<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998, OR
[ ] 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 1-14342
NOVA CORPORATION
----------------
(Exact name of registrant as specified in its charter)
Georgia 58-2209575
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE CONCOURSE PARKWAY, SUITE 300, ATLANTA, GEORGIA 30328
--------------------------------------------------------
(Address of principal executive offices)
(770) 396-1456
--------------
(Registrant's telephone number, including area code)
___________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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
requirements for the past 90 days.
Yes X No
---- ---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 34,287,175 shares of common
stock outstanding as of August 14, 1998.
1
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NOVA CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets-
June 30, 1998 (unaudited) and December 31, 1997...................................... 3
Condensed Consolidated Statements of Income (unaudited)
Three and six months ended June 30, 1998 and 1997.................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited)-
Six months ended June 30, 1998 and 1997............................................ 5
Notes to Condensed Consolidated Financial Statements............................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders.................................... 11
ITEM 5. Other Information...................................................................... 11
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 12
Signatures...................................................................................... 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOVA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 739 $ 91,985
Trade receivables, less allowance for doubtful accounts
of $2,822 and $4,048 at December 31, 1997 and March 31, 1998,
respectively................................................... 35,377 39,337
Inventory......................................................... 1,156 3,187
Deferred tax asset and other current assets....................... 5,373 5,836
-------- --------
Total current assets........................................... 42,645 140,345
Merchant and customer contracts................................... 92,197 142,807
Property and equipment, net....................................... 21,017 41,181
Excess cost of businesses acquired................................ 12,805 12,560
Deferred tax asset and other non-current assets................... 1,864 2,980
-------- --------
Total assets................................................... $170,528 $339,873
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................ $ 8,015 $ 13,973
Accounts payable to affiliate........................................... 3,410 1,768
Accrued compensation and related costs.................................. 726 691
Settlement obligations.................................................. 10,896 9,585
Other accrued liabilities............................................... 7,010 12,823
Long-term debt obligations due within one year.......................... 350 18,239
-------- --------
Total current liabilities............................................ 30,407 57,079
Deferred tax liability.................................................. 3,112 5,085
Long-term debt obligations.............................................. 33,296 17,266
Minority interest in subsidiary......................................... 776 4,255
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50,000,000 shares authorized, 29,031,000
and 34,261,000 shares issued at December 31, 1997 and June 30,
1998, respectively................................................... 290 343
Additional paid in capital.............................................. 99,967 244,198
Retained earnings....................................................... 2,680 11,647
Total stockholders' equity.............................................. 102,937 256,188
-------- --------
Total liabilities and stockholders' equity...................... $170,528 $339,873
======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOVA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1998 1997 1998
------- -------- -------- ---------
<S> <C> <C> <C> <C>
REVENUE.................................... $78,044 $165,555 $144,569 $298,873
OPERATING COST
Cost of service.......................... 59,595 130,594 111,666 235,924
Conversion cost.......................... 499 2,025 990 6,612
Selling, general and administrative...... 8,590 13,686 15,948 24,862
Depreciation and amortization............ 2,375 6,103 4,251 11,637
------- -------- -------- --------
TOTAL OPERATING COST....................... 71,059 152,408 132,855 279,035
OPERATING INCOME........................... 6,985 13,147 11,714 19,838
Interest expense (income), net........... (299) (27) (641) 1,138
Minority interest in income of subsidiary - 3,529 - 4,466
------- -------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES............................. 7,284 9,645 12,355 14,234
Provision for income taxes............... 2,868 3,569 4,794 5,267
------- -------- -------- --------
NET INCOME................................. $ 4,416 $ 6,076 $ 7,561 $ 8,967
======= ======== ======== ========
Net income per share $ 0.15 $ 0.18 $ 0.26 $ 0.29
======= ======== ======== ========
Net income per share assuming dilution $ 0.15 $ 0.18 $ 0.25 $ 0.28
======= ======== ======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOVA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1997 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 7,561 $ 8,967
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 4,251 11,637
Deferred income tax....................................... - 1,245
Minority interest......................................... - 1,685
Changes in assets and liabilities, net of the effects of
business acquisitions:
Trade receivables....................................... (9,131) (3,960)
Inventory............................................... (40) (1,694)
Other assets............................................ (1,176) (1,046)
Accounts payable........................................ 2,274 4,317
Accrued liabilities..................................... 4,088 4,466
------- -------
Net cash provided by operating activities................. 7,827 25,617
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of merchant and customer contracts.................. (22,288) (26,415)
Additions to property and equipment........................... (5,807) (20,313)
------- -------
Net cash used in investing activities...................... (28,095) (46,728)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes payable................ - 21,146
Payment of long-term debt and capital leases.................. (27) (53,073)
Proceeds from stock issued and stock options exercised........ 257 144,284
-------- --------
Net cash provided by financing activities.................. 230 112,357
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................... (20,038) 91,246
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................. 40,326 739
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................ $ 20,288 $ 91,985
======== ========
Supplemental Cash Flow Information
Supplemental cash flow disclosures, including non-cash
investing and financing activities, are:
FOR THE SIX MONTHS
ENDED JUNE 30,
1997 1998
------- -------
Interest paid.................................................. $ 115 $1,087
Income taxes paid.............................................. $1,924 $3,356
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
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NOVA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited 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
only of normal recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in conjunction
with the Company's audited financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 filed with the
Securities and Exchange Commission (Commission File No. 1-14342). The results
for the six months ended or the quarter ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
NOTE 2 NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaces the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the SFAS 128
requirements
The following table sets forth the computation of basic and diluted net income
per share in accordance with SFAS 128 (In thousands, except per share data):
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
------------------------------ ----------------------------
1997 1998 1997 1998
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted net
income per share-income available to
common shareholders................... 4,416 6,076 7,561 8,967
Denominator:
Denominator for basic net income per
share-weighted-average shares......... 28,845 33,063 28,798 31,060
Effect of diluted securities:
Employee stock options................ 1,176 1,227 1,143 1,209
Dilutive potential common shares:
Denominator for diluted net
income per share-adjusted
weighted-average shares
and assumed conversions................ 30,021 34,290 29,941 32,269
Basic net income per share................ $0.15 $0.18 $0.26 $0.29
=========================== ============================
Diluted net income per share............. $0.15 $0.18 $0.25 $0.28
=========================== ============================
</TABLE>
NOTE 3 - CONTINGENCIES
The Company is from time to time subject to claims and suits arising in the
ordinary course of its business. In the opinion of management, the ultimate
resolution of any such currently pending matters will not have a material
adverse affect on the Company's financial position and results of operations.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage of
revenues represented by certain line items in the Company's condensed
consolidated statements of income:
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
---------------------- Increase/ --------------------- Increase/
1997 1998 (Decrease) 1997 1998 (Decrease)
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue...................... 100.0% 100.0% 112.1% 100.0% 100.0% 106.7%
Cost of service.............. 76.4 78.9 119.1 77.2 78.9 111.3
Conversion cost.............. 0.6 1.2 305.8 0.7 2.2 567.9
Selling, general and
administrative expenses.... 11.0 8.3 59.3 11.0 8.3 55.9
Depreciation and
amortization................ 3.0 3.7 157.0 2.9 3.9 173.7
------------------------------------ -----------------------------------
Operating cost............... 91.0 92.1 114.5 91.9 93.4 110.0
Operating income............. 9.0 7.9 88.2 8.1 6.6 69.3
Interest expense (income),
net......................... (0.4) 0.0 (91.0) (0.4) 0.4 (277.5)
Minority interest............ 0.0 2.1 100.0 0.0 1.5 100.0
------------------------------------ -----------------------------------
Income before provision for
income taxes............... 9.3 5.8 32.4 8.5 4.8 15.2
Provision for income
taxes...................... 3.7 2.2 24.4 3.3 1.8 9.9
Net Income.................. 5.7% 3.7% 37.6% 5.2% 3.0% 18.6%
==================================== ===================================
</TABLE>
This Form 10-Q, or documents incorporated by reference, contains "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs. When used in
this Form 10-Q, the words "may," "could," "should," "believe," "anticipate,"
"expect," "intend" and similar expressions are intended to identify forward-
looking statements. These statements by their nature involve substantial risks
and uncertainties, certain of which are beyond the Company's control.
Prospective investors are cautioned that any forward-looking statements are not
guarantees for future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such forward-
looking statements. External influences known by management which could cause
actual performance to differ materially from forward-looking statements include,
but are not limited to, changes in general economic condition and industry
trends, interest rates, the legal and regulatory environment, and competition in
the Company's industry and markets. Additional risks and uncertainties which
could affect future performance include, but are not limited to, those found in
the Company's Form 10-K, Item 1, Part 1, for the year ended December 31, 1997.
The Company undertakes no obligation to revise or update any forward-looking
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of an unanticipated event. New
factors emerge from time to time, and it is not possible for the Company to
predict all of such factors. Further, the Company cannot assess the impact of
each such factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
GENERAL
NOVA Corporation (the "Company" or "NOVA") is an integrated provider of
transaction processing services, related software application products and
value-added services primarily to small- to medium-sized merchants. The Company
provides transaction processing support for all major credit and charge cards
and also provides access to debit card processing and check verification
services.
7
<PAGE>
REVENUES
The Company's revenues increased 112.1% to $165.6 million for the quarter ended
June 30, 1998, compared to $78.0 million for the quarter ended June 30, 1997.
For the first six months of 1998, the Company reported revenues of $298.9
million, 106.7% higher than revenues of $144.6 million for the same period in
1997. For the three month period and the six month period ended June 30, 1998,
respectively, the increases resulted primarily from 102.2% and 99.6% increases
in merchant sales volume processed to $6.9 billion and $12.9 billion,
respectively, compared to $3.4 billion and $6.4 billion, respectively, in the
same periods of 1997. During the quarter ended June 30, 1998, increased
revenues of $64.2 million and increased merchant sales volume processed of $2.7
billion are attributable to the portfolios purchased from Crestar Bank in May
1997 and from MBNA America Bank, N.A. in December 1997 and to the Company's
joint ventures with Firstar Bank U.S.A., N.A. and KeyBank. For the six months
ended June 30, 1998, increased revenues of $115.1 million and increased merchant
sales volume processed of $4.9 billion are attributable to these same
transactions.
COST OF SERVICE
Cost of service increased 119.1% to $130.6 million for the quarter ended June
30, 1998, compared to $59.6 million for the quarter ended June 30, 1997. For
the six months ended June 30, 1998, cost of service increased 111.3% to $235.9
million from $111.7 million during the same period in 1997. The increase in
cost of service is due primarily to the increase in merchant sales volume
processed. The percentage increase is higher than the percentage increase in
merchant sales volume processed primarily because a substantial portion of the
volume from recent portfolio purchases and joint venture transactions has not
been converted to the Company's operating platform and is therefore being
processed by higher cost third party vendors. An additional significant factor
is an increase in the VISA and MasterCard interchange rate that went into effect
on March 27, 1998. Since this rate increase was in effect during the entire
second quarter, as compared to only four days in the first quarter, the effect
on the comparison to the prior year is more pronounced for the three month
period than the six month period.
CONVERSION COSTS
Conversion costs increased 305.8% to $2.0 million for the quarter ended June 30,
1998, compared to $499,000 for the quarter ended June 30, 1997. For the six
month period ended June 30, 1998, conversion costs increased 567.9% to $6.6
million from $990,000 during the same period in 1997. Of these increases, $2.0
million ($1.3 million, net of tax) relates to a non-recurring charge for early
termination of a merchant processing contract with a third-party processor.
This charge was incurred during the first quarter of 1998. The remaining
increases relate to the significance of conversion efforts currently underway as
compared to 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 59.3% to $13.7 million
for the quarter ended June 30, 1998, compared to $8.6 million for the quarter
ended June 30, 1997. During the six months ended June 30, 1998, such costs
increased 55.9% to $24.9 million, compared to $15.9 million in the same period
of 1997. These increases are attributable to the costs paid to sellers for
operating and managing merchant portfolios during transition and an expanded
sales force associated with marketing arrangements entered into in conjunction
with recent portfolio purchases and joint venture transactions. In addition,
during the three months ended June 30, 1998, the Company experienced additional
personnel and facilities costs in anticipation of assuming all operational and
managerial functions for the KeyBank and MBNA portfolios effective July 1, 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 157.0% to $6.1 million for the quarter
ended June 30, 1998, compared to $2.4 million for the quarter ended June 30,
1997 due to amortization expense associated with the recent portfolio purchases
and joint ventures. These same factors account for the 173.7% increase, from
$4.3 million to $11.6 million, for the six month period ended June 30, 1998
compared to the same period in 1997.
OPERATING INCOME
For the foregoing reasons, operating income for the quarter and six months ended
June 30, 1998 increased 88.2% and 69.4%, respectively, to $13.1 million and
$19.8 million, respectively, compared to $7.0 million and $11.7 million in the
same periods of 1997.
8
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INTEREST EXPENSE (INCOME) - NET
Net interest income decreased 91.0% to $27,000 for the quarter ended June 30,
1998 compared to net interest income of $299,000 for the same period in 1997.
While the Company had higher average cash and investments during the second
quarter of 1998, outstanding debt balances were also higher, offsetting higher
interest earnings. Although the Company repaid outstanding borrowings under its
credit facility using proceeds from the public offering in April 1998, interest
charges continue to accrue on deferred portions of purchase obligations
outstanding.
Net interest income decreased $1.8 million for the six months ended June 30,
1998, resulting in net interest expense of $1.1 million compared to net interest
income of $641,000 for the same period in 1997. The increase in interest
expense resulted from bank borrowings outstanding until the public offering in
April 1998, as well as deferred purchase obligations. Bank borrowings were used
primarily to purchase merchant portfolios and fund investments in joint venture
transactions.
INCOME TAXES
Income tax expense was recorded at an effective tax rate of 37.0% for the
quarter and six months ended June 30, 1998. Income tax expense increased to
$3.6 million for the quarter ended June 30, 1998 and $5.3 million for the six
months ended June 30, 1998, compared to $2.9 million and $4.8 million,
respectively, for the same periods in 1997. This increase resulted primarily
from increased pre-tax income.
NET INCOME
Due to the factors discussed above, net income increased 37.6% to $6.1 million
for the quarter ended June 30, 1998, compared to $4.4 million for the quarter
ended June 30, 1997. For the six months ended June 30, 1998, net income
increased 18.6% to $9.0 million, from $7.6 million in the same period in 1997.
Net income for the six month period ended June 30, 1998 reflected a $2.0 million
($1.3 million, net of tax) non-recurring charge for early termination of a
merchant processing contract with a third-party processor. Prior to this
charge, net income increased 35.2% to $10.2 million, due to the factors
discussed above.
9
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of its capital resources include purchases of
merchant portfolios, investments in joint ventures, capital expenditures and
working capital.
Net cash provided by operating activities was $25.6 million for the six months
ended June 30, 1998, as compared to $7.8 million for the six months ended June
30, 1997.
Net cash used in investing activities was $46.7 million for the six months ended
June 30, 1998, as compared to $28.1 million for the six months ended June 30,
1997. Cash used in purchases of merchant portfolios and investments in joint
ventures totaled $26.4 million for the six month period in 1998, as compared to
$22.3 million during the same period in 1997. Capital equipment purchases
increased approximately $14.5 million to $20.3 million during the six months
ended June 30, 1998 as compared to 1997 levels. Major expenditures during the
first six months of 1998 include computer and software investments to increase
capacity and enhance services, including the development of internal merchant
processing systems provided by the NOVA Network and the purchase, remodeling and
equipping of approximately 80,000 square feet for expanded operating facilities
necessary to accommodate the Company's growth. The Company anticipates that it
will incur approximately $13.0 million in additional capital expenditures during
the remainder of fiscal 1998 for additional operations facilities and for the
expansion of the Company's information systems.
The above investments were funded primarily from the net cash flow from
financing activities, which totaled $112.4 million during the six months ended
June 30, 1998, as compared to $230,000 for the same period in 1997. Cash flows
from financing activities included $144.3 million in net proceeds received from
the Company's public offering in April 1998 and, prior to the offering, $21.1
million in borrowings under credit facilities with banks. Subsequent to the
public offering, the Company used $53.1 million to repay all amounts outstanding
under its bank credit facilities.
The Company typically has relatively low working capital requirements because
discount fees charged to merchants are collected in an average of 15 days, while
normal payables are paid in 30 days. In addition, increasing acquisition
activity may cause variations in working capital due to conversion-period
operating costs and the transition in the payment of expenses and the collection
of receivables from the former processor to the Company. Because of the
seasonality of the Company's business, capital requirements may be greater in
certain months.
At June 30, 1998, the Company had cash and cash equivalents of $92.0 million.
The Company expects that existing cash and cash equivalents, as well as cash
generated from operations, are sufficient to satisfy existing purchase
obligations relating to completed acquisitions, to purchase merchant portfolios
and to enter joint ventures and alliances in the ordinary course of business, to
fund capital expenditures and to meet working capital requirements.
The Company must address Year 2000 compliance for POS merchant activity,
internal operating systems and suppliers and vendors. In June 1997, the Company
was certified by VISA U.S.A. and MasterCard International as capable of
processing transactions for cards issued with expiration dates of 2000 and
beyond. Management believes that all of the Company's customers have been
upgraded with compliant transaction processing software and that the NOVA
Network and switch can accommodate the Year 2000.
The Company has developed a plan in an effort to ensure all internal systems are
compliant with the Year 2000. These efforts are underway and are scheduled to be
completed by year end 1998. The Company's significant outside vendors and
suppliers also are scheduled to be Year 2000 compliant by year end 1998.
However, while management believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be properly
converted on a timely basis and will not have a material effect on the Company.
It is assumed that should any vendor not be compliant by January 1, 1999, the
Company will have sufficient time to engage an alternate vendor which is
compliant. The cost of Year 2000 initiatives has not been and is not expected to
be material to the Company's results of operations or financial position.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company has been involved from time to time in litigation in the normal
course of its business. While management is aware of and dealing with certain
pending or threatened litigation, management does not believe that such matters,
individually or in the aggregate, will have a material adverse affect on the
financial condition of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 20, 1998 for the
purpose of (i) electing directors of the Company (Proposal 1), (ii) considering
and voting upon a proposal to authorize and approve an amendment to the NOVA
Corporation 1996 Employees Stock Incentive Plan, as amended (Proposal 2), and
(iii) ratifying the appointment of Ernst & Young LLP as independent accountants
of the Company for the fiscal year ending December 31, 1998 (Proposal 3). At
the meeting, the following persons were elected directors based upon the voting
results set forth opposite their respective names:
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------- --------------
<S> <C> <C>
James M. Bahin 24,354,781 9,181
Charles T. Cannada 24,354,781 9,181
Dr. James E. Carnes 24,358,181 5,781
U. Bertram Ellis 24,358,181 5,781
Edward Grzedzinski 24,354,781 9,181
Dr. Henry Kressel 24,354,781 9,181
Joseph P. Landy 24,354,781 9,181
Maurice F. Terbrueggen, Jr. 24,354,781 9,181
Stephen E. Wall 24,358,181 5,781
</TABLE>
The shareholders of the Company authorized and approved the amendment to the
NOVA Corporation 1996 Employees Stock Incentive Plan, as amended (Proposal 2),
with 24,042,257 votes FOR Proposal 2, 320,180 votes AGAINST Proposal 2, and
1,525 shares ABSTAINING.
The shareholders of the Company ratified the appointment of Ernst & Young LLP
as independent accountants of the Company for the fiscal year ending December
31, 1998 (Proposal 3) with 24,356,426 shares voted FOR Proposal 3, 6,386 shares
voted AGAINST Proposal 3 and 1,150 shares ABSTAINING.
ITEM 5 - OTHER INFORMATION
SHAREHOLDER PROPOSALS
- ---------------------
The Securities and Exchange Commission has made recent changes to the proxy
rules in Regulation 14A under the Securities Exchange Act of 1934, as amended,
including Rule 14a-4 and Rule 14a-5. Shareholders are entitled to submit
proposals on matters appropriate for shareholder action consistent with the
rules and regulations of the Securities and Exchange Commission and with the
Company's Bylaws.
In connection with a shareholder's proposal to be presented at the 1999 Annual
Meeting of Shareholders where such shareholder has not sought inclusion of the
proposal in the Company's proxy statement and form of proxy, a proxy granted to
the Company's management will give management discretionary authority to vote on
any such shareholder proposal at the 1999 Annual Meeting of Shareholders if:
(i) the Company's Corporate Secretary, One Concourse Parkway, Suite
300, Atlanta, Georgia 30318, receives such proposal after March 5, 1999; or
(ii) if the Company's Corporate Secretary receives such proposal on or
before March 5, 1999 and management describes the proposal and how it
intends to exercise its discretionary voting authority with
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respect to such proposal in its proxy statement relating to the 1999 Annual
Meeting of Shareholders; provided that, even if the Company includes such
information in its proxy statement, the Company's management may not
exercise its discretionary voting authority if, among other things, the
shareholder submitting the proposal provides the Company's Corporate
Secretary with a written statement on or before March 5, 1999 that such
shareholder intends to deliver a proxy statement and form of proxy to the
number of shareholders required to carry the proposal.
MERGER AGREEMENT
- ----------------
On June 17, 1998, the Company entered into an Agreement and Plan of Merger
with PMT Services, Inc. ("PMT") for a tax-free pooling of interests transaction.
Under the terms of the agreement, PMT will become a wholly owned subsidiary of
the Company, and each issued and outstanding share of common stock of PMT will
be converted into and exchanged for 0.715 shares of common stock of the Company.
ITEM 6 - EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of June 17, 1998, among the
Registrant, Church Merger Corp. and PMT Services, Inc.
4.1 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Richardson M. Roberts
4.2 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Gregory S. Daily
4.3 Registration Rights Agreement, dated as of June 17, 1998, by and
among the Registrant, Richardson M. Roberts and Gregory S. Daily
9.1 Shareholder Agreement, incorporated by reference to Exhibit 4.1
9.2 Shareholder Agreement, incorporated by reference to Exhibit 4.2
10.1 Second Amendment to 1996 Employees Stock Incentive Plan (filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Registration No. 333-3287)
10.2 Shareholder Agreement, incorporated by reference to Exhibit 4.1
10.3 Shareholder Agreement, incorporated by reference to Exhibit 4.2
10.4 Registration Rights Agreement, incorporated by reference to
Exhibit 4.3
10.5 Stock Option Agreement dated as of June 17, 1998, between the
Registrant (as issuer) and PMT Services, Inc.
10.6 Stock Option Agreement dated as of June 17, 1998, between PMT
Services, Inc. (as issuer) and the Registrant
10.7 Employment Agreement, dated as of June 17, 1998, by and between
Richardson M. Roberts and the Registrant
10.8 Employment Agreement, dated as of June 17, 1998, by and between
Gregory S. Daily and the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Current Report(s) on Form 8-K during the quarter
ended June 30, 1998.
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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.
NOVA Corporation
(Registrant)
By: /s/ Edward Grzedzinski
-----------------------
Edward Grzedzinski
Date: August 14, 1998 Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ James M. Bahin
------------------
Date: August 14, 1998 James M. Bahin
Vice Chairman, Chief Financial Officer
and Secretary
(Principal Accounting Officer)
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Merger dated as of June 17, 1998, among the
Registrant, Church Merger Corp. and PMT Services, Inc.............
4.1 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Richardson M. Roberts.........................................
4.2 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Gregory S. Daily..............................................
4.3 Registration Rights Agreement, dated as of June 17, 1998, by and
among the Registrant, Richardson M. Roberts and Gregory S. Daily..
9.1 Shareholder Agreement, incorporated by reference to Exhibit 4.1...
9.2 Shareholder Agreement, incorporated by reference to Exhibit 4.2...
10.1 Second Amendment to 1996 Employees Stock Incentive Plan (filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Registration No. 333-3287)........................................
10.2 Shareholder Agreement, incorporated by reference to Exhibit 4.1...
10.3 Shareholder Agreement, incorporated by reference to Exhibit 4.2...
10.4 Registration Rights Agreement, incorporated by reference to
Exhibit 4.3.......................................................
10.5 Stock Option Agreement dated as of June 17, 1998, between the
Registrant (as issuer) and PMT Services, Inc......................
10.6 Stock Option Agreement dated as of June 17, 1998, between PMT
Services, Inc. (as issuer) and the Registrant.....................
10.7 Employment Agreement, dated as of June 17, 1998, by and between
Richardson M. Roberts and the Registrant..........................
10.8 Employment Agreement, dated as of June 17, 1998, by and between
Gregory S. Daily and the Registrant...............................
27 Financial Data Schedule...........................................
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, is made, entered into and effective as of
the 17th day of June, 1998 (this "Agreement"), among NOVA CORPORATION, a
Georgia corporation ("Parent"), CHURCH MERGER CORP., a Tennessee corporation
and a wholly-owned subsidiary of Parent ("Sub"), and PMT SERVICES, INC., a
Tennessee corporation (the "Company") (Sub and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable the merger of Sub and the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, par value $.01 per
share, of the Company ("Company Common Stock") not owned directly or
indirectly by Parent or the Company will be converted into shares of Parent
Common Stock, par value $.01 per share ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger, which is intended to be a "merger of equals," is
in furtherance of and consistent with their respective long-term business
strategies and is in the best interest of their respective shareholders;
WHEREAS, each of Parent and Company has granted to the other an option to
purchase up to 19.9% of its Common Stock, all pursuant to the Stock Option
Agreements of even date herewith (collectively, the "Stock Option
Agreements").
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions hereof, and in
accordance with the Tennessee Business Corporation Act (the "TBCA"), Sub shall
be merged with and into the Company at the Effective Time (as hereinafter
defined). Following the Merger, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the TBCA.
1.2 EFFECTIVE TIME. The Merger shall become effective when Articles of
Merger (the "Articles of Merger"), executed in accordance with the relevant
provisions of the TBCA, are filed with the Secretary of State of the State of
Tennessee; provided, however, that, upon mutual consent of the Constituent
Corporations, the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Articles
of Merger are filed. When used in this Agreement, the term "Effective Time"
shall mean the later of the date and time at which the Articles of Merger are
filed or such later time established by the Articles of Merger. The filing of
the Articles of Merger shall be made on the date of the "Closing" (as defined
in Section 1.16).
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1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Section 48-21-108 of the TBCA.
1.4 CHARTER AND BYLAWS. At the Effective Time, the Amended and Restated
Charter of the Company, as in effect immediately prior to the Effective Time,
shall be the Charter of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law. At the Effective Time, the
Bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by the Amended and Restated Charter of the
Surviving Corporation or by applicable law. At the Effective Time, the board
of directors and officers of the Surviving Corporation shall be comprised of
the individuals identified on Schedule 1.4 attached hereto.
1.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company, or the holders
of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01 per
share, of Sub shall cease to be outstanding and shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) All shares of Company Common Stock that are held in the treasury of
the Company or by any wholly-owned "Subsidiary" (as defined in Section 2.1)
of the Company shall be canceled and no capital stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
1.5(b)) shall be converted into 0.715 (such number being the "Conversion
Number") validly issued, fully paid and nonassessable shares of Parent
Common Stock. All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and
retired and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive
(i) any dividends and other distributions in accordance with Section 1.7,
(ii) certificates representing the shares of Parent Common Stock into which
such shares are converted, and (iii) any cash, without interest, in lieu of
fractional shares to be issued or paid in consideration therefor pursuant
to Section 1.8 upon the surrender of such certificate in accordance with
Section 1.6.
1.6 PARENT TO MAKE CERTIFICATES AVAILABLE.
(a) Exchange of Certificates. Parent shall authorize a commercial bank
reasonably acceptable to the Company (or such other person or persons as
shall be acceptable to Parent and the Company) to act as Exchange Agent
hereunder (the "Exchange Agent"). As soon as practicable after the
Effective Time, Parent shall deposit with the Exchange Agent, in trust for
the holders of shares of Company Common Stock converted in the Merger, (i)
certificates representing the shares of Parent Common Stock issuable
pursuant to Section 1.5(c) in exchange for outstanding shares of Company
Common Stock, and (ii) cash, as required to make payments in lieu of any
fractional shares pursuant to Section 1.8 (such cash and shares of Parent
Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the
Parent Common Stock contemplated to be issued pursuant to Section 1.5(c)
out of the Exchange Fund. Except as contemplated by Sections 1.8 and 1.9,
the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the
Merger (the "Certificates") a letter of transmittal (which shall be in
customary form, shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon actual delivery of
the Certificates to the Exchange Agent, and shall contain instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock and cash in lieu of
fractional shares).
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Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such letter of transmittal, properly executed and duly
executed in accordance with the instructions thereon, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock into which
the shares represented by the surrendered Certificate shall have been
converted at the Effective Time pursuant to this Article I, cash in lieu of
any fractional share in accordance with Section 1.8, and certain dividends
and other distributions in accordance with Section 1.7, and any Certificate
so surrendered shall forthwith be canceled.
1.7 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are declared on or after the Effective Time on Parent
Common Stock, or that are payable to the holders of record thereof on or after
the Effective Time, will be paid to any person entitled by reason of the
Merger to receive a certificate representing Parent Common Stock until such
person surrenders the related Certificate or Certificates, as provided in
Section 1.6, and no cash payment in lieu of fractional shares will be paid to
any such person pursuant to Section 1.8 until such person shall so surrender
the related Certificate or Certificates. Subject to the effect of applicable
law, there shall be paid to each record holder of a new certificate
representing such Parent Common Stock: (i) at the time of such surrender or as
promptly as practicable thereafter, the amount of any dividends or other
distributions theretofore paid with respect to the shares of Parent Common
Stock represented by such new certificate and having a record date on or after
the Effective Time and a payment date prior to such surrender; (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount
of any dividends or other distributions payable with respect to such shares of
Parent Common Stock and having a record date on or after the Effective Time
but prior to such surrender and a payment date on or subsequent to such
surrender; and (iii) at the time of such surrender or as promptly as
practicable thereafter, the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing
shares of Parent Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered,
it shall be a condition of such exchange that the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable. Parent
or the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment
under the Code or under any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Parent or the Exchange Agent.
1.8 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates pursuant to this Article I, and no Parent
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to
any other rights of a security holder of Parent. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Parent Common Stock upon surrender
of Certificates for exchange pursuant to this Article I will be paid an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange,
Inc. (the "NYSE") of Parent Common Stock (as reported in the NYSE Composite
Transactions) on the date of the Effective Time (or, if the shares of Parent
Common Stock do not trade on the NYSE on such date, the first date of trading
of shares of Parent Common Stock on the NYSE after the Effective Time) by (ii)
the fractional interest to which such holder would otherwise be entitled. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional share interests, the Exchange Agent shall
so notify the Parent, and the Parent shall deposit such amount with the
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Exchange Agent and shall cause the Exchange Agent to forward payments to such
holders of fractional share interests subject to and in accordance with the
terms of Section 1.7 and this Section 1.8.
1.9 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund which remains
undistributed to the former shareholders of the Company for one year after the
Effective Time shall be delivered to Parent, upon demand of Parent, and any
such former shareholders who have not theretofore complied with this Article I
shall thereafter look only to Parent for payment of their claim for Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock,
and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor the Surviving Corporation shall be liable to any former
holder of Company Common Stock for any such shares of Parent Common Stock,
cash and dividends, and/or distributions held in the Exchange Fund which are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.10 ADJUSTMENT OF CONVERSION NUMBER. In the event of any reclassification,
stock split or stock dividend with respect to Parent Common Stock, any change
or conversion of Parent Common Stock into other securities, any adjustment
pursuant to Section 7.1(g) hereof, or any other dividend or distribution with
respect to the Parent Common Stock other than normal quarterly cash dividends
as the same may be adjusted from time to time pursuant to the terms of this
Agreement (or if a record date with respect to any of the foregoing should
occur) prior to the Effective Time, appropriate and proportionate adjustments,
if any, shall be made to the Conversion Number, and all references to the
Conversion Number in this Agreement shall be deemed to be to the Conversion
Number as so adjusted.
1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Section
1.8) shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Company Common Stock represented by such
Certificates.
1.12 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
canceled and exchanged as provided in this Article I.
1.13 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct (but consistent with
the practices the Parent applies to its own shareholders), as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Parent Common Stock, any cash in lieu
of fractional shares of Parent Common Stock to which the holders thereof are
entitled pursuant to Section 1.8, and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 1.7.
1.14 [INTENTIONALLY OMITTED.]
1.15 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, privileges, powers, franchises, properties or assets of either
of the Constituent Corporations, or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and to do, in the name and on
behalf of either Constituent Corporation, all such other acts and things as
may be necessary, desirable or proper to vest, perfect or confirm the
Surviving Corporation's right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such
Constituent Corporation and otherwise to carry out the purposes of this
Agreement.
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1.16 CLOSING. The closing of the transactions contemplated by this Agreement
(the "Closing") and all actions specified in this Agreement to occur at the
Closing shall take place at the offices of Long Aldridge & Norman LLP at 10:00
a.m., local time, no later than the second business day following the day on
which the last of the conditions set forth in Article VI shall have been
fulfilled or waived, or at such other time and place as Parent and the Company
shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
2.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia and Tennessee, respectively, and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each Subsidiary of Parent is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized
and has the requisite corporate (in the case of a Subsidiary that is a
corporation) or other power and authority to carry on its business as now
being conducted, except where the failure to be so organized, existing or in
good standing or to have such power or authority would not, individually or in
the aggregate, have a "Material Adverse Effect" (as defined in this Section
2.1) on Parent. Except as set forth on Schedule 2.1, Parent and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. For purposes of this
Agreement, (a) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to Parent or the Company, as the case may be, any
change or effect that is materially adverse to the business, prospects,
assets, liabilities, results of operation or financial condition of Parent and
its Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken
as a whole, as the case may be, and (b) "Subsidiary" means any corporation,
partnership, joint venture or other legal entity of which Parent or the
Company, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation, partnership, joint venture or other legal entity.
2.2 CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of Parent consists of 50,000,000 shares of Parent Common Stock, par value $.01
per share, and 5,000,000 shares of Preferred Stock, without par value (the
"Parent Preferred Stock"); provided, however, that if Parent's shareholders,
at or prior to the "Parent Shareholder Meeting" (as defined in Section 5.1),
approve an amendment to Parent's Articles of Incorporation which increases the
authorized capital stock of Parent, then the authorized capital stock as of
the Effective Time will be as so increased. At June 12, 1998 (except with
respect to the representation and warranty made in subsection (v) below, which
is made as of the date hereof), (i) 34,253,368 shares of Parent Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights or rights of first refusal, (ii)
no shares of Parent Common Stock were held in the treasury of Parent or by the
Subsidiaries of Parent, (iii) 5,250,000 shares of Parent Common Stock
originally were reserved for future issuance, and of such shares, 3,017,284
are reserved for future issuance as of June 12, 1998, pursuant to Parent's
1991 Employees' Stock Option and Stock Appreciation Rights Plan, as amended,
the 1996 Employees' Stock Incentive Plan, as amended, and 1996 Directors'
Stock Option Plan (collectively, the "Parent Option Plans"), (iv) 50,000
shares of Parent Common Stock were reserved for issuance pursuant to the
Warrant Agreement between Parent and Kessler Financial Services, L.P. (the
"Kessler Warrant"), and (v) 6,816,420 shares of Parent Common Stock were
reserved for issuance pursuant to the Stock Option Agreement, of even date
herewith, between Parent and Company (the "Parent Stock Option Agreement"). No
shares of Parent Preferred Stock are outstanding. All of the shares of Parent
Common Stock issuable in exchange for Company Common Stock at the Effective
Time in accordance with this Agreement will be, when so issued, duly
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authorized, validly issued, fully paid and nonassessable and free of
preemptive rights or rights of first refusal. As of the date of this
Agreement, except for (a) this Agreement, (b) the Kessler Warrant, (c) the
Parent Stock Option Agreement, and (d) stock options covering not in excess of
2,526,496 shares of Parent Common Stock under the Parent Option Plans
(collectively, the "Parent Options"), there are no options, warrants, calls,
rights or agreements to which Parent or any of its Subsidiaries is a party or
by which any of them is bound obligating Parent or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Parent or any of its Subsidiaries or obligating
Parent or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right or agreement. Since June 12, 1998, Parent has not
issued any shares of its capital stock, or securities convertible into or
exchangeable for such capital stock. Each outstanding share of capital stock
of each Subsidiary of Parent is duly authorized, validly issued, fully paid
and nonassessable, and, except as set forth on Schedule 2.2, each such share
is owned by Parent or another Subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges and other encumbrances of
any nature whatsoever. Except as set forth in Schedule 2.2, Exhibit 21 to
Parent's Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission (the "SEC") (the "Parent
Annual Report"), is a true, accurate and correct statement in all material
respects of all of the information required to be set forth therein by the
regulations of the SEC.
2.3 AUTHORITY.
(1) The respective Boards of Directors of Parent and Sub have, on or
prior to the date of this Agreement at a meeting duly called and held and
not subsequently rescinded or modified in any way, (i) unanimously adopted
this Agreement in accordance with the Georgia Business Corporation Code
(the "GBCC") and the TBCA, respectively, (ii) resolved to recommend the
approval of this Agreement to their respective shareholders, (iii) directed
that this Agreement be submitted to their respective shareholders for
approval, (iv) (with respect to Parent) approved the amendment of its
Articles of Incorporation, the amendment of its 1996 Employees' Stock
Incentive Plan and any other amendments or actions necessary to consummate
the Merger (collectively, the "Parent Amendments"), (v) (with respect to
Parent) resolved to recommend the Parent Amendments to its shareholders,
and (vi) (with respect to Parent) directed that the Parent Amendments be
submitted to its shareholders for approval.
(2) Each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and, subject to approval by the
shareholders of Parent of this Agreement and the transactions contemplated
hereby (including but not limited to the Parent Amendments) and the
issuance of Parent Common Stock in connection with the Merger (the "Share
Issuance"), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Parent and Sub, subject to (x) approval by the shareholders of Parent of
this Agreement and the transactions contemplated hereby, including without
limitation, the Share Issuance and the Parent Amendments, and (y) the
filing of appropriate Merger documents as required by the TBCA. This
Agreement has been duly executed and delivered by Parent and Sub and
(assuming the valid authorization, execution and delivery of this Agreement
by the Company) this Agreement constitutes the valid and binding obligation
of Parent and Sub enforceable against each of them in accordance with its
terms. The Merger, the Share Issuance, the Parent Amendments, and the
filing of a joint proxy statement and a registration statement on Form S-4
(or other appropriate form) with the SEC by Parent under the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act") and the Securities Act of 1933,
as amended (together with the rules and regulations promulgated thereunder,
the "Securities Act"), for the purpose of registering the shares of Parent
Common Stock to be issued in the Merger and seeking approval of this
Agreement, the transactions contemplated hereby, the Parent Amendments, and
the Share Issuance by the shareholders of Parent (together with any
amendments or supplements thereto, whether prior to or after the effective
date thereof, the "Registration Statement") have been duly authorized by
Parent's Board of Directors.
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2.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all consents,
approvals, authorizations and other actions described in this Section 2.4 have
been obtained and all filings and obligations described in this Section 2.4
have been made, and except as set forth in Schedule 2.4 (including the
required consents, approvals, authorizations and other actions identified
therein), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Articles of
Incorporation or Bylaws of Parent, (ii) any provision of the comparable
charter or organization documents of any of Parent's Subsidiaries, (iii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Parent or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in
the case of clauses (ii), (iii) or (iv), any such violations, defaults,
rights, liens, security interests, charges or encumbrances that, individually
or in the aggregate, would not have a Material Adverse Effect on Parent, or
prevent the consummation of any of the transactions contemplated hereby. No
filing or registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court, commission,
governmental body, regulatory agency, authority or tribunal (each, a
"Governmental Entity") is required by or with respect to Parent or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
by Parent or Sub or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Act and the Exchange Act, (ii) the filing of the Articles of Merger with the
Secretary of State of the State of Tennessee and appropriate documents with
the relevant authorities of other states in which Parent or any of its
Subsidiaries is qualified to do business, (iii) such filings and consents as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by
the Merger or by the transactions contemplated by this Agreement, (iv) such
filings, authorizations, orders and approvals as may be required by state
takeover laws (the "State Takeover Approvals"), (v) such filings and consents
as may be required under any state or foreign laws pertaining to debt
collection, the issuance of payment instruments or money transmission, (vi)
applicable requirements, if any, of state securities or "blue sky" laws ("Blue
Sky Laws") and the NYSE, and (vii) such other consents, orders,
authorizations, registrations, declarations and filings, the failure of which
to be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, or prevent the consummation of any of the
transactions contemplated hereby.
2.5 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed all required
documents, reports and schedules with the SEC since December 31, 1996
(collectively, the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and, at the
respective times they were filed, none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
as set forth in Schedule 2.5, the consolidated financial statements
(including, in each case, any notes thereto) of Parent included in the Parent
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles (except as may be indicated therein or in the notes
thereto) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of Parent and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein). Except as set forth in Schedule 2.5, Parent has not, since December
31, 1997, made any change in the accounting practices or policies applied in
the preparation of financial statements.
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2.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement, the joint proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Joint Proxy Statement") relating to the "Shareholder Meetings" (as defined in
Section 5.1) or any other document filed with any other regulatory agency in
connection herewith will: (i) in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; (ii) in the case of
the Joint Proxy Statement, at the time of the mailing of the Joint Proxy
Statement, the time of each of the Shareholder Meetings, and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading; or, (iii) in the case of any other filing required by any
regulatory agency in connection herewith, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading. If, at any time prior
to the Effective Time, any event with respect to Parent, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such
event shall be so described, and an appropriate amendment or supplement shall
be promptly filed with the SEC and, as required by law, disseminated to the
shareholders of Parent and the Company. The Registration Statement (except for
portions thereof that relate only to the Company or any of its Subsidiaries)
and the Joint Proxy Statement (except for portions thereof that relate only to
the Company or any of its Subsidiaries) will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act, as
applicable.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
2.7, since December 31, 1997: (A) Parent and its Subsidiaries have not
incurred any material liability or obligation (indirect, direct or
contingent), or entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that would
result in a Material Adverse Effect on Parent, excluding any changes and
effects resulting from changes in economic, regulatory or political conditions
or changes in conditions generally applicable to the industries in which
Parent and Subsidiaries of Parent are involved and except for any such changes
or effects resulting from this Agreement, the transactions contemplated
hereby, or the announcement thereof; (B) Parent and its Subsidiaries have not
sustained any loss or interference with their business or properties from
fire, flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had a Material Adverse Effect on Parent; (C) other than
any indebtedness incurred by Parent after the date hereof as permitted by
Section 4.1(a)(vi), there has been no material change in the consolidated
indebtedness of Parent and its Subsidiaries, and no dividend or distribution
of any kind declared, paid or made by Parent on any class of its stock; and
(D) there has been no event causing a Material Adverse Effect on Parent,
excluding any changes and effects resulting from changes in economic,
regulatory or political conditions or changes in conditions generally
applicable to the industries in which Parent and Subsidiaries of Parent are
involved and which do not affect Parent in a manner materially
disproportionate to the effect on the Company) and except for any such changes
or effects resulting from this Agreement, the transactions contemplated hereby
or the announcement thereof.
2.8 PERMITS AND COMPLIANCE. Except as set forth on Item 2 of Schedule 2.8,
each of Parent and its Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for Parent or any of its Subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted
(collectively, the "Parent Permits"), except where the failure to have any of
the Parent Permits would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, and, as of the date of this Agreement, no
suspension or cancellation of any of the Parent Permits is pending or, to the
"Knowledge of Parent" (as defined in this Section 2.8), threatened, except
where the suspension or cancellation of any of the Parent Permits would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries is in default or violation of (A)
its charter, bylaws or other organizational documents, (B) any applicable law,
ordinance, administrative or governmental rule or regulation, (C) any order,
decree or judgment
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of any Governmental Entity having jurisdiction over Parent or any of its
Subsidiaries, or (D) any provisions of the rules and regulations of VISA
U.S.A., Inc., VISA International, Inc., MasterCard International, Inc. and any
successor organizations or associations (collectively, the "Credit Card
Associations"), except, in the case of clauses (A), (B), (C) and (D), for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on Parent. Except as disclosed in Schedule 2.8, as of the date
hereof there is no contract or agreement that is material to the business,
financial condition or results of operations of Parent and its Subsidiaries,
taken as a whole. Except as set forth in Schedule 2.8, as of the date of this
Agreement, no event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or,
upon the consummation by Parent of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license
or other agreement or instrument to which Parent or any of its Subsidiaries is
a party or by which Parent or any such Subsidiary is bound or to which any of
the properties, assets or operations of Parent or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent. Set forth in Schedule 2.8 is a
description of any material changes to the amount and terms of the
indebtedness of the Parent and its Subsidiaries as described in the Parent
Annual Report. For purposes of this Agreement, "Knowledge of Parent" means the
actual knowledge of the individuals identified in Schedule 2.8.
2.9 TAX MATTERS.
(a) Tax Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income
taxes), payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which a party is required to pay, withhold or collect.
(ii) The term "Return" or "Tax Return" shall mean all reports,
estimates, declarations of estimated tax, information statements and
returns relating to, or required to be filed in connection with, any
Taxes, including information returns or reports with respect to backup
withholding and other payments to third parties.
(b) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 2.9(b), or except as would not have a Material Adverse Effect on
Parent: (i) all Returns required to be filed by or on behalf of Parent and
each of its Subsidiaries have been duly filed on a timely basis and such
Returns are correct, true, and complete; (ii) all Taxes shown to be payable
on the Returns or on subsequent assessments with respect thereto have been
paid in full on a timely basis, and no other Taxes are payable by Parent or
any of its Subsidiaries with respect to items or periods covered by such
Returns or with respect to any taxable periods ending prior to the date of
this Agreement; (iii) Parent and each of its Subsidiaries has withheld and
paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party; and (iv) there are
no liens on any of the assets of Parent or any of its Subsidiaries with
respect to Taxes, other than liens for Taxes not yet due and payable.
(c) Tax Deficiencies; Audits; Statutes of Limitations. Except as
otherwise disclosed in Schedule 2.9(c), or except as would not have a
Material Adverse Effect on Parent: (i) neither the Returns of
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Parent nor any of its Subsidiaries have been audited by a government or
taxing authority, nor is any such audit in process; (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of Parent
or any of its Subsidiaries, and neither Parent nor any of its Subsidiaries
has received notice (either in writing or verbally, formally or informally)
that it has not filed a Return or paid Taxes required to be filed or paid
by it; (iii) neither Parent nor any of its Subsidiaries is a party to any
action or proceeding for assessment or collection of Taxes, nor has such
event been asserted or threatened (either in writing or verbally, formally
or informally) against Parent or any of its Subsidiaries, or any of their
respective assets; (iv) no waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Parent or any
of its Subsidiaries; and (v) Parent and each of its Subsidiaries have
disclosed on their federal income tax returns all positions taken therein
that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.
(d) Tax Sharing Agreements. Except as otherwise disclosed in Schedule
2.9(d), neither Parent nor any of its Subsidiaries are a party to any tax
sharing agreement, and (i) the Parent has never been a party to a tax
sharing agreement, and (ii) to the Knowledge of Parent, none of its
Subsidiaries has ever been a party to any tax sharing agreement.
2.10 ACTIONS AND PROCEEDINGS. Except as set forth in Schedule 2.10, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving Parent or any of its Subsidiaries, or
against or involving any of the present or former directors, officers,
employees, consultants, agents or shareholders of Parent or any of its
Subsidiaries, as such, any of its or their properties, assets or business or
any "Parent Plan" (as defined in Section 2.13) or any fiduciary, agent or
consultant of any Parent Plan that, individually or in the aggregate, would
have a Material Adverse Effect on Parent. As of the date of this Agreement,
there are no actions, suits or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of Parent,
threatened against or involving Parent or any of its Subsidiaries or any of
its or their present or former directors, officers, employees, consultants,
agents or shareholders, as such, any of its or their properties, assets or
business or any Parent Plan or any fiduciary, agent or consultant of any
Parent Plan that, individually or in the aggregate, would have a Material
Adverse Effect on Parent. As of the date hereof, there are no actions, suits,
labor disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of Parent, threatened
against or affecting Parent or any of its Subsidiaries or any of its or their
present or former officers, directors, employees, consultants, agents or
shareholders, as such, or any of its or their properties, assets or business
or any Parent Plan or any fiduciary, agent or consultant of any Parent Plan
relating to the transactions contemplated by this Agreement.
2.11 [INTENTIONALLY OMITTED].
2.12 CERTAIN AGREEMENTS. As of the date of this Agreement, neither Parent
nor any of its Subsidiaries is a party to any "Plan" (as defined in this
Section 2.12), any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. For purposes of this Agreement, "Plan" shall
mean, with respect to an entity, all present and prior (including terminated
and transferred) plans, programs, agreements, arrangements, commitments and/or
methods of contribution or compensation whether formal or informal, oral or
written, whether funded or unfunded, and whether legally binding or not, which
provides any remuneration or benefits to, or covers any current or former
employee of such entity or any other individual who provides services to such
entity (including, but not limited to, any shareholder, officer, director,
employee or consultant of such entity), or any spouse, child or other
dependent of such current or former employee or individual, or which is
sponsored, maintained, adopted or contributed to (in whole or in part) by such
entity, and includes, but is not limited to, pension, retirement, profit
sharing, stock bonus, nonqualified deferred compensation, disability, medical,
dental, workers' compensation, health, life insurance, cafeteria, medical
reimbursement, dependent care assistance, incentive, bonus, restricted stock,
stock purchase, or stock option plans. No holder of any option to purchase
shares of Parent Common Stock, or shares of Parent Common Stock granted in
connection with the
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performance of services for Parent or its Subsidiaries, is or will be entitled
to receive cash from Parent or any Subsidiary in lieu of or in exchange for
such option or shares as a result of the transactions contemplated by this
Agreement.
2.13 ERISA.
(a) With respect to each Plan of Parent or any "ERISA Affiliate" (as
defined in this Section 2.13) of Parent, Parent has made available to
Company a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS"), (ii) the plan
documents of such Plan, (iii) each trust agreement, insurance contract or
administration agreement relating to such Plan, (iv) the most recent
summary plan description for each Plan for which a summary plan description
is required or the most recent employee communication explanation for each
other Plan, (v) the most recent actuarial report or valuation relating to a
Plan subject to Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and (vi) the most recent determination letter,
if any, issued by the IRS with respect to any Plan intended to be qualified
under section 401(a) of the Code. Each Plan of Parent or any ERISA
Affiliate of Parent complies in all material respects with ERISA, the Code
and all other applicable statutes and governmental rules and regulations,
and (i) no "reportable event" (within the meaning of Section 4043 of ERISA)
has occurred with respect to any "Parent Plan" (as defined in this Section
2.13), (ii) neither Parent nor any of its ERISA Affiliates has withdrawn
(or partially withdrawn) from any Parent Plan or "Parent Multiemployer
Plan" (as defined in this Section 2.13) or instituted, or is currently
considering taking, any action to do so, and (iii) no action has been
taken, or is currently being considered, to terminate any Parent Plan
subject to Title IV of ERISA. No Parent Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined
in Section 302 of ERISA), whether or not waived. To the best Knowledge of
Parent, no Parent Plan has engaged in a prohibited transaction with a
fiduciary or party-in-interest within the meaning of Section 4975 of the
Code or Section 406 of ERISA, unless a statutory exception exists for such
transaction.
(b) With respect to the Plans of Parent or any ERISA Affiliate of Parent,
no event has occurred and, to the Knowledge of Parent, there exists no
condition or set of circumstances in connection with which Parent or any
ERISA Affiliate of Parent could be subject to any liability under the terms
of such Plans, ERISA, the Code, any contract or document relating to such
Plans, or any other applicable law, which would have a Material Adverse
Effect on Parent. All Parent Plans that are intended to be qualified under
Section 401(a) of the Code have been determined by the Internal Revenue
Service to be so qualified, or a timely (within the meaning of Section
401(b) of the Code) application for such determination is now pending, and
Parent is not aware of any reason why any such Parent Plan is not so
qualified in operation. Neither Parent nor any of its ERISA Affiliates has
been notified by any Parent Multiemployer Plan that such Parent
Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Parent
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. Neither Parent nor any of its ERISA Affiliates has
any liability or obligation under any Plan or other contract or agreement
to provide benefits after termination of employment to any employee or
dependent of an employee other than as required by ERISA or as disclosed in
the Parent Annual Report. As used herein, (i) "Parent Plan" means a
"pension plan" (as defined in Section 3(2) of ERISA (other than a Parent
Multiemployer Plan)) or a "welfare plan" (as defined in Section 3(1) of
ERISA) established or maintained by Parent or any of its ERISA Affiliates
or as to which Parent or any of its ERISA Affiliates has contributed or
otherwise may have any liability, and (ii) "Company Multiemployer Plan"
means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to
which Parent or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability. With respect to any Parent
Plan which is subject to Title IV of ERISA, the fair market value of the
assets of such Plan are currently (and are expected to be as of the
Effective Time) greater than or equal to the present value of all "benefit
liabilities" (within the meaning of Section 4001(a)(6) of ERISA) of such
Parent Plan.
(c) Parent has made available to the Company true and complete (i) copies
of all severance and employment agreements with officers of Parent and each
ERISA Affiliate of Parent, (ii) copies of all severance programs and
policies of Parent with or relating to its employees; and (iii) copies of
all plans,
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programs, agreements and other arrangements of Parent with or relating to
its employees which contain change of control or similar provisions. "ERISA
Affiliate" means, with respect to a person, any trade or business (whether
or not incorporated) which would be considered a single employer with such
person pursuant to Section 414(b), (c), (m) or (o) of the Code and the
regulations promulgated under those sections or pursuant to Section 4001(b)
of ERISA and the regulations promulgated thereunder.
2.14 COMPLIANCE WITH CERTAIN LAWS. The properties, assets and operations of
Parent and its Subsidiaries are in compliance in all material respects with
all applicable federal, state, local and foreign laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to public and worker
health and safety (collectively, "Worker Safety Laws") and the protection and
clean-up of the environment and activities or conditions related thereto,
including, without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials (collectively,
"Environmental Laws"), except for any violations that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. With respect to
such properties, assets and operations, including any previously owned, leased
or operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of Parent or any of its Subsidiaries
that may interfere with or prevent compliance or continued compliance in all
material respects with applicable Worker Safety Laws and Environmental Laws,
other than any such interference or prevention as would not, individually or
in the aggregate with any such other interference or prevention, have a
Material Adverse Effect on Parent. The term "hazardous materials" shall mean
those substances that are regulated by, or form the basis for liability under,
any applicable Environmental Laws.
2.15 LIABILITIES. Except as set forth in Schedule 2.15 or except as fully
reflected or reserved against in the financial statements included in the
Parent Annual Report, or disclosed in the footnotes thereto, Parent and its
Subsidiaries had no liabilities (including, without limitation, tax
liabilities) at the date of such financial statements, absolute or contingent,
other than liabilities that, individually or in the aggregate, would not have
a Material Adverse Effect on Parent, and had no liabilities (including,
without limitation, tax liabilities) that were not incurred in the ordinary
course of business. Except as so reflected, reserved or disclosed, Parent and
its Subsidiaries have no commitments, other than any commitments which,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent.
2.16 LABOR MATTERS. Neither Parent nor any of its Subsidiaries is a party to
any collective bargaining agreement or labor contract. Neither Parent nor any
of its Subsidiaries has engaged in any unfair labor practice with respect to
any persons employed by or otherwise performing services primarily for Parent
or any of its Subsidiaries (the "Parent Business Personnel"), and there is no
unfair labor practice complaint or grievance against Parent or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency pending or threatened in writing with respect to the Parent Business
Personnel, except where such unfair labor practice, complaint or grievance
would not have a Material Adverse Effect on Parent. There is no labor strike,
dispute, slowdown or stoppage pending or, to the Knowledge of Parent,
threatened against or affecting Parent or any of its Subsidiaries which may
interfere with the respective business activities of Parent or any of its
Subsidiaries, except where such dispute, strike or work stoppage would not
have a Material Adverse Effect on Parent. Parent and all of its Subsidiaries
are in compliance with all federal and state laws respecting employment and
employment practices, immigration, terms and conditions of employment, and
wages and hours, except where such noncompliance would not have a Material
Adverse Effect on Parent. With respect to the employees of Parent and/or its
Subsidiaries, to the Knowledge of Parent, no event has occurred and there
exists no condition or set of circumstances in connection with which Parent or
any of its Subsidiaries or any ERISA Affiliate of Parent could be subject to
any liability under any federal or state law handicap or disability
discrimination law, any federal, state or local fair employment practices or
nondiscrimination act, or any other applicable law which would have a Material
Adverse Effect on Parent.
2.17 INTELLECTUAL PROPERTY. Parent and its Subsidiaries have all patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights (collectively, "Intellectual Property
Rights") as are necessary in connection with the business of Parent and its
Subsidiaries, taken as a
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whole, except where the failure to have such Intellectual Property Rights
would not have a Material Adverse Effect on Parent. Neither Parent nor any of
its Subsidiaries has infringed any Intellectual Property Rights of any third
party other than any infringements that, individually or in the aggregate,
would not have a Material Adverse Effect on Parent.
2.18 POOLING OF INTERESTS; REORGANIZATION. To the Knowledge of Parent,
neither Parent, any of its Subsidiaries, nor any of its directors or officers
has (i) taken any action or failed to take any action which action or failure
would jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (ii) taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
2.19 REQUIRED VOTE OF PARENT SHAREHOLDERS. Except with respect to the Share
Issuance and the amendment of Parent's 1996 Employee Stock Incentive Plan, as
amended (the "1996 Plan"), the affirmative vote of a majority of the votes
entitled to be cast is required to approve this Agreement and the transactions
contemplated hereby, including without limitation the amendment of Parent's
Articles of Incorporation. The affirmative vote of the holders of a majority
of shares represented and entitled to vote on such amendment is required for
the amendment of the 1996 Plan, provided that a quorum is present at the
meeting at which such amendment is voted upon. The affirmative vote of a
majority of votes cast on a proposal in a proxy bearing on the Share Issuance,
in which the total vote cast on the Share Issuance represents over fifty
percent (50%) in interest of all securities entitled to vote on the proposal,
is required to approve the Share Issuance (the required shareholder votes
referred to in this sentence and two preceding sentences are collectively
referred to herein as the "Parent Required Vote"). Except for the vote of
Parent's shareholders approving this Agreement, the transactions contemplated
hereby, the Share Issuance, the amendment to Parent's Articles of
Incorporation which increases the authorized capital stock of Parent, and the
amendment of the 1996 Plan, no other vote of the shareholders of Parent is
required by law, the Articles of Incorporation or Bylaws of Parent or
otherwise in order for Parent to consummate the Share Issuance, the Merger and
the transactions contemplated hereby.
2.20 OPERATIONS OF SUB. Sub is a direct, wholly-owned subsidiary of Parent,
was formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
2.21 BROKERS. No broker, investment banker or other person, other than
Salomon Smith Barney, is entitled to any broker's, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent.
2.22 OPINION OF FINANCIAL ADVISOR. Parent has received the opinion of
Salomon Smith Barney dated as of the date hereof (which opinion is written or,
if initially given verbally, shall immediately hereafter be memorialized in a
written opinion to be delivered to Parent), to the effect that, as of the date
hereof, the Conversion Number is fair to Parent's shareholders from a
financial point of view (the "Parent Fairness Opinion").
2.23 STATE TAKEOVER STATUTES. The Board of Directors of Parent has, to the
extent such statutes are applicable, (a) taken all action necessary to exempt
the Company, its Subsidiaries and "Affiliates" (as defined in this Section
2.23), the Merger, this Agreement and the transactions contemplated hereby
from Sections 14-2-1110 through 14-2-1133 of the GBCC and (b) taken all action
necessary to satisfy the provisions of Sections 14-2-1110 through 14-2-1133 of
the GBCC. To the Knowledge of Parent, no other state takeover statutes are
applicable to the Merger, this Agreement and the transactions contemplated
hereby. For purposes of this Section 2.23 and Section 3.19, an "Affiliate" of
a party means any person or entity controlling, controlled by, or under common
control with such party. For the purposes of this definition, "control" shall
mean, as to any entity, the power to direct or cause the direction of the
management and policies of such entity through (i) control of a majority of
the members of the Board of Directors of such entity, or (ii) ownership of
fifty percent (50%) or more of the total outstanding voting securities of such
entity. "Controlling" and "controlled" shall have a correlative meaning.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Tennessee and has the requisite corporate power and authority to carry on
its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be
so organized, existing or in good standing or to have such power or authority
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company and each of its Subsidiaries are duly qualified to do
business, and are in good standing, in each jurisdiction where the character
of their properties owned or held under lease or the nature of their
activities makes such qualification necessary, except where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
3.2 CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of the Company consists of 100,000,000 shares of Company Common Stock, par
value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01
per share ("Company Preferred Stock"). At the close of business on June 12,
1998 (except with respect to the representation and warranty in subsection (v)
below which is made as of the date hereof), (i) 48,911,724 shares of Company
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable and free of preemptive rights or rights of first
refusal, (ii) no shares of Company Common Stock were held in the treasury of
the Company or by the Subsidiaries of the Company, (iii) 5,145,000 shares of
Company Common Stock were reserved for future issuance pursuant to the
Company's 1994 Incentive Stock Plan, as amended and restated, 1994 Non-
Employee Director Stock Option Plan, as amended and restated, 1997 Executive
Stock Incentive Plan, the 1997 Non-Qualified Stock Option Plan, and the Non-
Employee Director Restricted Stock Award Plan (collectively, the "Company
Stock Option Plans"), (iv) 10,000 shares of Company Common Stock, in the
aggregate, were reserved for issuance pursuant to Stock Purchase Warrants
issued to each of Fred Armstrong and David Ford in connection with an
acquisition by the Company of a merchant portfolio (collectively, the "Company
Warrants"), and (v) 9,733,433 shares of Company Common Stock were reserved for
issuance pursuant to the Stock Option Agreement, of even date herewith,
between the Company and Parent (the "Company Stock Option Agreement"). No
shares of Company Preferred Stock are outstanding. As of the date of this
Agreement, except for (a) stock options covering not in excess of 3,090,873
shares of Company Common Stock under the Company Stock Option Plans
(collectively, the "Company Options"), (b) the Company Warrants or (c) the
Company Stock Option Agreement, there are no options, warrants, calls, rights
or agreements to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of the Company or any of its Subsidiaries
or obligating the Company or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, right or agreement. Since June 12, 1998,
the Company has not issued any shares of its capital stock, or securities
convertible into or exchangeable for such capital stock. Each outstanding
share of capital stock of each Subsidiary of the Company that is a corporation
is duly authorized, validly issued, fully paid and nonassessable and, except
as disclosed in the "Company SEC Documents" (as defined in Section 3.5) or
Schedule 3.2, each such share is owned by the Company or another Subsidiary of
the Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever. Except as disclosed
in Schedule 3.2, Exhibit 21.1 to the Company's Annual Report on Form 10-K, as
amended, for the year ended July 31, 1997, as filed with the SEC (the "Company
Annual Report"), is a true, accurate and correct statement in all material
respects of all of the information required to be set forth therein by the
regulations of the SEC.
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3.3 AUTHORITY.
(a) The Board of Directors of the Company has on or prior to the date of
this Agreement at a meeting duly called and held and not subsequently
rescinded or modified in any way (i) unanimously adopted this Agreement in
accordance with the TBCA, (ii) resolved to recommend the approval of this
Agreement to the Company's shareholders and (iii) directed that this
Agreement be submitted to the Company's shareholders for approval.
(b) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to approval by the shareholders of the
Company of this Agreement, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to (x) approval of this Agreement by the shareholders of
the Company and (y) the filing of appropriate Merger documents as required
by the TBCA. This Agreement has been duly executed and delivered by the
Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms. The Merger, the transactions contemplated hereby, the
filing of the Joint Proxy Statement, and the inclusion of other necessary
materials in the Registration Statement, with the SEC has been duly
authorized by the Company's Board of Directors.
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all consents,
approvals, authorizations and other actions described in this Section 3.4 have
been obtained and all filings and obligations described in this Section 3.4
have been made, and except as set forth in Schedule 3.4 (including the
required consents, approvals, authorizations and other actions identified
therein), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of (i) the Amended and
Restated Charter or Bylaws of the Company, (ii) any provision of the
comparable charter or organization documents of any of the Company's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (ii),
(iii) or (iv), any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company, or prevent the
consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
by the Company or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the HSR Act, the
Securities Act and the Exchange Act, (ii) the filing of the Articles of Merger
with the Secretary of State of the State of Tennessee and appropriate
documents with the relevant authorities of other states in which the Company
or any of its Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or by the transactions contemplated by this Agreement,
(iv) such filings, authorizations, orders and approvals as may be required to
obtain the State Takeover Approvals, (v) such filings and consents as may be
required under any state or foreign laws pertaining to debt collection, the
issuance of payment instruments or money transmission, (vi) applicable
requirements, if any, of Blue Sky Laws and the Nasdaq National Market, and
(vii) such other consents, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company or prevent the consummation of any of the transactions contemplated
hereby.
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3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all required
documents, reports and schedules with the SEC since December 31, 1996 (the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and, at the respective
times they were filed, none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as set forth
in Schedule 3.5, the consolidated financial statements (including, in each
case, any notes thereto) of the Company included in the Company SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles (except as may be indicated therein or in the notes thereto)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein). Except as disclosed in Schedule 3.5, the Company has not, since July
31, 1997, made any change in the accounting practices or policies applied in
the preparation of financial statements.
3.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement, the Joint Proxy Statement or any
other document filed with any other regulatory agency in connection herewith,
will: (i) in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; (ii) in the case of the Joint Proxy
Statement, at the time of the mailing of the Joint Proxy Statement, the time
of each of the Shareholder Meetings and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; or (iii) in the case of any other filing required by any
regulatory agency in connection herewith, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement,
information concerning such event shall be supplied by the Company to Parent
and its representatives in connection with their preparation and prompt filing
with the SEC of an appropriate amendment or supplement and, as required by
law, disseminated to the shareholders of the Company. The Joint Proxy
Statement (except for portions thereof that relate only to Parent or any of
its Subsidiaries) will comply as to form in all material respects with the
provisions of the Exchange Act.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
3.7, since July 31, 1997, (A) the Company and its Subsidiaries have not
incurred any material liability or obligation (indirect, direct or
contingent), or entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that would
result in a Material Adverse Effect on the Company, excluding any changes and
effects resulting from changes in economic, regulatory or political conditions
or changes in conditions generally applicable to the industries in which the
Company and Subsidiaries of the Company are involved and except for any such
changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof; (B) the Company and its
Subsidiaries have not sustained any loss or interference with their business
or properties from fire, flood, windstorm, accident or other calamity (whether
or not covered by insurance) that has had a Material Adverse Effect on the
Company; (C) other than any indebtedness incurred by the Company after the
date hereof as permitted by Section 4.1(b)(vi), there has been no material
change in the consolidated indebtedness of the Company and its Subsidiaries,
and no dividend or distribution of any kind declared, paid or made by the
Company on any class of its stock; and (D) there has been no event causing a
Material Adverse Effect on the Company, excluding any changes and effects
resulting from changes in economic,
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regulatory or political conditions or changes in conditions generally
applicable to the industries in which the Company and Subsidiaries of the
Company are involved and which do not affect the Company in a manner
materially disproportionate to the effect on Parent) and except for any such
changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof.
3.8 PERMITS AND COMPLIANCE. Each of the Company and its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for the Company or any of its
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "Company Permits"),
except where the failure to have any of the Company Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company, and, as of the date of this Agreement, no suspension or cancellation
of any of the Company Permits is pending or, to the "Knowledge of the Company"
(as defined in this Section 3.8), threatened, except where the suspension or
cancellation of any of the Company Permits would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Neither the Company nor
any of its Subsidiaries is in default or violation of (A) its charter, bylaws
or other organizational documents, (B) any applicable law, ordinance,
administrative or governmental rule or regulation, (C) any order, decree or
judgment of any Governmental Entity having jurisdiction over the Company or
any of its Subsidiaries, or (D) any provisions of the rules and regulations of
the Credit Card Associations, except, in the case of clauses (A), (B), (C), or
(D) for any violations that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company. Except as disclosed in Schedule 3.8,
as of the date hereof there is no contract or agreement that is material to
the business, financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole. Except as set forth in Schedule 3.8, as of
the date of this Agreement, no event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any lease,
contractual license or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any such
Subsidiary is bound or to which any of the properties, assets or operations of
the Company or any such Subsidiary is subject, other than any defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Set forth in Schedule 3.8 is a description of any material
changes to the amount and terms of the indebtedness of the Company and its
Subsidiaries as described in the Company Annual Report. "Knowledge of the
Company" means the actual knowledge of the individuals identified in Schedule
3.8.
3.9 TAX RETURNS.
(a) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 3.9(a), or except as would not have a Material Adverse Effect on
the Company: (i) all Returns required to be filed by or on behalf of the
Company and each of its Subsidiaries have been duly filed on a timely basis
and such Returns are correct, true, and complete; (ii) all Taxes shown to
be payable on the Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, and no other Taxes are payable by
the Company or any of its Subsidiaries with respect to items or periods
covered by such Returns or with respect to any taxable periods ending prior
to the date of this Agreement; (iii) the Company and each of its
Subsidiaries have withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party; and (iv)
there are no liens on any of the assets of the Company or any of its
Subsidiaries with respect to Taxes, other than liens for Taxes not yet due
and payable.
(b) Tax Deficiencies; Audits; Statutes of Limitations. Except as
otherwise disclosed in Schedule 3.9(b), or except as would not have a
Material Adverse Effect on the Company: (i) neither the Returns of the
Company nor any of its Subsidiaries have been audited by a government or
taxing authority, nor is any such audit in process; (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of the
Company or any of its
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Subsidiaries, and neither the Company nor any of its Subsidiaries has
received notice (either in writing or verbally, formally or informally)
that it has not filed a Return or paid Taxes required to be filed or paid
by it; (iii) neither the Company nor any of its Subsidiaries is a party to
any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or verbally,
formally or informally) against the Company or any of its Subsidiaries, or
any of their respective assets; (iv) no waiver or extension of any statute
of limitations is in effect with respect to Taxes or Returns of the Company
or any of its Subsidiaries; and (v) the Company and each of its
Subsidiaries have disclosed on their federal income tax returns all
positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
(c) Tax Sharing Agreements. Except as otherwise disclosed in Schedule
3.9(c), neither the Company nor any of its Subsidiaries are a party to any
tax sharing agreement, and (i) the Company has never been a party to a tax
sharing agreement, and (ii) to the Knowledge of the Company, none of its
Subsidiaries has ever been a party to any tax sharing agreement.
3.10 ACTIONS AND PROCEEDINGS. Except as set forth in Schedule 3.10, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving the Company or any of its
Subsidiaries, or against or involving any of the present or former directors,
officers, employees, consultants, agents or shareholders of the Company or any
of its Subsidiaries, as such, any of its or their properties, assets or
business or any "Company Plan" (as defined in Section 3.13) or any fiduciary,
agent or consultant of any Company Plan that, individually or in the
aggregate, would have a Material Adverse Effect on the Company. As of the date
of this Agreement, there are no actions, suits or claims or legal,
administrative or arbitrative proceedings or investigations pending or, to the
Knowledge of the Company, threatened against or involving the Company or any
of its Subsidiaries or any of its or their present or former directors,
officers, employees, consultants, agents or shareholders, as such, or any of
its or their properties, assets or business or any Company Plan or any
fiduciary, agent or consultant of any Company Plan that, individually or in
the aggregate, would have a Material Adverse Effect on the Company. As of the
date hereof, there are no actions, suits, labor disputes or other litigation,
legal or administrative proceedings or governmental investigations pending or,
to the Knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or any of its or their present or former officers,
directors, employees, consultants, agents or shareholders, as such, or any of
its or their properties, assets or business or any Company Plan or any
fiduciary, agent or consultant of any Company Plan relating to the
transactions contemplated by this Agreement.
3.11 [INTENTIONALLY OMITTED].
3.12 CERTAIN AGREEMENTS. Except as set forth in Schedule 3.12, as of the
date of this Agreement, neither the Company nor any of its Subsidiaries is a
party to any agreement or Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Company Common Stock, or shares of Company Common Stock
granted in connection with the performance of services for the Company or its
Subsidiaries, is or will be entitled to receive cash from the Company or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement.
3.13 ERISA.
(a) With respect to each Plan of the Company or any ERISA Affiliate of
the Company, the Company has made available to Parent a true and correct
copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), (ii) the plan documents of such Plan,
(iii) each trust agreement, insurance contract or administration agreement
relating to such Plan, (iv) the most recent summary plan description for
each Plan for which a summary plan description is required or the most
recent employee communication explanation for each other Plan, (v) the most
recent actuarial report or valuation relating to a Plan subject to Title IV
of ERISA, and (vi) the most recent determination letter, if any, issued by
the IRS with respect to any Plan intended to be qualified under section
401(a) of the Code. Each Plan of
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the Company or any ERISA Affiliate of the Company complies in all material
respects with ERISA, the Code and all other applicable statutes and
governmental rules and regulations, and (i) no "reportable event" (within
the meaning of Section 4043 of ERISA) has occurred with respect to any
"Company Plan" (as defined in this Section 3.13), (ii) neither the Company
nor any of its ERISA Affiliates has withdrawn (or partially withdrawn) from
any Company Plan or "Company Multiemployer Plan" (as defined in this
Section 3.13) or instituted, or is currently considering taking, any action
to do so, and (iii) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA. No
Company Plan, nor any trust created thereunder, has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived. To the best Knowledge of the Company, no Company
Plan has engaged in a prohibited transaction with a fiduciary or party-in-
interest within the meaning of Section 4975 of the Code or Section 406 of
ERISA, unless a statutory exception exists for such transaction.
(b) With respect to the Plans of the Company or any ERISA Affiliate of
the Company, no event has occurred and, to the Knowledge of the Company,
there exists no condition or set of circumstances in connection with which
the Company or any ERISA Affiliate of the Company could be subject to any
liability under the terms of such Plans, ERISA, the Code, any contract or
document relating to such Plans, or any other applicable law, which would
have a Material Adverse Effect on the Company. All Company Plans that are
intended to be qualified under Section 401(a) of the Code have been
determined by the Internal Revenue Service to be so qualified, or a timely
(within the meaning of Section 401(b) of the Code) application for such
determination is now pending, and the Company is not aware of any reason
why any such Company Plan is not so qualified in operation. Neither the
Company nor any of its ERISA Affiliates has been notified by any Company
Multiemployer Plan that such Company Multiemployer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241
or 4245 of ERISA or that such Company Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA. Neither the
Company nor any of its ERISA Affiliates has any liability or obligation
under any Plan or other contract or agreement to provide benefits after
termination of employment to any employee or dependent of an employee other
than as required by ERISA or as disclosed in the Company Annual Report. As
used herein, (i) "Company Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA (other than a Company Multiemployer Plan)) or a
"welfare plan" (as defined in Section 3(1) of ERISA) established or
maintained by the Company or any of its ERISA Affiliates or as to which the
Company or any of its ERISA Affiliates has contributed or otherwise may
have any liability, and (ii) "Company Multiemployer Plan" means a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which
the Company or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability. With respect to any Company
Plan which is subject to Title IV of ERISA, the fair market value of the
assets of such Plan are currently (and are expected to be as of the
Effective Time) greater than or equal to the present value of all "benefit
liabilities" (within the meaning of Section 4001(a)(6) of ERISA) of such
Company Plan.
(c) The Company has made available to Parent true and complete (i) copies
of all severance and employment agreements with officers of the Company and
each ERISA Affiliate of the Company, (ii) copies of all severance programs
and policies of the Company with or relating to its employees; and (iii)
copies of all plans, programs, agreements and other arrangements of the
Company with or relating to its employees which contain change of control
or similar provisions.
3.14 COMPLIANCE WITH CERTAIN LAWS. The properties, assets and operations of
the Company and its Subsidiaries are in compliance in all material respects
with all applicable Worker Safety Laws and Environmental Laws, except for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. With respect to such properties, assets and
operations, including any previously owned, leased or operated properties,
assets or operations, there are no past, present or reasonably anticipated
future events, conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of its Subsidiaries that may interfere
with or prevent compliance or continued compliance in all material respects
with applicable Worker Safety Laws and Environmental Laws, other than any such
interference or prevention as
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would not, individually or in the aggregate with any such other interference
or prevention, have a Material Adverse Effect on the Company.
3.15 LIABILITIES. Except as fully reflected or reserved against in the
financial statements included in the Company Annual Report, or disclosed in
the footnotes thereto, the Company and its Subsidiaries had no liabilities
(including, without limitation, tax liabilities) at the date of such financial
statements, absolute or contingent, other than liabilities that, individually
or in the aggregate, would not have a Material Adverse Effect on the Company,
and had no liabilities (including, without limitation, tax liabilities) that
were not incurred in the ordinary course of business. Except as so reflected,
reserved or disclosed, the Company and its Subsidiaries have no commitments,
other than any commitments which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
3.16 LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or labor contract. Neither the
Company nor any of its Subsidiaries has engaged in any unfair labor practice
with respect to any persons employed by or otherwise performing services
primarily for the Company or any of its Subsidiaries (the "Company Business
Personnel"), and there is no unfair labor practice complaint or grievance
against the Company or any of its Subsidiaries by the National Labor Relations
Board or any comparable state agency pending or threatened in writing with
respect to the Company Business Personnel, except where such unfair labor
practice, complaint or grievance would not have a Material Adverse Effect on
the Company. There is no labor strike, dispute, slowdown or stoppage pending
or, to the Knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries which may interfere with the respective
business activities of the Company or any of its Subsidiaries, except where
such dispute, strike or work stoppage would not have a Material Adverse Effect
on the Company. There is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of Company, threatened against or affecting
Company or any of its Subsidiaries which may interfere with the respective
business activities of Company or any of its Subsidiaries, except where such
dispute, strike or work stoppage would not have a Material Adverse Effect on
Company. The Company and all of its Subsidiaries are in compliance with all
federal and state laws respecting employment and employment practices,
immigration, terms and conditions of employment, and wages and hours, except
where noncompliance would not have a Material Adverse Effect on the Company.
With respect to the employees of Company and/or its Subsidiaries, to the
Knowledge of Company, no event has occurred and there exists no condition or
set of circumstances in connection with which Company, or any of its
Subsidiaries or any ERISA Affiliate of Company could be subject to any
liability under any federal or state law handicap or disability discrimination
law, any federal, state or local fair employment practices or
nondiscrimination act, or any other applicable law which would have a Material
Adverse Effect on Company.
3.17 INTELLECTUAL PROPERTY. The Company and its Subsidiaries have all
Intellectual Property Rights as are necessary in connection with the business
of the Company and its Subsidiaries, taken as a whole, except where the
failure to have such Intellectual Property Rights would not have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
has infringed any Intellectual Property Rights of any third party other than
any infringements that, individually or in the aggregate, would have a
Material Adverse Effect on the Company.
3.18 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
BT Alex. Brown Incorporated, dated the date hereof (which opinion is written
or, if initially given verbally, shall immediately hereafter be memorialized
in a written opinion to be delivered to Company), to the effect that, as of
the date hereof, the Conversion Number is fair to the Company's shareholders
from a financial point of view (the "Company Fairness Opinion").
3.19 STATE TAKEOVER STATUTES. The Board of Directors of the Company has, to
the extent such statutes are applicable, (a) taken all action necessary to
exempt Parent, its Subsidiaries and Affiliates, the Merger, this Agreement and
the transactions contemplated hereby from Sections 48-103-101 through 48-103-
505 of the TBCA and (b) taken all action necessary to satisfy the provisions
of Sections 48-103-101 through 48-103-505 of the TBCA. To the Knowledge of the
Company, no other state takeover statutes are applicable to the Merger, this
Agreement and the transactions contemplated hereby.
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3.20 REQUIRED VOTE OF COMPANY SHAREHOLDERS. The affirmative vote of the
holders of not less than a majority of the outstanding shares of Company
Common Stock is required to approve this Agreement (the "Company Required
Vote"). No other vote of the shareholders of the Company is required by law,
the Amended and Restated Charter or Bylaws of the Company or otherwise in
order for the Company to consummate the Merger and the transactions
contemplated hereby.
3.21 POOLING OF INTERESTS; REORGANIZATION. To the Knowledge of the Company,
neither it, any of its Subsidiaries, nor any of its directors or officers has
(i) taken any action or failed to take any action which action or failure
would jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (ii) taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
3.22 BROKERS. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with
the transactions contemplated by this Agreement, other than BT Alex. Brown
Incorporated, and Bear, Stearns & Co. Inc., based upon arrangements made by or
on behalf of the Company.
3.23 EMPLOYMENT AGREEMENTS. Each of Richardson M. Roberts and Gregory S.
Daily has executed an employment agreement with Parent, such employment
agreements to be effective and deemed delivered only upon the Effective Time.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS PENDING THE MERGER.
(a) Actions by Parent. Except as expressly permitted by clauses (i)
through (xiii) of this Section 4.1(a), during the period from the date of
this Agreement through the Effective Time, Parent shall, and shall cause
each of its Subsidiaries to, in all material respects carry on its business
in the ordinary course of its business as currently conducted and, to the
extent consistent therewith, use reasonable best efforts to preserve intact
its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement, Parent shall not, and
shall not permit any of its Subsidiaries to, without the prior written
consent of the Company, which consent for purposes of Section 4.1(a)(iv),
may not be unreasonably withheld or delayed:
(i)(A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in
their capacity as such (other than dividends and other distributions by
Subsidiaries), (B) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) subject to the
limitations of Section 4.4 and 5.9(b), purchase, redeem or otherwise
acquire any shares of capital stock of Parent or any other securities
thereof or those of any Subsidiary or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants
or options to acquire any such shares, voting securities, equity
equivalent or convertible securities, other than (A) the issuance of
shares of Parent Common Stock upon the exercise of Parent Options
outstanding on the date of this Agreement in accordance with their
current terms, (B) the issuance of shares of Parent Common Stock in
connection with acquisitions permitted pursuant to clause (iv) of this
paragraph (a); and (C) the issuance by any wholly-owned Subsidiary of
Parent of its capital stock to Parent or another wholly-owned
Subsidiary of Parent;
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(iii) amend its Articles of Incorporation or Bylaws; provided,
however, that Parent may amend its Articles of Incorporation to
increase its authorized capital stock to 100,000,000 authorized shares
of Parent Common Stock (as referenced in Section 2.2 hereof);
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, except those
transactions in the ordinary course of business which Parent or any of
its Subsidiaries is obligated to consummate, and the consideration for
which consists solely of cash, pursuant to agreements to which Parent
or any of its Subsidiaries is a party in effect as of the date hereof;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that
are in the ordinary course of business consistent with past practice
and not material to Parent and its Subsidiaries taken as a whole;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to,
or other investments in, any other person, other than (A) in the
ordinary course of business consistent with past practice and (B)
indebtedness, loans, advances, capital contributions and investments
between Parent and any of its Subsidiaries or between any of such
Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of Parent or any Subsidiary;
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Parent Plan or
employment or consulting agreement, other than as required by law or by
this Agreement;
(ix) increase the compensation payable or to become payable to its
officers or employees, except for increases in the ordinary course of
business consistent with past practice in salaries or wages of
employees of Parent or any of its Subsidiaries who are not officers of
Parent or any of its Subsidiaries, or grant any severance or
termination pay to, or enter into any employment or severance agreement
with, any director or officer of Parent or any of its Subsidiaries, or
establish, adopt, enter into, or, except as may be required to comply
with applicable law, amend in any material respect or take action to
enhance in any material respect or accelerate any rights or benefits
under, any labor, collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
material federal, state or local law, rule, regulation, guideline or
ordinance;
(xi) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect
to accounting policies or procedures (other than actions required to be
taken by generally accepted accounting principles);
(xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(xiii) authorize, recommend or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
(b) Actions by the Company. Except as expressly permitted by clauses (i)
through (xiii) of this Section 4.1(b), during the period from the date of
this Agreement through the Effective Time, the Company shall, and shall
cause each of its Subsidiaries to, in all material respects carry on its
business in the ordinary
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course of its business as currently conducted and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its current
business organizations, keep available the services of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its goodwill and
ongoing business shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise expressly
contemplated by this Agreement, the Company shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of Parent,
which consent, for purposes of Section 4.1(b)(iv), may not be unreasonably
withheld or delayed:
(i)(A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in
their capacity as such (other than dividends and other distributions by
Subsidiaries), (B) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) subject to the
limitations set forth in Sections 4.4 and 5.9(b), purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any
other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants
or options to acquire any such shares, voting securities, equity
equivalent or convertible securities, other than (A) the issuance of
shares of Company Common Stock upon the exercise of Company Options
outstanding on the date of this Agreement in accordance with their
current terms, (B) the issuance of shares of Company Common Stock in
connection with acquisitions permitted pursuant to clause (iv) of this
paragraph (b), and (C) the issuance by any wholly-owned Subsidiary of
the Company of its capital stock to the Company or another wholly-owned
Subsidiary of the Company;
(iii) amend its Charter or Bylaws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, except those
transactions in the ordinary course of business which the Company or
any of its Subsidiaries is obligated to consummate, and the
consideration for which consists solely of cash, pursuant to agreements
to which the Company or any of its Subsidiaries is a party in effect as
of the date hereof;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that
are in the ordinary course of business consistent with past practice
and not material to the Company and its Subsidiaries taken as a whole;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to,
or other investments in, any other person, other than (A) in the
ordinary course of business consistent with past practices and (B)
indebtedness, loans, advances, capital contributions and investments
between the Company and any of its Subsidiaries or between any of such
Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of the Company or any Subsidiary;
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, other than as required by law;
(ix) except as set forth in Schedule 4.1(b)(ix), increase the
compensation payable or to become payable to its officers or employees,
except for increases in the ordinary course of business consistent with
past practice in salaries or wages of employees of the Company or any
of its Subsidiaries who are not officers of the Company or any of its
Subsidiaries, or grant any severance or termination pay to, or
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enter into any employment or severance agreement with, any director or
officer of the Company or any of its Subsidiaries, or establish, adopt,
enter into, or, except as may be required to comply with applicable
law, amend in any material respect or take action to enhance in any
material respect or accelerate any rights or benefits under, any labor,
collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
material federal, state or local law, rule, regulation, guideline or
ordinance;
(xi) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect
to accounting policies or procedures (other than actions required to be
taken by generally accepted accounting principles);
(xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(xiii) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing.
4.2 NO SOLICITATION.
(a) The Company agrees that, from and after the date hereof, it shall
not, and shall not cause, authorize or permit its Subsidiaries or any of
its officers, directors, agents, attorneys, accountants, advisors,
affiliates and other representatives, or those of any of its Subsidiaries
to, solicit, participate in, or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions or negotiations with,
any person relating to, any "Company Takeover Proposal" (as such term is
defined in Section 4.2(c)); provided, however, that the Company may engage
in discussions or negotiations with, or furnish information concerning the
Company and its Subsidiaries, business, properties or assets to, any third
party which makes a Company Takeover Proposal if the Board of Directors of
the Company concludes in good faith on the basis of the advice of its
outside legal counsel (who may be its regularly engaged outside legal
counsel) that the failure to take such action would violate the fiduciary
obligations of such Board under applicable law. The Company shall promptly
(within 24 hours) advise Parent following the receipt by the Company of any
Company Takeover Proposal and the material terms thereof (including the
identity of the person making such Company Takeover Proposal), and advise
Parent of any developments with respect to such Company Takeover Proposal
immediately upon the occurrence thereof.
(b) Parent agrees that, from and after the date hereof, it shall not, and
shall not cause, authorize or permit its Subsidiaries or any of its
officers, directors, agents, attorneys, accountants, advisors, affiliates
and other representatives, or those of any of its Subsidiaries to, solicit,
participate in, or encourage inquiries or proposals with respect to, or
engage in any negotiations concerning, or provide any confidential
information to, or have any discussions or negotiations with, any person
relating to, any "Parent Takeover Proposal" (as such term is defined in
Section 4.2(d)); provided, however, that Parent may engage in discussions
or negotiations with, or furnish information concerning Parent and its
Subsidiaries, business, properties or assets to, any third party which
makes a Parent Takeover Proposal if the Board of Directors of Parent
concludes in good faith on the basis of the advice of its outside counsel
(who may be its regularly engaged outside counsel) that the failure to take
such action would violate the fiduciary obligations of such Board under
applicable law. Parent shall promptly (within 24 hours) advise the Company
following the receipt by Parent of any Parent Takeover Proposal and the
material terms thereof (including the identity of the person making such
Parent Takeover Proposal), and advise the Company of any developments with
respect to such Parent Takeover Proposal immediately upon the occurrence
thereof.
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(c) "Company Takeover Proposal" means any tender offer or exchange offer,
proposal for a merger, consolidation or other business combination
involving the Company or any of its Subsidiaries or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any of its Subsidiaries, other
than by the transactions contemplated under, or otherwise permitted by,
this Agreement.
(d) "Parent Takeover Proposal" means any tender offer or exchange offer,
proposal for a merger, consolidation or other business combination
involving Parent or any of its Subsidiaries or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, Parent or any of its Subsidiaries, other than by
the transactions contemplated under, or otherwise permitted by, this
Agreement.
4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the date of
this Agreement through the Effective Time, neither Parent nor the Company
shall terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which such party or any of its Subsidiaries is a
party (other than any involving the other party hereto). During such period,
Parent and the Company agree to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court of
the United States or any state thereof having jurisdiction.
4.4 POOLING OF INTERESTS; REORGANIZATION. During the period from the date of
this Agreement through the Effective Time, unless the other party shall
otherwise agree in writing, none of Parent, the Company or any of their
respective Subsidiaries (or Affiliates over which each has control) shall (a)
knowingly take or fail to take any action which action or failure would
jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (b) knowingly take or fail to take any action which
action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. Between the
date of this Agreement and the Effective Time, Parent and the Company each
shall take all reasonable actions necessary to cause the characterization of
the Merger as a pooling of interests for accounting purposes (it being agreed
that such actions will include, if necessary, in the case of Parent, the sale
or transfer for fair value of all shares of Parent Common Stock that currently
are treasury shares). Following the Effective Time, neither Parent nor the
Company shall knowingly take any action, or fail to take any action, that
would jeopardize the characterization of the Merger as a "pooling of
interests" for accounting purposes.
4.5 NO PURCHASE OF SECURITIES; OTHER ACTIONS.
(a) Except as provided in this Agreement or pursuant to the Stock Option
Agreements of even date herewith, during the period from the date of this
Agreement through the earlier of (aa) the Effective Time, or (bb) the
termination of this Agreement, neither Parent nor any of its Subsidiaries
will, in any manner, (i) acquire, or offer to acquire, any equity
securities of the Company (including options to acquire securities), (ii)
acquire, or offer to acquire, any assets of the Company, or (iii) otherwise
act, alone or in concert with others, to seek to control or influence the
management, the Board of Directors or the policies of the Company. Neither
Parent nor any of its Subsidiaries will initiate any request for any waiver
of the foregoing provisions or any consent to any action which otherwise
would be prohibited thereby and may request such a waiver or consent only
if the Company has initiated such request in writing prior thereto.
(b) Except as provided in this Agreement or pursuant to the Stock Option
Agreements of even date herewith, during the period from the date of this
Agreement through the earlier of (aa) the Effective Time, or (bb) the
termination of this Agreement, neither Company nor any of its Subsidiaries
will, in any manner, (i) acquire, or offer to acquire, any equity
securities of Parent (including options to acquire securities),
(ii) acquire, or offer to acquire, any assets of Parent, or (iii) otherwise
act, alone or in concert with others, to seek to control or influence the
management, the Board of Directors or the policies of Parent. Neither the
Company nor any of its Subsidiaries will initiate any request for any
waiver of the foregoing provisions or any consent to any action which
otherwise would be prohibited thereby and may request such a waiver or
consent only if Parent has initiated such request in writing prior thereto.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SHAREHOLDER MEETINGS.
(a) The Company and Parent each shall duly take all lawful action to
call, give notice of, convene and hold a meeting of its shareholders
(respectively, the "Company Shareholder Meeting" and the "Parent
Shareholder Meeting" and, collectively, the "Shareholder Meetings") to be
held as promptly as practicable after the effective date of the
Registration Statement for the purpose of considering, voting upon, and
obtaining the Parent Required Vote and the Company Required Vote with
respect to the approval of this Agreement, the transactions contemplated
hereby and, in the case of Parent, for the additional purposes of
considering and voting upon the Share Issuance and the Parent Amendments.
The Company and Parent shall coordinate and cooperate with respect to the
timing of such meetings and shall use their reasonable best efforts to hold
such meetings on the same day.
(b) The Company and Parent shall take all lawful action to solicit the
adoption of this Agreement by the Company Required Vote and the Parent
Required Vote, respectively. Further, the Parent and Company will, through
their respective Boards of Directors, recommend to their respective
shareholders approval of the matters described in Section 5.1(a) above to
the effects set forth in Section 2.3(a) (with respect to Parent, the
"Parent Recommendation")) and 3.3(a) (with respect to Company, the "Company
Recommendation")) and shall not withdraw, rescind, modify, or materially
qualify in any adverse manner, or take any action or make any statement in
connection with its Shareholders Meeting materially inconsistent with such
recommendation (an "Adverse Change in Recommendation"); provided, however,
that a Board of Directors shall not be required to make such recommendation
or solicit the adoption of this Agreement by the Company Required Vote or
the Parent Required Vote, as the case may be, and shall be entitled to make
an Adverse Change in Recommendation, if such Board concludes in good faith
on the basis of the advice of its outside legal counsel (who may be its
regularly engaged outside legal counsel) that the making of such
recommendation, or the failure to make an Adverse Change in Recommendation,
would violate the fiduciary obligations of such Board under applicable law.
The parties acknowledge and agree that in no event will the exercise by a
party of the provisions of this Section 5.1(b) (allowing such party, for
instance, under certain specified circumstances and acting through its
Board of Directors, to withdraw, rescind, modify, or materially qualify in
any adverse manner its recommendation) excuse or relieve such party of its
obligation to hold its Shareholder Meeting as provided in Section 5.1(a)
above.
5.2 PREPARATION OF THE REGISTRATION STATEMENT AND THE JOINT PROXY
STATEMENT. The Company and Parent shall promptly prepare the Joint Proxy
Statement and Parent shall promptly prepare the Registration Statement, in
which the Joint Proxy Statement will be included, and Parent and Company shall
promptly thereafter file the Registration Statement and Joint Proxy Statement.
Each of Parent and the Company shall use its reasonable best efforts to cause
its financial advisor to reconfirm and reissue, as of the date of mailing of
the Joint Proxy Statement, the Parent Fairness Opinion and the Company
Fairness Opinion, respectively, for inclusion and reference in the Joint Proxy
Statement; provided, however, that in no event shall the reconfirmation and
reissuance of either the Parent Fairness Opinion or the Company Fairness
Opinion be a condition precedent to the obligations set forth in Section 5.1
above or a condition precedent to the mailing of the Joint Proxy Statement.
Further, in no event shall the reconfirmation or reissuance, at whatever date,
of the Parent Fairness Opinion or the Company Fairness Opinion, as the case
may be, constitute a condition precedent to Closing. Each of Parent and the
Company shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, each of Parent and the
Company shall mail the Joint Proxy Statement to its shareholders. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock
in the Merger, and the Company shall furnish all information concerning the
Company and the holders of Company Common Stock as may be reasonably requested
in connection with any such action. No amendment or supplement to the Joint
Proxy Statement or the
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Registration Statement will be made by Parent or the Company without the prior
approval of the other party. Further, to the extent any such amendments or
supplements are required and consented to by each of Parent and the Company,
Parent or the Company, as the case may be, shall promptly prepare and file
such amendement or supplement, as the case may be. Parent and the Company each
will advise the other, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of the qualification of the Parent Common Stock issuable in connection with
the Merger for offering or sale in any jurisdiction, or of any request by the
SEC for amendment of the Joint Proxy Statement or the Registration Statement
or comments thereon and responses thereto or requests by the SEC for
additional information.
5.3 EMPLOYEE BENEFITS MATTERS. Exhibit 5.3 hereto sets forth certain
agreements among the parties hereto with respect to employee benefit matters
and is incorporated herein by reference.
5.4 ACCESS TO INFORMATION. Subject to currently existing contractual and
legal restrictions applicable to Parent or to the Company or any of their
Subsidiaries, each of Parent and the Company shall, and shall cause each of
its Subsidiaries to, afford to the accountants, counsel, financial advisors
and other representatives of the other party hereto reasonable access to, and
permit them to make such inspections as they may reasonably require of, during
normal business hours during the period from the date of this Agreement
through the Effective Time, all their respective properties, books, contracts,
commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, Parent and the Company
shall, and shall cause each of its Subsidiaries to, furnish promptly to the
other (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
federal or state securities laws and (ii) all other information concerning its
business, properties and personnel as the other may reasonably request. No
investigation pursuant to this Section 5.4 shall affect any representation or
warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto. All information obtained by Parent or the
Company pursuant to this Section 5.4 shall be kept confidential in accordance
with that certain Mutual Non-Disclosure Agreement dated May 29, 1998 between
Parent and the Company (the "Non-Disclosure Agreement").
5.5 COMPLIANCE WITH THE SECURITIES ACT; POOLING PERIOD.
(a) Prior to the Effective Time, the Company shall cause to be prepared
and delivered to Parent a list (reasonably satisfactory to counsel for
Parent) identifying all persons who, at the time of the Company Shareholder
Meeting, in the Company's reasonable judgment, may be deemed to be
"affiliates" of the Company as that term is used in paragraphs (c) and (d)
of Rule 145 promulgated under the Securities Act (the "Rule 145
Affiliates"). The Company shall use its reasonable best efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to
deliver to Parent on or prior to the Effective Time a written agreement, in
substantially the form of Exhibit 5.5(a) hereto. Parent shall publish, in a
manner that satisfies the "publication" requirements under applicable SEC
rules or accounting releases, financial results (including combined sales
and net income) covering at least 30 days of post-Merger operations no
later than 60 days following the first quarter-end that is at least 30 days
after the Effective Time. The period commencing 30 days prior to the
Effective Time and ending on the date of the publication of the post-Merger
financial results is referred to herein as the "Pooling Period."
(b) Prior to the Effective Time, Parent shall deliver to the Company a
list (reasonably satisfactory to counsel to the Company) identifying those
persons who may be, in Parent's reasonable judgment, at the time of the
Parent Shareholder Meeting, affiliates of Parent under applicable SEC
accounting releases with respect to pooling of interests accounting
treatment. Parent shall provide the Company such information and documents
as the Company shall reasonably request for purposes of reviewing such
list. Parent shall use its reasonable best efforts to deliver or cause to
be delivered to the Company, prior to the Effective Time, a written
agreement in substantially the form of Exhibit 5.5(b) hereto, executed by
each of such persons identified in the foregoing list.
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(c) At the Effective Time, Parent and the persons listed on Schedule
5.5(c) shall have executed and delivered a Registration Rights Agreement in
the form attached as Exhibit 5.5(c).
5.6 STOCK EXCHANGE LISTINGS. Parent shall obtain approval for the listing of
the shares of Parent Common Stock to be issued in connection with the Merger.
5.7 FEES AND EXPENSES. Except as provided in this Section 5.7, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby including,
without limitation, the fees and disbursements of counsel, financial advisors
and accountants, shall be paid by the party incurring such costs and expenses,
provided that all printing expenses and filing fees shall be divided equally
between Parent and the Company.
5.8 COMPANY OPTIONS; STOCK PURCHASE PLAN.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company or the holder thereof, each
"Company Option" will be assumed or substituted by Parent in such manner
that Parent (i) is a corporation "issuing or assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of Section
424(a) of the Code or (ii) Parent, to the extent that Section 424 of the
Code does not apply to any such Company Options, would be such a
corporation were Section 424 of the Code applicable to such Company
Options. At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company, the Parent or the holder of any
Company Option, each Company Option will be automatically converted into a
Parent Option to purchase a number of shares of Parent Common Stock equal
to the number of shares of Company Common Stock that could have been
purchased (assuming full vesting) under such Company Option multiplied by
the Conversion Number (rounded to the nearest whole number of shares of
Parent Common Stock) at a price per share of Parent Common Stock equal to
the per share option exercise price specified in the Company Option divided
by the Conversion Number (rounded to the nearest whole cent). Each such
Parent Option shall contain terms and provisions which are substantially
similar to those terms, conditions and provisions contained in the original
Company Option, except that references to the Company in such Company
Option will be deemed to refer to Parent and the date of grant of the
Parent Option for purposes of interpretation for terms, conditions and
provisions in the new Parent Option shall be deemed to be the date of grant
of such Company Option. For Federal income tax purposes, the date of grant
of the substituted Parent Option shall be the date on which the
corresponding Company Option was granted. At the Effective Time, for
purposes of interpretation of such new Parent Options, (i) all references
in any stock option plan of the Company shall be deemed to refer to Parent;
(ii) any stock option plan of the Company which governs a Company Option
shall continue to govern the Parent Option substituted therefor; and (iii)
Parent shall, as soon as practicable after the Effective Time, issue to
each holder of an outstanding Company Option a document evidencing the
foregoing issued and substituted Parent Option by Parent. At the Effective
Time, by virtue of the Merger and without any further action on the part of
the Company, each Company Option shall become fully vested pursuant to the
terms and provisions of the agreement pertaining to such option and the
plan (as amended and restated, if applicable) under which such option was
granted. It is the intention of the parties: (1) that, subject to
applicable law, the Company Options assumed by Parent qualify, following
the Effective Time, as incentive stock options, as defined in Section 422
of the Code, to the extent that the Company Options qualified as incentive
stock options prior to the Effective Time, (2) that each holder of a
Company Option shall receive a new Parent Option which preserves (but does
not increase) the excess of the fair market value of the shares subject to
the option immediately before the Effective Time over the aggregate option
price of such shares immediately before the Effective Time, (3) that the
terms, conditions, restrictions and provisions of the Parent Option be
identical to the terms, conditions, restrictions and provisions of the
Company Option for which it was substituted assuming that the Parent had
originally issued such Company Option for Parent Common Stock, and (4) any
terms, conditions, restrictions or provisions of an option applicable to a
number of shares rather than a percentage or fraction of shares should be
appropriately adjusted based upon the Conversion Number. No options shall
be issued by Company on or after the Effective Time under any stock option
plan currently maintained by the Company.
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(b) With respect to each Company Option converted into a Parent Option
pursuant to Section 5.8(a), and with respect to the shares of Parent Common
Stock underlying such option, Parent shall file and keep current all
requisite registration statements, on Form S-8 or other appropriate form,
for as long as such options remain outstanding, which registration
statement shall include a prospectus meeting the requirements of General
Instruction C to Form S-8 with respect to affiliates of the Company,
subject at all times to compliance with all applicable federal and state
securities laws.
(c) Except as provided in Section 4.1(b)(ix), the Company agrees that it
will not grant any restricted stock, stock appreciation rights or limited
stock appreciation rights and also agrees that it will not permit cash
payments to holders of Company Options in lieu of the substitution therefor
of Parent Options, as described in this Section 5.8.
5.9 REASONABLE BEST EFFORTS; POOLING OF INTERESTS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including, but not limited to: (i) the
obtaining of all necessary actions or non-actions, waivers, consents and
approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities)
and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with the HSR Act and
State Takeover Approvals), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement. No party to this Agreement shall consent to any voluntary delay
of the consummation of the Merger at the behest of any Governmental Entity
without the consent of the other parties to this Agreement, which consent
shall not be unreasonably withheld.
(b) Each of Parent and the Company agrees to take, together with their
respective accountants, all actions reasonably necessary in order to obtain
a favorable determination (if required) from the SEC that the Merger may be
accounted for as a pooling of interests in accordance with generally
accepted accounting principles.
(c) Each party shall use all reasonable best efforts to not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or
result in a breach of any covenant or agreement made by it in this
Agreement.
(d) Notwithstanding anything to the contrary contained in this Agreement,
in connection with any filing or submission required or action to be taken
by either Parent or the Company to effect the Merger and to consummate the
other transactions contemplated hereby, the Company shall not, without
Parent's prior written consent, commit to any divestiture transaction, and
neither Parent nor any of its Affiliates shall be required to divest or
hold separate or otherwise take or commit to take any action that limits
its freedom of action with respect to, or its ability to retain, the
Company or any of the material businesses, product lines or assets of
Parent or any of its Affiliates or that otherwise would have a Material
Adverse Effect on Parent.
5.10 PUBLIC ANNOUNCEMENTS. Parent and the Company will not issue any press
release with respect to the transactions contemplated by this Agreement or
otherwise issue any written public statements with respect to such
transactions other than upon mutual agreement and cooperation with the other
party, except as may be required by applicable law or by obligations pursuant
to any listing agreement with any national securities exchange. Parent and the
Company also agree to reasonably cooperate regarding any written
communications
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which relate to the transactions contemplated by this Agreement made to their
employees during the period from the date hereof until the Effective Time.
5.11 STATE TAKEOVER LAWS. If any "fair price," "business combination",
"control share acquisition", or "greenmail" statute or other similar statute
or regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use
their reasonable best efforts to obtain or grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to minimize the effects of any such statute or regulation on the
transactions contemplated hereby.
5.12 NOTIFICATION OF CERTAIN MATTERS. Parent shall use its reasonable best
efforts to give prompt notice to the Company, and the Company shall use its
reasonable best efforts to give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which it is aware and which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all
material respects, (ii) any failure of Parent or the Company, as the case may
be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder or (iii) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Parent or the Company, as the case may be; provided, however, that the
delivery of any notice pursuant to this Section 5.12 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.13 RESIGNATION OF DIRECTORS. The Company shall cause each director of the
Company to resign as a director of the Company immediately after the Effective
Time. Immediately thereafter, the Board of Directors of the Company shall be
comprised of the individuals identified on Schedule 1.4.
5.14 BOARD OF DIRECTORS OF PARENT. Effective at the Effective Time, the
Board of Directors of Parent shall consist of eleven (11) directors (the
"Directors"), that five (5) of such Directors shall have been duly appointed
by Parent, five (5) of such Directors shall have been duly appointed by the
Company, and one (1) Director shall have been nominated by Parent and approved
by the Company (and such Director shall not be employed by either Parent, the
Company, nor any Subsidiary or Affiliate thereof). Effective at the Effective
Time, the Parent's Board of Directors, and the Compensation Committee of the
Board of Directors, shall consist of the individuals identified on Schedule
5.14 attached hereto, and each of Richardson M. Roberts and Gregory S. Daily
shall serve, together with James M. Bahin, as a Vice Chairman of Parent.
5.15 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. For six years from
and after the Effective Time, Parent agrees not to, and agrees to cause the
Surviving Corporation not to, alter the provisions of the Company's Amended
and Restated Charter and Bylaws relating to indemnification of officers and
directors of the Company and its Subsidiaries for acts or omissions occurring
at or prior to the Effective Time. Parent shall cause the Surviving
Corporation to provide, for a period of six years from the Effective Time, the
Company's current directors and officers an insurance and indemnification
policy that provides coverage for events occurring prior to the Effective Time
(the "D&O Insurance") that is no less favorable than the Company's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Surviving Corporation
shall not be required to pay an annual premium for the D&O Insurance in excess
of 300 percent of the last annual premiums paid prior to the date hereof
(which premiums the Company represents and warrants to be approximately
$85,000), but in such case shall purchase as much coverage as possible for
such amount.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the transactions
contemplated hereby shall have been duly approved by the requisite vote of
shareholders of the Company in accordance with applicable law, and the
Amended and Restated Charter and Bylaws of the Company, and the Share
Issuance, this Agreement, and the transactions contemplated hereby
(including, if applicable, any Conversion Number Adjustment pursuant to
Section 7.1(g)) shall have been approved by the requisite vote of the
shareholders of Parent in accordance with applicable rules of the NYSE,
applicable law and the Articles of Incorporation and Bylaws of Parent.
(b) Stock Exchange Listings. The Parent Common Stock issuable in the
Merger shall have been approved for listing on the NYSE, subject to notice
of issuance.
(c) HSR and Other Approvals.
(i) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(ii) All authorizations, consents, orders, declarations or approvals
of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity, which the failure to obtain, make
or occur would have the effect of making the Merger or any of the
transactions contemplated hereby illegal or would have a Material
Adverse Effect on Parent (assuming the Merger had taken place), shall
have been obtained, shall have been made or shall have occurred.
(d) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose, and no action
to limit, stop or prohibit the mailing of the Joint Proxy Statement to
shareholders, shall have been initiated or, to the Knowledge of Parent or
the Company, threatened by the SEC. All necessary state securities or blue
sky authorizations (including State Takeover Approvals) shall have been
received.
(e) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making the Merger or any of the transactions contemplated hereby
illegal.
6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Company
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shall have received a certificate signed on behalf of each of Parent and
Sub by its Chief Executive Officer and its Chief Financial Officer to such
effect.
(b) Tax Opinion. The Company shall have received an opinion of counsel to
the Company, in form and substance reasonably satisfactory to the Company,
dated the Effective Time, substantially to the effect that on the basis of
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Sub or the Company
as a result of the Merger; and
(iii) except with respect to cash received in lieu of a fractional
share interest, no gain or loss will be recognized by the shareholders
of the Company upon the conversion of their shares of Company Common
Stock into shares of Parent Common Stock pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock.
In rendering such opinion, counsel to the Company shall receive and may
rely upon such representations as reasonably requested by counsel to the
Company from Parent, the Company, and others, including representations
from Parent substantially similar to the representations in Section 2.9
hereof and representations from the Company substantially similar to the
representations in Section 3.9 hereof.
(c) Pooling Opinion. The Company shall have received the opinion of Price
Waterhouse LLP, dated as of the date on which the Registration Statement
shall become effective and the Effective Time, to the effect that the
Merger qualifies for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 if consummated in accordance
with this Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE MERGER. The
obligations of Parent and Sub to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and Parent shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and its Chief Financial Officer
to such effect.
(b) Tax Opinion. Parent shall have received an opinion of counsel to
Parent, in form and substance reasonably satisfactory to the Company, dated
the Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
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(ii) no gain or loss will be recognized by Parent, Sub or the Company
as a result of the Merger; and
(iii) except with respect to cash received in lieu of a fractional
share interest, no gain or loss will be recognized by the shareholders
of the Company upon the conversion of their shares of Company Common
Stock into shares of Parent Common Stock pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock.
In rendering such opinion, counsel to Parent shall receive and may rely
upon such representations as reasonably requested by counsel to Parent from
Parent, the Company, and others, including representations from Parent
substantially similar to the representations in Section 2.9 hereof and
representations from the Company substantially similar to the
representations in Section 3.9 hereof.
(c) Pooling Opinion. Parent shall have received the opinion of Ernst &
Young LLP, dated as of the date on which the Registration Statement shall
become effective and the Effective Time, to the effect that the Merger
qualifies for pooling-of-interests accounting treatment under Accounting
Principles Board Opinion No. 16 if consummated in accordance with this
Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after any approval of the matters presented
in connection with the Merger by the shareholders of the Company or Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company, if the other party shall have failed
to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date
of such termination, which failure to comply has not been cured within five
business days following receipt by such other party of written notice of
such failure to comply; provided, however, that if any such breach is
curable by the breaching party through the exercise of the breaching
party's best efforts and for so long as the breaching party shall be so
using its best efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph;
(c) by either Parent or the Company, if there has been (i) a breach by
the other party (in the case of Parent, including any material breach by
Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty
not true and correct in all material respects or (ii) a breach by the other
party (in the case of Parent, including any material breach by Sub) of any
representation or warranty that is qualified as to materiality, in each
case which breach has not been cured within five business days following
receipt by the breaching party of written notice of the breach; provided,
however, that if any such breach is curable by the breaching party through
the exercise of the breaching party's best efforts and for so long as the
breaching party shall be so using its best efforts to cure such breach, the
non-breaching party may not terminate this Agreement pursuant to this
paragraph;
(d) by Parent or the Company, if: (i) the Merger has not been effected on
or prior to the close of business on November 30, 1998 (the "Termination
Date", subject to extension as provided herein); provided, however, that
(A) the right to terminate this Agreement pursuant to this Section 7.1(d)
shall not be available to any party whose failure to fulfill any of its
obligations contained in this Agreement has been the cause of, or resulted
in, the failure of the Merger to have occurred on or prior to the aforesaid
date; and (B) the Termination Date may be extended prior to the termination
hereof by written notice of either Parent or the Company to the other to a
date not later than February 28, 1999, if the Merger shall not have been
consummated as a result of the Company or Parent having failed by November
30, 1998 to receive all required regulatory approvals or consents with
respect to the Merger necessary to satisfy the condition set
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forth in Section 6.1(c); or (ii) any court or other Governmental Entity
having jurisdiction over a party hereto shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable;
(e) by Parent or the Company, if the shareholders of the Company do not
approve this Agreement and the transactions contemplated hereby at the
Company Shareholder Meeting or any adjournment or postponement thereof;
(f) by Parent or the Company, if the shareholders of Parent do not
approve this Agreement, the transactions contemplated hereby, and the Share
Issuance at the Parent Shareholder Meeting or any adjournment or
postponement thereof;
(g) by the Company, if the product of the Conversion Number and the
average closing price of Parent for the ten trading-day period immediately
preceding the day which is two (2) business days before the Closing Date
would result in each shareholder of the Company receiving consideration
with a value of less than $15.00 per share of the Company Common Stock held
by such shareholder as so measured; provided; however, that before the
Company may terminate this Agreement pursuant to this Section 7.1(g), the
Company shall provide written notice of such intent at least one (1)
business day prior to the Closing Date. After receipt of such notice,
Parent shall have until the Closing Date to notify the Company of its
election to submit to its shareholders for approval a "Conversion Number
Adjustment" (as defined in this Section 7.1(g)). So long as Parent secures
and delivers to the Company "Revised Shareholder Agreements" (as defined
herein), the Company shall not have the right to terminate this Agreement
pursuant to this Section 7.1(g) pending the approval of Parent's
shareholders of the Conversion Number Adjustment. For purposes of this
Section 7.1(g), "Conversion Number Adjustment" shall mean the appropriate
adjustment of the Conversion Number to provide that each shareholder of the
Company shall receive consideration at Closing with a value equal to $15.00
per share of Company Common Stock held by such shareholder; "Revised
Shareholder Agreements" shall mean those Shareholder Agreements executed by
the Company and certain shareholders of Parent of even date herewith, as
amended to provide that each such shareholder shall vote in favor of this
Agreement, the Merger, the Share Issuance, the Parent Amendments, and the
other transactions hereby contemplated, notwithstanding the adjustment of
the Conversion Number pursuant to this Section 7.1(g). Notwithstanding
anything to the contrary in this Section 7.1(g), the Conversion Number
Adjustment mechanism described herein may be invoked only once.
(h) by Parent, if: (i) the Board of Directors of the Company shall not
have made the Company Recommendation, or shall have resolved not to make
the Company Recommendation, or shall have made an Adverse Change in
Recommendation, or shall have resolved to do so; (ii) the Board of
Directors of the Company shall have recommended to the shareholders of the
Company any Company Takeover Proposal, or shall have resolved to do so; or
(iii) a tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of the Company is commenced, and the Board of
Directors of the Company fails to recommend against acceptance of such
tender offer or exchange offer by its shareholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its shareholders);
(i) by the Company, if: (i) the Board of Directors of Parent shall not
have made the Parent Recommendation, or shall have resolved not to make the
Parent Recommendation, or shall have made an Adverse Change in
Recommendation, or shall have resolved to do so; or (ii) the Board of
Directors of Parent shall have recommended to the shareholders of Parent
any Parent Takeover Proposal, or shall have resolved to do so; or (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of the Company is commenced, and the Board of Directors of
Parent fails to recommend against acceptance of such tender offer or
exchange offer by its shareholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders);
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
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controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either Parent or the Company, as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
the Company, Parent, Sub or their respective officers or directors (except for
the last sentence of Section 5.4 and the entirety of Section 5.7 and Article
VIII, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Merger by the shareholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 WAIVER. At any time prior to the Effective Time, the parties hereto may
(i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements in this Agreement or in any
Schedule, Exhibit or instrument delivered pursuant to this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I, Section 4.4, Section 5.14, Section 5.15 and this Article
VIII shall survive the Effective Time, and those set forth in the last
sentence of Section 5.4, Sections 5.7 and 7.2 and this Article VIII shall
survive termination.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: Edward Grzedzinski
Chief Executive Officer
Facsimile No.: (770) 698-1013
A-35
<PAGE>
with copies to:
Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Facsimile No.: (404) 527-4198
(b) if to the Company, to
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Attention: Richardson M. Roberts
Chief Executive Officer
Facsimile No.: (615) 254-1501
with copies to:
Waller Lansden Dortch & Davis,
a Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: J. Chase Cole, Esq.
Facsimile No.: (615) 244-6804
8.3 INTERPRETATION. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, except
as provided in the last sentence of Section 5.4, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
8.6 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Tennessee, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably waives its right to a trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Agreement or the actions of Parent, the Company, or Sub in the
negotiation, administration, performance and enforcement thereof.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties.
8.8 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions
A-36
<PAGE>
contemplated hereby are not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
8.9 ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, such remedy being in addition to any other
remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
and Plan of Merger to be signed by their respective officers thereunto duly
authorized all as of the date first written above.
"PARENT:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
---------------------------------
Edward Grzedzinski
Chief Executive Officer
"SUB:"
CHURCH MERGER CORP.
By: /s/ Edward Grzedzinski
---------------------------------
Edward Grzedzinski
Chief Executive Officer
"COMPANY:"
PMT SERVICES, INC.
By: /s/ Richardson M. Roberts
---------------------------------
Richardson M. Roberts
Chief Executive Officer
A-37
<PAGE>
Exhibits and Schedules Omitted
A-38
<PAGE>
Exhibit 4.1
SHAREHOLDER AGREEMENT
AGREEMENT dated as of June 17, 1998, between NOVA CORPORATION, a Georgia
corporation ("NOVA") and RICHARDSON M. ROBERTS (the "Shareholder").
W I T N E S S E T H:
-------------------
WHEREAS, immediately prior to the execution of this Agreement, NOVA, PMT
Services, Inc., a Tennessee corporation (the "Company"), and Church Merger
Corp., a Tennessee corporation ("Merger Subsidiary"), have entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"), pursuant to which Merger Subsidiary will
be merged with and into the Company (the "Merger"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, NOVA has requested that the Shareholder agree, and the Shareholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
SECTION 1. CERTAIN DEFINITIONS. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement.
For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in writing, but
shall in no event include securities held in a fiduciary or custodial
capacity. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d) of the Exchange
Act with respect to securities of the same issuer.
(b) "Company Common Stock" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "Existing Shares" shall mean the shares of Company Common Stock
Beneficially Owned by the Shareholder on the date hereof.
(d) "Shares" shall mean the Existing Shares and any shares of Company
Common Stock and/or other equity securities of the Company acquired by the
Shareholder in any capacity after the date hereof and prior to the
termination of this Agreement, whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution,
split-up, recapitalization, combination, exchange of shares or the like,
gift, bequest, inheritance or as a successor in interest in any capacity or
otherwise Beneficially Owned by the Shareholder.
SECTION 2. VOTING OF COMPANY COMMON STOCK. In the event that the Board of
Directors of the Company has approved the Merger Agreement and the transactions
contemplated thereby and has recommended (and has not made an Adverse Change in
Recommendation) that the shareholders of the Company approve the Merger
Agreement, the Shareholder hereby agrees that at any meeting (whether
<PAGE>
annual or special and whether or not an adjourned or postponed meeting) of the
holders of Company Common Stock, however called, or in connection with any
written consent of the holders of Company Common Stock, the Shareholder will
appear at the meeting or otherwise cause the Shares then held of record or
Beneficially Owned by the Shareholder to be counted as present thereat for
purposes of establishing a quorum and the Shareholder shall vote or consent (or
cause to be voted or consented) the Shares then held of record or Beneficially
Owned by the Shareholder in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval and adoption of the terms
thereof, and each of the other actions contemplated by the Merger Agreement and
any actions required in furtherance thereof, unless, following the date hereof
(any of the following constituting a "Specified Transaction Exception"): (i) the
Shareholder has voted for the approval of another transaction that will result
or has resulted in a "Specified Transaction" (as defined below), (ii) any person
(as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act)
shall have made a bona fide unsolicited proposal to the Company or the
Shareholder by public announcement or written communication, that is or becomes
the subject of public disclosure, of a transaction that would result in a
Specified Transaction (the "Proposal"), and such Proposal has not been publicly
withdrawn prior to the vote of shareholders of the Company relating to the
Merger, or (iii) the Merger Agreement is otherwise amended in a manner which, in
Shareholder's reasonable judgment exercised in good faith, is materially adverse
to Shareholder's interests; provided, however, that in the case of either clause
"(i)" or "(ii)" that the Company shall not be in breach or violation of (aa)
Section 4.2 of the Merger Agreement, or (bb) Section 3.7(A) of the Merger
Agreement (but only to the extent that such breach or violation of Section
3.7(A) results from or arises out of an agreement existing at the date of
signing of the Merger Agreement and relating to or in contemplation of the
transaction triggering the Specified Transaction Exception hereunder).
For the purposes of this Agreement, a "Specified Transaction" means (i) a
merger, reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company as a result of which either (A) the Company's stockholders prior to such
transaction (by virtue of their ownership of the Company's shares) in the
aggregate cease to own at least 50% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof), or (B) the individuals comprising the board of directors of the
Company prior to such transaction do not constitute a majority of the board of
directors of such ultimate parent entity, (ii) a sale, lease, exchange, transfer
or other disposition of at least 50% of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or (iii) the acquisition, directly or indirectly, by a person of
beneficial ownership of 50% or more of the common stock of the Company whether
by merger, consolidation, share exchange, business combination, tender or
exchange offer or otherwise; provided that the Merger shall not be deemed a
Specified Transaction.
SECTION 3. TERMINATION. The provisions of this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the termination of
the Merger Agreement in accordance with its terms.
SECTION 4. CONFIDENTIALITY. The Shareholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, the Shareholder hereby agrees,
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than to the Company and its and the Company's counsel and
advisors) without the prior written consent of NOVA and the Company, except for
filings required pursuant to the Exchange Act and the rules and regulations
thereunder or disclosures its counsel advises are necessary in order to fulfill
its obligations imposed by law, in which event the Shareholder shall give prior
notice of such disclosure to NOVA and the Company as promptly as practicable so
as to enable NOVA and the Company to seek a protective order from a court of
competent jurisdiction with respect thereto.
2
<PAGE>
SECTION 5. DISCLOSURE. The Shareholder hereby agrees to permit the Company
to publish and disclose in NOVA's Form S-4 Registration Statement and the Joint
Proxy Statement included therein relating to the Merger (including all
documents, exhibits and schedules filed with the SEC), and any press release or
other disclosure document which NOVA's and the Company's counsel advises are
necessary or desirable in connection with the Merger and any transactions
related thereto, the Shareholder's identity and ownership of Company Common
Stock, and the nature of its commitments, arrangements and understandings under
this Agreement.
SECTION 6. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and thereof
and supersedes all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof and
thereof.
(b) Binding Agreement. The Shareholder agrees that this Agreement and
-----------------
the obligations hereunder shall be binding on Shareholder and upon any
affiliate of Shareholder to which legal or Beneficial Ownership of such
Shares shall pass, whether by operation of law, for value or otherwise.
Notwithstanding any such transfer of Shares to an affiliate of Shareholder,
the transferor shall remain liable for the performance of all obligations
under this Agreement of the transferor.
(c) Assignment. No party may assign any of its rights or obligations
----------
hereunder, by operation of law or otherwise, without the prior written
consent of the other parties.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
------------------------
changed, supplemented, waived or otherwise modified or terminated, except
upon the execution and delivery of a written agreement executed by the
parties hereto.
(e) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if given) by hand delivery or telecopy
(with a confirmation copy sent for next day delivery via courier services,
such as Federal Express), or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to Shareholder: Richardson M. Roberts
Chief Executive Officer
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Telephone: (615) 743-3800
Facsimile: (615) 254-1501
If to NOVA: NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: Edward Grzedzinski
3
<PAGE>
Chief Executive Officer
Telephone: (770) 396-1456
Facsimile: (770) 698-1013
with a copy to: Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
(which shall not 303 Peachtree Street, N.E.
constitute notice) Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Telephone: (404) 527-4040
Facsimile: (404) 527-4198
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
------------
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had not been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
--------------------
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore, each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
-------------------
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
---------
power or remedy provided under this Agreement or otherwise available in
respect thereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. Except for Sections 4 and 5 hereof
----------------------------
with respect to the Company, this Agreement is not intended to be for the
benefit of, and shall not be enforceable by, any Person who or which is not
a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Georgia, without giving effect to
the principles of conflicts of law thereof.
4
<PAGE>
(l) Further Assurances. From time to time, at the other party's
------------------
reasonable request, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be
necessary to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement
(m) Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
(Signatures begin on following page)
5
<PAGE>
IN WITNESS WHEREOF, NOVA and the Shareholder have caused this Agreement to be
duly executed as of the day and year first above written.
"NOVA:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
--------------------------------------
Edward Grzedzinski
Chief Executive Officer
"SHAREHOLDER:"
/s/ Richardson M. Roberts
-----------------------------------------
Richardson M. Roberts
6
<PAGE>
Exhibit 4.2
SHAREHOLDER AGREEMENT
AGREEMENT dated as of June 17, 1998, between NOVA CORPORATION, a Georgia
corporation ("NOVA") and GREGORY S. DAILY (the "Shareholder").
W I T N E S S E T H:
-------------------
WHEREAS, immediately prior to the execution of this Agreement, NOVA, PMT
Services, Inc., a Tennessee corporation (the "Company"), and Church Merger
Corp., a Tennessee corporation ("Merger Subsidiary"), have entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"), pursuant to which Merger Subsidiary will
be merged with and into the Company (the "Merger"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, NOVA has requested that the Shareholder agree, and the Shareholder
has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
SECTION 1. CERTAIN DEFINITIONS. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement.
For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in writing, but
shall in no event include securities held in a fiduciary or custodial
capacity. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would
constitute a "group" within the meaning of Section 13(d) of the Exchange
Act with respect to securities of the same issuer.
(b) "Company Common Stock" shall mean at any time the common stock, $.01
par value, of the Company.
(c) "Existing Shares" shall mean the shares of Company Common Stock
Beneficially Owned by the Shareholder on the date hereof.
(d) "Shares" shall mean the Existing Shares and any shares of Company
Common Stock and/or other equity securities of the Company acquired by the
Shareholder in any capacity after the date hereof and prior to the
termination of this Agreement, whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution,
split-up, recapitalization, combination, exchange of shares or the like,
gift, bequest, inheritance or as a successor in interest in any capacity or
otherwise Beneficially Owned by the Shareholder.
SECTION 2. VOTING OF COMPANY COMMON STOCK. In the event that the Board of
Directors of the Company has approved the Merger Agreement and the transactions
contemplated thereby and has recommended (and has not made an Adverse Change in
Recommendation) that the shareholders of the Company approve the Merger
Agreement, the Shareholder hereby agrees that at any meeting (whether
<PAGE>
annual or special and whether or not an adjourned or postponed meeting) of the
holders of Company Common Stock, however called, or in connection with any
written consent of the holders of Company Common Stock, the Shareholder will
appear at the meeting or otherwise cause the Shares then held of record or
Beneficially Owned by the Shareholder to be counted as present thereat for
purposes of establishing a quorum and the Shareholder shall vote or consent (or
cause to be voted or consented) the Shares then held of record or Beneficially
Owned by the Shareholder in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the approval and adoption of the terms
thereof, and each of the other actions contemplated by the Merger Agreement and
any actions required in furtherance thereof, unless, following the date hereof
(any of the following constituting a "Specified Transaction Exception"): (i) the
Shareholder has voted for the approval of another transaction that will result
or has resulted in a "Specified Transaction" (as defined below), (ii) any person
(as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act)
shall have made a bona fide unsolicited proposal to the Company or the
Shareholder by public announcement or written communication, that is or becomes
the subject of public disclosure, of a transaction that would result in a
Specified Transaction (the "Proposal"), and such Proposal has not been publicly
withdrawn prior to the vote of shareholders of the Company relating to the
Merger, or (iii) the Merger Agreement is otherwise amended in a manner which, in
Shareholder's reasonable judgment exercised in good faith, is materially adverse
to Shareholder's interests; provided, however, that in the case of either clause
"(i)" or "(ii)" that the Company shall not be in breach or violation of (aa)
Section 4.2 of the Merger Agreement, or (bb) Section 3.7(A) of the Merger
Agreement (but only to the extent that such breach or violation of Section
3.7(A) results from or arises out of an agreement existing at the date of
signing of the Merger Agreement and relating to or in contemplation of the
transaction triggering the Specified Transaction Exception hereunder).
For the purposes of this Agreement, a "Specified Transaction" means (i) a
merger, reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company as a result of which either (A) the Company's stockholders prior to such
transaction (by virtue of their ownership of the Company's shares) in the
aggregate cease to own at least 50% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof), or (B) the individuals comprising the board of directors of the
Company prior to such transaction do not constitute a majority of the board of
directors of such ultimate parent entity, (ii) a sale, lease, exchange, transfer
or other disposition of at least 50% of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or (iii) the acquisition, directly or indirectly, by a person of
beneficial ownership of 50% or more of the common stock of the Company whether
by merger, consolidation, share exchange, business combination, tender or
exchange offer or otherwise; provided that the Merger shall not be deemed a
Specified Transaction.
SECTION 3. TERMINATION. The provisions of this Agreement shall terminate
upon the earlier to occur of (i) the Effective Time, and (ii) the termination of
the Merger Agreement in accordance with its terms.
SECTION 4. CONFIDENTIALITY. The Shareholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, the Shareholder hereby agrees,
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than to the Company and its and the Company's counsel and
advisors) without the prior written consent of NOVA and the Company, except for
filings required pursuant to the Exchange Act and the rules and regulations
thereunder or disclosures its counsel advises are necessary in order to fulfill
its obligations imposed by law, in which event the Shareholder shall give prior
notice of such disclosure to NOVA and the Company as promptly as practicable so
as to enable NOVA and the Company to seek a protective order from a court of
competent jurisdiction with respect thereto.
2
<PAGE>
SECTION 5. DISCLOSURE. The Shareholder hereby agrees to permit the
Company to publish and disclose in NOVA's Form S-4 Registration Statement and
the Joint Proxy Statement included therein relating to the Merger (including all
documents, exhibits and schedules filed with the SEC), and any press release or
other disclosure document which NOVA's and the Company's counsel advises are
necessary or desirable in connection with the Merger and any transactions
related thereto, the Shareholder's identity and ownership of Company Common
Stock, and the nature of its commitments, arrangements and understandings under
this Agreement.
SECTION 6. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and thereof
and supersedes all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof and
thereof.
(b) Binding Agreement. The Shareholder agrees that this Agreement and
-----------------
the obligations hereunder shall be binding on Shareholder and upon any
affiliate of Shareholder to which legal or Beneficial Ownership of such
Shares shall pass, whether by operation of law, for value or otherwise.
Notwithstanding any such transfer of Shares to an affiliate of Shareholder,
the transferor shall remain liable for the performance of all obligations
under this Agreement of the transferor.
(c) Assignment. No party may assign any of its rights or obligations
----------
hereunder, by operation of law or otherwise, without the prior written
consent of the other parties.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
------------------------
changed, supplemented, waived or otherwise modified or terminated, except
upon the execution and delivery of a written agreement executed by the
parties hereto.
(e) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if given) by hand delivery or telecopy
(with a confirmation copy sent for next day delivery via courier services,
such as Federal Express), or by any courier service, such as Federal
Express, providing proof of delivery. All communications hereunder shall be
delivered to the respective parties at the following addresses:
If to Shareholder: Gregory S. Daily
President
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Telephone: (615) 743-3800
Facsimile: (615) 254-1501
If to NOVA: NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: Edward Grzedzinski
3
<PAGE>
Chief Executive Officer
Telephone: (770) 396-1456
Facsimile: (770) 698-1013
with a copy to: Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
(which shall not 303 Peachtree Street, N.E.
constitute notice) Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Telephone: (404) 527-4040
Facsimile: (404) 527-4198
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
------------
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction
as if such invalid, illegal or unenforceable provision or portion of any
provision had not been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
--------------------
acknowledges that a breach by it of any covenants or agreements contained
in this Agreement will cause the other party to sustain damages for which
it would not have an adequate remedy at law for money damages, and
therefore, each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other
equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
-------------------
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
---------
power or remedy provided under this Agreement or otherwise available in
respect thereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. Except for Sections 4 and 5 hereof
----------------------------
with respect to the Company, this Agreement is not intended to be for the
benefit of, and shall not be enforceable by, any Person who or which is not
a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Georgia, without giving effect to
the principles of conflicts of law thereof.
4
<PAGE>
(l) Further Assurances. From time to time, at the other party's
------------------
reasonable request, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be
necessary to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement
(m) Descriptive Headings. The descriptive headings used herein are
--------------------
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
(Signatures begin on following page)
5
<PAGE>
IN WITNESS WHEREOF, NOVA and the Shareholder have caused this Agreement to
be duly executed as of the day and year first above written.
"NOVA:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
------------------------------------
Edward Grzedzinski
Chief Executive Officer
"SHAREHOLDER:"
/s/ Gregory S. Daily
---------------------------------------
Gregory S. Daily
6
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of June 17, 1998, by and among NOVA CORPORATION ("NOVA"), RICHARDSON M.
ROBERTS, and GREGORY S. DAILY, individuals who are sometimes hereinafter
referred to individually as a "Shareholder" and collectively as the
"Shareholders."
P R E A M B L E:
---------------
The Shareholders have together received shares (the "Shares" or
"Registrable Securities") of NOVA Common Stock, par value $0.01 per share ("NOVA
Common Stock"), in consummation as of the date hereof of the Agreement and Plan
of Merger (the "Merger Agreement") between NOVA, PMT SERVICES, INC., a Tennessee
corporation ("PMT") and Church Merger Corp. The individual holdings by the
Shareholders of NOVA Common Stock are as set out in Schedule A attached hereto.
----------
The parties desire that, under certain circumstances, the Shares be
registered for sale under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable Blue Sky or state securities laws, and also
that certain agreements be made with respect to the Shares now owned or
subsequently acquired by the Shareholders or certain other Persons.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE I
REQUESTED REGISTRATION
1.1 REQUESTED REGISTRATION. After the expiration of the "Pooling Period"
(as defined in the Merger Agreement), if the Shareholders shall decide,
individually or collectively, to sell or otherwise dispose of Registrable
Securities then owned by them and having a market value, in the aggregate, of no
more than Fifteen Million and No/100 Dollars ($15,000,000) with respect to each
Shareholder (a "Disposition"), NOVA shall, consistent with the terms and
conditions of this Section 1.1, use its reasonable best efforts to comply with,
and render reasonable assistance with respect to, reasonable requests made by
the Shareholders in connection with, and as appropriate to effectuate, such
Disposition. NOVA's efforts in this regard would include, if reasonably
requested by the Shareholders, (i) assisting the Shareholders in effectuating
the Disposition by way of a "private placement," or (ii) preparing and filing
one registration statement (a "Registration Statement") under the Securities Act
registering Registrable Securities in connection with the Disposition. To the
extent a Disposition is effectuated through a Registration Statement, NOVA shall
bear all of the costs and expenses relating to the Registration Statement or the
Private Placement Memorandum, as the case may be, including but not limited to
registration, filing and qualification fees in the instance of the Registration
Statement, blue-sky expenses, printing expenses, reasonable fees and
disbursements of counsel to NOVA, and accounting fees ("Costs and Expenses");
provided, however, that underwriting discounts and commissions will be borne pro
rata by the Shareholders. The parties hereto acknowledge and agree that the
rights and obligations hereunder with respect to a Disposition shall be
conditioned upon such Disposition not having or causing a material adverse
impact or effect on (aa) NOVA, (bb) the market perception of NOVA, or (cc)
NOVA's financing needs or plans or prospects in connection with financing, the
determination with respect to each of "(aa)," "(bb)," and "(cc)" to be made by
NOVA in good faith
<PAGE>
and with reasonableness in active consultation with the Shareholders and the
investment banking and other financial advisors of each of NOVA and the
Shareholders (as applicable).
1.2 INCIDENTAL REGISTRATION. If at any time NOVA shall propose the filing
of a Registration Statement on an appropriate form under the Securities Act of
any securities of NOVA, otherwise than pursuant to Section 1.1 hereof and other
than a Registration Statement on Form S-8 or S-4 or any equivalent form then in
effect, then NOVA shall give the Shareholders notice of such proposed
registration and shall include in any Registration Statement relating to such
securities all or a portion of the Registrable Securities then owned by such
Shareholders and which such Shareholders request (such holders to be considered
Selling Holders), by notice given by such Shareholders to NOVA within 30 days
after the giving of such notice by NOVA, be included in such Registration
Statement. In the event of the inclusion of Registrable Securities pursuant to
this Section 1.2, NOVA shall bear all of the Costs and Expenses of such
registration; provided, however, that the Selling Holders shall pay, pro rata
based upon the number of Registrable Securities included therein, the
underwriters' discounts and compensation attributable to the inclusion of such
Registrable Securities. In the event the distribution of securities of NOVA
covered by a Registration Statement referred to in this Section 1.2 is to be
underwritten, then NOVA's obligation to include Registrable Securities in such
Registration Statement shall be subject, at the option of NOVA, to the following
further conditions:
(a) the distribution for the account of the Selling Holders shall be
underwritten by the same underwriters who are underwriting the distribution
of the securities for the account of NOVA and/or any other persons whose
securities are covered by such Registration Statement, and the Selling
Holders will enter into an agreement with such underwriters containing
customary provisions;
(b) if the underwriting agreement entered into with the aforesaid
underwriters contains restrictions upon the sale of securities of NOVA,
other than the securities which are to be included in the proposed
distribution, for a period not exceeding 90 days from the effective date of
the Registration Statement (or such longer period, not to exceed 180 days,
as NOVA, each Selling Holder, and such underwriters may agree), then such
restrictions will be binding upon the Selling Holders and, if requested by
NOVA, the Selling Holders will enter into a written agreement to that
effect; and
(c) if the underwriters state in writing that they are unwilling to
include any or all of the Selling Holders' securities in the proposed
underwriting because such inclusion will materially interfere with the
orderly sale and distribution of the securities being offered by NOVA, then
the number of Selling Holders' securities to be included will be reduced
pro rata on the basis of the number of shares owned by such holders, or
there will be no inclusion of Selling Holders' securities in the
Registration Statement and proposed distribution, in accordance with such
statement by the underwriters.
ARTICLE II
INDEMNIFICATION
2.1 INDEMNIFICATION BY NOVA. NOVA will indemnify and hold harmless each
Selling Holder and any underwriter (as defined in the Securities Act) for such
Selling Holders (but, in the case of an underwriter or a controlling person of
an underwriter, only if such underwriter indemnifies the persons mentioned in
subdivision (b) of Section 2.2 hereof in the manner set forth therein) against
any losses, claims, damages or
2
<PAGE>
liabilities, joint or several, to which such Selling Holder or any such
underwriter, partner, officer, director or controlling person becomes subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) are caused by any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary prospectus (if used prior to the effective date of the Registration
Statement), or contained, on the effective date thereof, in any Registration
Statement under which Registrable Securities were registered under the
Securities Act, the prospectus contained therein, or any amendment or supplement
thereto, or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and NOVA will reimburse such Selling
Holder and any such underwriter, partner, officer, director or controlling
person for any legal or other expenses reasonably incurred by such Selling
Holder or any such underwriter, partner, officer, director or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that NOVA will not be liable to any such
persons in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information furnished to NOVA in writing by such person
expressly for inclusion in any of the foregoing documents.
2.2 INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder shall:
(a) furnish in writing all information to NOVA concerning himself and
his holdings of securities of NOVA as shall be required in connection with
the preparation and filing of any Registration Statement covering any
Registrable Securities; and
(b) indemnify and hold harmless NOVA, each of its directors, each of its
officers who has signed a Registration Statement, each person, if any, who
controls NOVA within the meaning of the Securities Act and any underwriter
(as defined in the Securities Act) for NOVA and controlling Person of any
underwriter, against any losses, claims, damages or liabilities to which
NOVA or any such director, officer, controlling Person or underwriter may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) are
caused by any untrue or alleged untrue statement of any material fact
contained in any preliminary prospectus (if used prior to the effective
date of the Registration Statement) or contained, on the effective date
thereof, in any Registration Statement under which Registrable Securities
were registered under the Securities Act, the prospectus contained therein,
or any amendment or supplement thereof, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished in writing to NOVA by such Selling Holder expressly for inclusion
in any of the foregoing documents, and such Selling Holder shall reimburse
NOVA and any such underwriter, officer, director or controlling person for
any legal or other expenses reasonably incurred by NOVA or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
Notwithstanding the foregoing provisions of this Section 2.2, no Selling
Holder shall be required to indemnify NOVA or any such underwriter,
officer, director or controlling persons for any amount in excess of the
amount of the proceeds received by such Selling Holder.
2.3 CONTRIBUTION. In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (a) any
Selling Holder or other entity entitled to indemnification under this Agreement
makes a claim for indemnification pursuant to this Article II but it is
judicially
3
<PAGE>
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that indemnification may not be enforced in such case
notwithstanding the fact that this Article II provides for indemnification in
such case, or (b) contribution under the Securities Act may be required on the
part of any such Selling Holder or other person in circumstances for which
indemnification is provided under this Article II, then, and in each case, NOVA
and such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Selling Holder or other person is responsible for
the portion represented by the percentage that the offering price in any initial
distribution of securities in an underwritten public offering to the general
public pursuant to the Registration Statement (the "Public Offering Price") of
its Registrable Securities bears to the Public Offering Price of all securities
offered in such Registration Statement, and NOVA is responsible for the
remaining portion; provided, however, that, in any such case, (i) no such
Selling Holder or other person will be required to contribute any amount in
excess of the Public Offering Price of all such Registrable Securities offered
by it pursuant to such Registration Statement; and (ii) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
2.4 NOTIFICATION BY SELLING HOLDERS. Each Selling Holder and each other
person indemnified pursuant to this Article II will, in the event it receives
notice of the commencement of any action against it which is based upon an
alleged act or omission which, if proven, would result in NOVA's having to
indemnify it pursuant to this Article II, promptly notify NOVA, in writing, of
the commencement of such action and permit NOVA, if NOVA so notifies such
Selling Holder within ten days after receipt by NOVA of notice of the
commencement of the action, to participate in and to assume the defense of such
action with counsel reasonably satisfactory to such Selling Holder or such other
indemnified person, as the case may be; provided, however, that such Selling
Holder shall be entitled to retain its own counsel at NOVA's expenses if it
believes it has defenses available to it which are not available to NOVA or if
such Selling Holder believes there exists a potential for conflict of interest
between NOVA and such Selling Holder. The omission to notify NOVA promptly of
the commencement of any such action shall not relieve NOVA of any liability to
indemnify such Selling Holder or such other indemnified person, as the case may
be, under this Article II, except to the extent NOVA shall suffer any loss by
reason of such failure to give notice and shall not relieve NOVA of any other
liabilities which it may have under this or any other agreement.
2.5 NOTIFICATION BY NOVA. NOVA agrees that, in the event it receives
notice of the commencement of any action against it which is based upon an
alleged act or omission which, if proven, would result in any Selling Holder
having to indemnify NOVA pursuant to Section 2.2(b), NOVA will promptly notify
such Selling Holder in writing of the commencement of such action and permit
such Selling Holder, if such Selling Holder so notifies NOVA within ten days
after receipt by it of notice of the commencement of the action, to participate
in and to assume the defense of such action with counsel reasonably satisfactory
to NOVA. The omission to notify such Selling Holder promptly of the
commencement of any such action will not relieve such Selling Holder of
liability to indemnify NOVA pursuant to Section 2.2(b), except to the extent
that such Selling Holder suffers any loss by reason of such failure to give
notice and shall not relieve such Selling Holder of any other liabilities which
it may have under this or any other agreement.
ARTICLE III
MISCELLANEOUS
4
<PAGE>
3.1 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of the Shares
without registration, NOVA agrees to:
(a) cause public information with respect to NOVA to be available, as
set forth in Rule 144 or any comparable rule or regulation under the
Securities Act, at all times;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of NOVA under the Securities Act and
the Exchange Act; and
(c) furnish to each Shareholder forthwith upon request a written
statement by NOVA as to its compliance with the reporting requirements of
Rule 144 and of the Securities Act and the Exchange Act.
3.2 AMENDMENT. Except as otherwise provided in this Agreement, neither
this Agreement nor any provision hereof can be amended or modified except by an
instrument in writing signed by NOVA and by each of the Shareholders.
3.3 RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to NOVA Common
Stock, or any interest thereof, or any successor or assign of NOVA (whether by
merger, consolidation, sale of assets or otherwise) that may be issued in
respect of, in exchange for, or in substitution of, NOVA Common Stock, or any
interest therein, and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date of this Agreement. In such event, any and all new, substituted
or additional securities a holder of Registrable Securities is entitled to by
reason of his ownership of NOVA Common Stock, or any interest therein, shall,
upon issuance, be immediately subject to the provisions of this Agreement and
shall be deemed included in the term "NOVA Common Stock, or any interest
therein," for all purposes of this Agreement with the same force and effect as
the NOVA Common Stock, or any interest therein, presently subject to this
Agreement and with respect to which such new, substituted or additional
securities were distributed.
3.4 DEFINITION OF PERSON. As used herein, the term "Person" shall mean a
natural person or any legal, commercial or governmental entity, such as, but not
limited to, a corporation, general partnership, joint venture, limited
partnership, limited liability company, trust, business association, group
acting in concert, or any person acting in a representative capacity.
3.5 APPLICABILITY OF LAWS. Any transfer of NOVA Common Stock, or any
interest therein, made pursuant to and in accordance with the terms of this
Agreement shall be subject to applicable state and federal securities and other
laws, notwithstanding its permissibility under this Agreement.
3.6 NOTICE. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth below:
5
<PAGE>
<TABLE>
<S> <C> <C>
Richardson M. Roberts Gregory S. Daily NOVA Information Systems, Inc.
PMT Services, Inc. PMT Services, Inc. One Concourse Parkway, Suite 300
3841 Green Hills Village Drive 3841 Green Hills Village Drive Atlanta, Georgia 30328
Nashville, Tennessee 37215 Nashville, Tennessee 37215 Attention: Edward Grzedzinski
Chairman and
Chief Executive Officer
</TABLE>
3.7 NO WAIVER; REMEDIES. No failure by the parties to exercise, and no
delay in exercising, any right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law.
3.8 THIRD-PARTY BENEFICIARIES. No party to this Agreement intends this
Agreement to benefit or create any right or cause of action in or on behalf of
any person other than the signatures hereto and their respective permitted
successors and assigns.
3.9 ASSIGNMENT; BINDING EFFECT. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto (whether by operation of law or otherwise)
without the prior written consent of each other party; provided that no such
consent shall be required (a) for the assignment by any party of its rights and
privileges hereunder to any other Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with such party (it being understood that no such assignment shall
relieve the assigning party of its duties or obligations hereunder) or (b) for
the assignment and delegation by any party of its rights, privileges, duties and
obligations hereunder to any Person into or with which the assigning party shall
merge or consolidate or to which the assigning party shall sell all or
substantially all of its assets (other than insubstantial assets). Subject to
the foregoing, this Agreement will be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
assigns.
3.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, without regard to any
applicable conflicts of laws.
3.11 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of
the parties with respect to the subject matter hereof, and there are no further
or other agreements or understandings, written or oral, in effect between the
parties relating to the subject matter of this Agreement.
3.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any provision of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
3.13 INDEPENDENT CONTRACTORS. Nothing contained in this Agreement shall be
construed as constituting a partnership, joint venture, trust or agency between
or among any of the signatories hereto. Rather, the signatories hereto shall be
deemed independent contractors for all purposes.
6
<PAGE>
3.14 SEVERABILITY. Any term or provisions of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
3.15 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
3.16 PRONOUNS. Any masculine personal pronoun shall be considered to mean
the corresponding feminine or neuter personal pronoun, and vice versa, as the
context requires.
3.17 CAPTIONS. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
(SIGNATURES BEGIN ON FOLLOWING PAGE)
7
<PAGE>
WITNESS WHEREOF, the parties have caused this Agreement to be executed and
entered into as of the day and year first above written.
"NOVA:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
/s/ Richardson M. Roberts
----------------------------------------
Richardson M. Roberts
Shareholder
/s/ Gregory S. Daily
----------------------------------------
Gregory S. Daily
Shareholder
8
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT
TO THE
NOVA CORPORATION
1996 EMPLOYEES' STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT to the NOVA Corporation 1996 Employees Stock
Incentive Plan (the "Plan"), made as of the day and year noted on the last page
hereof, by NOVA Corporation (the "Company"), to be effective as noted below.
WITNESSETH:
WHEREAS, the Company sponsors and maintains the Plan for the benefit of
its eligible employees and their beneficiaries, and pursuant to Section 12.1
thereof, the Company has the right to amend the Plan at any time, subject to
Section 12.2 of the Plan; and
WHEREAS, the Company wishes to amend the Plan at this time, subject to
shareholder approval, for the purpose of modifying certain Plan provisions so
that individuals employed by any subsidiary or parent of the Company that
conducts business as a limited liability company, a limited liability
corporation or a partnership are eligible for participation in the Plan; and
NOW, THEREFORE, the Plan is amended to read as follows effective as of
February 3, 1998:
1.
Section 2.6 of the Plan is amended by striking the term "Corporation"
each place it appears therein and inserting in lieu thereof the term "Company".
2.
Section 2.10 of the Plan is amended in its entirety to read as follows:
2.10 Company shall mean NOVA Corporation, and shall also mean
any parent or subsidiary of NOVA Corporation that conducts business as a
corporation, partnership, limited liability company or limited liability
corporation unless the context clearly indicates otherwise.
3.
Section 5.1 of the Plan is amended to read as follows:
<PAGE>
5.1 Individuals Eligible for Grants of Stock Rights. The
individuals eligible to receive Stock Rights hereunder shall be employees of the
Company, including such employees who are also members of the Board or of the
board of directors of any parent or subsidiary corporation of the Company;
provided, no non-employee directors shall be eligible to receive any Stock
Rights pursuant to this Plan, and provided further, that only employees of the
NOVA Corporation and its "parent" or "subsidiary" corporations within the
meaning of subsections (e) and (f) of Code Section 424 shall be eligible to
receive ISO's.
4.
All other provisions of the Plan not inconsistent herewith are hereby
confirmed and ratified.
ADOPTED BY BOARD OF DIRECTORS ON FEBRUARY 3, 1998
ADOPTED BY SHAREHOLDERS AS OF MAY 20, 1998
<PAGE>
EXHIBIT 10.5
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
THIS STOCK OPTION AGREEMENT (the "Agreement") is made, entered into and
effective as of the 17th day of June, 1998, between NOVA CORPORATION, a
Georgia corporation ("Issuer") and PMT SERVICES, INC., a Tennessee corporation
("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the "Option" (as
defined in Section 1(a));
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION; ADJUSTMENT.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 6,816,420
fully paid and nonassessable shares of Issuer's Common Stock, par value
$.01 per share ("Common Stock"), at a price of $35.19 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares of Common Stock for which this Option is exercisable exceed 19.9% of
the Issuer's issued and outstanding shares of Common Stock without giving
effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date hereof (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the
number of shares of Common Stock subject to the Option shall be increased
or decreased, as appropriate, so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The "Holder" (as defined in Section 2(a)) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an "Initial
Triggering Event" (as defined in Section 2(b)) and a "Subsequent Triggering
Event" (as defined in Section 2(c)) shall have occurred prior to the
occurrence of an "Exercise Termination Event" (as defined in this Section
2(a)), provided that the Holder shall have sent the written notice of such
exercise (as provided in Section 2(e)) prior to the occurrence of an
Exercise Termination Event. Each of the following shall be an "Exercise
Termination Event": (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to
the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional); or (iii) the
B-1
<PAGE>
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have
entered into an agreement to engage in an "Acquisition Transaction" (as
defined in this Section 2(b)(i)) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each, a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than the Merger. For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or
any similar transaction, involving Issuer or any "Significant
Subsidiary" (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a
purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets of Issuer or any Significant
Subsidiary of Issuer, (y) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 15% or more of the voting power of Issuer, or
(z) any substantially similar transaction; provided, however, that in
no event shall any merger, consolidation or similar transaction
permitted by, and effected in accordance with, Sections 4.1(a)(ii)(B)
or 4.1(a)(iv) of the Merger Agreement be deemed to be an Acquisition
Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have withdrawn or modified, or publicly announced its
interest to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, or the Board of Directors of Issuer shall not
have recommended that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or shall have
abandoned the transactions contemplated by the Merger Agreement in each
case in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of its business shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the "Notice Date"
(as defined in Section 2(e)); or
(vi) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the transactions contemplated thereby
at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in
violation of the Merger Agreement or shall have been cancelled prior to
the termination of the Merger Agreement if,
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prior to such meeting (or, if such meeting shall not have been held or
shall have been cancelled, prior to such termination), it shall have
been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which notice
is herein referred to as the "Notice Date") specifying (i) the total number
of shares of Common Stock it will purchase pursuant to such exercise and
(ii) a place and date, not earlier than three business days nor later than
60 business days from the Notice Date, for the closing (the "Closing") of
such purchase (the "Closing Date"). Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the Closing, the Holder shall pay to Issuer the aggregate purchase
price for the shares of Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a bank
account designated by Issuer, provided that failure or refusal of Issuer to
designate such a bank account shall not preclude the Holder from exercising
the Option.
(g) At the Closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised
in part only, a new Option evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at Closing may be endorsed
with a restrictive legend that shall read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE
17, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under Section 2(e) and the tender of
the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state
and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this
Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. AGREEMENT BY ISSUER. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) that it will promptly take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a
and regulations promulgated thereunder) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) that it will promptly take all action provided
herein to protect the rights of the Holder against dilution.
4. EXCHANGE. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. ADJUSTMENT. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of
any change in, or distributions in respect of, the Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock that would be prohibited under the terms of the Merger
Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any
such transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. REGISTRATION. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or
part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under
the 1933 Act covering this Option and any shares of Common Stock or other
securities issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement
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to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan
of disposition reasonably requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement first to become effective
and then to remain effective for such period not in excess of 180 days from
the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The foregoing notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter or
managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the inclusion of the Holder's Option or Option Shares would
interfere with the successful marketing of the shares of Common Stock offered
by Issuer, the number of Option Shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. REPURCHASE.
(a) Immediately prior to the occurrence of a "Repurchase Event" (as
defined in Section 7(d)), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the "Market/Offer
Price" (as defined in this Section 7(a)) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised, and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 90 days of the occurrence of such
Repurchase Event (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price")
equal to the Market/Offer Price multiplied by the number of Option Shares
so designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the 90-day period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably
acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to
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Issuer, at its principal office, a copy of this Agreement or certificates
for Option Shares, as applicable, accompanied by a written notice or
notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. At the later to occur of
(x) within five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof, if any, that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
then the Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery to it of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under applicable
law or regulation from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the
Option Repurchase Price, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to Section 2(b)(i) hereof, or (ii)
upon the acquisition by any person of beneficial ownership of 50% or more
of the then outstanding shares of Common Stock, provided that no such event
shall constitute a Repurchase Event unless a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of an
Exercise Termination Event unless no Subsequent Triggering Event shall have
occurred prior to the occurrence of an Exercise Termination Event.
8. SUBSTITUTE OPTION.
(a) In the event that, prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer, and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then,
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and in each such case, the agreement governing such transaction shall make
proper provision so that the Option shall, upon the consummation of any
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of the Holder, of either (x) the "Acquiring Corporation" (as
defined in Section 8(b)) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer, in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(C) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(D) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, have the same terms as the Option, such terms shall be as similar
as possible and in no event less advantageous to the Holder. The issuer of
the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this Section 8(e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option, without giving
effect to the limitation in this Section 8(e), over (ii) the value of the
Substitute Option, after giving effect to the limitation in this Section
8(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as
the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in Section 8(a)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
"Highest Closing Price" (as defined in Section 9(a)) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be
exercised, and at the
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request of the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Issuer shall
repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price multiplied by the
number of Substitute Shares so designated. The term "Highest Closing Price"
shall mean the highest closing price for shares of Substitute Common Stock
within the 90-day period immediately preceding the date the Substitute
Option Holder gives notice of the required repurchase of the Substitute
Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price (and/or to the Substitute Share Owner the Substitute Share Repurchase
Price) therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or
the Substitute Shares in part or in full, the Substitute Option Issuer,
following a request for repurchase pursuant to this Section 9, shall
immediately so notify the Substitute Option Holder (and/or the Substitute
Share Owner), and thereafter deliver or cause to be delivered, from time to
time, to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price, or the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery
of a notice of repurchase pursuant to Section 9(b) prohibited under
applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its best
efforts to obtain all required regulatory and legal approvals, in each case
as promptly as practicable, in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner may revoke its notice of
repurchase of the Substitute Option or the Substitute Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case,
the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of
the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Substitute Option
Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common
Stock obtained by multiplying the number of shares of the Substitute Common
Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator
of which is the Substitute Option Repurchase Price, or (B) to the
Substitute Share Owner, a certificate for the Substitute Shares it is then
so prohibited from repurchasing.
10. EXTENSION. The periods for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and to permit the
expiration of all statutory waiting periods; and (ii) to the extent necessary
to avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
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11. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer, and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
12. REPRESENTATION AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer as follows:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement, or the Option created hereunder,
to any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. BEST EFFORTS. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on the New
York Stock Exchange, Nasdaq National Market, or such other exchange or market
on which the shares of Issuer may be listed upon official notice of issuance.
15. INJUNCTIVE RELIEF. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
16. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section 1(a) hereof (as adjusted
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pursuant to Sections 1(b) or 5 hereof), it is the express intention of Issuer
to allow the Holder to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
17. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof (except to the extent that mandatory provisions of federal law or the
TBCA apply).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. FEES AND EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or
oral. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors (except as assigns) any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
22. DEFINED TERMS. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
(signatures on following page)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
"ISSUER":
NOVA CORPORATION
By: /s/ Edward Grzedzinski
---------------------------------
Edward Grzedzinski
Chief Executive Officer
"GRANTEE":
PMT SERVICES, INC.
By: /s/ Richardson M. Roberts
---------------------------------
Richardson M. Roberts
Chief Executive Officer
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EXHIBIT 10.6
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
THIS STOCK OPTION AGREEMENT (the "Agreement") is made, entered into and
effective as of the 17th day of June, 1998, between PMT SERVICES, INC., a
Tennessee corporation ("Issuer") and NOVA CORPORATION, a Georgia corporation
("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the "Option" (as
defined in Section 1(a));
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION; ADJUSTMENT.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 9,733,433
fully paid and nonassessable shares of Issuer's Common Stock, par value
$.01 per share ("Common Stock"), at a price of $25.16 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares of Common Stock for which this Option is exercisable exceed 19.9% of
the Issuer's issued and outstanding shares of Common Stock without giving
effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date hereof (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the
number of shares of Common Stock subject to the Option shall be increased
or decreased, as appropriate, so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The "Holder" (as defined in Section 2(a)) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an "Initial
Triggering Event" (as defined in Section 2(b)) and a "Subsequent Triggering
Event" (as defined in Section 2(c)) shall have occurred prior to the
occurrence of an "Exercise Termination Event" (as defined in this Section
2(a)), provided that the Holder shall have sent the written notice of such
exercise (as provided in Section 2(e)) prior to the occurrence of an
Exercise Termination Event. Each of the following shall be an "Exercise
Termination Event": (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to
the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional); or (iii) the
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passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have
entered into an agreement to engage in an "Acquisition Transaction" (as
defined in this Section 2(b)(i)) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each, a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than the Merger. For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or
any similar transaction, involving Issuer or any "Significant
Subsidiary" (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a
purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets of Issuer or any Significant
Subsidiary of Issuer, (y) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 15% or more of the voting power of Issuer, or
(z) any substantially similar transaction; provided, however, that in
no event shall any merger, consolidation or similar transaction
permitted by, and effected in accordance with, Sections 4.1(b)(ii)(B)
or 4.1(b)(iv) of the Merger Agreement be deemed to be an Acquisition
Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have withdrawn or modified, or publicly announced its
interest to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, or the Board of Directors of Issuer shall not
have recommended that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or shall have
abandoned the transactions contemplated by the Merger Agreement in each
case in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of its business shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the "Notice Date"
(as defined in Section 2(e)); or
(vi) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the transactions contemplated thereby
at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in
violation of the Merger Agreement or shall have been cancelled prior to
the termination of the Merger Agreement if,
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prior to such meeting (or, if such meeting shall not have been held or
shall have been cancelled, prior to such termination), it shall have
been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which notice
is herein referred to as the "Notice Date") specifying (i) the total number
of shares of Common Stock it will purchase pursuant to such exercise and
(ii) a place and date, not earlier than three business days nor later than
60 business days from the Notice Date, for the closing (the "Closing") of
such purchase (the "Closing Date"). Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the Closing, the Holder shall pay to Issuer the aggregate purchase
price for the shares of Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a bank
account designated by Issuer, provided that failure or refusal of Issuer to
designate such a bank account shall not preclude the Holder from exercising
the Option.
(g) At the Closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised
in part only, a new Option evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at Closing may be endorsed
with a restrictive legend that shall read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE
17, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under Section 2(e) and the tender of
the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state
and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this
Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. AGREEMENT BY ISSUER. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) that it will promptly take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a
and regulations promulgated thereunder) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) that it will promptly take all action provided
herein to protect the rights of the Holder against dilution.
4. EXCHANGE. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. ADJUSTMENT. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of
any change in, or distributions in respect of, the Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock that would be prohibited under the terms of the Merger
Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any
such transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. REGISTRATION. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or
part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under
the 1933 Act covering this Option and any shares of Common Stock or other
securities issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement
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to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan
of disposition reasonably requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement first to become effective
and then to remain effective for such period not in excess of 180 days from
the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The foregoing notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter or
managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the inclusion of the Holder's Option or Option Shares would
interfere with the successful marketing of the shares of Common Stock offered
by Issuer, the number of Option Shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. REPURCHASE.
(a) Immediately prior to the occurrence of a "Repurchase Event" (as
defined in Section 7(d)), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the "Market/Offer
Price" (as defined in this Section 7(a)) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised, and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 90 days of the occurrence of such
Repurchase Event (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price")
equal to the Market/Offer Price multiplied by the number of Option Shares
so designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the 90-day period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably
acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to
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Issuer, at its principal office, a copy of this Agreement or certificates
for Option Shares, as applicable, accompanied by a written notice or
notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. At the later to occur of
(x) within five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof, if any, that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) (i) To the extent that Issuer is prohibited under applicable law or
regulation (with the exception of TBCA (S) 48-103-501 et seq. (the
"Greenmail Act"), in which event Section 7(c)(ii) shall govern) from
repurchasing the Option and/or the Option Shares in full, then the Holder
and/or Owner may in its sole discretion elect to proceed under this Section
7(c)(i). If the Holder and/or Owner elects to proceed under this Section
7(c)(i), Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery to it of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under applicable
law or regulation from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the
Option Repurchase Price, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing.
(ii) In the event that the Greenmail Act is deemed to be applicable to
the repurchase of the Option and/or the Option Shares, and the Holder
and/or Owner elects to proceed under this Section 7(c)(ii) and complies
with the notice requirements set forth in Section 7(a), then Issuer shall
be required to repurchase the Option at the Option Repurchase Price (as
calculated in accordance with Section 7(c)(ii)(A)) and/or the Option Shares
at the Option Share Repurchase Price (as calculated in accordance with
Section 7(c)(ii)(B)).
(A) With respect to a repurchase of the Option, if the Market/Offer
Price is or must be reduced in order to comply or allow compliance with
the Greenmail Act (such reduced Market/Offer Price being referred to
herein as the "Reduced Market/Offer Price"), then the Issuer shall
repurchase the Option from the Holder at a price equal to the Reduced
Market/Offer Price minus the Option Price, multiplied by the number of
shares for which the Option may then be exercised, provided, however,
that if, after giving effect to such reduction, the Reduced
Market/Offer Price would be an amount less than the Option Price, then,
for purposes of this Section 7(c)(ii)(A), the Option Price will
automatically be decreased (such decreased Option Price being referred
to herein as the "Reduced Option Price") to the extent necessary such
that subtracting the Reduced Option Price from the Reduced Market/Offer
Price yields a difference of $.05 per share which amount shall be
adjusted as appropriate to reflect any stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, or distributions relating to the Common Stock (the
"Adjusted Option Price"), and in such event, the Issuer shall
repurchase the Option for $.05, or the Adjusted Option Price, as the
case may be, multiplied by the number of shares for which the Option
may then be exercised.
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(B) With respect to the repurchase of the Option Shares, if the
Market/Offer Price is or must be reduced in order to comply or allow
compliance with the Greenmail Act (such reduced Market/Offer Price
being referred to herein as the "Reduced Market/Offer Price"), then
Issuer shall repurchase such number of the Option Shares as the Owner
shall designate at a price equal to the Reduced Market/Offer Price
multiplied by the number of Option Shares so designated.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to Section 2(b)(i) hereof, or (ii)
upon the acquisition by any person of beneficial ownership of 50% or more
of the then outstanding shares of Common Stock, provided that no such event
shall constitute a Repurchase Event unless a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of an
Exercise Termination Event unless no Subsequent Triggering Event shall have
occurred prior to the occurrence of an Exercise Termination Event.
8. SUBSTITUTE OPTION.
(a) In the event that, prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer, and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the
"Acquiring Corporation" (as defined in Section 8(b)) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer, in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(C) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(D) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, have the same terms as the Option, such terms shall be as similar
as possible and in no event less advantageous to the Holder. The issuer of
the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
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(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this Section 8(e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option, without giving
effect to the limitation in this Section 8(e), over (ii) the value of the
Substitute Option, after giving effect to the limitation in this Section
8(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as
the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in Section 8(a)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
"Highest Closing Price" (as defined in Section 9(a)) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "Substitute Share Owner")
of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the 90-day period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase
of the Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price (and/or to the Substitute Share Owner the Substitute Share Repurchase
Price) therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c)(i) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation (with the exception of the Greenmail
Act, in which event Section 9(c)(ii) shall govern) from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, then the
Substitute Option Holder and/or Substitute Share Owner may in its sole
discretion elect to proceed under this Section 9(c)(i). If the Substitute
Option Holder (and/or the Substitute Share Owner) elects to proceed under
this Section 9(c)(i), the
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Substitute Option Issuer, following a request for repurchase pursuant to
this Section 9, shall immediately so notify the Substitute Option Holder
(and/or the Substitute Share Owner), and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no longer so
prohibited; provided, however, that if the Substitute Option Issuer is at
any time after delivery of a notice of repurchase pursuant to Section 9(b)
prohibited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals, in
each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to
the Substitute Option Holder or Substitute Share Owner, as appropriate,
that portion of the Substitute Option Repurchase Price or the Substitute
Share Repurchase Price that the Substitute Option Issuer is not prohibited
from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of
the Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Shares it is then so prohibited from repurchasing.
(ii) In the event that the Greenmail Act is deemed to be applicable to
the repurchase of the Substitute Option and/or Substitute Shares, and the
Substitute Option Holder and/or Substitute Share Owner elects to proceed
under this Section 9(c)(ii), and at the request of the Substitute Option
Holder and/or the Substitute Share Owner, then the Substitute Option Issuer
shall be required to repurchase the Substitute Option at the Substitute
Option Repurchase Price (as calculated in accordance with Section
9(c)(ii)(A)) and/or the Substitute Shares at the Substitute Share
Repurchase Price (as calculated in accordance with Section 9(c)(ii)(B).
(A) With respect to the repurchase of the Substitute Option, if
the Highest Closing Price is or must be reduced in order to comply
or allow compliance with the Greenmail Act (such reduced Highest
Closing Price being referred to herein as the "Reduced Highest
Closing Price"), then the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price
equal to the Reduced Highest Closing Price minus the exercise price
of the Substitute Option, multiplied by the number of Substitute
Shares for which the Substitute Option may then be exercised;
provided, however, that if, after giving effect to such reduction,
the Reduced Highest Closing Price would be an amount less than the
exercise price of the Substitute Option, then the exercise price of
the Substitute Option will automatically be decreased (such
decreased exercise price being referred to herein as the "Reduced
Substitute Exercise Price") to the extent necessary such that
subtracting the Reduced Substitute Exercise Price from the Reduced
Highest Closing Price yields a resulting Substitute Option
Repurchase Price of $.05 per share which amount shall be adjusted as
appropriate to reflect any stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, or distributions relating to the Common Stock
(the "Adjusted Substitute Option Price"), and in such event, the
Substitute Option Issuer shall repurchase the Substitute Option for
$.05, or the Adjusted Substitute Option Price, as the case may be,
multiplied by the number of shares for which the Substitute Option
may then be exercised.
(B) With respect to the repurchase of the Substitute Shares, if
the Highest Closing Price is or must be reduced in order to comply
or allow compliance with the Greenmail Act (such reduced
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Highest Closing Price being referred to herein as the "Reduced
Highest Closing Price"), then the Substitute Option Issuer shall
repurchase such number of the Substitute Shares at a price equal to
the Reduced Highest Closing Price multiplied by the number of
Substitute Shares so designated.
10. EXTENSION. The periods for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and to permit the
expiration of all statutory waiting periods; and (ii) to the extent necessary
to avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
11. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer, and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
12. REPRESENTATION AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer as follows:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement, or the Option created hereunder,
to any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. BEST EFFORTS. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on the New
York Stock Exchange, Nasdaq National Market, or such other exchange or market
on which the shares of Issuer may be listed upon official notice of issuance.
15. INJUNCTIVE RELIEF. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
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16. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section 1(a) hereof (as adjusted pursuant to
Sections 1(b) or 5 hereof), it is the express intention of Issuer to allow the
Holder to acquire or to require Issuer to repurchase such lesser number of
shares as may be permissible, without any amendment or modification hereof.
17. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof (except to the extent that mandatory provisions of federal law or the
GBCC apply).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. FEES AND EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or
oral. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors (except as assigns) any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
22. DEFINED TERMS. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
(signatures on following page)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
"ISSUER":
PMT SERVICES, INC.
By: /s/ Richardson M. Roberts
---------------------------------
Richardson M. Roberts
Chief Executive Officer
"GRANTEE":
NOVA CORPORATION
By: /s/ Edward Grzedzinski
---------------------------------
Edward Grzedzinski
Chief Executive Officer
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 17th day of June,
1998 (the "Execution Date"), to be effective as of the "Effective Date" (as
defined below), by and between RICHARDSON M. ROBERTS (hereinafter referred to
as "Employee") and NOVA CORPORATION, a Georgia corporation ("NOVA").
W I T N E S S E T H:
-------------------
WHEREAS, NOVA and its direct and indirect subsidiaries, including,
subsequent to the Merger (as defined below), PMT (as defined below) (the "NOVA
Entities"), are in the business of providing credit and debit card transaction
processing and settlement services (including the related products and services
of Automated Teller Machines and check guarantee services) to merchants,
financial institutions, independent sales organizations ("ISOs"), and other
similar customers (the "NOVA Business") throughout the United States;
WHEREAS, Employee currently serves as Chairman of the Board and Chief
Executive Officer of PMT Services, Inc., a Tennessee corporation ("PMT"), which
is engaged in a business similar to the NOVA Business throughout the United
States;
WHEREAS, contemporaneously herewith, NOVA and PMT have entered into that
certain Agreement and Plan of Merger, dated June 17, 1998 (the "Agreement and
Plan of Merger"), pursuant to which NOVA Merger Corp. will merge with and into
PMT, with PMT surviving such merger (the "Merger");
WHEREAS, PMT shall, as a result of the Merger, continue its business and
operations as a wholly-owned subsidiary of NOVA;
WHEREAS, the NOVA Entities, and/or their assigns, will continue to engage
in the NOVA Business throughout the United States (the "Territory");
WHEREAS, NOVA and Employee mutually desire that Employee work for NOVA,
expressly conditioned upon the successful consummation of the Merger pursuant to
the Agreement and Plan of Merger;
WHEREAS, NOVA and Employee desire to execute this Agreement at the
Execution Date, to become effective at the Effective Date;
NOW, THEREFORE, for and in consideration of his employment by NOVA
pursuant to this Agreement, Confidential Information and Trade Secrets (as
hereafter defined) furnished to Employee by NOVA in order that he may perform
his duties under this Agreement, the mutual covenants and agreements herein
contained, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. EFFECTIVE DATE. The parties acknowledge and agree that this Agreement
shall become effective contemporaneously with the consummation of the Merger in
accordance with the Agreement and Plan of Merger, and the date of such
consummation shall be deemed the "Effective Date" hereunder. Accordingly, the
consummation of the Merger pursuant to the Agreement and Plan of Merger is a
condition precedent to the effectiveness of this Agreement and if, for whatever
reason, the Merger is not consummated, and/or the Agreement and Plan of Merger
is terminated prior to consummation of the Merger, this Agreement shall have no
further force and effect.
<PAGE>
2. EMPLOYMENT OF EMPLOYEE. NOVA hereby employs Employee for a period
beginning as of the Effective Date (the "Employment Commencement Date") and
ending one (1) year thereafter (the "Initial Term"), unless Employee's
employment by NOVA is sooner terminated or automatically renewed pursuant to the
terms of this Agreement (Employee's employment by NOVA pursuant to the terms of
this Agreement shall hereinafter be referred to as "Employment").
(a) Employee agrees to such Employment on the terms and conditions
herein set forth and agrees to devote his reasonable best efforts to his
duties under this Agreement and to perform such duties diligently and
efficiently and in accordance with the directions of NOVA's Chief Executive
Officer.
(b) During the term of Employee's Employment, Employee shall serve as
Vice Chairman of the Board of Directors of NOVA, and serve as Chief
Executive Officer of PMT. Employee shall be responsible primarily for such
duties as are assigned to him, from time to time, by NOVA's Chief Executive
Officer which in any event shall be such duties as are customary for an
officer in those positions and otherwise consistent with his duties
hereunder.
(c) Employee shall devote substantially all of his business time,
attention, and energies to the NOVA Business, shall act at all times in the
best interest of NOVA and shall not during the term of his Employment be
engaged in any other business activity, whether or not such business is
pursued for gain, profit, or other pecuniary advantage, or permit such
personal interests as he may have to interfere with the performance of his
duties hereunder. Notwithstanding the foregoing, Employee may participate
in industry, civic and charitable activities so long as such activities do
not materially interfere with the performance of his duties hereunder.
Further, Employee may engage in passive investments so long as the same are
passive and are not inconsistent with Employee's duty hereunder and do not
involve the development, ownership, management or provision of credit and
debit card processing and settlement services, including the related
products and services of Automatic Teller Machines and check guarantee
services, other than any current investment in any company that provides as
its principal business electronic payment processing equipment, as set
forth on Schedule 2(c). Employee's rights to make certain investments
-------------
hereunder are in addition to and not in degradation of investments in
publicly traded companies as described in Section 13(a).
3. COMPENSATION. During the term of Employee's Employment and in
accordance with the terms hereof, NOVA shall pay or otherwise provide to
Employee the following compensation:
(a) Employee's annual salary during the term of his Employment shall be
Three Hundred Sixty Thousand Dollars ($360,000) ("Base Salary"), with such
increases as may from time to time be deemed appropriate by NOVA's Chief
Executive Officer (subject to approval by the Compensation Committee of
NOVA Corporation) (a "Merit Increase"); provided, however, that so long as
this Agreement remains in effect, Employee's Base Salary shall be reviewed
annually by NOVA's Chief Executive Officer at the beginning of each fiscal
year.
(b) Employee's Base Salary shall be paid by NOVA in accordance with
NOVA's regular payroll practice.
(c) In addition to the Base Salary, Employee shall annually receive
bonus compensation pursuant to the schedule set forth as Exhibit A ("Bonus
---------
Compensation"). Employee may also receive such other bonus or incentive
compensation as may be awarded Employee from time to time by the Chief
Executive Officer of NOVA, subject to approval by the Compensation
Committee of NOVA.
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<PAGE>
(d) NOVA may withhold from any compensation payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
4. BENEFITS. During the term of Employee's employment, and for such time
thereafter as may be required by Section 9 hereof, NOVA shall make available to
Employee the following benefits, as set forth below:
(a) Employee and his dependents shall be entitled to participate in such
medical, dental, vision, prescription drug, wellness, or other health care
or medical coverage plans as may be established, offered or adopted from
time to time by NOVA for the benefit of its employees and/or executive
officers, pursuant to the terms set forth in such plans.
(b) Employee shall be entitled to participate in any life insurance
plans established, offered, or adopted from time to time by NOVA for the
benefit of its employees and/or executive officers.
(c) Employee shall be entitled to participate in any disability
insurance plans established, offered, or adopted from time to time by NOVA
for the benefit of its employees and/or executive officers.
(d) Employee shall be entitled to at least four (4) weeks of paid
vacation each year and all holidays observed by NOVA.
(e) Employee shall be eligible for participation in any stock option
plan adopted by NOVA's Board of Directors.
(f) In addition to and not in any way in limitation of the benefits set
forth in this Section 4, Employee shall be eligible to participate in all
additional employee benefits provided by NOVA (including, without
limitation, all tax-qualified retirement plans, non-qualified retirement
and/or deferred compensation plans, incentive plans, other stock option or
purchase plans, and fringe benefits) on the same basis as such are afforded
to other executive officers of NOVA during the term of this Agreement.
(g) Notwithstanding any provisions of this Section 4 to the contrary,
Employee and his dependents shall only be entitled to participate in plans
or arrangements of NOVA to the extent generally allowed for similarly
situated employees and/or executive officers by the terms and provisions of
such plans or arrangements. NOVA agrees that it shall not take action
(during the term of this Agreement or the Severance Period) to modify the
terms and provisions of any such plan or arrangement so as to exclude only
Employee and/or his dependents either by excluding Employee and/or his
dependents explicitly by name or by modifying provisions generally
applicable to all employees and dependents so that only Employee and/or his
dependents would ever possibly be effected.
5. PERSONNEL POLICIES. Employee shall conduct himself at all times and in
a manner which does not materially and adversely effect the NOVA Entities or the
NOVA Business. In addition, Employee shall be subject to and abide by the
policies and procedures of NOVA applicable to personnel of NOVA, as adopted from
time to time.
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<PAGE>
6. REIMBURSEMENT FOR BUSINESS EXPENSES. Employee shall be reimbursed in
accordance with NOVA's regular expense reimbursement policy for all out-of-
pocket business expenses incurred by him in the performance of his duties
hereunder, provided that Employee shall first document and substantiate said
business expenses in the manner generally required by NOVA under its policies
and procedures.
7. SERVICE ON THE BOARD OF DIRECTORS. Employee shall be a member of the
Board of Directors of NOVA, serving as Vice Chairman, on the Employment
Commencement Date, and the Board of Directors of NOVA shall propose the Employee
for re-election to the Board of Directors, serving as Vice Chairman, throughout
the term of Employee's Employment hereunder.
8. TERM AND TERMINATION OF EMPLOYMENT.
(a) This Agreement shall be effective as of the Effective Date.
(b) Employee's Employment shall terminate immediately upon the discharge
of Employee for "Cause." For the purpose of this Agreement, the term
"Cause," when used with respect to termination by NOVA of Employee's
Employment hereunder, shall mean termination as a result of: (i)
Employee's violation of the covenants in Sections 12 or 13; (ii)
Employee's willful, intentional, or grossly negligent failure to perform
his duties under this Agreement diligently and in accordance with the
directions of NOVA; (iii) Employee's willful, intentional, or grossly
negligent failure to comply with the decisions or policies of NOVA; (iv)
Employee's failure to discharge Employee's duty of loyalty to the NOVA
Entities; or (v) final conviction of Employee of a felony; provided,
however, that in the event NOVA desires to terminate Employee's Employment
pursuant to subsections (i), (ii), (iii), or (iv) of this Section 8(b),
NOVA shall first give Employee written notice of such intent, detailed and
specific description of the reasons and basis therefor, and thirty (30)
days to remedy or cure such perceived breaches or deficiencies by Employee
(the "Cure Period"); provided, however, that with respect only to breaches
that it is not possible to cure within such thirty (30) day period, so long
as Employee is diligently using his best efforts to cure such breaches or
deficiencies within such thirty (30) day period and thereafter, the Cure
Period shall be extended for an additional period of time, which shall in
no event exceed an additional sixty (60) days, to enable Employee to cure
such breaches or deficiencies (provided Employee continues to diligently
use his best efforts to cure such breaches or deficiencies). If Employee
does not cure such breaches or deficiencies within the Cure Period, NOVA
may discharge Employee immediately upon written notice to Employee. If
NOVA desires to terminate Employee's Employment pursuant to subsection (v)
of this Section 8(b), NOVA shall first give Employee three (3) days prior
written notice of such intent.
(c) Employee's Employment shall terminate immediately upon the death of
Employee.
(d) Employee's Employment shall terminate immediately upon thirty (30)
days prior written notice to Employee if Employee shall at any time be
incapacitated by reason of physical or mental illness or otherwise
incapable of performing the duties under this Agreement for a continuous
period of one hundred eighty (180) consecutive days; provided, however, to
the extent NOVA could, with reasonable accommodation and without undue
hardship, continue to employ Employee in some other capacity after such one
hundred eighty (180) day period, NOVA shall, to the extent required by the
Americans With Disabilities Act, offer to do so, and, if such offer is
accepted by Employee, Employee shall be compensated in accordance with his
new duties and responsibilities rather than pursuant to this Agreement.
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(e) Employee may terminate this Agreement, upon thirty (30) days prior
written notice to NOVA (the "Notice Period"), in the event (i) there is a
material diminution in Employee's duties and responsibilities, or such
duties and responsibilities are otherwise diminished such that they no
longer reflect duties and responsibilities customary for a chief executive
officer of a wholly-owned, first-tier, significant subsidiary of NOVA and
Vice-Chairman of NOVA, (ii) Employee is required to relocate to an office
that is outside of the Nashville, Tennessee metropolitan area, (iii) there
is a reduction in Employee's compensation payable under Section 3 or a
material reduction in benefits provided to Employee under Section 4
(whether occurring at one time or over a period of time) or (iv) there is a
material breach of this Agreement by NOVA (each of (i), (ii), (iii) and
(iv) being referred to as a "Responsibilities Breach"), and NOVA fails to
cure said Responsibilities Breach within the Notice Period; provided,
however, that with respect only to breaches that it is not possible to cure
within such thirty (30) day period, so long as NOVA is diligently using its
best efforts to cure such breaches or deficiencies within such thirty (30)
day period and thereafter, the Cure Period shall be extended for an
additional period of time, which shall in no event exceed an additional
sixty (60) days, to enable NOVA to cure such breaches or deficiencies
(provided NOVA continues to diligently use its best efforts to cure such
breaches or deficiencies); provided, however, that the Notice Period shall
be five (5) days for failure to pay compensation due hereunder.
(f) Employee may terminate this Agreement at any time without cause
upon ninety (90) days prior written notice. At the time of such
termination, NOVA will pay to Employee the amount of compensation
determined under Section 3(a), such amounts to be adjusted pro rata for the
portion of the term of this Agreement completed on the date of termination.
Employee shall also be entitled to reimbursement pursuant to Section 6 for
expenses incurred in the performance of his duties hereunder prior to
termination.
(g) This Agreement shall automatically renew for successive one (1) year
terms (each a "Renewal Term") unless either party hereto gives the other
party hereto written notice of its or his intent not to renew this
agreement no later than ninety (90) days prior to the date the Initial
Term, or any Renewal Term, is scheduled to expire.
(h) Other than as specifically provided in this Section 8, and then only
in strict compliance with the terms hereof, NOVA may not terminate this
Agreement and/or Employee's Employment.
9. TERMINATION PAYMENT.
(a) Regardless of the event of Employee's termination of Employment,
NOVA will pay to Employee (or to his guardian, estate, or testamentary
trust, as appropriate) the amount of compensation determined under Section
3, such amounts to be adjusted pro rata for the portion of the term of this
Agreement completed on the date of termination. Employee shall also be
entitled to reimbursement pursuant to Section 6 for expenses incurred in
the performance of his duties hereunder prior to termination. In addition,
Employee shall be entitled to receive the additional payments that are
described in this Section 9 under the conditions that are described herein.
Any payment not made when due under this Section 9, including without
limitation any Gross-Up Payment under Section 9(d), shall bear interest,
compounded annually, at the prime rate as quoted in The Wall Street Journal
-----------------------
plus 2%.
(b) (i) Notwithstanding anything to the contrary contained in Section 8
hereof, if within twenty-four (24) months following the Effective Date, or
within twenty-four (24) months following a Change in Control (as defined in
Section 9(c)), Employee's employment with NOVA terminates for any reason,
other than the circumstances described in Section 8(b) or 8(f), and other
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than a nonrenewal of this Agreement by Employee ("Termination Exclusions")
(the date of such termination being referred to herein as the "Termination
Date"), NOVA will pay Employee the Gross-Up Payment as described in Section
9(d)(i), and a payment (the "Termination Payment") payable over two years
(the two year period following the Termination Date is referred to herein
as the "Severance Period"), which is the sum of the following:
I. An aggregate of three (3) times Employee's Base Salary in effect on
the Termination Date, one-half (2) of which will be paid at each of
the first and second anniversary of the Termination Date,
calculated without regard to any reduction in Base Salary that may
have occurred on or immediately prior to the Termination Date (for
purposes of this Section 9, "Base Salary").
II. An aggregate of three (3) times fifty (50%) percent of Employee's
Base Salary in effect on the Termination Date, one-half (2) of
which will be paid at each of the first and second anniversary of
the Termination Date.
III. Continuation of benefits described in Section 4 for a period of two
(2) years following the Termination Date; provided, however, that
such benefits shall not be provided to the extent that such
benefits are generally provided through an insurance contract with
a licensed insurance company and such insurance company will not
agree to insure for such benefits.
IV. A one time severance payment of $600,000 payable within ten (10)
days following the Termination Date.
(ii) During the Severance Period, Employee shall comply with the non-
disclosure obligations and covenants not to solicit or compete set forth in
Sections 12 and 13 below.
(c) A Change in Control will be deemed to have occurred for purposes
hereof, if:
(i) any person as such term is used in Sections 13(d) and 14(d) of
the Securities Act of 1934, as amended (a "Person"), other than NOVA or
a Person controlling, controlled by, or under common control with, NOVA
or PMT (an "Affiliate"), and other than a trustee or other fiduciary
holding securities under an employee benefit plan of NOVA, becomes the
"beneficial owner" (as defined in SEC Rule 13d-3), directly or
indirectly, of securities of NOVA or PMT representing more than 40% of
the total voting power represented by NOVA's or PMT's then outstanding
Voting Securities (for purposes of this section "Voting Securities"
shall mean any securities of NOVA or PMT or their survivor which vote
generally in the election of its directors), and , in the case of the
change in the beneficial ownership of the Voting Securities of NOVA,
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board and any new director whose
election by the Board or nomination for election by NOVA's stockholders
was approved by a vote of a majority of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(ii) the sale or disposition by NOVA or PMT of all or substantially
all of its assets to a person other than NOVA or an Affiliate.
(d) CERTAIN ADDITIONAL PAYMENTS BY NOVA.
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(i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by or
on behalf of a NOVA Entity to or for the benefit of Employee as a result
of a Change in Control (as defined in Section 9(c)) or as otherwise
payable under Section 9(b)(i) (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9(d) (a "Payment")) would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee with
respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(ii) Subject to the provisions of Section 9(d)(iii), all
determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
or law firm selected by Employee and reasonably acceptable to NOVA (the
"Tax Firm"); provided, however, that the Tax Firm shall not determine
that no Excise Tax is payable by Employee unless it delivers to Employee
a written opinion (the "Accounting Opinion") that failure to pay the
Excise Tax and to report the Excise Tax and the payments potentially
subject thereto on or with Employee's applicable federal income tax
return will not result in the imposition of an accuracy-related or other
penalty on Employee. All fees and expenses of the Tax Firm shall be
borne solely by NOVA. Within 15 business days of the receipt of notice
from Employee that there has been a Payment, the Tax Firm shall make all
determinations required under this Section, shall provide to NOVA and
Employee a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Tax Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to
Employee. Any Gross-Up Payment, as determined pursuant to this Section,
shall be paid by NOVA to Employee within fifteen days of the receipt of
the Tax Firm's determination. Subject to the remainder of this Section,
any determination by the Tax Firm shall be binding upon NOVA and
Employee; provided, however, that Employee shall only be bound to the
extent that the determinations of the Tax Firm hereunder, including the
determinations made in the Accounting Opinion, are reasonable and
reasonably supported by applicable law. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the
initial determination by the Tax Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by NOVA should have been
made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that it is ultimately determined in
accordance with the procedures set forth in Section 9(d)(iii) that
Employee is required to make a payment of any Excise Tax, the Tax Firm
shall reasonably determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by NOVA to or
for the benefit of Employee. In determining the reasonableness of Tax
Firm's determinations hereunder, and the effect thereof, NOVA and
Employee shall be provided a reasonable opportunity to review such
determinations with Tax Firm and their respective tax counsel, if
separate from the Tax Firm. Tax Firm's determinations hereunder, and
the Accounting Opinion, shall not be deemed reasonable until Employee's
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reasonable objections and comments thereto have been satisfactorily
accommodated by Tax Firm.
(iii) Employee shall notify NOVA in writing of any claims by the
Internal Revenue Service that, if successful, would require the payment
by NOVA of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than 30 calendar days after Employee
actually receives notice in writing of such claim and shall apprise NOVA
of the nature of such claim and the date on which such claim is
requested to be paid; provided, however, that the failure of Employee to
notify NOVA of such claim (or to provide any required information with
respect thereto) shall not affect any rights granted to Employee under
this Section except to the extent that NOVA is materially prejudiced in
the defense of such claim as a direct result of such failure. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to NOVA (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due). If NOVA notifies Employee in writing prior to
the expiration of such period that it desires to contest such claim,
Employee shall do all of the following:
(A) give NOVA any information reasonably requested by NOVA
relating to such claim;
(B) take such action in connection with contesting such claim as
NOVA shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by NOVA and
reasonably acceptable to Employee;
(C) cooperate with NOVA in good faith in order effectively to
contest such claim;
(D) if NOVA elects not to assume and control the defense of such
claim, permit NOVA to participate in any proceedings relating
to such claim; provided, however, that NOVA shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section,
NOVA shall have the right, at its sole option, to assume the
defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may
either direct Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and
Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as NOVA
shall determine; provided, however, that if NOVA directs
Employee to pay such claim and sue for a refund, NOVA shall
advance the amount of such payment to Employee, on an
interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further
provided that any extension of the statute of limitations
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relating to payment of taxes for the taxable year of Employee
with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore,
NOVA's right to assume the defense of and control the contest
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(iv) If, after the receipt by Employee of an amount advanced by NOVA
pursuant to Section 9(d), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to NOVA's
complying with the requirements of Section 9(d)(iii)) promptly pay to
NOVA the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt
by Employee of an amount advanced by NOVA pursuant to Section 9(d)(iii),
a determination is made that Employee is not entitled to a refund with
respect to such claim and NOVA does not notify Employee in writing of
its intent to contest such denial of refund prior to the expiration of
30 days after such determination, then such advance shall, to the extent
of such denial, be forgiven and shall not be required to be repaid and
the amount of forgiven advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) In the event Employee's Employment is terminated as a result of one
of the Termination Exclusions identified in Section 9(b)(i), or otherwise
expires, terminates, or is terminated in any manner whatsoever under
circumstances not covered by Section 9(b)(i), NOVA, at its sole option and
its sole discretion and at any time within sixty (60) days of the
Termination Date, may cause Employee to be obligated to comply with the
non-disclosure obligations and covenants not to solicit or compete set
forth in Sections 12 and 13 below for a period of one (1) or two (2) years
following the Termination Date, as set forth below:
(i) By giving notice to Employee at any time within sixty (60) days
of the Termination Date of its intent to exercise the "One Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
the non-disclosure obligations and covenants not to solicit or compete
set forth in Sections 12 and 13 below for a period of one (1) year
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to (a) Employee's Base Salary
(as defined in Section 9(b)(i)(I)) multiplied by one hundred fifty
percent (150%), (b) fifty percent (50%) of Employee's Base Salary (as
defined in Section 9(b)(i)(I)) multiplied by one hundred fifty percent
(150%), and (c) $300,000 (the "One Year Lump Amount"), together with
continuation of benefits described in Section 4 for one (1) year
(collectively, the "One Year Payment"); provided, however, that such
benefits shall not be provided to the extent that such benefits are
generally provided through an insurance contract with a licensed
insurance company and such insurance company will not agree to insure
for such benefits. Other than with respect to the One Year Lump Amount,
which shall be paid within ten (10) days of the Termination Date, the
cash amounts included in the One Year Payment shall be paid by NOVA to
Employee in one lump sum at the one (1) year anniversary of the
Termination Date. In the event NOVA exercises the One Year Option, the
one (1) year period following the Termination Date shall be deemed the
"Exclusion Period;"
(ii) By giving notice to Employee at any time within sixty (60) days
of the Termination Date of its intent to exercise the "Two Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
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the non-disclosure obligations and covenants not to solicit or compete
set forth in Sections 12 and 13 below for a period of two (2) years
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to (a) Employee's Base Salary
(as defined in Section 9(b)(i)(I)) multiplied by three hundred percent
(300%), (b) fifty percent (50%) of Employee's Base Salary (as defined in
Section 9(b)(i)(I)) multiplied by three hundred percent (300%), and (c)
$600,000 (the "Two Year Lump Amount"), together with continuation of
benefits described in Section 4 for two (2) years (collectively, the
"Two Year Payment"); provided, however, that such benefits shall not be
provided to the extent that such benefits are generally provided through
an insurance contract with a licensed insurance company and such
insurance company will not agree to insure for such benefits. Other
than with respect to the Two Year Lump Amount, which shall be paid
within ten (10) days of the Termination Date, the cash amounts included
in the Two Year Payment shall be paid by NOVA to Employee in two (2)
equal annual payments equaling one-half (2) of such cash amounts, the
first of which shall be made on the first anniversary of the
Termination Date. The second payment of the Two Year Payment shall be
made on the second anniversary of the Termination Date. In the event
NOVA exercises the Two Year Option, the two year period following the
Termination Date shall be deemed the "Exclusion Period."
10. ARBITRATION.
(a) NOVA and Employee acknowledge and agree that any claim or
controversy arising out of or relating to Section 9 of this Agreement shall
be settled by non-binding arbitration in Nashville, Tennessee, in
accordance with the National Rules of the American Arbitration Association
for the Resolution of Employment Disputes in effect on the date of the
event giving rise to the claim or controversy. NOVA and Employee further
acknowledge and agree that either party must request arbitration of any
claim or controversy within sixty (60) days of the date of the event giving
rise to the claim or controversy by giving written notice of the party's
request for arbitration. Failure to give notice of any claim or
controversy within sixty (60) days of the event giving rise to the claim or
controversy shall constitute waiver of the claim or controversy.
(b) All claims or controversies subject to arbitration shall be
submitted to arbitration within six (6) months from the date that a written
notice of request for arbitration is effective. All claims or
controversies shall be resolved by a panel of three arbitrators who are
licensed to practice law in the State of Tennessee and who are experienced
in the arbitration of labor and employment disputes. These arbitrators
shall be selected in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes in effect
at the time the claim or controversy arises. Either party may request that
the arbitration proceeding be stenographically recorded by a Certified
Shorthand Reporter. The arbitrators shall issue a written decision with
respect to all claims or controversies within thirty (30) days from the
date the claims or controversies are submitted to arbitration. The parties
shall be entitled to be represented by legal counsel at any arbitration
proceedings. Employee and NOVA acknowledge and agree that they will share,
in equal amounts, the cost of the arbitration proceeding, including any
stenographic recording and each party shall be responsible for paying its
own attorneys' fees, if any, unless the arbitrators determine otherwise.
(c) NOVA and Employee acknowledge and agree that the arbitration
provisions in this Agreement may be specifically enforced by either party,
and that submission to arbitration proceedings may be compelled by any
court of competent jurisdiction. NOVA and Employee further acknowledge and
agree that the decision of the arbitrators may be specifically enforced by
either party in any court of competent jurisdiction.
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(d) Notwithstanding the arbitration provisions set forth herein,
Employee and NOVA acknowledge and agree that nothing in this Agreement
shall be construed to require the arbitration of any claim or controversy
arising under Sections 12 and 13 of this Agreement, nor shall anything in
this Agreement be construed to require the arbitration of any claim or
controversy arising under Section 9(d)(i) of this Agreement, as the
Accounting Opinion provided pursuant to such Section is final and binding
upon the parties. These provisions shall be enforceable by any court of
competent jurisdiction and shall not be subject to arbitration except by
mutual written consent of the parties signed after the dispute arises, any
such consent, and the terms and conditions thereof, then becoming binding
on the parties. Employee and NOVA further acknowledge and agree that
nothing in this Agreement shall be construed to require arbitration of any
claim for workers' compensation or unemployment compensation. Employee and
NOVA further acknowledge and agree that nothing in this Section 10 shall be
construed to prevent NOVA from seeking equitable relief from a Court of
competent jurisdiction for violations of Sections 12 and 13 of this
Agreement.
11. PRODUCTS, NOTES, RECORDS AND SOFTWARE. Employee acknowledges and
agrees that all memoranda, notes, records and other documents and computer
software created, developed, compiled, or used by Employee or made available to
him during the term of his Employment concerning or relative to the NOVA
Business, including, without limitation, all customer data, billing information,
service data, and other technical material of the NOVA Entities is and shall be
the property of the appropriate NOVA Entities. Employee agrees to deliver
without demand all such materials to the appropriate NOVA Entities within thirty
(30) days after the termination of Employee's Employment. Employee further
agrees not to use materials for any reason after said termination.
12. NONDISCLOSURE.
(a) Employee acknowledges and agrees that because of his Employment, he
will have access to proprietary information of the NOVA Entities concerning
or relative to the NOVA Business (collectively, "Confidential Information")
which includes, without limitation, technical material of the NOVA
Entities, sales and marketing information, customer account records,
billing information, training and operations information, materials and
memoranda, personnel records, pricing and financial information relating to
the business, accounts, customers, prospective customers, employees and
affairs of the NOVA Entities, and any information marked "Confidential" by
the NOVA Entities. Employee acknowledges and agrees that Confidential
Information is and shall be the property of the appropriate NOVA Entities.
Employee agrees that during the term of his Employment, Employee shall keep
Confidential Information confidential, and Employee shall not use
Confidential Information for any reason other than on behalf of the NOVA
Entities pursuant to, and in strict compliance with, the terms of this
Agreement. Provided that NOVA complies with its obligations set forth in
Section 9, Employee further agrees that during the Severance Period or the
Exclusion Period, as applicable (as defined above), Employee shall continue
to keep Confidential Information confidential, and Employee shall not use
Confidential Information for any reason or in any manner.
(b) Notwithstanding the foregoing, Employee shall not be subject to the
restrictions set forth in subsection (a) of this Section 12 with respect to
information which:
(i) becomes generally available to the public other than as a result
of disclosure by Employee or the breach of Employee's obligations under
this Agreement;
(ii) becomes available to Employee from a source which is unrelated
to his Employment or the exercise of his duties under this Agreement,
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provided that such source lawfully obtained such information and is not
bound by a confidentiality agreement with any of the NOVA Entities; or
(iii) is required by law to be disclosed.
(c) Employee acknowledges and agrees that because of his Employment, he
will have access to "trade secrets" (as defined in the Uniform Trade
Secrets Act, O.C.G.A. (S) 10-1-760, et seq. (the "Uniform Trade Secrets
-- ----
Act")
of the NOVA Entities ("Trade Secrets"). Nothing in this Agreement is
intended to alter the applicable law and remedies with respect to
information meeting the definition of "trade secrets" under the Uniform
Trade Secrets Act, which law and remedies shall be in addition to the
obligations and rights of the parties hereunder.
13. COVENANTS NOT TO SOLICIT OR COMPETE. Employee acknowledges and agrees
that, because of his Employment, he does and will continue to have access to
confidential or proprietary information concerning merchants, associate banks
and ISOs of the NOVA Entities and establish relationships with such merchants,
associate banks and ISOs as well as with the vendors, consultants, and suppliers
used to service such merchants, associate banks and ISOs within the Territory.
In consideration for the benefits and compensation Employee is receiving
hereunder, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Employee agrees that during the term of his
Employment and continuing throughout the Severance Period or the Exclusion
Period, as applicable (provided NOVA complies with its obligations set forth in
Section 9 hereof), except as permitted under Section 2(c) Employee shall not,
directly or indirectly, either individually, in partnership, jointly, or in
conjunction with, or on behalf of, any person, firm, partnership, corporation,
or unincorporated association or entity of any kind:
(a) (i) compete with any of the NOVA Entities in providing credit card
and debit card transaction processing services within the Territory or (ii)
otherwise obtain any interest in (except as a stockholder holding less than
five percent (5%) interest in a corporation which is traded on a national
exchange or over-the-counter), lend money to, guarantee the debts or
obligations of, or perform services in either a supervisory or managerial
capacity or as an advisor, consultant or independent contractor for, or
otherwise participate in the ownership, management or control of, any
person, firm, partnership, corporation, or unincorporated association of
any kind which is providing credit card and debit card transaction
processing services within the Territory;
(b) solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those provided by any of
the NOVA Entities in connection with the NOVA Business, any person or
entity that during the term of Employee's Employment was a merchant,
associate bank, ISO or customer (including any actively-sought perspective
merchant, associate bank, ISO or customer) of any of the NOVA Entities and
with whom Employee had material contact or about which Employee learned
material information during the last twelve (12) months of his Employment;
(c) persuade or attempt to persuade any merchant, associate bank, ISO,
customer, or supplier of any of the NOVA Entities to terminate or modify
such merchant's, associate bank's, ISO's customer's, or supplier's
relationship with any of the NOVA Entities if Employee had material contact
with or learned material information about such merchant, associate bank,
ISO, customer or supplier during the last twelve (12) months of his
Employment; or
(d) persuade or attempt to persuade any person who (aa) was employed by
any of the NOVA Entities as of the date of the termination of Employee's
Employment, and (bb) is in a sales or management position with any of the
NOVA Entities at the time of such termination, to terminate or modify his
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employment relationship, whether or not pursuant to a written agreement,
with any of the NOVA Entities, as the case may be.
14. NEW DEVELOPMENTS. Any discovery, invention, process or improvement
made or discovered by Employee during the term of his Employment in connection
with or in any way affecting or relating to the NOVA Business (as then carried
on or under active consideration) shall forthwith be disclosed to NOVA and shall
belong to and be the absolute property of the appropriate NOVA Entity; provided,
however, that this provision does not apply to an invention for which no
equipment, supplies, facility, trade secret information of the NOVA Entities was
used and which was developed entirely on Employee's own time, unless (a) the
invention relates (i) directly to the NOVA Business or (ii) to the actual or
demonstrably anticipated research or development of any of the NOVA Entities; or
(b) the invention results from any work performed by Employee for any of the
NOVA Entities.
15. REMEDY FOR BREACH. The parties acknowledges and agree that a breach of
any of the covenants contained in Sections 11, 12, 13, and 14 of this Agreement
would cause irreparable injury to the non-breaching party and that remedies at
law of such party for any actual or threatened breach of such covenants would be
inadequate and that such party shall be entitled to specific performance of the
covenants in such sections or injunctive relief against activities in violation
of such sections, or both, by temporary or permanent injunction or other
appropriate judicial remedy, writ or order, without the necessity of proving
actual damages, notwithstanding the arbitration provisions of Section 10 of this
Agreement. This provision with respect to injunctive relief shall not diminish
the right of the non-breaching party to claim and recover damages against
Employee or NOVA, as the case may be, for any breach of this Agreement in
addition to injunctive relief. The parties acknowledge and agree that the non-
prevailing party will be responsible for all legal expenses, including
attorney's fees, which NOVA or Employee, as the case may be, incurs in pursuing
remedies, whether legal or equitable, for any actual or threatened breach of
this Agreement by Employee or NOVA, as the case may be. Employee acknowledges
and agrees that, subject to NOVA's compliance with the provisions of Section 9
hereof, the covenants contained in Sections 11, 12, 13, and 14 of this Agreement
shall be construed as agreements independent of any other provision of this or
any other contract between the parties hereto, and that the existence of any
claim or cause of action by Employee against the NOVA Entities, whether
predicated upon this or any other contract, shall not constitute a defense to
the enforcement by the NOVA Entities of said covenants.
16. REASONABLENESS. Employee has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred on
NOVA under this Agreement, and Employee hereby acknowledges and agrees that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon NOVA, are necessary to protect the goodwill and
other value of the NOVA Business and the benefits bargained for in
connection with the Merger;
(b) the restrictions placed upon Employee hereunder are narrowly drawn,
are fair and reasonable in time and territory, will not prevent him from
earning a livelihood, and place no greater restraint upon Employee than is
reasonably necessary to secure the NOVA Business and goodwill of NOVA and
the benefits bargained for in connection with the Merger;
(c) NOVA is relying upon the restrictions and covenants contained herein
in continuing to make available to Employee information concerning the NOVA
Business; and
(d) Employee's Employment places him in a position of confidence and
trust with NOVA and its employees, merchants, associate banks, ISOs,
customers, vendors and suppliers.
13
<PAGE>
17. INVALIDITY OF ANY PROVISION. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
permissible under the laws and public policies of each state and jurisdiction in
which such enforcement sought, but that the unenforceability (or the
modification to conform with such laws or public policies) of any provision
hereof shall not render unenforceable or impair the remainder of this Agreement
which shall be deemed amended to delete or modify, as necessary, the invalid or
unenforceable provisions. The parties further agree to alter the balance of
this Agreement in order to render the same valid and enforceable. The terms of
the non-competition provisions of this Agreement shall be deemed modified to the
extent necessary to be enforceable, it shall be modified to encompass the
longest term which is enforceable and, if the scope of the geographic area of
non-competition is too great to be enforceable, it shall be modified to
encompass the greatest area that is enforceable. The parties further agree to
submit any issues regarding such modification to a court of competent
jurisdiction if they are unable to agree and further agree that if said court
declines to so amend or modify this Agreement, the parties will submit the issue
of amendment or modification of the non-arbitration rules then in effect of
American Arbitration Association. Any such arbitration hearing will be held in
Nashville, Tennessee, and this Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee, including this arbitration
provision.
18. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee.
19. WAIVER OF BREACH. The waiver by NOVA of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
20. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
NOVA, its respective subsidiaries and affiliates, and their respective
successors and assigns. This Agreement is not assignable by Employee but shall
be freely assignable by NOVA to any corporation or other entity of any kind
succeeding to the business of NOVA in connection with a merger, consolidation,
or other business combination, or in connection with the transfer of all or
substantially all of the assets of NOVA to such successor. In the event of
Employee's death or disability, this Agreement shall be enforceable by
Employee's estate, executors or legal representatives.
21. NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the United
States mail, certified or registered, with return receipt requested, as follows:
(i) If to Employee, to: Richardson M. Roberts
Chairman and Chief Executive Officer
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Telephone: (615) 743-3800
Facsimile: (615) 254-1501
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with a copy to: Waller Lansden Dortch & Davis,
A Professional Limited Liability
Company
(which shall not Nashville City Center
constitute notice) 511 Union Street, Suite 2100
P.O. Box 198966
Nashville, Tennessee 37219-8966
Attention: J. Chase Cole, Esq.
Telephone: (615) 252-2476
Facsimile: (615) 244-6804
(ii) If to NOVA: NOVA Information Systems, Inc.
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Vice Chairman and Chief Financial
Officer
Telephone: (770) 698-1040
Facsimile: (770) 698-1013
with a copy to: Long Aldridge & Norman LLP
(which shall not SunTrust Plaza
constitute notice) 303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Telephone: (404) 527-4040
Facsimile: (404) 527-4198
22. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties, and supersedes all other prior negotiations, commitments, agreements
and understandings (written or oral) among the parties with respect to the
subject matter hereof, including but not limited to the Employment Agreement,
dated February 2, 1998, by and between Employee and PMT, which Employment
Agreement is terminated as of the Effective Date; provided, however, that the
provisions of Section 6.2 of said Employment Agreement shall remain in full
force and effect with respect to all "Payments" (as defined therein) made by PMT
prior to the Effective Date. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension, or discharge is sought.
23. INDEMNIFICATION. At all times during and after Employee's Employment
and the effectiveness of this Agreement, NOVA shall indemnify Employee (as a
director, officer, employee and otherwise) to the fullest extent permitted by
law and shall at all times maintain appropriate provisions in its Articles of
Incorporation and Bylaws which mandate that NOVA provide such indemnification.
24. SURVIVAL. The provisions of Sections 9, 10, 11, 12, 13, 14, 15, 16,
17, 18, 19, 20, 21, 22, 23 and 25 shall survive termination of Employee's
Employment and termination of this Agreement.
25. WITHHOLDING; NO OFFSET. All payments required to be made by NOVA
under this Agreement to Employee will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law. No payment under this Agreement will be subject to offset or reduction
attributable to any amount Employee may owe to NOVA or any other person, as
permitted by law. Nothing in this Section shall be construed to reduce
Employee's right to payments described in Section 9(d).
(Signatures begin on following page)
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above shown.
"EMPLOYEE:"
/s/ Richardson M. Roberts
----------------------------------------
RICHARDSON M. ROBERTS
"NOVA:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
------------------------------------
Name: Edward Grzedzinski
----------------------------------
Title: Chief Executive Officer
---------------------------------
16
<PAGE>
EXHIBIT A
---------
ANNUAL INCENTIVE COMPENSATION SCHEDULE
1. Payment of annual incentive (the "Bonus Payment") to be based upon relative
achievement of Targeted Net Income (as defined). Payment for a partial
year shall be prorated based upon Employee's length of service during such
year.
2. Net Income is Net Income determined in accordance with GAAP as determined
from the annual audited Financial Statements, as adjusted to exclude non-
operating gains and losses.
3. Targeted Net Income will be established annually by the Board of Directors.
4. Payment will be calculated by determining the percentage relationship
between Net Income and Targeted Net Income (such percentage relationship
being referred to as the "Actual/Targeted Ratio"). For each full percent
by which the Actual/Targeted Ratio equals or exceeds 80%, Employee will
receive, in addition to his then current Base Salary, the following
percentage (the "Bonus Percentage") of his Base Salary as the Bonus
Payment:
ACTUAL NET INCOME/
TARGETED NET MAXIMUM % OF
INCOME (THE "ACTUAL/ BONUS PERCENTAGE BASE SALARY PAYABLE AS
TARGETED RATIO") (% OF BASE SALARY) THE BONUS PAYMENT
------------------- ------------------ ----------------------
80% - 84% 1% 5%
85% - 89% 2% 15%
90% - 94% 3% 30%
95% - 99% 4% 50%
* *
- ----------
* If the Actual/Targeted Ratio is equal to or greater than 101%, for each full
percentage point by which the Actual/Targeted Ratio exceeds 100% (the
"Excess"), the Bonus Percentage (pursuant to which Employee's Bonus Payment
shall be calculated) shall be equal to the aggregate of (i) 50%, and (ii) the
Excess; provided, however, that the Bonus Percentage may never exceed 100%.
For example, if the Actual/Targeted Ratio is 112%, the Actual/Targeted
Ratio exceeds 100% by 12%, and 12% is the "Excess." Therefore, the Bonus
Percentage would be equal to the aggregate of (i) 50%, and (ii) 12%;
accordingly, the Bonus Percentage would be 62% and Employee's Bonus Payment
would be 62% of his then current Base Salary. If Employee's Base Salary was
$100,000, Employee would receive, in addition to his Base Salary, a Bonus
Payment of $62,000.
The foregoing notwithstanding, in order for any bonus to be payable with
respect to any fiscal year, the Revenue for such fiscal year must equal or
exceed 105% of the Revenue for the immediately preceding fiscal year.
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<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 17th day of June,
1998 (the "Execution Date"), to be effective as of the "Effective Date" (as
defined below), by and between GREGORY S. DAILY (hereinafter referred to as
"Employee") and NOVA CORPORATION, a Georgia corporation ("NOVA").
W I T N E S S E T H:
-------------------
WHEREAS, NOVA and its direct and indirect subsidiaries, including,
subsequent to the Merger (as defined below), PMT (as defined below) (the "NOVA
Entities"), are in the business of providing credit and debit card transaction
processing and settlement services (including the related products and services
of Automated Teller Machines and check guarantee services) to merchants,
financial institutions, independent sales organizations ("ISOs"), and other
similar customers (the "NOVA Business") throughout the United States;
WHEREAS, Employee currently serves as Vice Chairman of the Board and
President and Treasurer of PMT SERVICES, INC., a Tennessee corporation ("PMT"),
which is engaged in a business similar to the NOVA Business throughout the
United States;
WHEREAS, contemporaneously herewith, NOVA and PMT have entered into that
certain Agreement and Plan of Merger, dated June 17, 1998 (the "Agreement and
Plan of Merger"), pursuant to which NOVA Merger Corp. will merge with and into
PMT, with PMT surviving such merger (the "Merger");
WHEREAS, PMT shall, as a result of the Merger, continue its business and
operations as a wholly-owned subsidiary of NOVA;
WHEREAS, the NOVA Entities, and/or their assigns, will continue to engage
in the NOVA Business throughout the United States (the "Territory");
WHEREAS, NOVA and Employee mutually desire that Employee work for NOVA,
expressly conditioned upon the successful consummation of the Merger pursuant to
the Agreement and Plan of Merger;
WHEREAS, NOVA and Employee desire to execute this Agreement at the
Execution Date, to become effective at the Effective Date;
NOW, THEREFORE, for and in consideration of his employment by NOVA
pursuant to this Agreement, Confidential Information and Trade Secrets (as
hereafter defined) furnished to Employee by NOVA in order that he may perform
his duties under this Agreement, the mutual covenants and agreements herein
contained, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. EFFECTIVE DATE. The parties acknowledge and agree that this Agreement
shall become effective contemporaneously with the consummation of the Merger in
accordance with the Agreement and Plan of Merger, and the date of such
consummation shall be deemed the "Effective Date" hereunder. Accordingly, the
consummation of the Merger pursuant to the Agreement and Plan of Merger is a
condition precedent to the effectiveness of this Agreement and if, for whatever
reason, the Merger is not consummated, and/or the Agreement and Plan of Merger
is terminated prior to consummation of the Merger, this Agreement shall have no
further force and effect.
<PAGE>
2. EMPLOYMENT OF EMPLOYEE. NOVA hereby employs Employee for a period
beginning as of the Effective Date (the "Employment Commencement Date") and
ending one (1) year thereafter (the "Initial Term"), unless Employee's
employment by NOVA is sooner terminated or automatically renewed pursuant to the
terms of this Agreement (Employee's employment by NOVA pursuant to the terms of
this Agreement shall hereinafter be referred to as "Employment").
(a) Employee agrees to such Employment on the terms and conditions
herein set forth and agrees to devote his reasonable best efforts to his
duties under this Agreement and to perform such duties diligently and
efficiently and in accordance with the directions of NOVA's Chief Executive
Officer.
(b) During the term of Employee's Employment, Employee shall serve as
Vice Chairman of the Board of Directors of NOVA, and serve as President of
PMT. Employee shall be responsible primarily for such duties as are
assigned to him, from time to time, by NOVA's Chief Executive Officer which
in any event shall be such duties as are customary for an officer in those
positions and otherwise consistent with his duties hereunder.
(c) Employee shall devote substantially all of his business time,
attention, and energies to the NOVA Business, shall act at all times in the
best interest of NOVA and shall not during the term of his Employment be
engaged in any other business activity, whether or not such business is
pursued for gain, profit, or other pecuniary advantage, or permit such
personal interests as he may have to interfere with the performance of his
duties hereunder. Notwithstanding the foregoing, Employee may participate
in industry, civic and charitable activities so long as such activities do
not materially interfere with the performance of his duties hereunder.
Further, Employee may engage in passive investments so long as the same are
passive and are not inconsistent with Employee's duty hereunder and do not
involve the development, ownership, management or provision of credit and
debit card processing and settlement services, including the related
products and services of Automatic Teller Machines and check guarantee
services, other than any current investment in any company that provides as
its principal business electronic payment processing equipment, as set
forth on Schedule 2(c). Employee's rights to make certain investments
-------------
hereunder are in addition to and not in degradation of investments in
publicly traded companies as described in Section 13(a).
3. COMPENSATION. During the term of Employee's Employment and in
accordance with the terms hereof, NOVA shall pay or otherwise provide to
Employee the following compensation:
(a) Employee's annual salary during the term of his Employment shall be
Three Hundred Sixty Thousand Dollars ($360,000) ("Base Salary"), with such
increases as may from time to time be deemed appropriate by NOVA's Chief
Executive Officer (subject to approval by the Compensation Committee of
NOVA Corporation) (a "Merit Increase"); provided, however, that so long as
this Agreement remains in effect, Employee's Base Salary shall be reviewed
annually by NOVA's Chief Executive Officer at the beginning of each fiscal
year.
(b) Employee's Base Salary shall be paid by NOVA in accordance with
NOVA's regular payroll practice.
(c) In addition to the Base Salary, Employee shall annually receive
bonus compensation pursuant to the schedule set forth as Exhibit A ("Bonus
---------
Compensation"). Employee may also receive such other bonus or incentive
compensation as may be awarded Employee from time to time by the Chief
Executive Officer of NOVA, subject to approval by the Compensation
Committee of NOVA.
2
<PAGE>
(d) NOVA may withhold from any compensation payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
4. BENEFITS. During the term of Employee's employment, and for such time
thereafter as may be required by Section 9 hereof, NOVA shall make available to
Employee the following benefits, as set forth below:
(a) Employee and his dependents shall be entitled to participate in such
medical, dental, vision, prescription drug, wellness, or other health care
or medical coverage plans as may be established, offered or adopted from
time to time by NOVA for the benefit of its employees and/or executive
officers, pursuant to the terms set forth in such plans.
(b) Employee shall be entitled to participate in any life insurance
plans established, offered, or adopted from time to time by NOVA for the
benefit of its employees and/or executive officers.
(c) Employee shall be entitled to participate in any disability
insurance plans established, offered, or adopted from time to time by NOVA
for the benefit of its employees and/or executive officers.
(d) Employee shall be entitled to at least four (4) weeks of paid
vacation each year and all holidays observed by NOVA.
(e) Employee shall be eligible for participation in any stock option
plan adopted by NOVA's Board of Directors.
(f) In addition to and not in any way in limitation of the benefits set
forth in this Section 4, Employee shall be eligible to participate in all
additional employee benefits provided by NOVA (including, without
limitation, all tax-qualified retirement plans, non-qualified retirement
and/or deferred compensation plans, incentive plans, other stock option or
purchase plans, and fringe benefits) on the same basis as such are afforded
to other executive officers of NOVA during the term of this Agreement.
(g) Notwithstanding any provisions of this Section 4 to the contrary,
Employee and his dependents shall only be entitled to participate in plans
or arrangements of NOVA to the extent generally allowed for similarly
situated employees and/or executive officers by the terms and provisions of
such plans or arrangements. NOVA agrees that it shall not take action
(during the term of this Agreement or the Severance Period) to modify the
terms and provisions of any such plan or arrangement so as to exclude only
Employee and/or his dependents either by excluding Employee and/or his
dependents explicitly by name or by modifying provisions generally
applicable to all employees and dependents so that only Employee and/or his
dependents would ever possibly be effected.
5. PERSONNEL POLICIES. Employee shall conduct himself at all times and in
a manner which does not materially and adversely effect the NOVA Entities or the
NOVA Business. In addition, Employee shall be subject to and abide by the
policies and procedures of NOVA applicable to personnel of NOVA, as adopted from
time to time.
3
<PAGE>
6. REIMBURSEMENT FOR BUSINESS EXPENSES. Employee shall be reimbursed in
accordance with NOVA's regular expense reimbursement policy for all out-of-
pocket business expenses incurred by him in the performance of his duties
hereunder, provided that Employee shall first document and substantiate said
business expenses in the manner generally required by NOVA under its policies
and procedures.
7. SERVICE ON THE BOARD OF DIRECTORS. Employee shall be a member of the
Board of Directors of NOVA, serving as Vice Chairman, on the Employment
Commencement Date, and the Board of Directors of NOVA shall propose the Employee
for re-election to the Board of Directors, serving as Vice Chairman, throughout
the term of Employee's Employment hereunder.
8. TERM AND TERMINATION OF EMPLOYMENT.
(a) This Agreement shall be effective as of the Effective Date.
(b) Employee's Employment shall terminate immediately upon the discharge
of Employee for "Cause." For the purpose of this Agreement, the term
"Cause," when used with respect to termination by NOVA of Employee's
Employment hereunder, shall mean termination as a result of: (i)
Employee's violation of the covenants in Sections 12 or 13; (ii)
Employee's willful, intentional, or grossly negligent failure to perform
his duties under this Agreement diligently and in accordance with the
directions of NOVA; (iii) Employee's willful, intentional, or grossly
negligent failure to comply with the decisions or policies of NOVA; (iv)
Employee's failure to discharge Employee's duty of loyalty to the NOVA
Entities; or (v) final conviction of Employee of a felony; provided,
however, that in the event NOVA desires to terminate Employee's Employment
pursuant to subsections (i), (ii), (iii), or (iv) of this Section 8(b),
NOVA shall first give Employee written notice of such intent, detailed and
specific description of the reasons and basis therefor, and thirty (30)
days to remedy or cure such perceived breaches or deficiencies by Employee
(the "Cure Period"); provided, however, that with respect only to breaches
that it is not possible to cure within such thirty (30) day period, so long
as Employee is diligently using his best efforts to cure such breaches or
deficiencies within such thirty (30) day period and thereafter, the Cure
Period shall be extended for an additional period of time, which shall in
no event exceed an additional sixty (60) days, to enable Employee to cure
such breaches or deficiencies (provided Employee continues to diligently
use his best efforts to cure such breaches or deficiencies). If Employee
does not cure such breaches or deficiencies within the Cure Period, NOVA
may discharge Employee immediately upon written notice to Employee. If
NOVA desires to terminate Employee's Employment pursuant to subsection (v)
of this Section 8(b), NOVA shall first give Employee three (3) days prior
written notice of such intent.
(c) Employee's Employment shall terminate immediately upon the death of
Employee.
(d) Employee's Employment shall terminate immediately upon thirty (30)
days prior written notice to Employee if Employee shall at any time be
incapacitated by reason of physical or mental illness or otherwise
incapable of performing the duties under this Agreement for a continuous
period of one hundred eighty (180) consecutive days; provided, however, to
the extent NOVA could, with reasonable accommodation and without undue
hardship, continue to employ Employee in some other capacity after such one
hundred eighty (180) day period, NOVA shall, to the extent required by the
Americans With Disabilities Act, offer to do so, and, if such offer is
accepted by Employee, Employee shall be compensated in accordance with his
new duties and responsibilities rather than pursuant to this Agreement.
4
<PAGE>
(e) Employee may terminate this Agreement, upon thirty (30) days prior
written notice to NOVA (the "Notice Period"), in the event (i) there is a
material diminution in Employee's duties and responsibilities, or such
duties and responsibilities are otherwise diminished such that they no
longer reflect duties and responsibilities customary for a president of a
wholly-owned, first-tier, significant subsidiary of NOVA and Vice-Chairman
of NOVA (ii) Employee is required to relocate to an office that is outside
of the Nashville, Tennessee metropolitan area, (iii) there is a reduction
in Employee's compensation payable under Section 3 or a material reduction
in benefits provided to Employee under Section 4 (whether occurring at one
time or over a period of time) or (iv) there is a material breach of this
Agreement by NOVA (each of (i), (ii), (iii) and (iv) being referred to as a
"Responsibilities Breach"), and NOVA fails to cure said Responsibilities
Breach within the Notice Period; provided, however, that with respect only
to breaches that it is not possible to cure within such thirty (30) day
period, so long as NOVA is diligently using its best efforts to cure such
breaches or deficiencies within such thirty (30) day period and thereafter,
the Cure Period shall be extended for an additional period of time, which
shall in no event exceed an additional sixty (60) days, to enable NOVA to
cure such breaches or deficiencies (provided NOVA continues to diligently
use its best efforts to cure such breaches or deficiencies); provided,
however, that the Notice Period shall be five (5) days for failure to pay
compensation due hereunder.
(f) Employee may terminate this Agreement at any time without cause
upon ninety (90) days prior written notice. At the time of such
termination, NOVA will pay to Employee the amount of compensation
determined under Section 3(a), such amounts to be adjusted pro rata for the
portion of the term of this Agreement completed on the date of termination.
Employee shall also be entitled to reimbursement pursuant to Section 6 for
expenses incurred in the performance of his duties hereunder prior to
termination.
(g) This Agreement shall automatically renew for successive one (1) year
terms (each a "Renewal Term") unless either party hereto gives the other
party hereto written notice of its or his intent not to renew this
agreement no later than ninety (90) days prior to the date the Initial
Term, or any Renewal Term, is scheduled to expire.
(h) Other than as specifically provided in this Section 8, and then only
in strict compliance with the terms hereof, NOVA may not terminate this
Agreement and/or Employee's Employment.
9. TERMINATION PAYMENT.
(a) Regardless of the event of Employee's termination of Employment,
NOVA will pay to Employee (or to his guardian, estate, or testamentary
trust, as appropriate) the amount of compensation determined under Section
3, such amounts to be adjusted pro rata for the portion of the term of this
Agreement completed on the date of termination. Employee shall also be
entitled to reimbursement pursuant to Section 6 for expenses incurred in
the performance of his duties hereunder prior to termination. In addition,
Employee shall be entitled to receive the additional payments that are
described in this Section 9 under the conditions that are described herein.
Any payment not made when due under this Section 9, including without
limitation any Gross-Up Payment under Section 9(d), shall bear interest,
compounded annually, at the prime rate as quoted in The Wall Street Journal
-----------------------
plus 2%.
(b) (i) Notwithstanding anything to the contrary contained in Section 8
hereof, if within twenty-four (24) months following the Effective Date, or
within twenty-four (24) months following a Change in Control (as defined in
Section 9(c)), Employee's employment with NOVA terminates for any reason,
other than the circumstances described in Section 8(b) or 8(f), and other
5
<PAGE>
than a nonrenewal of this Agreement by Employee ("Termination Exclusions")
(the date of such termination being referred to herein as the "Termination
Date"), NOVA will pay Employee the Gross-Up Payment as described in Section
9(d)(i), and a payment (the "Termination Payment") payable over two years
(the two year period following the Termination Date is referred to herein
as the "Severance Period"), which is the sum of the following:
I. An aggregate of three (3) times Employee's Base Salary in effect on
the Termination Date, one-half (1/2) of which will be paid at each of
the first, and second anniversary of the Termination Date, calculated
without regard to any reduction in Base Salary that may have occurred
on or immediately prior to the Termination Date (for purposes of this
Section 9, "Base Salary").
II. An aggregate of three (3) times fifty (50%) percent of Employee's
Base Salary in effect on the Termination Date, one-half (1/2) of
which will be paid at each of the first and second anniversary of
the Termination Date.
III. Continuation of benefits described in Section 4 for a period of
two (2) years following the Termination Date; provided, however,
that such benefits shall not be provided to the extent that such
benefits are generally provided through an insurance contract with
a licensed insurance company and such insurance company will not
agree to insure for such benefits.
IV. A one time severance payment of $600,000 payable within ten (10)
days following the Termination Date.
(ii) During the Severance Period, Employee shall comply with the non-
disclosure obligations and covenants not to solicit or compete set forth in
Sections 12 and 13 below.
(c) A Change in Control will be deemed to have occurred for purposes
hereof, if:
(i) any person as such term is used in Sections 13(d) and 14(d) of
the Securities Act of 1934, as amended (a "Person"), other than NOVA or
a Person controlling, controlled by, or under common control with, NOVA
or PMT (an "Affiliate"), and other than a trustee or other fiduciary
holding securities under an employee benefit plan of NOVA, becomes the
"beneficial owner" (as defined in SEC Rule 13d-3), directly or
indirectly, of securities of NOVA or PMT representing more than 40% of
the total voting power represented by NOVA's or PMT's then outstanding
Voting Securities (for purposes of this section "Voting Securities"
shall mean any securities of NOVA or PMT or their survivor which vote
generally in the election of its directors), and, in the case of the
change in the beneficial ownership of the Voting Securities of NOVA,
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board and any new director whose
election by the Board or nomination for election by NOVA's stockholders
was approved by a vote of a majority of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(ii) the sale or disposition by NOVA or PMT of all or substantially
all of its assets to a person other than NOVA or an Affiliate.
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(d) CERTAIN ADDITIONAL PAYMENTS BY NOVA.
(i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by or
on behalf of a NOVA Entity to or for the benefit of Employee as a
result of a Change in Control (as defined in Section 9(c)) or as
otherwise payable under Section 9(b)(i) (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 9(d) (a "Payment")) would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties are incurred by
Employee with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then Employee shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(ii) Subject to the provisions of Section 9(d)(iii), all
determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
or law firm selected by Employee and reasonably acceptable to NOVA (the
"Tax Firm"); provided, however, that the Tax Firm shall not determine
that no Excise Tax is payable by Employee unless it delivers to Employee
a written opinion (the "Accounting Opinion") that failure to pay the
Excise Tax and to report the Excise Tax and the payments potentially
subject thereto on or with Employee's applicable federal income tax
return will not result in the imposition of an accuracy-related or other
penalty on Employee. All fees and expenses of the Tax Firm shall be
borne solely by NOVA. Within 15 business days of the receipt of notice
from Employee that there has been a Payment, the Tax Firm shall make all
determinations required under this Section, shall provide to NOVA and
Employee a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Tax Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to
Employee. Any Gross-Up Payment, as determined pursuant to this Section,
shall be paid by NOVA to Employee within fifteen days of the receipt of
the Tax Firm's determination. Subject to the remainder of this Section,
any determination by the Tax Firm shall be binding upon NOVA and
Employee; provided, however, that Employee shall only be bound to the
extent that the determinations of the Tax Firm hereunder, including the
determinations made in the Accounting Opinion, are reasonable and
reasonably supported by applicable law. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the
initial determination by the Tax Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by NOVA should have been
made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that it is ultimately determined in
accordance with the procedures set forth in Section 9(d)(iii) that
Employee is required to make a payment of any Excise Tax, the Tax Firm
shall reasonably determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by NOVA to or
for the benefit of Employee. In determining the reasonableness of Tax
Firm's determinations hereunder, and the effect thereof, NOVA and
Employee shall be provided a reasonable opportunity to review such
determinations with Tax Firm and their respective tax counsel, if
separate from the Tax Firm. Tax Firm's determinations hereunder, and
the Accounting Opinion, shall not be deemed reasonable until Employee's
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reasonable objections and comments thereto have been satisfactorily
accommodated by Tax Firm.
(iii) Employee shall notify NOVA in writing of any claims by the
Internal Revenue Service that, if successful, would require the payment
by NOVA of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than 30 calendar days after Employee
actually receives notice in writing of such claim and shall apprise NOVA
of the nature of such claim and the date on which such claim is
requested to be paid; provided, however, that the failure of Employee to
notify NOVA of such claim (or to provide any required information with
respect thereto) shall not affect any rights granted to Employee under
this Section except to the extent that NOVA is materially prejudiced in
the defense of such claim as a direct result of such failure. Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to NOVA (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due). If NOVA notifies Employee in writing prior to
the expiration of such period that it desires to contest such claim,
Employee shall do all of the following:
(A) give NOVA any information reasonably requested by NOVA
relating to such claim;
(B) take such action in connection with contesting such claim as
NOVA shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by NOVA and
reasonably acceptable to Employee;
(C) cooperate with NOVA in good faith in order effectively to
contest such claim;
(D) if NOVA elects not to assume and control the defense of such
claim, permit NOVA to participate in any proceedings relating
to such claim; provided, however, that NOVA shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Employee harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section,
NOVA shall have the right, at its sole option, to assume the
defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may
either direct Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and
Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as NOVA
shall determine; provided, however, that if NOVA directs
Employee to pay such claim and sue for a refund, NOVA shall
advance the amount of such payment to Employee, on an
interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further
provided that any extension of the statute of limitations
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relating to payment of taxes for the taxable year of Employee
with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore,
NOVA's right to assume the defense of and control the contest
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and Employee shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(iv) If, after the receipt by Employee of an amount advanced by NOVA
pursuant to Section 9(d), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to NOVA's
complying with the requirements of Section 9(d)(iii)) promptly pay to
NOVA the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt
by Employee of an amount advanced by NOVA pursuant to Section 9(d)(iii),
a determination is made that Employee is not entitled to a refund with
respect to such claim and NOVA does not notify Employee in writing of
its intent to contest such denial of refund prior to the expiration of
30 days after such determination, then such advance shall, to the extent
of such denial, be forgiven and shall not be required to be repaid and
the amount of forgiven advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
(e) In the event Employee's Employment is terminated as a result of one
of the Termination Exclusions identified in Section 9(b)(i), or otherwise
expires, terminates, or is terminated in any manner whatsoever under
circumstances not covered by Section 9(b)(i), NOVA, at its sole option and
its sole discretion and at any time within sixty (60) days of the
Termination Date, may cause Employee to be obligated to comply with the
non-disclosure obligations and covenants not to solicit or compete set
forth in Sections 12 and 13 below for a period of one (1) or two (2) years
following the Termination Date, as set forth below:
(i) By giving notice to Employee at any time within sixty (60) days
of the Termination Date of its intent to exercise the "One Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
the non-disclosure obligations and covenants not to solicit or compete
set forth in Sections 12 and 13 below for a period of one (1) year
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to (a) Employee's Base Salary
(as defined in Section 9(b)(i)(I) multiplied by one hundred fifty
percent (150%), (b) fifty percent (50%) of Employee's Base Salary (as
defined in Section 9(b)(i)(I) multiplied by one hundred fifty percent
(150%), and (c) $300,000 (the "One Year Lump Amount"), together with
continuation of benefits described in Section 4 for one (1) year
(collectively, the "One Year Payment"); provided, however, that such
benefits shall not be provided to the extent that such benefits are
generally provided through an insurance contract with a licensed
insurance company and such insurance company will not agree to insure
for such benefits. Other than with respect to the One Year Lump Amount,
which shall be paid within ten (10) days of the Termination Date, the
cash amounts included in the One Year Payment shall be paid by NOVA to
Employee in one lump sum at the one (1) year anniversary of the
Termination Date. In the event NOVA exercises the One Year Option, the
one (1) year period following the Termination Date shall be deemed the
"Exclusion Period;"
(ii) By giving notice to Employee at any time within sixty (60) days
of the Termination Date of its intent to exercise the "Two Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
the non-disclosure obligations and covenants not to solicit or compete
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set forth in Sections 12 and 13 below for a period of two (2) years
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to (a) Employee's Base Salary
(as defined in Section 9(b)(i)(I) multiplied by three hundred percent
(300%) (b) fifty percent (50%) of Employee's Base Salary (as defined in
Section 9(b)(i)(I) multiplied by three hundred percent (300%), and (c)
$600,000 (the "Two Year Lump Amount"), together with continuation of
benefits described in Section 4 for two (2) years (collectively, the
"Two Year Payment"); provided, however, that such benefits shall not be
provided to the extent that such benefits are generally provided through
an insurance contract with a licensed insurance company and such
insurance company will not agree to insure for such benefits. Other
than with respect to the Two Year Lump Amount, which shall be paid
within ten (10) days of the Termination Date, the cash amounts included
in the Two Year Payment shall be paid by NOVA to Employee in two (2)
equal annual payments equaling one-half (2) of such cash amounts, the
first of which shall be made on the first anniversary of the
Termination Date. The second payment of the Two Year Payment shall be
made on the second anniversary of the Termination Date. In the event
NOVA exercises the Two Year Option, the two year period following the
Termination Date shall be deemed the "Exclusion Period".
10. ARBITRATION.
(a) NOVA and Employee acknowledge and agree that any claim or
controversy arising out of or relating to Section 9 of this Agreement shall
be settled by non-binding arbitration in Nashville, Tennessee, in
accordance with the National Rules of the American Arbitration Association
for the Resolution of Employment Disputes in effect on the date of the
event giving rise to the claim or controversy. NOVA and Employee further
acknowledge and agree that either party must request arbitration of any
claim or controversy within sixty (60) days of the date of the event giving
rise to the claim or controversy by giving written notice of the party's
request for arbitration. Failure to give notice of any claim or
controversy within sixty (60) days of the event giving rise to the claim or
controversy shall constitute waiver of the claim or controversy.
(b) All claims or controversies subject to arbitration shall be
submitted to arbitration within six (6) months from the date that a written
notice of request for arbitration is effective. All claims or
controversies shall be resolved by a panel of three arbitrators who are
licensed to practice law in the State of Tennessee and who are experienced
in the arbitration of labor and employment disputes. These arbitrators
shall be selected in accordance with the National Rules of the American
Arbitration Association for the Resolution of Employment Disputes in effect
at the time the claim or controversy arises. Either party may request that
the arbitration proceeding be stenographically recorded by a Certified
Shorthand Reporter. The arbitrators shall issue a written decision with
respect to all claims or controversies within thirty (30) days from the
date the claims or controversies are submitted to arbitration. The parties
shall be entitled to be represented by legal counsel at any arbitration
proceedings. Employee and NOVA acknowledge and agree that they will share,
in equal amounts, the cost of the arbitration proceeding, including any
stenographic recording, and each party shall be responsible for paying its
own attorneys' fees, if any, unless the arbitrators determine otherwise.
(c) NOVA and Employee acknowledge and agree that the arbitration
provisions in this Agreement may be specifically enforced by either party,
and that submission to arbitration proceedings may be compelled by any
court of competent jurisdiction. NOVA and Employee further acknowledge and
agree that the decision of the arbitrators may be specifically enforced by
either party in any court of competent jurisdiction.
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(d) Notwithstanding the arbitration provisions set forth herein,
Employee and NOVA acknowledge and agree that nothing in this Agreement
shall be construed to require the arbitration of any claim or controversy
arising under Sections 12 and 13 of this Agreement, nor shall anything in
this Agreement be construed to require the arbitration of any claim or
controversy arising under Section 9(d)(i) of this Agreement, as the
Accounting Opinion provided pursuant to such Section is final and binding
upon the parties. These provisions shall be enforceable by any court of
competent jurisdiction and shall not be subject to arbitration except by
mutual written consent of the parties signed after the dispute arises, any
such consent, and the terms and conditions thereof, then becoming binding
on the parties. Employee and NOVA further acknowledge and agree that
nothing in this Agreement shall be construed to require arbitration of any
claim for workers' compensation or unemployment compensation. Employee and
NOVA further acknowledge and agree that nothing in this Section 10 shall be
construed to prevent NOVA from seeking equitable relief from a Court of
competent jurisdiction for violations of Sections 12 and 13 of this
Agreement.
11. PRODUCTS, NOTES, RECORDS AND SOFTWARE. Employee acknowledges and
agrees that all memoranda, notes, records and other documents and computer
software created, developed, compiled, or used by Employee or made available to
him during the term of his Employment concerning or relative to the NOVA
Business, including, without limitation, all customer data, billing information,
service data, and other technical material of the NOVA Entities is and shall be
the property of the appropriate NOVA Entities. Employee agrees to deliver
without demand all such materials to the appropriate NOVA Entities within thirty
(30) days after the termination of Employee's Employment. Employee further
agrees not to use materials for any reason after said termination.
12. NONDISCLOSURE.
(a) Employee acknowledges and agrees that because of his Employment, he
will have access to proprietary information of the NOVA Entities concerning
or relative to the NOVA Business (collectively, "Confidential Information")
which includes, without limitation, technical material of the NOVA
Entities, sales and marketing information, customer account records,
billing information, training and operations information, materials and
memoranda, personnel records, pricing and financial information relating to
the business, accounts, customers, prospective customers, employees and
affairs of the NOVA Entities, and any information marked "Confidential" by
the NOVA Entities. Employee acknowledges and agrees that Confidential
Information is and shall be the property of the appropriate NOVA Entities.
Employee agrees that during the term of his Employment, Employee shall keep
Confidential Information confidential, and Employee shall not use
Confidential Information for any reason other than on behalf of the NOVA
Entities pursuant to, and in strict compliance with, the terms of this
Agreement. Provided that NOVA complies with its obligations set forth in
Section 9, Employee further agrees that during the Severance Period or the
Exclusion Period, as applicable (as defined above), Employee shall continue
to keep Confidential Information confidential, and Employee shall not use
Confidential Information for any reason or in any manner.
(b) Notwithstanding the foregoing, Employee shall not be subject to the
restrictions set forth in subsection (a) of this Section 12 with respect to
information which:
(i) becomes generally available to the public other than as a result
of disclosure by Employee or the breach of Employee's obligations under
this Agreement;
(ii) becomes available to Employee from a source which is unrelated
to his Employment or the exercise of his duties under this Agreement,
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provided that such source lawfully obtained such information and is not
bound by a confidentiality agreement with any of the NOVA Entities; or
(iii) is required by law to be disclosed.
(c) Employee acknowledges and agrees that because of his Employment, he
will have access to "trade secrets" (as defined in the Uniform Trade
Secrets Act, O.C.G.A. ' 10-1-760, et seq. (the "Uniform Trade Secrets
-- ----
Act") of the NOVA Entities ("Trade Secrets"). Nothing in this Agreement is
intended to alter the applicable law and remedies with respect to
information meeting the definition of "trade secrets" under the Uniform
Trade Secrets Act, which law and remedies shall be in addition to the
obligations and rights of the parties hereunder.
13. COVENANTS NOT TO SOLICIT OR COMPETE. Employee acknowledges and agrees
that, because of his Employment, he does and will continue to have access to
confidential or proprietary information concerning merchants, associate banks
and ISOs of the NOVA Entities and establish relationships with such merchants,
associate banks and ISOs as well as with the vendors, consultants, and suppliers
used to service such merchants, associate banks and ISOs within the Territory.
In consideration for the benefits and compensation Employee is receiving
hereunder, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Employee agrees that during the term of his
Employment and continuing throughout the Severance Period or the Exclusion
Period, as applicable (provided NOVA complies with its obligations set forth in
Section 9 hereof), except as permitted under Section 28 Employee shall not,
directly or indirectly, either individually, in partnership, jointly, or in
conjunction with, or on behalf of, any person, firm, partnership, corporation,
or unincorporated association or entity of any kind:
(a) (i) compete with any of the NOVA Entities in providing credit card
and debit card transaction processing services within the Territory or (ii)
otherwise obtain any interest in (except as a stockholder holding less than
five percent (5%) interest in a corporation which is traded on a national
exchange or over-the-counter), lend money to, guarantee the debts or
obligations of, or perform services in either a supervisory or managerial
capacity or as an advisor, consultant or independent contractor for, or
otherwise participate in the ownership, management or control of, any
person, firm, partnership, corporation, or unincorporated association of
any kind which is providing credit card and debit card transaction
processing services within the Territory;
(b) solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those provided by any of
the NOVA Entities in connection with the NOVA Business, any person or
entity that during the term of Employee's Employment was a merchant,
associate bank, ISO or customer (including any actively-sought perspective
merchant, associate bank, ISO or customer) of any of the NOVA Entities and
with whom Employee had material contact or about which Employee learned
material information during the last twelve (12) months of his Employment;
(c) persuade or attempt to persuade any merchant, associate bank, ISO,
customer, or supplier of any of the NOVA Entities to terminate or modify
such merchant's, associate bank's, ISO's customer's, or supplier's
relationship with any of the NOVA Entities if Employee had material contact
with or learned material information about such merchant, associate bank,
ISO, customer or supplier during the last twelve (12) months of his
Employment; or
(d) persuade or attempt to persuade any person who (aa) was employed by
any of the NOVA Entities as of the date of the termination of Employee's
Employment, and (bb) is in a sales or management position with any of the
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NOVA Entities at the time of such termination, to terminate or modify his
employment relationship, whether or not pursuant to a written agreement,
with any of the NOVA Entities, as the case may be.
14. NEW DEVELOPMENTS. Any discovery, invention, process or improvement
made or discovered by Employee during the term of his Employment in connection
with or in any way affecting or relating to the NOVA Business (as then carried
on or under active consideration) shall forthwith be disclosed to NOVA and shall
belong to and be the absolute property of the appropriate NOVA Entity; provided,
however, that this provision does not apply to an invention for which no
equipment, supplies, facility, trade secret information of the NOVA Entities was
used and which was developed entirely on Employee's own time, unless (a) the
invention relates (i) directly to the NOVA Business or (ii) to the actual or
demonstrably anticipated research or development of any of the NOVA Entities; or
(b) the invention results from any work performed by Employee for any of the
NOVA Entities.
15. REMEDY FOR BREACH. The parties acknowledges and agree that a breach
of any of the covenants contained in Sections 11, 12, 13, and 14 of this
Agreement would cause irreparable injury to the non-breaching party and that
remedies at law of such party for any actual or threatened breach of such
covenants would be inadequate and that such party shall be entitled to specific
performance of the covenants in such sections or injunctive relief against
activities in violation of such sections, or both, by temporary or permanent
injunction or other appropriate judicial remedy, writ or order, without the
necessity of proving actual damages, notwithstanding the arbitration provisions
of Section 10 of this Agreement. This provision with respect to injunctive
relief shall not diminish the right of the non-breaching party to claim and
recover damages against Employee or NOVA as the case may be for any breach of
this Agreement in addition to injunctive relief. The parties acknowledge and
agree that the non-prevailing party will be responsible for all legal expenses,
including attorney's fees, which NOVA or Employee, as the case may be, incurs in
pursuing remedies, whether legal or equitable, for any actual or threatened
breach of this Agreement by Employee or NOVA, as the case may be. Employee
acknowledges and agrees that, subject to NOVA's compliance with the provisions
of Section 9 hereof, the covenants contained in Sections 11, 12, 13 and 14 of
this Agreement shall be construed as agreements independent of any other
provision of this or any other contract between the parties hereto, and that the
existence of any claim or cause of action by Employee against the NOVA Entities,
whether predicated upon this or any other contract, shall not constitute a
defense to the enforcement by the NOVA Entities of said covenants.
16. REASONABLENESS. Employee has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred on
NOVA under this Agreement, and Employee hereby acknowledges and agrees that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon NOVA, are necessary to protect the goodwill and
other value of the NOVA Business and the benefits bargained for in
connection with the Merger;
(b) the restrictions placed upon Employee hereunder are narrowly drawn,
are fair and reasonable in time and territory, will not prevent him from
earning a livelihood, and place no greater restraint upon Employee than is
reasonably necessary to secure the NOVA Business and goodwill of NOVA and
the benefits bargained for in connection with the Merger;
(c) NOVA is relying upon the restrictions and covenants contained herein
in continuing to make available to Employee information concerning the NOVA
Business; and
(d) Employee's Employment places him in a position of confidence and
trust with NOVA and its employees, merchants, associate banks, ISOs,
customers, vendors and suppliers.
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17. INVALIDITY OF ANY PROVISION. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
permissible under the laws and public policies of each state and jurisdiction in
which such enforcement sought, but that the unenforceability (or the
modification to conform with such laws or public policies) of any provision
hereof shall not render unenforceable or impair the remainder of this Agreement
which shall be deemed amended to delete or modify, as necessary, the invalid or
unenforceable provisions. The parties further agree to alter the balance of
this Agreement in order to render the same valid and enforceable. The terms of
the non-competition provisions of this Agreement shall be deemed modified to the
extent necessary to be enforceable, it shall be modified to encompass the
longest term which is enforceable and, if the scope of the geographic area of
non-competition is too great to be enforceable, it shall be modified to
encompass the greatest area that is enforceable. The parties further agree to
submit any issues regarding such modification to a court of competent
jurisdiction if they are unable to agree and further agree that if said court
declines to so amend or modify this Agreement, the parties will submit the issue
of amendment or modification of the non-arbitration rules then in effect of
American Arbitration Association. Any such arbitration hearing will be held in
Nashville, Tennessee, and this Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee, including this arbitration
provision.
18. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee.
19. WAIVER OF BREACH. The waiver by NOVA of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
20. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
NOVA, its respective subsidiaries and affiliates, and their respective
successors and assigns. This Agreement is not assignable by Employee but shall
be freely assignable by NOVA to any corporation or other entity of any kind
succeeding to the business of NOVA in connection with a merger, consolidation,
or other business combination, or in connection with the transfer of all or
substantially all of the assets of NOVA to such successor. In the event of
Employee's death or disability, this Agreement shall be enforceable by
Employee's estate, executors or legal representatives.
21. NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the United
States mail, certified or registered, with return receipt requested, as follows:
If to Employee, to: Gregory S. Daily
President and Treasurer
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Telephone: (615) 743-3800
Facsimile: (615) 254-1501
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with a copy to: Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
(which shall not Nashville City Center
constitute notice) 511 Union Street, Suite 2100
P.O. Box 198966
Nashville, Tennessee 37219-8966
Attention: J. Chase Cole, Esq.
Telephone: (615) 252-2476
Facsimile: (615) 244-6804
(ii) If to NOVA: NOVA Information Systems, Inc.
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Vice Chairman and
Chief Financial Officer
Telephone: (770) 698-1040
Facsimile: (770) 698-1013
with a copy to: Long Aldridge & Norman LLP
(which shall not SunTrust Plaza
constitute notice) 303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Telephone: (404) 527-4040
Facsimile: (404) 527-4198
22. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties, and supersedes all other prior negotiations, commitments, agreements
and understandings (written or oral) among the parties with respect to the
subject matter hereof, including but not limited to the Employment Agreement,
dated February 2, 1998, by and between Employee and PMT, which Employment
Agreement is terminated as of the Effective Date; provided, however, that the
provisions of Section 6.2 of said Employment Agreement shall remain in full
force and effect with respect to all "Payments" (as defined therein) made by PMT
prior to the Effective Date. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension, or discharge is sought.
23. INDEMNIFICATION. At all times during and after Employee's Employment
and the effectiveness of this Agreement, NOVA shall indemnify Employee (as a
director, officer, employee and otherwise) to the fullest extent permitted by
law and shall at all times maintain appropriate provisions in its Articles of
Incorporation and Bylaws which mandate that NOVA provide such indemnification.
24. SURVIVAL. The provisions of Sections 9, 10, 11, 12, 13, 14, 15, 16,
17, 18 19, 20, 21, 22, 23 and 25 shall survive termination of Employee's
Employment and termination of this Agreement.
25. WITHHOLDING; NO OFFSET. All payments required to be made by NOVA
under this Agreement to Employee will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
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by law. No payment under this Agreement will be subject to offset or reduction
attributable to any amount Employee may owe to NOVA or any other person, as
permitted by law. Nothing in this Section shall be construed to reduce
Employee's right to payments described in Section 9(d).
(Signatures begin on following page)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above shown.
"EMPLOYEE:"
/s/ Gregory S. Daily
________________________________
GREGORY S. DAILY
"NOVA:"
NOVA CORPORATION
By: /s/ Edward Grzedzinski
_____________________________
Name: Edward Grzedzinski
___________________________
Chief Executive Officer
Title:__________________________
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EXHIBIT A
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ANNUAL INCENTIVE COMPENSATION SCHEDULE
1. Payment of annual incentive (the "Bonus Payment") to be based upon relative
achievement of Targeted Net Income (as defined). Payment for a partial
year shall be prorated based upon Employee's length of service during such
year.
2. Net Income is Net Income determined in accordance with GAAP as determined
from the annual audited Financial Statements, as adjusted to exclude non-
operating gains and losses.
3. Targeted Net Income will be established annually by the Board of Directors.
4. Payment will be calculated by determining the percentage relationship
between Net Income and Targeted Net Income (such percentage relationship
being referred to as the "Actual/Targeted Ratio"). For each full percent
by which the Actual/Targeted Ratio equals or exceeds 80%, Employee will
receive, in addition to his then current Base Salary, the following
percentage (the "Bonus Percentage") of his Base Salary as the Bonus
Payment:
ACTUAL NET INCOME/
TARGETED NET MAXIMUM % OF
INCOME (THE "ACTUAL/ BONUS PERCENTAGE BASE SALARY PAYABLE AS
TARGETED RATIO") (% OF BASE SALARY) THE BONUS PAYMENT
-------------------- ------------------ ----------------------
80% - 84% 1% 5%
85% - 89% 2% 15%
90% - 94% 3% 30%
95% - 99% 4% 50%
* *
- -------------------
* If the Actual/Targeted Ratio is equal to or greater than 101%, for each full
percentage point by which the Actual/Targeted Ratio exceeds 100% (the
"Excess"), the Bonus Percentage (pursuant to which Employee's Bonus Payment
shall be calculated) shall be equal to the aggregate of (i) 50%, and (ii) the
Excess; provided, however, that the Bonus Percentage may never exceed 100%.
For example, if the Actual/Targeted Ratio is 112%, the Actual/Targeted
Ratio exceeds 100% by 12%, and 12% is the "Excess." Therefore, the Bonus
Percentage would be equal to the aggregate of (i) 50%, and (ii) 12%;
accordingly, the Bonus Percentage would be 62% and Employee's Bonus Payment
would be 62% of his then current Base Salary. If Employee's Base Salary was
$100,000, Employee would receive, in addition to his Base Salary, a Bonus
Payment of $62,000.
The foregoing notwithstanding, in order for any bonus to be payable with
respect to any fiscal year, the Revenue for such fiscal year must equal or
exceed 105% of the Revenue for the immediately preceding fiscal year.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 91,985,000
<SECURITIES> 0
<RECEIVABLES> 43,385,000
<ALLOWANCES> 4,048,000
<INVENTORY> 3,187,000
<CURRENT-ASSETS> 140,345,000
<PP&E> 55,157,000
<DEPRECIATION> 13,976,000
<TOTAL-ASSETS> 339,873,000
<CURRENT-LIABILITIES> 57,079,000
<BONDS> 0
0
0
<COMMON> 343,000
<OTHER-SE> 255,845,000
<TOTAL-LIABILITY-AND-EQUITY> 339,873,000
<SALES> 165,555,000
<TOTAL-REVENUES> 165,555,000
<CGS> 130,594,000
<TOTAL-COSTS> 130,594,000
<OTHER-EXPENSES> 25,343,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,000)
<INCOME-PRETAX> 9,645,000
<INCOME-TAX> 3,569,000
<INCOME-CONTINUING> 6,076,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,076,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
