corporation - ------------------------------------- ---------------------------------- 1.0 THIS ADDENDUM ------------- 1.1 Our Contract with respect to Processing Services you acquire consists of the Master Agreement dated __________, 200___ ("Master Agreement"), this Addendum, the Order and any Schedules and Appendices attached to the Order, collectively referred to as the "Addendum". We may enter into more than one Order if multiple services are ordered by you from NCR. Unless otherwise agreed in writing, all Processing Services will be governed by the Addendum. 1.2 If a conflict exists between the terms and conditions of any of the documents referenced above, the order of precedence will be: (a) the Order and its Schedules and Appendices; (b) this Addendum; and (c) the Master Agreement. Any pre-printed language on your forms shall not apply. 1.3 AN ORDER MAY CONTAIN TERMS AND CONDITIONS, INCLUDING BUT NOT LIMITED TO WARRANTY AND LIABILITY PROVISIONS, WHICH REPLACE OR ADD TO THE TERMS AND CONDITIONS OF THIS ADDENDUM OR THE MASTER AGREEMENT. IF THE TERMS OF THIS ADDENDUM AND AN ORDER CONFLICT, THE ORDER WILL PREVAIL. 2.0 EFFECTIVE DATE -------------- 2.1 This Addendum specifies the Effective Date above. If the date is left blank, the date NCR signs this Addendum or first provides Products to you is the Effective Date. Termination of this Addendum or the Master Agreement will not terminate any Order. 2.2 Each Order will specify an Effective Date for that Order and a term length, if applicable. The Order will automatically renew for a term of equal length to the Initial Term until terminated 1 by either party by written notice to the other no less than 180 days prior to the end of any Term, unless an Order is terminated according to Section 11.0 of this Addendum. 3.0 DEFINITIONS ----------- 3.1 As used in this Addendum, the following terms will have the following meanings. Capitalized terms not defined in this Addendum will have the meanings assigned in the Master Agreement. (a) "Order" means the Order for Products which defines the equipment, software, or services which you are acquiring from NCR, and any Schedules or Appendices attached to that Order. (b) "Processing Services" means services performed by NCR in the handling and processing of your data. (c) "Processing Center" means the NCR location which processes your data. Processing may occur in 1 or more Processing Centers. 3.2 Reference to the conduct of a party includes the conduct of employees, subcontractors or agents of that party. NCR may provide Services either directly or through subcontractors. 4.0 SCOPE ----- 4.1 NCR will provide the Processing Services ordered by you in accordance with this Addendum and your Order. When performing the Processing Services, NCR will use reasonable care in the handling of your input media and data. NCR will, to the extent commercially reasonable, correct any errors or damage to your input media or data caused by NCR's fault or negligence at its expense. 4.2 Processing Services will have processing priority over other services at the Processing Center. In the event processing cannot continue on-site, Processing Services will receive processing priority over other services at the back-up processing site. 5.0 NCR'S RESPONSIBILITIES ---------------------- 5.1 NCR will process your input data during NCR's regularly scheduled nightly processing hours. If you or your agent provides data input to the Processing Center after the designated hours, NCR will endeavor to reschedule the processing of the late data input prior to the next on-line day or Clearing Agent deadline. If late data input cannot be processed prior to the next on-line day or Clearing Agent deadline, NCR will process your late data input as soon as reasonably possible without interrupting previously scheduled processing activity. 5.2 NCR will provide reasonable assistance to you to satisfy Federal and State regulatory agencies requests for information. NCR maintains insurance coverage which provides adequate protection for its business needs. 2 5.3 NCR's Processing Centers have a disaster recovery plan in place which outlines procedures that will be followed in the event. NCR's disaster recovery plan for all Processing Centers is reviewed on a regular basis. The communications portion of the disaster recovery plan is tested every year on a rotating basis. Upon your written request, NCR will provide you with a copy of its disaster recovery contingency test for Processing Center(s) provided Services to you. 5.4 NCR will provide you with the information you may need to develop a disaster contingency plan which will work with NCR's plan. 5.5 NCR will use reasonable efforts to promptly incorporate published regulatory updates and changes that affect Processing Services. 5.6 NCR will notify you reasonably in advance of any system changes which impact the Processing Services you receive from NCR, and will provide sufficient information to assist you with any changes you may need to make, if any, in order to continue to receive the Processing Services. 5.7 NCR will retain your daily files for 30 business days, in addition NCR will retain your monthly files for 90 days, and your quarterly files for 1 year (or other period as may be required by regulation or law) after they are used for processing. Upon your written request and payment of applicable charges, if any, NCR will provide you with your master file data and all current account information maintained by NCR. NCR will retain records, etc., as NCR is required to by Federal and State regulatory requirements. 6.0 YOUR RESPONSIBILITIES --------------------- 6.1 You agree to maintain records, source and backup data: 1) for file and input data recreation, if necessary; and 2) as required by Federal and State regulatory requirements. 6.2 You agree to obtain and maintain: 1) insurance coverage against loss of data as well as other steps required by law or regulation; and 2) fidelity coverage to protect you from wrongful or dishonest acts committed by your employees, agents or subcontractors. 6.3 You agree to assume all expenses related to the delivery or transmission of input data to the Processing Center and the return delivery or transmission of data and reports. Input media must be in good condition and the data format must conform to NCR's specifications in order to avoid delays in processing. If input data is to be received from multiple locations, NCR will commence processing after all data is received at the Processing Center unless processing can begin prior to receiving all data. 6.4 You are responsible for implementation and operation of your accounting, management, and reporting systems, audit functions, and recovery routines. You are also responsible for the 3 operation and maintenance of your on-site computer systems and data communications equipment. 6.5 If system parameters for Processing Services are to be changed or portions of files are to be deleted, the Processing Center must be notified in writing at least 30 days in advance so that your change can be accommodated. 6.6 Corrections needed to Processing Services due to your submission of (i) unusable input data, (ii) data not in the proper format, or (iii) data not balanced properly, will be processed as soon as reasonably possible without interrupting previously scheduled processing activity. Additional processing time or other assistance required for these corrections may be charged to you at NCR's then-current rates. 6.7 You agree to check, balance and reconcile each report generated by NCR upon receipt. You agree to notify NCR in writing within 2 business days of receipt of the report of any discrepancies. Any claim by you for a discrepancy that NCR does not receive within this 2 business day period shall be forever barred. Should you discover a discrepancy after this time period, NCR will use its reasonable efforts to correct the discrepancy at its earliest convenience. However, given the difficulty of reprocessing beyond this 2 business day period, NCR may charge you at its then-current rates for the correction of this discrepancy. 7.0 REGULATORY AGENCIES AND OTHER LEGAL REQUIREMENTS ------------------------------------------------ 7.1 The data, records and reports to be generated, received or maintained by NCR pursuant an Addendum may be subject to examination by Federal and State regulatory agencies that have jurisdiction over your business, to the same extent as such records would be subject if they were maintained and produced directly by yourself. Any expenses incurred by NCR associated with these audits may be billed to you (and other customers, as appropriate) at NCR's then-current rates. 7.2 You are responsible for notifying the appropriate Federal and State regulatory agencies of all information required concerning Processing Services including, but not limited to, the commencement and termination of Processing Services, and methods and control procedures used in processing your data. 7.3 During the term of an Addendum, the federal regulatory agency which governs your business will have the authority and responsibility to review and govern NCR and the Processing Services. NCR will provide the appropriate regulatory agency's District Director with a copy of the current third party review report when a review by any regulatory agency is performed. NCR will provide the regulatory agencies with a copy of NCR's current audited financial statements. 7.4 You or your authorized agent may audit your records at a mutually agreed-upon time. You agree to pay any reasonable expenses incurred by NCR in connection with any such audit. 4 8.0 INVOICING --------- 8.1 NCR will invoice you on a recurring basis for Processing Services. Other Products will be invoiced upon delivery. Invoices are due and payable upon receipt unless otherwise specified on the Order. 8.2 If Processing Services are suspended or terminated for failure to pay an undisputed invoice, you will be liable for reinstatement charges. 9.0 WARRANTIES ---------- 9.1 THE PROVISIONS OF THIS SECTION 9.0 GOVERN NCR'S WARRANTY OBLIGATIONS FOR PROCESSING SERVICES AND, WITH RESPECT TO PROCESSING SERVICES, SUPERSEDE ANY INCONSISTENT PROVISION IN THE MASTER AGREEMENT. 9.2 NCR warrants that it will perform its obligations under this Addendum in a professional and workmanlike manner. 9.3 NCR'S LIABILITY AND YOUR SOLE REMEDY IN THE EVENT OF LOSS OF MEDIA OR DATA, DAMAGE OR CONTAMINATION TO EITHER DATA OR MEDIA, OR ERRONEOUS PROCESSING, WILL BE LIMITED TO REPLACEMENT OF THE MEDIA ON WHICH THE DATA IS STORED, AND TO THE EXTENT COMMERCIALLY REASONABLE, CORRECTION OF ERRORS IN PROCESSING. YOU AGREE TO ALWAYS MAINTAIN BACKUP DATA AS PROTECTION AGAINST SUCH LOSS, DAMAGE OR CONTAMINATION. 9.4 NCR WILL NOT BE RESPONSIBLE FOR ERRORS OR DELAYS RESULTING FROM THE FAULTY TRANSMISSION OF DATA FROM YOU, OR FOR DELAYS IN PROCESSING OR IN THE DELIVERY OF THE PROCESSED DATA IN ANY FORM DUE TO CAUSES BEYOND ITS CONTROL. 9.5 Upon your written request, NCR will procure for your telecommunication and/or data communication products and services from a provider ("Provider") of such products and services. NCR IS NOT RESPONSIBLE FOR AND DOES NOT WARRANT THE PERFORMANCE OF ANY PROVIDER OR ITS SERVICES, AND YOU AGREE THAT NCR HAS NO LIABILITY TO YOU FOR SUCH PERFORMANCE OR SERVICES. You agree to bound by the terms of (i) any agreement between NCR and the Provider for services rendered to or for you by the Provider, and (ii) any applicable tariff, which terms related to warranties, limitation of such Provider's liabilities, and the availability of remedies. If you file a claim against the Provider and obtain a judgment against it, or settle a controversy with the Provider, you agree that you will not be entitled to any remedies from NCR that are in addition to or in lieu of any remedies received from or settlements agreed to with the Provider. 5 9.6 Your rights and remedies set forth in this Addendum are exclusive and in lieu of all other rights and remedies related to any Order or Product. 10.0 CONFIDENTIALITY --------------- 10.1 "Confidential Information" means all data, reports, Software, specifications and information transmitted or received by either party during the term of an Order: (i) in documents or other tangible materials clearly marked CONFIDENTIAL or the like; (ii) data and reports which contain your input data; or (iii) orally or in any other intangible form, if at the time of disclosure the disclosing party tells the receiving party that the information is confidential, and within ten (10) days after that first disclosure, the disclosing party delivers to the receiving party documents or other tangible materials clearly marked CONFIDENTIAL or the like which discloses or describes that information. Confidential Information does not include information which: (a) is or becomes publicly known or readily ascertainable by the public through no wrongful act of the receiving party; (b) is independently developed by or for the receiving party; (c) the receiving party receives from a third party, if the receiving party does not know of any restrictions on the disclosure of that information; or (d) the disclosing party discloses to a third party without similar restrictions on disclosure. 10.2 During the term of an Order and for a period of two (2) years from the termination or non-renewal of an Order, each party will use reasonable efforts to prevent the disclosure of Confidential Information to any other person, unless disclosure is required by law. All materials containing Confidential Information delivered by a party under this Addendum are and will remain the disclosing party's property; at the disclosing party's written request, the receiving party must promptly return to the disclosing party all Confidential Information, except a single archival copy. 11.0 TERMINATION ----------- 11.1 Either party may terminate this Addendum if: 1) A party files a petition of bankruptcy or receivership, or makes an assignment for the benefit of creditors, or should a received be appointed or applied for; or 2) A party is unable to cure a default of any of its obligations hereunder within 30 days of written notice being received by the defaulting party. If NCR is unable to cure a default, pursuant to this Paragraph 11.1, you may terminate an Order without obligation to NCR for early termination charges as defined below. You will be responsible to pay all other invoices, charges, etc., outstanding as of the termination date. 11.2 You may terminate for convenience an Order, in whole or in part, prior to the end of any term. In the event of an early termination, you agree to pay NCR a termination charge in accordance with NCR's then-current termination charges, unless otherwise specified on your Order, and repayment of any discounts granted to you during the term. If you terminate an Order for Processing Services in part and NCR is unable to reasonably continue to provide Processing 6 Services due to your partial termination, NCR reserves the right to terminate the Order in whole and you agree to pay early termination charges and repayment of discounts granted on the entire Order being terminated early. Upon receipt of your early termination notice, NCR will retain any deposit previously paid by and/or due from you, any discounts extended to you will no longer be granted through the remainder of the Order's term, and NCR will be paid in full by you for any other charges due to NCR as of the effective date of termination. 11.3 You may terminate an Order at the end of any term by providing NCR with written notice 180 days prior to the end of such term. You will not incur termination charges if the provisions of this paragraph 11.3 are met. 11.4 Upon receiving your notice of intent to terminate and upon placement of an Order for deconversion services, NCR will, when requested and when all invoices due have been paid, provide you with your account information contained in NCR's current files. This information will be provided in the standard machine format on media used by NCR at the time. All costs for programming, materials, computer time, project management, etc., will be paid by you in accordance with NCR's then-current price schedule. 7 -----END PRIVACY-ENHANCED MESSAGE-----