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© 2006-2008 Warren S. Reid All Rights Reserved This model will change and be updated over time 1 Warren S. Reid, Managing Director WSR Consulting Group,

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1 © Warren S. Reid All Rights Reserved This model will change and be updated over time 1 Warren S. Reid, Managing Director WSR Consulting Group, LLC PH: 818/ Fax: 818/ Website: Blog: blog.wsrcg.com 1. When IT goes All Wrong! 2. Why Systems Fail? 3. Known Risks: Business, Technology & Contract 4. Purpose of “Fair” Contracts & Your Part in It? 5. Introduce the Case & Assignments Contracting for Computer Services: A Case Study for Systems & SW Engineers For USC CS-510 November 17, 2008 UPDATED

2 © Warren S. Reid All Rights Reserved This model will change and be updated over time 2 IT Industry Continues to Struggle Chaos Report (Standish Group) 2004Challenged ( on average ): Time Overruns: 84% $$ Overruns: 56% Rqmts delivery: ~67%

3 © Warren S. Reid All Rights Reserved This model will change and be updated over time 3 When IT Goes All Wrong ( ) FBI Terror/Crime Sys $170MM – mismanagement, poor planning, design changes FBI Terror/Crime Sys $170MM – mismanagement, poor planning, design changes Student Loan Interest – Lost $8mm interest in sw calc. Student Loan Interest – Lost $8mm interest in sw calc. UK Pension Sys Crash – 80,000 pub serv couldn’t pay checks UK Pension Sys Crash – 80,000 pub serv couldn’t pay checks ICI – Chem Industry Giant – inabil to fulfill cust orders due to botched impl re BPR – Customers defect -- 39% Stock value wiped out ICI – Chem Industry Giant – inabil to fulfill cust orders due to botched impl re BPR – Customers defect -- 39% Stock value wiped out UK Air Traffic Control – sys down – cancel/delays hit 200K passengers UK Air Traffic Control – sys down – cancel/delays hit 200K passengers MESDAQ – day 1; yrs later halts w upgrade errors MESDAQ – day 1; yrs later halts w upgrade errors London Stock Exchange – on last tax day, cap gains issues London Stock Exchange – on last tax day, cap gains issues Barclays – small piece of hw brings down whole bank sys for 18hrs – 5mm cust can do nothing Barclays – small piece of hw brings down whole bank sys for 18hrs – 5mm cust can do nothing $3.8bb Hosp Sys in trouble (3/07) $3.8bb Hosp Sys in trouble (3/07) Another Mars explorer (4/07) Another Mars explorer (4/07) NA Blackberrys down – 4hrs (4/07) NA Blackberrys down – 4hrs (4/07) $38bb – “Oops! Techie Wipes Out $38B Fund”: Keystroke mistake deletes data for Alaska’s oil-funded account (3/20/07)” $38bb – “Oops! Techie Wipes Out $38B Fund”: Keystroke mistake deletes data for Alaska’s oil-funded account (3/20/07)” LAUSD; Giant Sanitation Company LAUSD; Giant Sanitation Company Singapore Higher Education Singapore Higher Education Hospitals (missing/incorrect data; death) Hospitals (missing/incorrect data; death) State Highway Patrol State Highway Patrol Pizza, Pizza; Soft Drink Co Pizza, Pizza; Soft Drink Co U.S. government student (privacy) U.S. government student (privacy) Outsourcing to India Outsourcing to India Major NA bank: millions of accts thrown – poor sw tests; 2wks to fix; but mo probs w phish; > $100mm to fix Major NA bank: millions of accts thrown – poor sw tests; 2wks to fix; but mo probs w phish; > $100mm to fix

4 © Warren S. Reid All Rights Reserved This model will change and be updated over time 4 It’s the Same in Every Case! “ He Said … She Said” # CategoryHe Said (Customer)… She Said (Vend’r, Integ, Consult, OS)… Sys doesn’t work; Not what wanted Limited functionality Sys failed in field SW, services & expertise oversold No one can use it! Poor training Sys is “fundamentally flawed” Never told us that/poor advice! Sys is full of bugs U failed as Sys Integ. Proj. Mgr. Un-qual/stable/commit Ee, PM, SC Quit good PM & SDLC meth; Risk up U chgd mind; Don’t know want/need U changed scope U d/not do req’d Biz Proc Reengineer U conducted ref checks/ due diligence “Right staff” never did train/refresh Only 2 more months to test/fix probs U d/not follow recs; Bad decis-makers Bad data conver/i’faces; Always bugs! No! U failed as Sys Integ. Proj. Mgr. Un-qual/-stable/-commit staff, PM, SC Unwilling 2 comply w prom/need meth 1 Feasible 2 Capable 3 Compatible 4 Credible 5 Usable 6 Stable 7 Culpable 8 Reliable 9 Responsible 10 Available 11 Suitable Oftentimes, BOTH sides are right & contribute to failure – but at different % s

5 © Warren S. Reid All Rights Reserved This model will change and be updated over time 5 Risks Known B4 Project Starts People/Resource Risks People/Resource Risks Turnover, culture, x-comm. Turnover, culture, x-comm. Top Mgt Commit; Proj Champ Top Mgt Commit; Proj Champ Partner; Ref. Chks/Ref’s Refs Partner; Ref. Chks/Ref’s Refs Requirements Risks Requirements Risks Poor Project Charter Poor Project Charter Incompl, Misunderst, Gallop Incompl, Misunderst, Gallop I’faces, Data Convers’n I’faces, Data Convers’n Technology Technology HW, SW, Net, D/B, I’net, HW, SW, Net, D/B, I’net, Security; Privacy Security; Privacy C – Correctness C – Correctness I – Integrity I – Integrity A – Available A – Available Tool avail? mature? train? use? Tool avail? mature? train? use? Project & Tech Mgmt Risks Project & Tech Mgmt Risks Client, Depts, Users, IT, Vend, O/S consults, attys, custs, analyst, mkt “expectations” Client, Depts, Users, IT, Vend, O/S consults, attys, custs, analyst, mkt “expectations” Unclear Leadership – SIPM Unclear Leadership – SIPM Process Risks Process Risks Project under- or mis-estimated Project under- or mis-estimated SEI-CMMi level; ETC &EVM Stds SEI-CMMi level; ETC &EVM Stds Sched, $$, estimates, change control Sched, $$, estimates, change control Not enough time for testing Not enough time for testing Shortcuts to SDLC on the fly Shortcuts to SDLC on the fly Product & Other Risks Product & Other Risks Performance, testedness & readiness Performance, testedness & readiness -abilities (scale, use, test, port, maint) -abilities (scale, use, test, port, maint) Competent T/O proc, supt, maint? Competent T/O proc, supt, maint? compet; economy; org; regulatory compet; economy; org; regulatory

6 © Warren S. Reid All Rights Reserved This model will change and be updated over time 6 What Can Possibly Be Misunderstood?! Everything! People are different People are different People have different: People have different: Objectives; Goals; exp/educ/expertise, cultural biases Objectives; Goals; exp/educ/expertise, cultural biases Styles of understanding and communicating Styles of understanding and communicating Abilities, talents, logic, creativity Abilities, talents, logic, creativity Understanding of priorities Understanding of priorities Fears: spoken and unspoken Fears: spoken and unspoken Understanding of what is subjective v objective Understanding of what is subjective v objective Implied/understood unspoken (needs, reqts, sizzle) Implied/understood unspoken (needs, reqts, sizzle) What won’t be misunderstood? What won’t be misunderstood?

7 © Warren S. Reid All Rights Reserved This model will change and be updated over time 7 # CategoryWhat They Understood: Cust/Prov What the Contract Says System description Functional Requirements Performance Reqmts Roles & Responsibilities Conduct of Project Custom Programming Services Sys. Integ; I’facing; Testing; Convert Acceptance Testing Process Key Delivs: QA; Train; Doc; Sys Works Maint, upgrades, fixes, enhancem’ts All proposals/work-prod/proms up to K ALL Systems Go! Costs/Pymts; ADR; TERMination; Renew; Title; X-hire; Site prep; Install hw, sw, nw, BPR; confid; $ protect; Liability limits/exclusions Bounds scope; Uber-theme … as per specs dated ____? Scal-? Port-? Avail-? Maint-? Use-? SMART? RM? Dispute escal/resol? HR reqts? WBS, est, staff, delivs, PM, SDLC, bugs Config, SDLC, PM, est, test, I’face, maint-? Results NOT Resources; “Success” def Who? How? When? Where? Criteria? Exist? Depth? Maintainable? S/O proc T/Over stds? Work stds? LTCO? Metrics “Parole evidence” rule; 4 corners only What’s acceptable? Checklist? Vote? There’s more to the Sys than a sys (SOS): $$ limits; penalties; ownership; holdbacks; remedies; limits of liab; privacy; hot sites 1 Suitable? 2 What Works? 3 How Well? 5 How We Do It? 6 Just for Me? 7 U Prove it 1 st ! 8 Min Reqmts 9 More Min Reqs 10 & Tomorrow? 11 $$ = Mouth? What Can Possibly Be Misunderstood?! Everything! “We Thought … Contract Says” 4 Who Does what? 12 Go-Live 13 Other Key Issues

8 © Warren S. Reid All Rights Reserved This model will change and be updated over time 8 Why Are Contracts (K) So Important, & Why Must YOU Know About Them? Caveat: “Standard K form” favors V/large Ks; used as sub for good mgt/K activ Caveat: “Standard K form” favors V/large Ks; used as sub for good mgt/K activ Caveat: K language often incomplete & ambig; drafters gone; shelf death Caveat: K language often incomplete & ambig; drafters gone; shelf death Clear & explicit delineation of Party rights, obligations & expectations Clear & explicit delineation of Party rights, obligations & expectations Requires ID, negotiation, appreciation others’ views, beliefs & objectives BEFORE deal Requires ID, negotiation, appreciation others’ views, beliefs & objectives BEFORE deal Generally produces much better : Generally produces much better : working relationship during sane & emergengy/surprise moments working relationship during sane & emergengy/surprise moments prospect of proj success ($, Sch, F&F, QA, SH, Risk; C serv, mkt share) prospect of proj success ($, Sch, F&F, QA, SH, Risk; C serv, mkt share) Must be a living document – able/willing to adapt to changes Must be a living document – able/willing to adapt to changes Best K team knows: risks alloc, finan. resp, strong sense of VALUE, law skill Best K team knows: risks alloc, finan. resp, strong sense of VALUE, law skill So, Best Team has: CXO, CFO, biz domain & tech eng/consult, lawyer So, Best Team has: CXO, CFO, biz domain & tech eng/consult, lawyer Matters of: Facts, Law, Evidence, Risk, Technology Matters of: Facts, Law, Evidence, Risk, Technology

9 © Warren S. Reid All Rights Reserved This model will change and be updated over time 9 From Bernacchi on Computer Law From: Bernacchi on Computer Law

10 © Warren S. Reid All Rights Reserved This model will change and be updated over time 10

11 © Warren S. Reid All Rights Reserved This model will change and be updated over time 11

12 © Warren S. Reid All Rights Reserved This model will change and be updated over time 12

13 © Warren S. Reid All Rights Reserved This model will change and be updated over time 13

14 © Warren S. Reid All Rights Reserved This model will change and be updated over time 14

15 © Warren S. Reid All Rights Reserved This model will change and be updated over time 15

16 © Warren S. Reid All Rights Reserved This model will change and be updated over time 16

17 © Warren S. Reid All Rights Reserved This model will change and be updated over time 17 THINKING OUTSIDE YOUR SYSTEMS ENGINEERING BOX: Contracting for Computer Services THINKING OUTSIDE YOUR SYSTEMS ENGINEERING BOX: Contracting for Computer Services ©2008 Warren S. Reid All Rights Reserved For CS-510 class Contract terms Sys/Pro Cover “It’s Your Bid” concerns [“invest as little as poss up front] “Auction Bid” Concerns: “We really need this deal; But startup…do absol min work nec to GL, recoup, profit” 1 * Sys. Desc * Funct Rqts * PrjTimetabl * Cust Servs * PM, SDLC * Personnel * Sys IntTest * Accept Test * Warranty period * Reqmts * Auction Heavy Equipment: $5  $150K+ * Who resp for Overall sys?; Thumbs web des/prog; all graphics; desg home/auct pgs; sellr/buy setup; prod desc/pics; site nav; put bids * upgrades; descr media; item maint/warranty hist; seller/buyer setup/history/score: i’faces; acceptable bugs; auditable; bill/collect * Auction input: start/end dates; min bid; bid sep? * Site fully oper’al w/i 6 mos inc 1 mon test – NOT 1 day mo(?) * AB extreme busy; auct site very popular; busy signing up new cust * Ability to request/approve staff/account manager changes * Ee 6 mo no hire/solicit: longer of aft TT leaves or K w AB ends * Accept Def/Crit; test/bug fix procs; IYB testers/test scenarios * Cust sw NEVER wks as design, so need time (prob 30 days) to test * Interface Maint: 1 off maint  who pays? * Help desk; MTBF; Time to fix; criticality; escalation * Auction logic reqts: run auctions, keep track bids (time? legit amt? mo? * Mod SW to work w IYB biz model (resp for i’face?; convert? Balance 2 sys; audit trail; error log; defect t/a metrics; etc.): 3% of what due fm sell: 3% of est + 3% of 50% of actual sale $ >est; Not fixed fee * Scope– In? Out; Uber-theme; $/sched of changes in/out? * TT’s sw/design is OK now; but any sig chgs to sw/des s/b paid for & c/cause >6 mos to GL; if TT left, need as good subst else >6 mos * Push 6mos  9 mos in case big $ deal comes; Try to get K extension to deadline if IYB causes us mo wk than anticipated * Bid collection/edit/validate; rept auction progress; Declare winner * Sellers month cum? Hist of aucns/sellers/buyers; comment section? * Acceptance criteria; ranking of errors; testing approach; coverage * Want no hire/solicit if TT leaves or IYB decides to grow IT dept * Core Product enhance (who pays?); in Maint?; must IYB upgrade? 2 * Performance Measures * “-ibilities” * 99% Uptime; if not met 3 days in mo, $1k/hr penalty; if prob for AB, then AB arrange hotsite BU if down/unavail on I’net any reason * Availability; scalability; portability * security; privacy; backup-R&R * Compliance w international regs; COCOM; * Usability; maintainability; * S*M*A*R*T metrics? How each defined? Measured? What period of time? * EXCLUSIVE REMEDY: 97% avail guarantee/month; work diligently to bring back to 97% on 30 days notice, $100/each day<97% * Penalties; 1 st time forgiveness?; contributory negligence? SWAT Team? * Internet downtime penalty is immediate cutover backup site * What will this all cost AB; can AB use for other custs; How AB to recover $? 3 * Warranties * Conversion & Other Support Services * Error capt/resol sys, p/proc, responsibils * Train; Doc * Quality & provisions of Tech Support/help desk/ACD, etc. * Rules on fixing non-conforming code * Auct rules: w/draw sale/bid? Goods not comply; cheats, bad S/buyers? * Whole system performance; end 2 end? * Qual & provision of tech support/help desk/ACD, T/A time to fix, etc. * Rules: priority; sched; in/out scope; W/As, escal fix un-conform code * Paying for Tom Thumbs changes and rewrites(?) * ID root cause of reptd anomalies (RTime?); follow up/resolution staff 4 * Title Rights * License * Indemnify * Ownership * Usage *Confident * Code; Design; Algorithms; Trade Secrets * Interfaces; Data; History; Sellers; Buyers * Buyout at end * Code; changes; TT designs and related code by AB * Interfaces; Data; History; Sellers; Buyers * “We own all rights to sw we dev for them.” Won’t jump ship! 5 * Project $ & Payment Sched * Renew Opts * Term/End * Liab Limits * Warranties * Contract (K) Breach, * Term * Terminat’n * Non-conform timelines/code; Specif remeds/damages; liquidated dam * 5 yrs w renew opt’n 5 more yrs w same terms xcept 3  4% fm sales * If we breach any reason, AB can only sue for damages UNLESS fall $10K behind in payment owed to AB; If pay in 30 days, K cont; if we fail, AB can mod SW to NOT take new auctions – but aucts in progress on day 30 continue. Once all pending conclude, AB can shut down site. * We pay for mods; hw; sw; staff; % oh, etc. IYB bills & collects; Get paid

18 © Warren S. Reid All Rights Reserved This model will change and be updated over time 18 CONTRACTING AGREEMENTS FOR SYSTEMS SERVICES: A Case Study ©2008 by Warren S. Reid & Michael D. Scott, Esq. All Rights Reserved For USC Graduate School for Systems Engineering (CS 510) Basic Fact Situation "ItsYourBid.com" ("IYB") well-funded Internet start-up IYB's biz model: create site for online aucts of new/used heavy indus equip Id’d "AuctionBid.com" ("AB") as ASP of auct sw/bid process services on I’net Gen, ASPs charge a fixed, per tranx fee to cust. Parties agreed to diff biz model: Here, not paid flat fee/tranx, but get 3% Total Amt IYB to receive/C/tranx AB gets 3% whether or not C ever pays IYB Also diff, how IYB paid by its Cs: Seller reqd to est auction sale price (sp) & pay IYB 10% of est up-front. If SP of successful bidder =< est, IYB gets no more. If SP >est, IYB w/get 50% of DIFF fm Seller. So Sellers w/not low-ball est.; 3%  AB Bc payment strategies not normal auction, AB to custom sw to IYB specifically AB gets no up-front pymts to dev sw, but believes > $ opps here – so will invest AB will also host auction site on its hw at no added cost You, part of Deal Team (lawyer, exec, SE, PMK) w/get mo client info fm memos.

19 © Warren S. Reid All Rights Reserved This model will change and be updated over time 19 What is an Applications Service Provider? (ASP) ASP Model ASP provides computer serv to custs over network Custom client sys can also I’face to sys. ASPs grown w  costs of special sw > $$ range of S/M-size cos. (’03-’08 $4bb  10bb) W. ASPs, sw complex/$$ less; upgrade/dist sw to end users <; maint current, 24x7 suppt Common ASP features: ASP fully owns & operates sw apps and servers ASP generally bills on "per-use" basis or monthly/annual fee The advantages to this approach include: SW integ issues elim fm client site SW app $$ spread > clients ASP expert w particular sw app knowhow > than in-house staff Key sw sys kept current, avail, managed for perform by experts > relia-bility, avail-, scal-, security of computer systems SLAs guarantee certain service of service Reduction of internal IT costs Some inherent disadvantages include: Client accepts app as is; ASPs only make cust solutions for largest Cs C may rely on ASP for crit biz funct – limits control of funct relying on ASP Changes in ASP mkt may result in type/level of service avail Integration w C's non-ASP sys c/be problem Eval ASP security, stabil, resources ELSE: Loss/compromise of control of data, image, security

20 © Warren S. Reid All Rights Reserved This model will change and be updated over time 20 _________________________________________________________________________ I w/be working closely w our outside counsel, so if there are any things you want me to pass on to them, let me know. Warren: I evaluated all proposals, think AuctionBid.com (“AB”) is right fit for our needs/unique biz model. As “virtual” company, we want to invest as little $ as poss up front to get started & AB looks like ideal solution. We want to avoid buy computer equip, rent space for comp center, hire lots of employee - generally doing what normal startup would do. AB c/both host site & provide us w sw for online aucts. They can run aucts & maintain hw & sw for us. It seems like an ideal fit. The basic structure of the relationship looks pretty straightforward. Our one web designer, Tom Thumbs, w/be designing & programming our website. He do all graphics, set up how home & auction pages look, design sw that allows sellers to sign up for service, & post info on heavy equip they plan to sell, incl descrips/pics. Tommy also designed & writing sw for buyer sign up, nav site & place bids. Only piece missing, & it’s critical, is sw to actually run aucts, keep track of bids, etc. That’s for AB. AB has a sw package that permits website like ours to run aucts. For normal auct site, like eBay, AB software just “plugs into” website’s sw & works like charm. However, because we run our auctions diff, it necess for AB mod its sw. C ontract (K) we negotiate needs to provide for AB to make agreed-upon mods at own expense, & provide us w modif sw package to plug into website sw Tommy designed & in process of writing. AB had access to T’s design. AB says mod sw works w/o TT modifying what already done. Even tho AB is expert in auct sw, from exp, know cust sw never works as designed; reqs tweaking. So must provide short per (30 days) aft AB done w mods so we c/test sw, make sure works properly. Bc we won’t have computers ourselves to do testing, AB will need to provide us w/access to their computers to do testing. Concern: AB extreme busy. Their auction sw very popular; dozens of cos sign up w AB to run aucts. I w/be working closely w our outside counsel, so if there are any things you want me to pass on to them, let me know. ItsYourBid.com MEMORANDUM [1] From: Ted Gearhead, Head of MIS To: Warren S. Reid, CEO Re: Deal with AuctionBid.com Date: March 13, 2008 MEMORANDUM [1] From: Ted Gearhead, Head of MIS To: Warren S. Reid, CEO Re: Deal with AuctionBid.com Date: March 13, 2008

21 © Warren S. Reid All Rights Reserved This model will change and be updated over time 21 ___________________________________________________________________________ Ted. Thanks for useful memo. I agree w everything you say but have contract concerns. 1. Getting the site operational. Auct website IS our business. If not up on sched, we out of business. AB invests in IYB BUT if AB get big C pays for sw dev/mod, we on back burner; not GoLive. Need sched to ensure, NMW, AB gets us fully up in 6 mos -- incl 1mo test; Not 1 day more! We clear? 2. Payments to AB Make sure contract clear we pay them 3% of what we are due fm seller for each auct – not fixed price. So: 3% of minimum that seller pays us up front. Minimum w/be 10% of seller ests equip will sell for. AB gets 3% of S owes us at END if actual SP > est. ; We get 50% of diff S est & act SP; AB get 3% of the 50% Bc it c/take time S pay, we want up to 90 days to pay AB fm auct end. If paid < 90, we pay AB 10d aft get check. If no paid in 90/or at all, still owe AB 3%, t/be paid on 90th day. These are big corps & govt) so no-pay risk small. 3. Tommy Thumb Tommy genius; W/o him we screwed. If he goes, b/sure AB can’t hire him w/i longer of 6 mos of gone or K end 4. Service Level Website avail =lifeblood; NEED 99% uptime SLA/any 24 hrs. If unmet any 3 days/mo, AB pays $1K/hr for unavail If prob for AB, AB arrange hot-swap auct back-up website if prime goes down/unavail on I’net for any reason. Only except monthly maint w/site unavail for up to 1 hr/mo for sched maint of comp sys. Sun 2am – 3am PST 5. Term & Termination K s/b 5 yrs long w option for us to renew addl 5 yrs w/exact same terms (will change % due AB auct 3%  4%) Website=our biz, AB can’t term K - NMW. AB only remedy -- sue for damage; xcept if owe >$10K, w/hv 30 days If don’t pay, AB phase out website by sw mod to preclude new aucts; aucts in progress on day 30 go to end MEMORANDUM [2] From: Ted Gearhead, Head of MIS To: Warren S. Reid, CEO Re: Deal with AuctionBid.com Date: March 13, 2008 ItsYourBid.com MEMORANDUM [2] From: Ted Gearhead, Head of MIS To: Warren S. Reid, CEO Re: Deal with AuctionBid.com Date: March 13, 2008

22 © Warren S. Reid All Rights Reserved This model will change and be updated over time 22 AuctionBid.com MEMORANDUM [3] AuctionBid.com MEMORANDUM [3] To: Michael King, CEO From: Connie Coder, VP, Business Development Re: Contract with ItsYourBid.com Date: March 13, 2008 __________________________________________________________________ Michael: After long time, ItsYourBid.com (IYB) responds + to our Prop to provide web hosting & auction sw services. A start-up, but seem well-fund’d. Auct site their whole biz; worry if w/cn provide needed service. Assuaged concern IYB diff biz model; s/wk well for large $$ S vs our clients who charge S a flat fee (or % of SP), and pay us fixed, per auction fee. They need signif mods to our core sw. #s look good: 3% of est min (IYB gets 10%); plus 3% of SP over est (IYB get 50%) is signif more money than usual fixed $5.00 fee/auction charge. If S est is $10K but sells for $14K, IYB gets 10% of $10K = $1K PLUS 50% of $4k = $2k for $3k total. We get 3% of $3k = $90. Some equip may sell for tens of thousands of dollars, so our cut will be several thousand dollars We give IYB 90 days to pay bc they bill S (too large $$ for credit cards). We get paid whether IYB gets paid or not! We do mods at our expense. S/not be large $$ amt. We I’face w sw being devel by IYB for basic website nav IYB web designer, Tom Thumb’s designs look relativ straightforward. Concern if sw TT develop’g changes signif fm what saw, cause us redesign/rewrite sw mods. K s/limit IYB’s abil to change once K signed/pay us for changes Agreed to get site up in 6 mos of K sign. No problem as long as Tommy still there ( or “as good” replacement. Also depends on their not changing sw design after K sign. If they do so, may take longer to get website up. If Tommy leaves/IYB expands prog dept, IYB may try to steal some AB progs. Incl a non-solicitation clause in K. now you meet w our attys this Saturday. Let me know of any other issues that they think are important. I know you meet w our attys this Saturday. Let me know of any other issues that they think are important.

23 © Warren S. Reid All Rights Reserved This model will change and be updated over time 23 AuctionBid.com MEMORANDUM [4] AuctionBid.com MEMORANDUM [4] To: Connie Coder, VP, Business Development From: Michael King, CEO Re: Contract with ItsYourBid.com Date: March 13, 2008 _______________________________________________________ Connie: Thanks for the memo. I am quite excited about this relationship. Competit >ever; all start auct site. Impacted Rev. New Ks ever; all start auct site. Impacted Rev. New Ks < rev. Bad econ. We REALLY need this deal. I like IYB’s biz mod; we hv chance to make lot more $ w less tranx; IYB startup – concern re long haul fin stab. Must terminate if IYB gets in serious financ probs. IYB Pres says they flush, but worry nonetheless. I like IYB’s biz mod; we hv chance to make lot more $ w less tranx; IYB startup – concern re long haul fin stab. Must terminate if IYB gets in serious financ probs. IYB Pres says they flush, but worry nonetheless. Cost lot $ mod sw for IYB; MUST recoup $ + make profit. Thus, we do absol min work nec get site up/run Cost lot $ mod sw for IYB; MUST recoup $ + make profit. Thus, we do absol min work nec get site up/run If potent’l deal w $ upfront, we delay IYB wk; Push 6 mo  9 w lang for mo if IYB changes incr work >plan If potent’l deal w $ upfront, we delay IYB wk; Push 6 mo  9 w lang for mo if IYB changes incr work >plan They want 100% guarantee uptime; unrealistic; sell large equip – some downtime no big deal. Get 97% w less penalties and w limited remedies (we try diligently to fix…) They want 100% guarantee uptime; unrealistic; sell large equip – some downtime no big deal. Get 97% w less penalties and w limited remedies (we try diligently to fix…) Bc we incurr host $, but IYB pay us % of act revenues fm S, we depend on their sales effort. If can’t attract S, make no money. So incl min paymts clause: $5K/mo or we can terminate K. Give them impetus to mkt website Bc we incurr host $, but IYB pay us % of act revenues fm S, we depend on their sales effort. If can’t attract S, make no money. So incl min paymts clause: $5K/mo or we can terminate K. Give them impetus to mkt website We own ALL rights to sw we develop. At K end, we keep sw… so they don’t move to another auction hosting service. K s/be min 5 yrs to insure we recoup sw invest, w option 5 more years either party can exercise. If renewed, want % incr fm 3  6% We own ALL rights to sw we develop. At K end, we keep sw… so they don’t move to another auction hosting service. K s/be min 5 yrs to insure we recoup sw invest, w option 5 more years either party can exercise. If renewed, want % incr fm 3  6% If IYB files Bankruptcy or doesn’t pay by payment due date, want K termination rights on 30 days notice. Complete pending auct, NO new ones last 30day per. If IYB files Bankruptcy or doesn’t pay by payment due date, want K termination rights on 30 days notice. Complete pending auct, NO new ones last 30day per. now you meet w our attys this Saturday. Let me know of any other issues that they think are important. I know you meet w our attys this Saturday. Let me know of any other issues that they think are important.

24 © Warren S. Reid All Rights Reserved This model will change and be updated over time 24 d(y) h : f(y) p + (l) + (c) = P 2 R (c) = P 2 R AFTER YEARS OF EXPERIENCE: THE GOLDEN ANSWER!

25 © Warren S. Reid All Rights Reserved This model will change and be updated over time 25 AFTER YEARS OF EXPERIENCE: THE GOLDEN ANSWER! d(y)h : f(y) p + (l) + (c) = P2R

26 © Warren S. Reid All Rights Reserved This model will change and be updated over time 26 QUESTIONS/COMMENTS Warren S. Reid, Managing Director PH: 818/ Fax: 818/ Website: Blog: blog.wsrcg.com WSR CONSULTING GROUP, LLC


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