In a letter sent to all presidents and chairpersons of the nation's state CPA societies and institutes, Nancy Newman-Limata, the president of the New York State Society of CPAs, explains the reasons behind the New York society's intention not to sign an agreement to participate in the AICPA's new for-profit Internet portal, CPA2Biz.
The agreement is an extension of a previous Phase I agreement offered by CPA2Biz. The original agreement expired May 31. The continuation agreement requires participating societies to, among other things, turn over membership databases to CPA2Biz and to allow CPA2Biz to use such membership information for e-commerce purposes. The concern of the New York society is that CPA2Biz's rush to market may leave state societies unprotected.
In particular, Ms. Newman-Limata raised the following concerns:
- The Phase II agreement offered by the AICPA contains a ten-year term which automatically renews for another 10-year term, and which requires a large cash penalty for any organization wishing to extricate itself from the arrangement.
- There are exclusivity provisions in the agreement that cause concern with regard to compliance with antitrust laws.
- Although CPA2Biz is requesting that state societies sign the Phase I continuance agreement now, there are some matters associated with the agreement that are still under negotiation.
- The inherent risk of the dot com sector is not addressed in the agreement. For example, there is no information about what might happen if CPA2Biz is unsuccessful or if the portal is bought out by one of its venture investors.
- Many oral assurances have been made, but the New York society would like to see some written assurances signed by all interested parties, including venture investors.
In related news, the Illinois CPA Society has also expressed concerns about the new AICPA Web site and the agreement state societies are expected to sign.
Text of the letter from NYSSCPA to state societies:
June 12, 2001
RE: NYSSCPA Board Decision Not to Enter into Phase I Continuance
Dear State Society President:
On June 10, the NYSSCPA board voted 15 to 10 NOT to sign the Phase 1 continuance agreement. (Three members abstained.) A second motion to extend Phase I based on the terms of the original Phase I agreement was then passed unanimously. I am writing to you and all of our colleagues currently serving as president or chairperson of their state CPA society or institute to explain our actions.
Our decision was not entered into lightly. We benefited from a two-hour presentation by Clarke Price, President and CEO of SSNI and the Ohio Society of CPAs, Brent Johnson, COO of SSLLC, and Larry Beaser of the Philadelphia law firm of Blank Rome Comisky & McCauley LLP, who represents SSNI and SSLLC. Our outside counsel for this matter, Jonathan Howe of the Chicago law firm of Howe and Hutton, followed with a detailed analysis of the SSNI/SSLLC/CPA2Biz transaction. Howe's analysis is summarized in an opinion letter, which I am attaching for your reference. This letter is for your information only. I am also enclosing a memorandum prepared by our in-house legal counsel, which Howe's letter quotes at length. The discussion of our board and guests brought one or two additional concerns to the surface.
The gist of Howe's analysis is that CPA2Biz's rush to market with its attendant state society agreements would leave a state society unprotected in several respects.
I think it is safe to say our board would want to participate in the project if Howe's concerns were addressed in the agreements being presented to all of us to sign. A summary of the most important of those concerns as they now exist includes the following:
- When last explained to us, Phase II was contemplated to have a ten-year term, which would automatically renew for ten more ten-year terms. If a state society were to extricate itself from Phase II at the end of one of the terms, it would not be without significant cost. It appears to us that this isn't really a ten-year agreement, but instead a 110-year agreement. Entering into such an agreement, must necessarily affect the future of the organization. Our board feels the decision to continue down the path toward Phase II really is a decision that will determine our organization's future, a decision it must deliberate very carefully.
- A transaction such as this including exclusivity provisions raises serious questions about compliance with antitrust laws. There have been oral assurances that these issues have been addressed in the transaction design. For the NYSSCPA to enter into such a transaction, the agreements would need to include indemnities from the principals (SSLLC, AICPA and CPA2Biz, and CPA2Biz venture investors) to hold the state society harmless from penalties that could arise in this area.
- We have been asked on two occasions now â with the original Phase I agreement and with the Phase I continuance agreement â to sign agreements with a significant portion of the final transaction still under negotiation. This is just expecting too much when the transaction could radically alter the future course of a state society. A society's board needs to know the whole transaction before making such a decision. We have significant revenues from affinity programs, including an arrangement with eMind that would be violated by our entering into the Phase I Continuance Agreement. Our board feels they must have a clear understanding from SSNI and SSLLC as to how these arrangements would be handled. As stated earlier, we are more than willing to extend the existing Phase I agreement, but have been told by Clarke and Brent that this is not possible.
- With a transaction as fraught with risk as a dot com business, an item of absolutely critical importance is an exit strategy. We realize that this is not news to Clarke, Brent, and Larry, who have been negotiating to tie up as many loose ends as they can. But before a board bets its society's reputation and future, those terms need to be worked out and thoroughly studied by the state society board. Questions come to mind such as what happens if CPA2Biz doesn't succeed on its own? What would happen if it goes bankrupt? What would happen if it becomes insolvent and is bought out by one of the venture investors (currently, Thomson, Microsoft, and Aon)?
- If our society were to agree to expand its participation in Phase I or enter into Phase II, we would be doing so because of our faith and trust in the AICPA, CPA2Biz, SSLLC and SSNI. In a transaction like this â where one party (a state society) is relying on the oral assurances of persons the second party (SSNI) is doing business with â it is prudent to ask those persons (SSLLC, AICPA, CPA2Biz, and CPA2Biz venture investors) to express those assurances in writing and sign them.
There are other questions raised by Jon Howe's memorandum and I hope you find it helpful.
Our board hopes after you read this letter that you will understand our rationale. We have only reluctantly decided not to stand with our colleagues in the other state societies. Our decision was not made in a heavy-handed spirit, but instead in the hope that in the end, we will be able to stand together with our colleagues.