<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14342
---------------
NOVA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-2209575
(IRS EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OF ORGANIZATION)
ONE CONCOURSE PARKWAY, SUITE 300, 30328
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(770) 396-1456
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
COMMON STOCK, $0.01 PAR VALUE PER NEW YORK STOCK EXCHANGE
SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
---------------
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 [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of March 19, 1998, the aggregate market value of the Common Stock of the
Company held by non-affiliates of the Company was approximately $162,011,000,
based upon the closing price of $28.5625 per share on the New York Stock
Exchange composite tape on such date. Non-affiliate ownership is calculated by
excluding all shares that may be deemed to be beneficially owned by executive
officers and directors, without conceding that all such persons are
"affiliates" for purposes of the federal securities laws. As of March 19,
1998, there were 29,110,147 shares of the Company's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant's 1997 Annual Report to
Shareholders for the year ended December 31, 1997 is incorporated herein by
reference in Parts II and IV of this Annual Report on Form 10-K. Certain
information contained in the registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders to be held on May 20, 1998 is incorporated herein by
reference in Part III of this Annual Report on Form 10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
NOVA Corporation, a Georgia corporation (the "Company"), 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, including VISA, MasterCard, American Express,
Discover, Diner's Club and JCB, and also provides access to debit card
processing and check verification services. The Company believes it is the
nation's largest transaction processor focused primarily on small- to medium-
sized merchants, and that it was the fifth largest bankcard processor in the
United States at December 31, 1997, after giving pro forma effect to the
recent transactions completed since January 1997 discussed below. On a pro
forma basis giving effect to the recent transactions discussed below, the
aggregate dollar volume of VISA and MasterCard credit card transactions
processed by the Company in 1997 would have been over $24.0 billion.
The Company provides merchants with a broad range of transaction processing
services, including authorizing card transactions at the point of sale
("POS"), capturing and transmitting transaction data, effecting the settlement
of payments and assisting merchants in resolving billing disputes with their
customers. In addition, the Company has developed several software
applications that can be delivered to its customers and updated via the
Company's proprietary telecommunications network (the "NOVA Network"). The
NOVA Network was developed in conjunction with WorldCom, Inc. ("WorldCom") and
is the principal conduit through which the Company provides its services. The
capabilities of the NOVA Network result in rapid response time and its
substantial bandwidth facilitates the delivery of sophisticated value-added
services. The Company's ability to effectively employ technology, together
with the capabilities of the NOVA Network, allow the Company to respond
quickly and effectively to the changing and diverse needs of its merchant
customers.
The Company was incorporated in Georgia in December 1995 in connection with
an alliance between the Company and First Union Corporation ("First Union")
(the "First Union Alliance"). NOVA Information Systems, Inc., a wholly-owned
subsidiary and predecessor to the Company ("NOVA Information Systems"), was
incorporated in Georgia in February 1991. Unless the context otherwise
requires, references in this Annual Report on Form 10-K to "NOVA" and the
"Company" refer to NOVA Corporation and its subsidiaries.
This Annual Report on Form 10-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning transaction volume and
the impact of acquisitions, joint ventures and alliances. When used in this
report, the words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan" 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. The Company cautions that various factors, including the factors
described in the Company's filings with the Securities and Exchange Commission
(the "Commission"), as well as general economic conditions and industry trends
could cause actual results or outcomes to differ materially from those
expressed in any forward-looking statements of the Company. Any forward-
looking statement speaks only as of the date of this report, and the Company
undertakes no obligation to update any forward-looking statement or 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.
RECENT TRANSACTIONS
The Company consummated three significant transactions in 1997 and a fourth
in January 1998, which in the aggregate would have added approximately $10.9
billion of transaction processing volume to the Company's network if the
transactions had been consummated at the beginning of 1997. The transactions
collectively
2
<PAGE>
represent increases of 91.4% over fiscal 1996 transaction processing volume of
$11.9 billion. The aggregate maximum consideration paid or to be paid by the
Company in connection with these four transactions is approximately $140.1
million. The Company also consummated 16 community bank transactions in 1997,
for an aggregate purchase price of approximately $10.0 million and which, in
the aggregate, represent approximately $774.0 million of transaction
processing volume.
KeyBank Joint Venture. On January 21, 1998, the Company consummated a
transaction (the "KeyBank Joint Venture") with KeyBank National Association
("KeyBank") pursuant to which the Company and KeyBank formed Key Merchant
Services, LLC, a Delaware limited liability company ("Key Merchant Services")
jointly owned and operated by Key Payment Services, Inc., a wholly owned
subsidiary of KeyBank, and the Company. In connection with the KeyBank Joint
Venture, KeyBank, Key Payment Services and POS Sales and Services, Inc., a
wholly owned subsidiary of KeyBank, contributed substantially all of their
then existing bankcard payment processing contracts (representing
approximately $5.1 billion in annualized credit and debit card volume) to Key
Merchant Services. The Company purchased a 51% interest in Key Merchant
Services from KeyBank and POS Sales and Services.
Key Merchant Services has an initial operating term expiring in January 2005
with automatic three-year extensions unless either Key Payment Services or the
Company, as the sole members of Key Merchant Services, gives notice of
termination at least 12 months prior to a scheduled expiration date. Although
certain authority is reserved exclusively in a Management Committee, a
Manager, who is a designated employee of the Company, has the power and
authority to make decisions and take actions on behalf of Key Merchant
Services in connection with its day-to-day operation and management in the
ordinary course of business. The Management Committee is comprised of five
persons, with two members selected by Key Payment Services and three members
selected by the Company. The Company also will provide to Key Merchant
Services transaction processing and other services for which the Company will
receive compensation. Key Merchant Services will market transaction processing
services with its own employees throughout the United States. Further, KeyBank
will market and promote, on an exclusive basis, transaction processing
services on behalf of Key Merchant Services through KeyBank's bank branch
locations. KeyBank and its affiliate banks also agreed to provide certain
other services, including clearing and settlement services, to Key Merchant
Services for which KeyBank will receive compensation.
Upon termination or expiration of the KeyBank Joint Venture, either KeyBank
or the Company, depending on the circumstances of such termination or
expiration, may elect to purchase the other party's interest in Key Merchant
Services at "fair market value" determined pursuant to the terms of the
KeyBank Joint Venture.
In connection with the formation of Key Merchant Services, the Company has
undertaken the conversion of merchant processing to the Company's operating
platform. In addition to the Company's normal conversion related expenses, the
Company expects to accrue a non-recurring charge of approximately $1.3
million, net of tax ($0.04 per share assuming dilution and prior to giving
effect to this offering), in the first quarter of 1998 principally to account
for early termination of a contract for merchant processing with a third party
processor.
MBNA Portfolio. On December 30, 1997, the Company consummated a transaction
with MBNA America Bank, N.A. ("MBNA") pursuant to which the Company purchased
substantially all of MBNA's merchant portfolio. In connection with the MBNA
transaction, MBNA has agreed to cooperate with the Company in marketing the
Company's merchant transaction processing services and to refer exclusively to
the Company all merchants, trade associations, financial institutions,
independent sales organizations ("ISOs") and other organizations that request
or evidence an interest in merchant transaction processing services. The
Company, among other things, is required to pay to MBNA a fee for each
merchant that enters into a merchant transaction processing contract with the
Company as a result of any such referral. In conjunction with the MBNA
transaction, the Company agreed to pay to MBNA a percentage of the portfolio's
net revenues. The Company's marketing agreement with MBNA has an initial term
of ten years (i.e., through December 31, 2007) subject to automatic two year
extensions unless either party gives notice of termination at least 75 days
prior to an expiration date. The Company estimates that the MBNA portfolio
will add approximately $1.0 billion in annualized credit and debit card
transaction processing volume.
3
<PAGE>
Firstar Joint Venture. Effective on October 31, 1997, the Company
consummated a transaction (the "Firstar Joint Venture") with Firstar Bank
U.S.A., N.A. ("Firstar") and Firstar Milwaukee, each of which are subsidiaries
of Firstar Corporation, pursuant to which the Company and Firstar jointly own
and operate Elan Merchant Services, LLC ("Elan Merchant Services"), a newly
formed limited liability company. In connection with the Firstar Joint
Venture, Firstar, Firstar Milwaukee and the other banking affiliates of
Firstar contributed substantially all of their then existing bankcard payment
processing contracts (representing approximately $3.0 billion in annualized
credit and debit card volume) to Elan Merchant Services in return for a 49%
equity interest in Elan Merchant Services, and the Company purchased a 51%
interest in Elan Merchant Services.
Elan Merchant Services has an initial term expiring on August 31, 2008, with
automatic one-year extensions unless either Firstar or the Company, as the
sole members of Elan Merchant Services, gives notice of termination at least
six months prior to a scheduled expiration date. Although certain powers are
reserved exclusively in a Management Committee, the Company, as Manager of
Elan Merchant Services, has the power and authority to make decisions and take
actions on behalf of Elan Merchant Services in connection with its day-to-day
operation and management in the ordinary course of business. The Management
Committee is comprised of four persons, with two members selected by each of
Firstar and the Company. Elan Merchant Services pays the Company an annual fee
for its managerial services. The Company also provides to Elan Merchant
Services transaction processing and other services for which the Company
receives compensation. Firstar will market and promote, on an exclusive basis,
transaction processing services on behalf of Elan Merchant Services directly
and through a network of over 850 correspondent financial institutions. Elan
Merchant Services, among other things, is required to pay to Firstar a fee for
each merchant that enters into a merchant transaction processing contract with
Elan Merchant Services as a result of any such referral, including a fixed
percentage of sales volume the referred merchant processes through the
Company. Firstar and its affiliate banks also agreed to provide certain other
services, including clearing and settlement services, to Elan Merchant
Services for which Firstar receives compensation.
Upon termination or expiration of the Firstar Joint Venture, either Firstar
or the Company, depending on the circumstances of such termination or
expiration, may elect to purchase the other party's interest in Elan Merchant
Services at the "fair market value" determined through negotiations between
the parties at the time of termination. If Firstar and the Company are unable
to mutually agree upon the "fair market value," an independent appraiser shall
make such determination.
Crestar Portfolio. On May 29, 1997, the Company consummated a transaction
with Crestar Bank pursuant to which the Company purchased substantially all of
Crestar Bank's merchant portfolio. Crestar Bank has agreed that for an initial
term expiring May 1, 2002 (subject to automatic two-year extensions unless
either party gives notice of termination at least 180 days prior to an
expiration date), Crestar Bank will cooperate with the Company in marketing
the Company's merchant transaction processing services and refer exclusively
to the Company all merchants, financial institutions, ISOs and other
organizations that request or evidence an interest in merchant transaction
processing services. The Company, among other things, is required to pay to
Crestar Bank a fee for each such referral, including a fixed percentage of
sales volume the referred merchant processes through the Company.
The Company estimates that the Crestar portfolio will add approximately $1.8
billion in annualized credit and debit card transaction processing volume.
Crestar Bank's 500 branch locations will offer the Company's transaction
processing services, thereby expanding the Company's distribution network.
The Company expects each of these transactions to provide significant
strategic and financial benefits, including: (i) enhanced distribution
channels to facilitate growth of the Company's processed transaction volume
and number of merchant locations served; (ii) further geographic
diversification of the Company's merchant portfolio into additional regions of
the United States; and (iii) economies of scale from substantial increases in
transaction processing volume once the merchant accounts and other services
are fully integrated into the Company's operating platform.
4
<PAGE>
INDUSTRY OVERVIEW
The transaction processing industry provides merchants with credit, charge
and debit card and other payment processing services, as well as related
information services. This industry has grown rapidly in recent years as a
result of wider merchant acceptance and increased consumer use of such cards,
and advances in transaction processing and telecommunications technology.
These factors, together with the efficiencies derived from economies of scale,
are causing the consolidation of transaction processing providers and the
availability of more sophisticated products and services to all market
segments.
Increased Growth in Card Use. The proliferation in the uses and types of
credit, charge and debit cards, rapid technological advances in transaction
processing and financial incentives offered by credit card associations and
issuers have contributed greatly to wider merchant acceptance and increased
consumer use of such cards. For example, industry sources indicate that for
the five years ended December 31, 1996, charge volume of VISA and MasterCard
credit cards grew at a compounded annual growth rate of approximately 18.7%.
The growth in charge volume and the increase in the acceptance of credit cards
are expected to continue as consumers expand their use of such cards as an
alternative to cash and checks. VISA and MasterCard charge volume is projected
to exceed $1.0 trillion by the year 2000 (The Nilson Report--September 1996).
Technology. Rapid technological advances in transaction processing,
particularly the transition from paper-based to electronic processing, have
contributed greatly to wider merchant acceptance and increased consumer use of
such cards. Electronic processing provides greater convenience to merchants
and consumers, reduces fees charged to merchants, and facilitates faster and
more accurate settlement of payments. According to industry sources,
approximately 87% of the dollar volume of credit card transactions was
processed electronically or by voice automation in 1995, up from approximately
77% in 1990. Increased card acceptance and usage, coupled with technological
advances in electronic processing, have created an opportunity for service
providers to offer a variety of sophisticated processing and information
services to merchants.
At present, many large transaction processors continue to provide customer
service and applications via legacy systems that are difficult and costly to
alter or otherwise customize. Accordingly, transaction processors that
continue to utilize these systems for customer service and applications find
it difficult to meet the increasing demands of small- to medium-sized
merchants for more sophisticated products and services tailored to their
diverse and changing needs. In contrast to more expensive and less flexible
legacy systems, advances in less costly, scalable and networked computer
systems, including distributed client/server architecture and relational
database management systems, afford transaction processors greatly improved
flexibility and responsiveness in providing customer service and applications.
In addition, the use of fiber optic cables and advanced switching technology
in telecommunications networks and competition among long-distance carriers
further enhance the ability of processors to provide faster and more reliable
service at lower per-transaction costs than previously possible.
Advances in personal computer ("PC") and POS terminal technology have
increasingly allowed access to a greater array and level of sophisticated
services at the POS and contributed to the demand for such services. In
addition, more sophisticated uses of integrated cash registers and networked
systems at the merchant site create further demand for comparably advanced and
sophisticated products and services accessible at the POS. These trends have
created the opportunity for transaction processors to leverage technologies by
developing business management and other software application products and
services.
Segmentation of Merchants and Service Providers. The transaction processing
industry is characterized by a small number of large transaction processors
that primarily focus on servicing large merchants and by many smaller
transaction processors that provide a limited range of services to small- to
medium-sized merchants. Large merchants (i.e., those with multiple locations
and high volumes of card transactions) typically demand and receive the full
range of transaction processing services as well as customized information
services at low per-transaction costs. By contrast, small- to medium-sized
merchants historically have not been offered the same level of services as
large merchants and have incurred relatively higher per-transaction costs. The
growth in card
5
<PAGE>
transactions and the transition from paper-based to electronic transaction
processing have, however, caused small- to medium-sized merchants increasingly
to demand sophisticated transaction processing and information services
similar to those provided to large merchants.
Transaction processing services are marketed and sold to the small- to
medium-sized merchant market segment primarily by community and regional banks
and ISOs that outsource all or a portion of the transaction processing
services they offer. It is difficult, however, for banks and ISOs to customize
transaction processing services for the small- to medium-sized merchant on a
cost-effective basis or to provide sophisticated value-added services.
Accordingly, the small- to medium-sized merchant market segment historically
has been characterized by basic transaction processing without the
availability of the more sophisticated processing, information-based services
or customer service offered to large merchants.
Consolidation. The transaction processing industry has undergone rapid
consolidation over the last several years. The costs to convert from paper-
based to electronic processing, merchant requirements for improved customer
service, and the demands for additional customer applications have made it
difficult for community and regional banks and ISOs to remain competitive.
Many of these providers are unwilling or unable to invest the capital required
to meet these evolving demands, and are increasingly exiting the transaction
processing business or otherwise seeking alliance partners to provide
transaction processing for their customers. Despite this ongoing
consolidation, the industry remains fragmented with respect to the number of
entities providing merchant services. Industry sources indicate that in 1997,
although the ten largest bankcard processors accounted for approximately 85%
of the total charge volume processed and the largest accounted for
approximately 38% of the total volume, there were several hundred additional
registered service providers marketing and selling transaction processing
services to merchants. Management believes that these factors will result in
continuing industry consolidation opportunities over the next several years.
MERCHANT SERVICES PROVIDED BY THE COMPANY
Authorization Services. The Company provides electronic transaction
authorization services for all major credit and charge cards. Authorization
generally involves approving a cardholder's purchase at the POS after
verifying that the card is not lost or stolen and that the purchase amount is
within the cardholder's credit or account limit. The electronic authorization
process for a credit card transaction begins when the merchant "swipes" the
card through its POS terminal and enters the dollar amount of the purchase.
After capturing the data, the POS terminal transmits the authorization request
via the NOVA Network to the Company's switching center, where the data is
routed to the appropriate credit card association for authorization. The
transaction is approved or declined by the credit card association, and the
response is transmitted back to the Company's switching center, where it is
routed to the appropriate merchant.
Data Capture and Reporting Services. At the time of authorization, data
relating to the transaction, such as the purchase price and card number, is
recorded electronically both at the merchant's POS terminal and by the
Company. This redundancy maximizes accurate transaction reconciliation with
each merchant and protects against potential loss of data. On a periodic basis
throughout the day, the merchant aggregates and organizes this transaction
data, using a software application that the Company has programmed into the
merchant's POS terminal, and transmits this information to the Company where
it is organized into two files. One file is transmitted to either Vital
Processing Services L.L.C. (formerly Total System Services, Inc.) ("Vital
Processing Services") or Mellon Bank, N.A. ("Mellon Bank") for merchant
accounting as described below. The other file is maintained by the Company in
its database to allow the Company to run its proprietary fraud detection
software program against each of the day's transactions processed via the NOVA
Network. This information also allows the Company to provide merchants with
information services such as specialized management reports and to assist in
its other customer service operations. Merchants can access this archived
information through customer service representatives or through applications
such as NOVA ACS and NOVA Perks which allow the merchant direct access to the
Company's database through a PC.
6
<PAGE>
Settlement, Accounting and Clearing Services. Merchant accounting services
are performed on the Company's behalf by Vital Processing Services and Mellon
Bank, with each of the Company's merchant customers assigned to one of these
processors. No less often than once each day, the Company forwards to Vital
Processing Services and Mellon Bank, respectively, transaction data regarding
the Company's merchant customers. Vital Processing Services and Mellon Bank
reorganize and accumulate this data on a merchant-by-merchant and card issuer-
by-card issuer basis and forward this data to the credit card associations for
ultimate payment. On a monthly basis, Vital Processing Services and Mellon
Bank send statements to the Company's merchant customers for whom they provide
settlement and accounting services, detailing the previous month's transaction
activity.
Through each of Regions Bank, Bank of the West, Mellon Bank, Firstar,
KeyBank and First Union National Bank ("FUNB"), a subsidiary of First Union,
which serve as member clearing banks for the Company, the Company is
registered with the VISA and MasterCard credit card associations as a
certified processor and member service provider. The Company's clearing banks
receive payment for merchant transactions from the credit card associations
(net of fees payable to the credit card associations and card issuing banks),
from which the clearing banks remit payment to the merchant for the gross
amount of the merchant's transactions. Once each month, the Company collects
applicable merchant discount and other fees from each merchant for
transactions effected and services provided during the preceding month.
Chargeback Services. In the event of a billing dispute between a cardholder
and a merchant, the Company assists the merchant in investigating and
resolving the dispute. These billing disputes include, among others: (i)
nonreceipt of merchandise or services; (ii) unauthorized use of a credit card;
and (iii) general disputes between a customer and a merchant as to the quality
of the goods purchased or the services rendered by that merchant. The Company
provides a sophisticated chargeback control system for its merchants that
includes actively prescreening disputes and the use of proprietary software
programs to automate chargeback controls. These chargeback control systems are
designed to reduce the time and expense that the Company and merchants spend
on cardholder requests for chargebacks. In the event a billing dispute between
a cardholder and a merchant is not resolved in favor of the merchant, the
transaction is "charged back" to the merchant and that amount is credited or
otherwise refunded to the cardholder. If the Company or its clearing banks are
unable to collect such amounts from the merchant's account, and if the
merchant refuses or is unable due to bankruptcy or other reasons to reimburse
the Company for the chargeback, the Company bears the loss for the amount of
the refund paid to the cardholder.
Customer Service and Support. The Company provides its merchant customers
with a variety of customer services and support. These services include
leasing, renting or selling POS terminals, downloading software application
products and services to POS terminals, maintaining POS terminals, and
customizing software for merchant applications. In addition, the Company
maintains a 24-hours-a-day, seven-days-a-week helpline staffed by full-time
customer service representatives.
TECHNOLOGY
One of the Company's principal strategies is to maximize the benefits of
available technologies to deliver transaction processing and related software
application products and services on a cost-effective basis. Accordingly, the
Company regularly uses and adapts technologies developed for applications
outside the transaction processing industry. In particular, technologies
developed for networked PCs and the telecommunications market have been
important to the NOVA Network and the Company's service capabilities.
The Company exercises significant control over the development and
enhancement of the combination of hardware, software and network services that
comprise the Company's transaction processing and information delivery system.
This provides the Company with greater control over the functionality,
quality, reliability, cost and efficiency of its transaction processing
services and related software application products and services.
7
<PAGE>
The NOVA Network. The NOVA Network, developed in conjunction with WorldCom,
is the Company's proprietary telecommunications network and the principal
conduit through which the Company provides its services. The design of the
NOVA Network provides efficient switching capabilities, resulting in rapid
response time for transaction authorizations. Fiber optic communications are
employed throughout the NOVA Network, providing the substantial bandwidth
capable of supporting sophisticated value-added services. In working with
WorldCom, the Company was able to design a network specifically tailored to
the services the Company desired to provide, the equipment the Company
intended to use in providing those services, and the functionality those
services were designed to achieve. As customer needs change and as technology
improves, management believes that it will be able to adapt and customize the
NOVA Network as necessary to achieve the functionality it desires. Pursuant to
its agreement with the Company, WorldCom provides long-distance and local
telecommunication access, as well as technical support, to the Company in
connection with the NOVA Network. This agreement expires February 28, 1999,
subject to earlier termination by the Company if WorldCom fails to meet
certain agreed-upon performance objectives.
The NOVA Network is the result of combining WorldCom's Common Channel
Signaling Specification Number Seven, commonly referred to as an "SS7"
switching system, with the use of advanced Integrated Services Digital Network
("ISDN") and Non-Facilities Associated Signaling ("NFAS") features. SS7 is a
high-speed call-switching technology utilized in telecommunications networks
and originally intended only for carrier-to-carrier use, such as a regional
phone company switching long-distance calls to WorldCom for transmission, as
opposed to use by end-users such as the Company and its merchants. With the
use of ISDN technology, however, end-users such as the Company can utilize an
SS7 switching system without sacrificing any of the enhanced performance
attributes derived from SS7 technology. Although significant hardware and
software obstacles currently are inherent to end-user utilization of an SS7
switching system, the Company developed a proprietary ISDN interface enabling
it effectively to employ SS7 technology as part of the NOVA Network. Further,
the NFAS features of the NOVA Network allow for a greater portability of the
NOVA Network to long-distance and local telecommunications access providers
other than WorldCom, which would reduce the Company's historical dependence on
WorldCom. The Company has developed and tested a network interface with AT&T
and management believes that, if necessary or convenient, the Company could
utilize the telecommunications access of AT&T in connection with the NOVA
Network. Management believes that transferring the NOVA Network to AT&T, or
another telecommunications access provider, can be accomplished without
sacrificing any significant performance or operational attributes of the NOVA
Network, although such a transfer may increase the Company's expenses for
network services.
The reliability of the NOVA Network is enhanced by the backup service
provided by AT&T. The existence and maintenance of this backup system, which
is designed so no single element is shared with the principal WorldCom system,
enhances the Company's ability to provide a high level of reliability in its
network service. Through an agreement with Electronic Data Systems
Corporation, the Company maintains a voice authorization backup system. This
backup system allows merchants to receive voice authorization of transactions
in the event of a POS terminal malfunction, network outage or other similar
circumstances.
Software Development for POS Terminals and PCs. The Company is continuously
developing new software applications for POS terminals and PCs in an effort to
improve existing and create additional product and service offerings. This
software development capability is critical to the Company's ability to
respond flexibly to changing customer needs and improving technologies. Most
of the POS terminals utilized by the Company's merchant customers have been
programmed by the Company with specific applications. By programming POS
terminals, the Company can avoid the limitations of the preexisting
applications programmed into POS terminals, which are designed for broad
applicability to a wide range of users, and can provide its merchant customers
with specifically tailored applications at an increased level of
functionality. Distribution of software application products designed for use
through POS terminals generally is accomplished by downloading such
applications over the NOVA Network, enabling a merchant to utilize the
Company's products and services quickly and inexpensively.
8
<PAGE>
As the use of PCs by merchants grows, and as merchants continue to move
toward fully-integrated cash registers and payment systems, the Company
continues its efforts to extend its POS terminal software application product
and service offerings to PCs. For instance, NOVA ACS, NOVA Perks, PC Transact
It, and NOVA Shadow Pay are PC-based applications, and the Company intends to
expand the number of its products and services available for PC use or that
otherwise allow the POS terminal to interface with a PC. While merchant use of
such products and services currently is limited, and there can be no assurance
that such products and services will be widely accepted, the Company expects
such use to increase. Further, the terms of the First Union Alliance provide
that, when feasible, the Company will assist First Union in developing new
products or services relating to transaction processing or in otherwise
supporting new business ventures. The Company and First Union are actively
pursuing initiatives relating to transaction processing via the Internet and
procurement and purchasing cards, and management believes that these and other
efforts may result in the development of additional software application
products and value-added services.
The Company actively encourages third party software developers to write
applications to the Company's specifications and network protocols. These
applications, once certified by the Company, allow integration of the
Company's transaction processing services with the business management
software created by such developers for use at the merchant's POS. These
developers often function as value-added resellers ("VARs") for the Company as
they frequently market their business management software in connection with
the Company's services. For example, Squirrel Restaurant Products
("Squirrel"), one of the leading VARs, provides software applications to
accommodate the specialized business management needs of the restaurant
industry. Squirrel, in cooperation with the Company, has modified its software
to allow full integration of the Company's transaction processing services. In
this way, VARs such as Squirrel indirectly perform a marketing function for
the Company since their software is often offered on a fully- integrated basis
with the Company's transaction processing services, creating additional
opportunities for the Company to reach small- to medium-sized merchants. The
Company has certified in excess of 30 third party software developers,
including IC Verify, Aluim Payment Groups, Southern DataCom, Inc., Datacap,
Inc. and Smokey Mountain Systems.
Use of Networked Systems for Customer Service. The information access and
retrieval capabilities of networked systems, where real-time information is
available to any of the Company's customer service representatives, allow the
Company to provide a level of customer service and support to small- to
medium-sized merchants previously available only to much larger merchants. For
example, any of the Company's customer service representatives may access, on
a real-time basis, all of the relevant information pertaining to any
particular merchant that may call and ask for assistance. The Company also
recently implemented an on-line, informational database that provides the
Company's customer services representatives user-friendly access to an array
of additional information relative to the Company's services, products and
systems, which often allows the Company to more quickly and effectively
resolve customer service inquiries. In addition to their customer service
capabilities, the Company's networked systems are highly automated and require
minimal staffing, which allows the Company to contain costs and achieve
greater operating efficiencies.
Year 2000 Updates. 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. All of the Company's customers have been
upgraded with compliant transaction processing software, and the Company's
network and switch can accommodate the Year 2000.
The Company has developed a plan to ensure all internal systems are
compliant with the Year 2000. These efforts are under way 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 the Company 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 alternative
9
<PAGE>
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.
SOFTWARE APPLICATION PRODUCTS AND VALUE-ADDED SERVICES
In addition to card transaction processing, the Company offers related
software application products and value- added services to its merchant
customers. These products and services are designed to run on existing POS
terminals and DOS- and Windows-based PCs. Offering a broad range of products
and services historically unavailable to small- to medium-sized merchants is
an integral part of the Company's strategy of focusing on these merchants and
differentiating itself among the banks and ISOs serving this market segment.
Management believes that the quality and reliability of its products and
services enhance the Company's ability to attract and retain merchant
customers.
The Company currently offers a variety of software application products and
value-added services, including the following core products and services that
are basic to the Company's network:
Encompass. Encompass is the latest generation of the Company's user
interface. The Company presently provides Encompass to all new merchant
customers, and generally charges a one-time fee to upgrade existing merchants
to Encompass. In addition to the Company's core transaction processing
services, Encompass enables merchants to access the Company's software
application products and value-added services, including those described
below. Encompass also allows the merchant to access other business management
applications, including customized end-of-day processing (allowing, for
instance, the performance by the merchant of daily audit functions) and other
review and reporting features (e.g., summary report generation). Designed as a
flexible "modular" system, Encompass allows the merchant to add features and
capability as its business needs evolve. Generally available since July 1994,
Encompass is a POS terminal application currently used by over 60,000
merchants.
NOVA Shadow Pay. NOVA Shadow Pay, introduced by the Company in February
1996, addresses the increasing use by merchants of integrated and modem-
enabled cash registers and PCs. NOVA Shadow Pay eliminates the necessity of a
traditional, stand-alone POS terminal. Typically, merchants accepting cards
for payment key-in or input transaction data at their cash register and then
key-in certain redundant transaction data to their POS terminal for
authorization and processing. This redundant keying of data increases both the
probability of human error as well as the amount of time it takes a merchant
to process a transaction. NOVA Shadow Pay is a PC application that allows the
merchant's modem-enabled cash register or PC to capture the transaction data
that is keyed or otherwise input into the cash register or PC, and transmits
such data for authorization and processing, eliminating both the need for a
stand-alone POS terminal and the redundant keying of transaction data
associated therewith. In addition, NOVA Shadow Pay provides the merchant
access to certain review and reporting features allowing, for instance, the
merchant to more easily reconcile transaction activity for any given period
with the data captured and stored by the merchant's cash register or PC. The
Company charges a one-time license fee for access to NOVA Shadow Pay. NOVA
Shadow Pay currently is used by approximately 1,000 merchants.
Mass Transact and PC Transact It. Mass Transact is a mainframe-to-mainframe
transaction processing application that the Company developed specifically for
businesses utilizing mainframe technology and processing large numbers of
credit card transactions on a batch basis. A merchant using Mass Transact
(typically one that accepts a large number of credit card transactions by
telephone or mail) assembles a batch file of transactions and the merchant's
mainframe transmits that information to the Company for processing. Insurance
companies and magazine publishers, each of which process large numbers of
transactions for recurring payments such as insurance premiums and
subscription renewals, respectively, are examples of the type of merchant
customers who currently utilize Mass Transact. Available since September 1994,
Mass Transact currently is used by approximately 300 of the Company's
merchants. PC Transact It is a similar application that allows PCs, rather
than mainframes, to process transactions on a batch basis. Available since
October 1994, PC Transact It currently is used by approximately 3,500 of the
Company's merchants. Merchants who subscribe to Mass
10
<PAGE>
Transact or PC Transact It pay a one-time license fee and a percentage of the
dollar amount of each transaction processed.
InnResponse and NOVALodge. InnResponse and NOVALodge are transaction
processing applications designed to address the special needs of the
hospitality industry. InnResponse is a PC-based lodging solution for small
hotels and motels and tracks check-in and check-out data by portfolio.
NOVALodge, the Company's most recent product release, is a PC-based
application for larger hospitality facilities and accommodates multiple
terminals at a front desk as well as multiple on-site locations such as
restaurants, gift shops or golf facilities. Enhanced reporting provides totals
and allows sorting by terminal or location. Over 4,000 merchants currently use
one of these applications.
Gratuit. Gratuit is a transaction processing application designed
specifically for use by restaurants. Gratuit tracks server data and includes
"tip" capability and enhanced reporting capabilities. Similar to Encompass,
Gratuit software integrates a time clock into the software as well as a
frequent diner program. Gratuit currently is used by over 6,000 NOVA
merchants.
In addition to the Company's core products and services, the Company offers
the following value-added software applications and services:
NOVA ACS. NOVA ACS (Automated Customer Service) is a PC-based system that
allows the Company's bank alliance and ISO partners access to the Company's
databases in order to track and compile the transaction processing activity of
their respective merchant customers. NOVA ACS also is utilized by the
Company's merchant customers to access the Company's databases to track and
compile information regarding their own transaction activity. Through such
access and related information retrieval capabilities, NOVA ACS expands
greatly the banks', ISOs' and merchants' ability to design and obtain
customized informational reports and, in the case of banks and ISOs, to
perform for their merchant customers a variety of customer service related
activities. NOVA ACS 2.5, which was introduced in 1997, incorporates retrieval
and chargeback information as well as on-line statements. These enhancements
give the ISO, bank or merchant the opportunity to retrieve information on-
line. Available since 1991, NOVA ACS currently is used by approximately 300 of
the Company's bank alliance and ISO partners.
SCAN Check Verification Services. Through an agreement with Deluxe Payment
Protection Systems, Inc. ("DPPS"), doing business as SCAN, the Company offers
check verification services to its customers. Specifically, the Company can
provide its customers with direct access via the NOVA Network to the SCAN
database managed by DPPS. The SCAN database is composed of information
relating to checks returned to subscribers of the SCAN database for
insufficient funds. This access allows merchants to compare the information
included in the database against any check presented to the merchant for
payment. This service is accessible to the merchant through the merchant's POS
terminal and was introduced in May 1995, with significant telemarketing of
SCAN to existing Company merchants commencing in January 1996. Merchants pay
per-transaction fees for access to such service. The service currently is used
by approximately 1,000 merchants.
In March 1997, the Company entered into an additional agreement with DPPS
pursuant to which DPPS agreed to refer to the Company prospective merchants
for credit, charge and debit card processing.
Cellular Digital Packet Data. The use of Cellular Digital Packet Data
("CDPD"), marketed under the name "Traverse," allows the Company to process
transactions utilizing cellular airwaves, as opposed to traditional phone
lines, enabling wireless transaction authorization and processing. The Company
currently has agreements with AT&T Wireless Services, GTE and Bell Atlantic
NYNEX Mobile to provide cellular transmission services. CDPD enables
transaction authorization and processing in environments where traditional
phone lines are unavailable, inconvenient and/or prohibitively expensive,
affording merchants increased flexibility, mobility and security in processing
card transactions. Further, CDPD will allow merchants that have relied on
paper-based processing, where the ability to check if a card is stolen or
credit limits exceeded is
11
<PAGE>
generally unavailable or inconvenient, to convert to electronic processing. In
so doing, such merchants can also avoid the higher rates imposed by each of
VISA and MasterCard for paper-based transactions.
NOVA WEBWAY. Through an agreement with Harbinger Corporation, the Company
offers Internet services to merchant customers. NOVA WEBWAY is software
designed to allow small- to medium-sized merchants the opportunity to build a
functional commerce-ready web-site complete with up to a 99 page catalog.
Using a wizard interface, NOVA WEBWAY prompts a customer to describe its
business, load product descriptions, pricing and pictures and includes secure
on-line ordering and encrypted credit card payment capabilities. NOVA WEBWAY
is a total web page solution at an attractive price point specifically
designed for small business. The Company has several merchants testing this
product and began a marketing campaign in March 1998.
Internet Processing. The Company is actively pursuing development
initiatives relating to transaction processing services on the Internet and
other forms of electronic commerce. The Company is exploring with First Union
and other third parties several Internet-related opportunities, which include
processing transactions via the Internet, accepting merchant applications via
the Internet and developing, on behalf of merchants, "home-pages" on the
Internet. In addition, the Company has entered into an agreement with
CyberCash Inc. pursuant to which CyberCash will provide to the Company
encryption services (a security measure) for transactions processed via the
Internet. These Internet- related initiatives are still in formative stages
and security is the prevailing issue and concern. The Company, however, is
active in the development process and management believes that the Internet
may, ultimately, become another distribution channel for the Company's
products and services.
NOVA Perks. NOVA Perks is a PC-based application that allows a subscribing
merchant to design and operate a customized frequent shopper program. This
program enables the merchant to promote sales and to track, store and retrieve
detailed information about its customers and all of their purchases regardless
of the method of payment. Merchants who do not use the Company for transaction
processing services can still utilize NOVA Perks. NOVA Perks has not yet
achieved significant market usage although it is an attractive product to
prospective customers.
CUSTOMER BASE
The Company's merchant customer base consists primarily of small- to medium-
sized merchants, with a historic concentration in the restaurant, specialty
retail, furniture, automobile repair and lodging industries. In addition,
banks also are customers of the Company insofar as those banks accept credit
card cash advance transactions. While the Company's merchants vary
significantly in size, a typical merchant customer generates approximately
$140,000 in annual charge volume. Although the Company focuses on small- to
medium-sized merchants, the Company also serves a significant number of large
merchants and has in place the technical, operational and management
infrastructure necessary to continue to serve large merchants. For the years
ended December 31, 1997 and 1996, no merchant customer accounted for more than
2.5% of the Company's revenues. At December 31, 1997, the Company provided
transaction processing services to approximately 152,000 merchant locations
nationwide.
The Company enters into direct contractual relationships with its merchants,
which reduce the financial risks to the Company in the event any of the
Company's bank alliance partners no longer desire to utilize the Company's
services. In contrast to the Company's approach, the typical transaction
processor/bank relationship involves a processor negotiating with a bank to
serve all of the bank's merchants, with the bank maintaining direct control
over each merchant relationship. Such a structure exposes the processor to the
risk that each of the merchant relationships, and the revenues from those
relationships, easily could be jeopardized if, for example, the bank were to
sell its merchant business portfolio to an acquiror that provided its own
transaction processing services.
12
<PAGE>
MARKETING
To reach its target market segment in a cost-effective manner and to further
its market penetration, the Company markets its services through three
principal channels: (i) bank alliances, including joint ventures, through
which the Company offers its services to merchants in cooperation with
community and regional banks, allowing the Company to capitalize on the
presence of those banks in particular geographic markets; (ii) partnering with
ISOs that market and sell the Company's services to merchants, typically in
areas where the Company does not have bank alliances; and (iii) direct sales
on behalf of and as a supplement to the bank alliance and ISO partnering
channels. In addition, the Company engages in marketing efforts that include
marketing agreements with various trade and other associations and marketing
through VARs that integrate the Company's transaction processing services with
specialized business management software. The KeyBank Joint Venture, the
Firstar Joint Venture, the Crestar transaction, the MBNA transaction and the
First Union Alliance are the Company's most significant examples of marketing
through bank alliances, and enhanced significantly the Company's ability to
further its market penetration and increase the size of its customer base
through the marketing assistance, support and exclusive merchant referrals
provided by the participating banks.
Bank Alliances. The Company's principal marketing efforts are directed at
forming bank alliances. During 1997 and January 1998, the Company entered into
bank alliances in connection with the KeyBank Joint Venture, the Firstar Joint
Venture, the Crestar transaction and the MBNA transaction. Through its
relationships with its bank alliance partners, the Company offers its services
to merchants in cooperation with community and regional banks, allowing the
Company to capitalize on the presence of those banks in particular geographic
markets. The Company's bank alliances consist of four types of relationships:
(i) relationships created as a result of the Company's purchase of a bank's
merchant portfolio, pursuant to which the Company provides transaction
processing services on a co-branded basis with such bank ("Acquisition
Alliances"); (ii) relationships created through a joint venture (generally in
the form of a limited liability company) owned jointly by the Company and a
bank, pursuant to which the Company provides transaction processing services
to the joint venture and the bank provides marketing and referral services to
the joint venture ("Joint Venture Alliances"); (iii) agent bank relationships
where the bank purchases the Company's services and markets and resells those
services directly to merchants ("Agent Bank Alliances"); and (iv) bank
referral relationships where the bank refers to the Company merchants who
desire or otherwise inquire about transaction processing services ("Bank
Referral Alliances").
Acquisition Alliances and Joint Venture Alliances are an integral part of
the Company's overall acquisition strategy pursuant to which the Company
offers banks the opportunity to transfer management and operational
responsibility for their merchant portfolios to the Company (either directly
or through the joint venture), while continuing to offer transaction
processing services on a co-branded basis in cooperation with the Company.
Because an Acquisition Alliance or a Joint Venture Alliance may involve the
Company (or the joint venture) maintaining transaction processing salespersons
on-site at the bank branch to service existing merchant customers and to
market and sell the Company's processing services to new merchant customers,
the Company can often effect a nondisruptive transition of services from the
merchants' perspective. To ease further this transition process and to assist
its Acquisition Alliance and Joint Venture Alliance partners, the Company has
created an intensive training program whereby the Company's personnel train
and educate its Acquisition Alliance and Joint Venture Alliance partners in
all aspects of the Company's transaction processing services, software
application products and value-added services. Additionally, the Company
utilizes its internal sales force to market transaction processing services on
behalf of the Acquisition Alliances and Joint Venture Alliances. The internal
sales force includes a National Account Sales team that supports Acquisition
Alliances and Joint Venture Alliances in signing larger and more
technologically sophisticated merchants.
The Company compensates its bank alliance partners through varying means.
Acquisition Alliance partners typically are compensated by the Company
remitting to them a residual for each transaction processed by the Company for
merchants attributable to the alliance. The Company compensates its Bank
Referral Alliance partners typically by paying them a one-time referral fee.
Agent Bank Alliance partners are not directly compensated by the Company;
rather, they derive revenue by reselling the Company's services to merchants
at a
13
<PAGE>
price determined by the Agent Bank. The Company is assisted in its alliance
efforts through a marketing agreement with Kessler Financial Services L.P.
("Kessler"), an independent marketing organization. Pursuant to this
agreement, Kessler identifies potential alliance or acquisition prospects for
the Company. The Company's agreement with Kessler is scheduled to expire June
30, 2001, subject to renewal for two additional years unless either the
Company or Kessler gives notice of termination prior to the expiration of the
initial term.
The Company also employs a direct sales force that markets the services of
the Company on behalf of the Company's alliance, ISO and joint venture
partners.
ISO Partnering. With the acquisition of the merchant portfolio of the Bank
of Boulder in December 1994, which included 24 marketing agreements with ISOs,
the Company made its first significant entry into the ISO marketing channel.
ISOs are entities that market the Company's products in conjunction with other
products offered by the ISO, such as card readers and related equipment.
Generally, ISO partnering involves engaging an ISO to market and sell the
Company's products and services on a non-exclusive basis. An ISO that desires
to refer a merchant customer to the Company will procure the merchant's
application and submit it to the Company on the merchant's behalf. Thereafter,
if the application is approved, the ISO will sell or lease POS terminals and
related hardware and software to such merchant. The Company compensates ISOs
by paying them a residual for each transaction processed by the Company for
merchants referred to the Company by the ISO. The ISO's determination of
whether to refer a particular merchant to the Company depends on a variety of
factors, including the terms of the residual offered by the Company and the
industry in which the merchant conducts its business. As of March 19, 1998,
the Company had 40 marketing agreements with ISOs.
Association Marketing. Through its association marketing program, the
Company negotiates and enters into marketing agreements with various trade and
other associations. Pursuant to these relationships, associations endorse and
promote to their membership the transaction processing services provided by
the Company, creating additional opportunities for the Company to reach small-
to medium-sized merchants. The Company currently has agreements with 160
associations. The Company expects that the MBNA transaction will expand the
Company's association marketing opportunities.
Other Marketing Efforts. In addition to bank alliances, ISO partnering and
direct sales and telemarketing, the Company engages in other marketing efforts
that management believes complement and diversify further the Company's
overall marketing strategy:
Marketing Through VARs. The Company's marketing efforts are diversified
further through the integration of its transaction processing services with
the specialized business management software of a growing number of VARs. VARs
perform a marketing function for the Company since their software often is
offered on a fully-integrated basis with the Company's transaction processing
services, creating additional opportunities for the Company to reach small- to
medium-sized merchants.
Procurement and Purchasing Cards. Corporate procurement and purchasing cards
are growing in popularity and flexibility of use, and the Company is exploring
opportunities intended to take advantage of this emergence. Procurement and
purchasing cards, although very similar in most respects to bank and charge
cards, are tailored to a specific business and functionality. Purchasing cards
may be used, for example, to replace the traditional use of paper-based
purchase orders, confirmations and invoices with electronically authorized,
processed and recorded transactions. Another illustrative use of a purchasing
card is an insurance company that issues purchasing cards to its policy
holders for the purchase by such policy holders of medical supplies,
prescriptions and services from certain health care providers, all of whom
have agreed, in advance, to accept the insurance company's purchasing cards.
The Company periodically reviews its marketing efforts and distribution
channels to minimize channel conflict. Although channel conflict among bank
alliances, ISO partnering and direct sales marketing may occur, to date the
Company has not experienced any significant conflict while pursuing its
overall sales strategy.
14
<PAGE>
ACQUISITION STRATEGY
The transaction processing industry has undergone rapid consolidation over
the last several years. The costs to convert from paper-based to electronic
processing, merchant requirements for improved customer service, and the
demands for additional customer applications have made it difficult for
community and regional banks and ISOs to remain competitive. Many of these
providers are unwilling or unable to invest the capital required to meet these
demands, and increasingly are exiting the transaction processing business or
otherwise seeking alliance partners to provide transaction processing for
their customers.
Since inception, the Company has pursued an active acquisition strategy,
including the formation of joint ventures and bank alliances, and has
consummated 90 transactions since its inception in 1991, consisting of 84
merchant portfolio purchases, three operating business acquisitions, two joint
ventures and the First Union Alliance. In 1996, the Company consummated 13
transactions, which added approximately $317.2 million in annualized
processing volume. Since January 1997 (through January 1998), the Company has
consummated 20 transactions, anticipated to add $11.7 billion in annualized
processing volume.
The Company intends to continue to pursue purchases of merchant portfolios
and the formation of joint ventures and alliances with other financial
institutions as a principal component of its growth strategy in order to
facilitate growth, expand the Company's distribution channels and achieve
greater economies of scale. This strategy focuses on the merchant portfolios
and related assets of banks and ISOs that no longer desire or are unable to
provide efficient and cost-effective transaction processing services. The
Company attempts to structure its acquisitions, joint ventures and alliances
both to increase its merchant base and to expand its distribution and
marketing capabilities. The Company accomplishes this objective principally by
entering into an exclusive marketing agreement with a bank that sells its
merchant portfolio to, or enters into a joint venture or alliance with, the
Company. The exclusive marketing agreement typically provides that the bank
will refer to the Company, on an exclusive basis and for a period of up to ten
years, any merchants that request or otherwise inquire about transaction
processing services. This agreement generally also provides that the bank will
not compete with the Company in the provision of transaction processing
services during the term of the agreement and, in some cases, for a period of
up to two years after expiration of the agreement. In addition, the Company or
the joint venture may continue to maintain on-site transaction processing
salespersons to service existing merchant customers and to market and sell the
Company's processing services to new merchant customers, often allowing the
Company to effect a nondisruptive transition of services from the merchants'
perspective. These purchases, joint ventures and alliances offer banks the
opportunity to transfer management and operational responsibility for their
merchant portfolios to the Company or the joint venture, while continuing to
offer transaction processing services on a co-branded basis in cooperation
with the Company. Banks are therefore able to view the purchase of their
merchant portfolio or the joint venture as a way to maintain a full-service
relationship with their merchant depositors.
The Company continues to evaluate potential purchases of merchant
portfolios, joint ventures and alliances and to negotiate with several third
parties that may be seeking purchasers of their merchant portfolios, although
except as described in this Annual Report on Form 10-K, the Company currently
is not a party to any agreements or understandings with respect to any such
material purchases. In addition, each of the First Union Alliance and the
Crestar marketing relationship may create additional purchase opportunities
for the Company, as the Company and each of First Union and Crestar Bank have
agreed that the Company generally may, at its option and subject to agreement
on price and other terms, purchase from First Union or Crestar Bank any
merchant portfolios purchased by First Union or Crestar Bank through whole-
bank or other acquisitions. See "--First Union Shareholders Agreement." In
November 1997, First Union announced that it had entered into an agreement to
acquire CoreStates Financial Corp ("CoreStates"), which has an estimated $3.0
billion merchant transaction processing portfolio. In the event this
acquisition is consummated, the Company will consider entering into
negotiations with First Union to acquire the CoreStates transaction processing
portfolio. There can be no assurance that First Union will complete its
acquisition of CoreStates or, if completed, that the Company could purchase
the CoreStates transaction processing portfolio on terms acceptable to the
Company, if at all. There can be no assurances as to the timing of such
transactions. Further, there can be no assurance that the First
15
<PAGE>
Union Alliance or the Crestar marketing relationship will provide any other
acquisition opportunities or that any such acquisition opportunities can be
completed on terms favorable to the Company, if at all.
RISK MANAGEMENT
The Company views its risk management and fraud avoidance practices as
integral to its operations and overall success because of the Company's
potential liability for merchant fraud, chargebacks and other losses. Risk
management and fraud avoidance occur initially at the application stage, when
merchant applications are reviewed by the Company against certain criteria to
determine acceptance or denial. The criteria used by the Company to determine
whether to accept or deny applications, and the rate structure charged to a
particular merchant, include the credit history of the applicant, the industry
in which the applicant conducts its business and various other relevant
factors. In certain instances, guarantees may be required before an
application is approved.
The Company's principal advantage in its risk management and fraud avoidance
capabilities is the ability to run its proprietary fraud detection software
program against each transaction electronically processed on the NOVA Network
before funds are transferred to the merchant in payment for such transaction.
This ability is critical to the Company's overall program to control fraud and
manage risk and is an example of the Company's strategy of leveraging
available technologies, and the NOVA Network, to competitive advantage.
Specifically, the NOVA Network allows the Company to send a file comprised of
the day's transaction activity to its operations center in Knoxville,
Tennessee at or prior to the time it sends that information to Vital
Processing Services or Mellon Bank for merchant accounting. In Knoxville, the
Company runs its proprietary rule-based fraud detection software program
against each of the day's transactions processed on the NOVA Network,
resulting in a computer-generated identification of potentially fraudulent
activity. Once identified, the Company analyzes and reviews the suspect
transactions to resolve potential problems. This can be accomplished before
funds are transferred to the merchant in payment for such transactions. If the
Company needs more time to review a transaction or series of transactions,
however, the Company can specify that the batches containing the identified
transactions be withheld from further processing to allow additional time to
attempt to verify the authenticity of such transactions. The NOVA Network also
allows the Company to review certain types of transactions on a real time
basis, as they are processed. Consequently, the Company has the ability to
intercept and review potentially fraudulent transactions and stop payment or
otherwise resolve them, as appropriate, prior to the time when financial
liability for such transactions has shifted to the Company. Despite the
Company's risk management and fraud avoidance capabilities, the Company is
unable to identify all fraudulent transactions resulting in financial exposure
to the Company. Further, until the Company converts each newly acquired
merchant account to the Company's merchant accounting processors, the Company
is unable to apply fully its risk management and fraud avoidance practices to
such merchant accounts.
In connection with portfolio purchases, the Company reviews any merchant
portfolio that it proposes to purchase. The review process includes analyzing
the composition of the portfolio, applying uniform standards and underwriting
guidelines developed by the Company to the portfolio and identifying any high-
risk merchants contained in the portfolio. Upon completion of this review, the
Company determines whether the portfolio meets the Company's standards and
guidelines and is otherwise a suitable acquisition target. If the Company
decides to proceed with the proposed purchase, the Company will focus on the
high-risk merchants identified by its review and attempt to manage the risk
associated with such merchants. Typically, the Company will seek to exclude
high-risk merchants from the portfolio purchase, require the seller of the
merchant portfolio to establish a reserve account or require the seller of the
merchant portfolio to indemnify the Company for any liability associated with
such merchants. The experience accumulated by the Company during the course of
its purchases is constantly drawn upon to refine the Company's due diligence
procedures and practices, and management expects to continue to improve its
due diligence efforts. Nevertheless, there can be no assurance that the
Company's due diligence process will consistently identify all high-risk
merchants or that the Company will otherwise assess properly the risk
attributes of any purchased portfolio.
16
<PAGE>
MERCHANT ACCOUNTING AND CLEARING BANK RELATIONSHIPS
The Company relies upon third parties to provide merchant accounting and
clearing bank services to the Company and its merchant customers. In each of
these instances, the Company has engaged multiple providers to safeguard
against the loss of services or quality of any one of these providers.
Merchant Accounting. Merchant accounting services consist of reorganizing
and accumulating daily transaction data on a merchant-by-merchant and card
issuer-by-card issuer basis, and forwarding this data to the credit card
associations for ultimate payment. These functions are performed on the
Company's behalf by each of Vital Processing Services and Mellon Bank under
agreements expiring April 30, 1999 and June 30, 1999, respectively. The
Company currently is negotiating the terms of a new agreement with Vital
Processing Services.
Clearing Bank Arrangements. The Company's clearing banks receive payment for
merchant transactions from credit card associations (net of fees payable to
the credit card associations and card issuing banks), from which the clearing
banks remit payment to the merchant for the gross amount of the merchant's
transactions. Once each month, the Company collects applicable merchant
discount and other fees from each merchant for transactions effected and
services provided during the preceding month. The Company, along with all
other nonbank transaction processors that process VISA and MasterCard
transactions, must be sponsored by a financial institution that is a principal
member of the VISA and MasterCard credit card associations in order to process
these bankcard transactions. Through each of Regions Bank, Bank of the West,
Mellon Bank, Firstar, KeyBank and FUNB, which serve as member clearing banks
for the Company, the Company is registered with VISA and MasterCard as a
certified processor and member service provider. While the Company's
registration as a certified processor and member service provider is necessary
in order for the Company to process VISA and MasterCard transactions,
management believes that the revocation of such registrations is unlikely and
inconsistent to the objectives of both the credit card associations and the
clearing banks because of the adverse effect such action would have on the
continuity of credit card acceptance.
Regions Bank and Mellon Bank clear most of the Company's transactions while
Bank of the West clears only those transactions originating from merchants
acquired by the Company as part of the October 1993 purchase of the merchant
portfolio of Bank of the West. Pursuant to the First Union Alliance, FUNB, a
subsidiary of First Union, acts as the exclusive clearing and settlement bank,
subject to certain exceptions and conditions, for merchant customers of First
Union. While the Company's Depositary and Settlement Agreement with First
Union does contain certain conditions relative to the Company's ability to
transfer clearing and settlement functions for the merchant customers of First
Union away from First Union, the Company's agreements with its principal
member clearing banks generally provide that the merchant relationship is
controlled by the Company. Accordingly, the Company generally is not obligated
to continue to utilize the clearing services of these banks, and may transfer
the clearing functions to another principal member clearing bank (i.e., any
member of the VISA and MasterCard associations), although there can be no
assurance that the Company would be able to find a financial institution to
sponsor it on terms acceptable to the Company.
Effective May 1, 1997, MasterCard approved changes to its Member Service
Provider ("MSP") rules to, among other things, differentiate between ISOs
which perform merchant and cardholder services and third party processors
("TPPs"), such as the Company, which provide transaction processing services.
The new MSP rules implement a Processor Certification Program requiring the
Company and other TPPs to register as a TPP with MasterCard. The Company has
filed its registration as a "Type I" TPP. Type I TPPs must satisfy certain
criteria including requirements as to the number of merchant accounts
serviced, processing volume and concentration of risk. All Type I TPPs must
undergo annual reviews by MasterCard, including a review of processing
performance, authorization host availability, authorization response time and
call referral merchant response. Type I TPPs also must be financially sound
and maintain adequate financial resources. The Company believes that it meets
or exceeds all of the criteria to qualify as a Type I TPP. The failure by the
Company to qualify as a Type I TPP, or to maintain its status as a Type I TPP,
could have a material adverse effect on the business or operations of the
Company.
17
<PAGE>
CUSTOMER SERVICE AND SUPPORT
The Company is dedicated to providing reliable and effective customer
service and support to its merchant customers. The information access and
retrieval capabilities of networked systems, where real-time information is
available to any of the Company's customer service representatives, allow the
Company to provide a level of customer service and support to small- to
medium-sized merchants historically available only to much larger merchants.
For example, any of the Company's customer service representatives may access,
on a real-time basis, all of the relevant information pertaining to any
particular merchant that may call and ask for assistance. The Company also has
implemented an on-line, informational database that provides the Company's
customer service representatives user-friendly access to an array of
additional information relative to the Company's services, products and
systems, which often allows the Company to more quickly and effectively
resolve customer service inquiries.
The Company maintains a 24-hours-a-day, seven-days-a-week helpline at its
operations center in Knoxville, Tennessee. The Company measures the efficiency
of its customer service through certain quantitative data such as the number
of rings prior to operator pick-up, the number of abandoned calls, the number
of calls per day and the number of calls per customer service representative.
The Company has developed comprehensive programs and procedures for training
its approximately 90 full-time customer service representatives to assist the
Company's merchant clients in a timely and efficient manner with any problems,
issues or concerns they may have. Management is dedicated to providing
outstanding customer service and support and continually reviews its policies
and procedures in an effort to improve these services.
PROPRIETARY RIGHTS
The Company has developed proprietary software for use in four principal
areas: (i) applications for POS terminals and PCs; (ii) transaction switching;
(iii) the NOVA Network; and (iv) customer service and chargebacks. The Company
regards its proprietary software as protected by trade secret and copyright
laws of general applicability. The Company attempts to safeguard its software
through the protection afforded by the above-referenced laws, employee and
third-party non-disclosure agreements, licensing agreements and other methods
of protection. Despite these precautions, it may be possible for unauthorized
third parties to copy, obtain or reverse engineer certain portions of the
Company's software or to otherwise obtain or use other information the Company
regards as proprietary. While the Company's competitive position may be
affected by its ability to protect its software and other proprietary
information, management believes that the protection afforded by trade secret
and copyright laws are less significant to the Company's success than other
factors such as the knowledge, ability and experience of the Company's
personnel and the continued pursuit and implementation of its operating
strategies.
As the number of software application products in the transaction processing
industry increases, and as the functionality of such products further
overlaps, third parties could assert that the Company's software application
products infringe or may infringe the proprietary rights of such entities.
These third parties may seek damages from the Company as a result of such
alleged infringement, demand that the Company license certain proprietary
rights from them or otherwise demand that the Company cease and desist from
its use and/or license of the allegedly infringing software. Although
management is not currently aware of any alleged infringement issues, any such
action, if it were to occur, may result in protracted and costly litigation or
royalty arrangements or otherwise have a material adverse effect on the
Company's financial condition and results of operations.
The Company currently licenses certain software from third parties to
supplement its internal software and technology development and to shorten
time-to-market software application product deliveries. For instance, the
Company licenses the software for NOVA Time. Management believes that it will
be necessary to continue this practice in the future, although there can be no
assurance that the Company will be able to do so on favorable terms or at all.
The Company's trademarks include "NOVA," "NOVA Information Systems," "NOVA
ACS," "NOVA Remote ACS," "NOVA Time," "NOVA Clock," "NOVA Perks," "PC Transact
It" and "NOVA Shadow
18
<PAGE>
Pay". To date, however, the Company only has sought to have "NOVA" and "NOVA
Perks" registered on the federal level. The Company's application to register
"NOVA" was refused and allowed to lapse without contesting the refusal.
COMPETITION AND CONSOLIDATION
The market for providing credit, charge and debit card transaction
processing services to the small- to medium-sized merchant segment served by
the Company is highly competitive. The level of competitiveness has increased
significantly since the Company's inception and this trend is expected to
continue. The Company competes in this market segment on the basis of price,
the availability of related products and services, the quality of customer
service and support, and transaction processing speed, quality and
reliability. The Company's principal competitors in this market segment
include other smaller vertically integrated processors, community and regional
banks and ISOs and, increasingly, the ten largest bankcard processors. Several
of the Company's competitors and potential competitors have greater financial,
technological, marketing and personnel resources than the Company, and there
can be no assurance that the Company will continue to be able to compete
successfully with such entities. In addition, the competitive pricing
pressures that would result from any increase in competition would adversely
affect the Company's margins and may have a material adverse effect on the
Company's financial condition and results of operations.
According to industry sources, the ten largest bankcard processors accounted
for approximately 85% of the total charge volume processed in 1997. The
largest bankcard processor accounted for approximately 38% of the total charge
volume processed in 1997, and the Company would have processed approximately
4.2% of the total charge volume for the same period after giving pro forma
effect to the transactions discussed in "--Recent Transactions."
The Company believes that it has reached a sufficient size whereby economies
of scale allow it to offer competitive pricing. However, certain of the
Company's competitors may have lower costs which could potentially give them
an advantage. As a result of its experience in payment processing, the Company
has been able to develop operating efficiencies that the Company believes
allow it to competitively bid for new business. In addition, the Company has
continually made technological improvements and is thus able to respond to the
unique needs of merchants in various industries. Management believes that the
quality, speed and reliability of the NOVA Network and the breadth,
flexibility and user-friendliness of its software application products and
services constitute a competitive advantage. The Company intends to maintain
its strategy of focusing on small- to medium-sized merchants because
management believes this market segment is somewhat less price sensitive than
larger accounts.
The Company faces increasing competition from other transaction processors
for available acquisition opportunities. In addition, community and regional
banks, which serve as a marketing channel for the Company's services and whose
transaction processing businesses have been the Company's primary source of
acquisition opportunities, have been undergoing extensive consolidation
reflective of underlying trends in the financial institutions industry and
unrelated to their transaction processing businesses. As a result, smaller
banks that may have sought to divest themselves of their transaction
processing businesses may be acquired by banks that compete with the Company
or banks that have a relationship or alliance with one or more competitors of
the Company, thus potentially depriving the Company of distribution channels
and/or acquisition opportunities. The First Union Alliance and the Crestar
Alliance, however, may create additional acquisition opportunities for the
Company, as the Company and each of First Union and Crestar Bank have agreed
that the Company generally may, at its option and subject to agreement on
price and other terms, purchase from First Union or Crestar Bank any merchant
portfolios acquired by First Union or Crestar Bank through whole-bank or other
acquisitions. In November 1997, First Union announced that it had entered into
an agreement to acquire CoreStates, which has an estimated $3.0 billion
merchant transaction processing portfolio. In the event this acquisition is
consummated, the Company will consider entering into negotiations with First
Union to purchase the CoreStates transaction processing portfolio. There can
be no assurance that First Union will complete its acquisition of CoreStates
or, if
19
<PAGE>
completed, that the Company could purchase the CoreStates transaction
processing portfolio on terms acceptable to the Company, if at all. There can
be no assurances as to the timing of such transactions. Further, there can be
no assurance that the First Union Alliance or the Crestar marketing
relationship will provide any other acquisition opportunities or that any such
acquisition opportunities can be completed on terms favorable to the Company,
if at all.
BANKING REGULATION
As a result of First Union's ownership interest in the Company, the Company
has become subject to the Banking Laws. For example, the Company is now
subject to the supervision and examination of the Office of the Comptroller of
the Currency (the "OCC"), one of the principal banking regulatory bodies
(although management does not believe it is likely that the OCC would ever
exercise this supervisory and examination authority). In addition, the OCC
reviewed extensively the KeyBank Joint Venture, the First Union Alliance and
the Firstar Joint Venture and the terms thereof, and the OCC's written
approval was required in order to consummate those transactions. To facilitate
First Union's compliance with the Banking Laws, and to allow First Union to
obtain any required consents or approvals, the Company has agreed to notify,
and obtain approval from, First Union before the Company enters into any
business activities substantially different from the business activities the
Company currently conducts. Pursuant to the KeyBank Joint Venture and the
Firstar Joint Venture and to the extent required by the Banking Laws, the
Company may be required to take certain measures in the event either the
Company or the limited liability companies formed pursuant to the transactions
enters into or acquires any other entity which is engaged in a business that
is substantially different from the business activities the Company, or the
limited liability companies, currently conduct. Such measures may include
applying for any required regulatory consents, or assisting either KeyBank,
Firstar, or the limited liability companies, as the case may be, to prepare
such applications. If the required consents and approvals are not received,
the Company may not engage in the new business activity.
VISA AND MASTERCARD REGISTRATION TERMINATION
The Company, along with all other nonbank transaction processors, must be
sponsored by a financial institution that is a principal member of the VISA
and MasterCard credit card associations in order to process bankcard
transactions. Through each of Regions Bank, Bank of the West, Mellon Bank,
Firstar, KeyBank and FUNB, which serve as member clearing banks for the
Company, the Company is registered with VISA and MasterCard as a certified
processor and member service provider. The Company's designation with VISA and
MasterCard as a certified processor and its status as a member service
provider are dependent upon the Company's continuing adherence to the
standards of the VISA and MasterCard credit card associations. These standards
are set by the respective member financial institutions of VISA and
MasterCard, some of which are competitors of the Company. In the event the
Company fails to comply with these standards, the Company's designation as a
certified processor or status as a member service provider could be suspended
or terminated. There can be no assurance that VISA and MasterCard will
maintain the Company's registrations or that the current VISA and MasterCard
rules allowing the Company and other nonbank transaction processors to market
and provide transaction processing services will remain in effect. The
termination of the Company's member service provider registrations or the
Company's status as a certified processor, or any changes in the VISA or
MasterCard rules that prevent the Company's registration or otherwise limit
the Company's ability to provide transaction processing and marketing services
for VISA or MasterCard, would have a material adverse effect on the Company's
financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
Increased Consolidation in the Marketplace. A material element of the
Company's growth strategy is the purchase of additional merchant portfolios
and acquisition of operating businesses and transaction processing assets in
order to facilitate growth, expand the Company's distribution channels and
create greater economies of scale. The Company faces significant competition
from other transaction processors for available acquisition,
20
<PAGE>
joint venture and alliance opportunities. This competition has an impact on
the price and availability of acquisitions, joint ventures and alliances. In
addition, community and regional banks, whose transaction processing
businesses have been the Company's primary source of acquisition
opportunities, in recent years have been undergoing extensive consolidation
reflective of underlying trends in the financial institutions industry and
unrelated to their transaction processing businesses. As a result, smaller
banks that may have sought to divest themselves of their transaction
processing businesses may be acquired by banks that compete with the Company
or banks that have a relationship or alliance with one or more competitors of
the Company, thus potentially depriving the Company of acquisition
opportunities. There can be no assurance that the historical or current level
of acquisition opportunities will continue to exist, that the Company will be
able to acquire merchant portfolios, operating businesses and transaction
processing assets that satisfy the Company's criteria, or that any such
acquisition will be on terms favorable to the Company.
Complexity of Risk Analysis of Acquisition Targets. In evaluating any
potential purchase of a merchant portfolio or joint venture, the Company
conducts a due diligence review of the related merchant portfolio. The review
process includes analyzing the composition of the merchant portfolio, applying
uniform standards and underwriting guidelines developed by the Company to the
merchant portfolio and attempting to identify high-risk merchants contained in
the merchant portfolio. Notwithstanding these due diligence efforts, however,
there can be no assurance that the Company will properly assess the risk
attributes associated with an acquired portfolio or otherwise identify high-
risk merchants. Incorrect risk assessments may result in excessive losses from
chargebacks or merchant fraud in connection with any acquired portfolio.
Conversion of Purchased Portfolios. At the time of consummation of merchant
portfolio purchases or joint ventures, merchants in a purchased portfolio
typically are not operating on the NOVA Network and may not use the merchant
accounting processors used by the Company. Until the Company converts each
newly-purchased merchant to the NOVA Network and the Company's merchant
accounting processors, the Company has little, if any, control over the
performance of such other networks and processors and typically is unable to
apply fully its risk management and fraud avoidance practices to such
merchants. The Company also must continue to pay third parties for processing
services until the purchased portfolio is fully converted to the NOVA Network,
reducing the economic benefits to the Company during such time. Moreover, the
merchant customers that comprise a purchased portfolio may have been sold
transaction processing services by ISOs and financial institutions sponsored
by a principal member of the VISA and MasterCard credit card associations.
ISOs are independent agents that typically market and sell the full range of
transaction processing services to merchants, with such services primarily
being outsourced on a non-exclusive basis. Certain of these ISOs and financial
institutions may be unwilling to assist the Company in converting the
merchants to the NOVA Network and the Company's merchant accounting processors
and, in some cases, may solicit these merchants on behalf of a competing
processor. Further, the conversion of merchants may require that merchants
learn new operating procedures and could result in problems, causing merchants
to seek verbal authorization of credit and debit card transactions. As a
condition to conversion, merchants also may seek to negotiate lower fees.
As a result of the recent purchases of merchant portfolios undertaken by the
Company, the magnitude, scope, timing, duration and expense of the conversion
of the KeyBank Joint Venture, the Firstar Joint Venture and the MBNA portfolio
will, in the aggregate, be greater than any conversion previously undertaken
by the Company, and there can be no assurance that the Company can
successfully complete these conversions in a timely manner, either
concurrently or in series. Failure to complete these conversions in accordance
with management plans could have a material adverse effect on the Company's
financial condition and results of operations. Further, the terms of the
KeyBank Joint Venture provide that if the Company does not complete
substantially the conversion of the KeyBank merchant portfolio by March 31,
1999, KeyBank may terminate the KeyBank Joint Venture, which could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company's acquisition strategy and the resulting growth will require
that the Company continue to attract and retain qualified personnel, while
concurrently expanding its managerial and operational infrastructure. There
can be no assurance that the Company will be able to hire and retain qualified
personnel or that the
21
<PAGE>
Company will be able to expand successfully its infrastructure as appropriate
to accommodate future acquisitions or growth. The Company's acquisitions may
involve the hiring by the Company of certain management and sales personnel
affiliated with the acquired portfolio, and the failure to integrate
successfully such personnel into the Company's operations and business culture
may adversely affect the conversion process. As a result of any of these
factors and considerations, the Company may not realize the expected economic
benefits associated with its acquisitions, which may have a material adverse
effect on the Company's financial condition and results of operations.
In connection with the formation of Key Merchant Services, the Company has
undertaken the conversion of merchant processing to the Company's operating
platform. In addition to the Company's normal conversion related expenses, the
Company expects to accrue a non-recurring charge of approximately $1.3
million, net of tax ($0.04 per share assuming dilution and prior to giving
effect to this offering), in the first quarter of 1998 principally to account
for early termination of a contract for merchant processing with a third party
processor.
There can be no assurance that future acquisitions will not have an adverse
effect upon the Company's operating results, particularly in the fiscal
quarters immediately following the completion of such transactions, while the
operations of the acquired entities are converted and integrated into the
Company's operations. The Company's acquisition strategy will require
substantial capital resources, and is likely to result in the Company
incurring additional indebtedness. There can be no assurance that financing
for future acquisitions will be available or will be obtained on terms
favorable to the Company.
RISKS ASSOCIATED WITH JOINT VENTURE ALLIANCES
The recently consummated joint venture alliances with each of Firstar and
KeyBank (collectively, the "Joint Ventures") present certain risks to the
Company in addition to the risks normally associated with portfolio
acquisitions which have been, and continue to be, a material element of the
Company's growth strategy. Because each of the Joint Ventures involved the
creation of a newly-formed limited liability company jointly-owned, managed
and serviced by the Company and Firstar or KeyBank, as the case may be,
continued cooperation with each of Firstar and KeyBank is important to the
success of the Joint Ventures. There can be no assurance that the Company's
relationships with each of Firstar and KeyBank will continue to be cooperative
and, accordingly, there can be no assurance that the Company will realize the
anticipated economic benefits from the Joint Ventures. Further, in the event
of a change in control of Firstar or KeyBank, there can be no assurance that
the resulting entity will support the Joint Ventures in the same manner and to
the same degree as its predecessor. The management and provision of processing
services to each of Elan Merchant Services and Key Merchant Services imposes
increased administrative, managerial and technological demands on the
Company's infrastructure and related systems, and there can be no assurance
that the Company will meet successfully such material demands and
requirements.
22
<PAGE>
Each of the Joint Ventures has been formed for a definitive term (subject in
each case to renewal provisions), but is subject to earlier termination by the
Company or Firstar or KeyBank, as the case may be, under a variety of
circumstances. In the event of earlier termination, or upon termination of
either of the Joint Ventures upon expiration of its term in the absence of
renewal, the then-current assets and merchant portfolio of such Joint Venture
are subject to "repurchase rights" by either the Company or Firstar or
KeyBank, as the case may be, depending on the circumstances of termination.
For example, each of the Joint Ventures imposes upon the Company certain
standards with respect to the performance of its processing services. In the
event such standards are breached by the Company, Firstar or KeyBank, as the
case may be, would have the right to purchase the Company's interest in Elan
Merchant Services or Key Merchant Services, respectively. Any such purchase
would likely result in a significant decrease in the number of merchant
locations served, and the aggregate sales volume processed, by the Company,
which may have a material adverse effect on the Company's financial condition
and results of operations. Further, in valuing the Joint Ventures, and
establishing a purchase price in connection therewith, the Company assumes the
continuance of the Joint Venture for a minimum term. Earlier termination may
result in the Company not realizing the anticipated economic and marketing
benefits from the Joint Venture, which may have a material adverse effect on
the Company's financial condition and results of operations.
FIRST UNION SHAREHOLDERS AGREEMENT
Concurrently with the consummation of the First Union Alliance, the Company,
its shareholders and First Union entered into a Shareholders Agreement that
sets forth, among other things, agreements regarding the composition of the
Company's Board of Directors, the transferability of the Company's capital
stock and the Company's future business activities. In particular, the
Shareholders Agreement provides that the Company may, at its option, purchase
from First Union any merchant portfolios acquired by First Union through
whole-bank or other acquisitions. To facilitate First Union's compliance with
the banking laws, and to allow First Union to obtain any required consents or
approvals, the Company also has agreed to notify First Union before it enters
into, or acquires any company which is engaged in, business activities
substantially different from the business activities the Company currently
conducts. See "--Banking and Territorial Restrictions." If First Union is
unable to obtain such consents or approvals, the Company may not engage in the
new business activity or proceed with the contemplated acquisition.
Accordingly, the Company may be limited in its ability to seek or take
advantage of certain business opportunities or relationships which differ
substantially from the business activities the Company currently conducts.
Nevertheless, management believes that the synergies and other significant
benefits derived from the First Union Alliance offset the potential
limitations imposed by the banking laws.
MERCHANT ATTRITION
The Company experiences attrition of its merchant base in the ordinary
course of business due to several factors, including business closures, losses
to competitors and conversion-related losses. In addition, substantially all
of the Company's contracts with its merchants may be terminated by either
party upon prior notice of 30 days or less. Increased merchant attrition may
have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company will not
experience higher rates of attrition in the future, particularly in connection
with acquired merchant portfolios.
DEPENDENCE ON MERCHANT ACCOUNTING RELATIONSHIPS
The Company outsources certain merchant accounting services to Vital
Processing Services and Mellon Bank. These services consist of reorganizing
and accumulating daily transaction data on a merchant-by-merchant and card
issuer-by-card issuer basis, and forwarding this data to the credit card
associations for ultimate payment. The failure of Vital Processing Services
and Mellon Bank to continue to perform these services efficiently and
effectively may adversely affect the Company's relationships with its merchant
customers and may result in the termination by merchants of their agreements
with the Company. The agreement with Vital Processing Services expires April
30, 1999, and the agreement with Mellon Bank expires June 30, 1999. The
Company currently is
23
<PAGE>
negotiating a new agreement with Vital Processing Services. Termination of
either agreement would require the Company either to seek alternative
outsourcing arrangements or to make significant capital expenditures to
develop internal systems to provide these merchant accounting services.
Although management believes that in the event of termination of either or
both of these agreements the Company could locate alternative outsourcing
arrangements or develop internal systems, there can be no assurance that such
arrangements will be available on terms as favorable to the Company as the
existing contracts or that the Company could develop internal systems on a
timely or cost effective basis. Accordingly, termination of either agreement
could have a material adverse effect on the Company's financial condition and
results of operations.
ANNOUNCED INTERCHANGE RATE INCREASES
Each of VISA and MasterCard has announced increases in interchange rates
effective in April 1998. The increase in rates of approximately 5% is the
largest single increase for either association since 1991. The announced
change affects all transaction processing industry competitors. While the
Company intends to reflect the entire amount of the increase in its pricing to
merchants, there can be no assurance that merchants will assume the entire
impact of the announced change or that transaction processing volumes and
merchant attrition will not be adversely affected by the change.
CHARGEBACK RISK
When a billing dispute between a cardholder and a merchant is not resolved
in favor of the merchant, the transaction is "charged back" to the merchant
and that amount is credited to the cardholder. These billing disputes include,
among others: (i) nonreceipt of merchandise or services; (ii) unauthorized use
of a credit card; and (iii) general disputes between a customer and a merchant
as to the quality of the goods purchased or the services rendered by that
merchant. Some of the Company's merchant customers, including certain
merchants that generate high transaction processing volume, require full or
partial payment from debit and credit cardholders for products or services to
be delivered or rendered in the future. If the Company or its clearing banks
are unable to collect chargeback amounts from a merchant's account, and if the
merchant refuses or is unable due to bankruptcy or other reasons to reimburse
the Company for the chargeback, the Company bears the loss for the amount of
the refund paid to the cardholder. The Company attempts to reduce its exposure
to such losses by performing periodic credit reviews on its merchant customers
and adjusting the Company's rates based, in part, on the merchant's credit
risk, business or industry. There can be no assurance that the Company will
not experience significant losses from chargebacks in the future. Increases in
chargebacks not paid by merchants may have a material adverse effect on the
Company's financial condition and results of operations.
MERCHANT FRAUD
The Company bears the risk of losses caused by fraudulent credit card
transactions initiated by its merchant customers. Examples of merchant fraud
include inputting false sales transactions or false credits. The Company
monitors merchant transactions against a series of standards it has developed
to detect merchant fraud. Notwithstanding these measures, however, there can
be no assurance that the Company will not experience significant amounts of
merchant fraud in the future, which may have a material adverse effect on the
Company's financial condition and results of operations.
TELECOMMUNICATIONS SERVICES PROVIDED BY WORLDCOM, INC.
The Company has developed a proprietary telecommunications network, the NOVA
Network, and maintains an operating relationship with WorldCom. Pursuant to
its agreement with the Company, WorldCom provides long-distance and local
telecommunications access, as well as technical support, to the Company in
connection with the NOVA Network. This agreement expires February 28, 1999,
subject to earlier termination by the Company if WorldCom fails to meet
certain agreed-upon performance objectives. If the WorldCom agreement is
terminated or not renewed, the Company would be required to utilize the long-
distance and local telecommunications access of another long-distance
provider, which may increase the Company's expenses for network services,
resulting in a material adverse effect on the financial condition and results
of operations of the Company.
24
<PAGE>
CERTAIN STATE TAX ISSUES
Transaction processing companies like the Company may be subject to state
taxation of certain portions of their fees charged to merchants for their
services. Application of this tax is an emerging issue in the industry and the
states have not yet adopted uniform guidelines implementing these regulations.
If the Company is required to pay such taxes and is unable to pass this tax
expense through to its merchant customers, the financial condition and results
of operations of the Company could be adversely affected.
DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS
Because the transaction processing industry and the software application
products and value-added services of the type offered by the Company have been
characterized by rapidly changing technology and the development of new
products and services, management believes that the future success of the
Company will depend, in part, on the Company's ability to continue to improve
its products and services and to offer its merchant customers new products and
services. There can be no assurance that the Company will continue to develop
successful new products and services or that the Company's newly-developed
products and services will perform satisfactorily or be widely accepted in the
marketplace.
FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues in the third calendar quarter and lower revenues in the first
calendar quarter, reflecting increased transaction volumes during the summer
months and a significant decrease in transaction volume during the period
immediately following the holiday season. Quarterly results also are affected
by the timing of purchases of merchant portfolios and joint ventures and the
timing and magnitude of expenses for merchant portfolio conversions.
Fluctuations in operating results may result in volatility in the price of the
Common Stock.
DEPENDENCE ON KEY MANAGEMENT
The development of the Company's business and its operations has been
materially dependent upon the active participation of its executive officers
and other key employees. The loss of one or more of the Company's executive
officers or other key employees may have a material adverse effect on the
Company's financial condition and results of operations.
SIGNIFICANT INTANGIBLE ASSETS
A substantial portion of the Company's assets are intangible assets related
to purchased merchant portfolios or business operations. In the event of a
material decline in revenues generated from any of such merchant portfolios or
business operations which would not be recovered from future cash flows, the
fair value and, as a result, the carrying value of the related intangible
asset will be reduced. Additionally, changes in accounting policies or rules
that affect the way in which such intangible assets are reflected in the
Company's financial statements, or the way in which they are treated for tax
purposes, could have a material adverse effect on the Company's financial
condition.
BANKING AND TERRITORIAL RESTRICTIONS
To facilitate First Union's compliance with applicable banking laws,
regulations and orders (collectively, the "Banking Laws"), and to allow First
Union to obtain any required consents or approvals, the Company has agreed to
notify, and obtain approval from, First Union before the Company enters into
any business activities substantially different from the business activities
the Company currently conducts. See "First Union Shareholders Agreement."
Pursuant to the KeyBank Joint Venture and the Firstar Joint Venture and to the
extent required by the Banking Laws, the Company may be required to take
certain measures in the event either the Company or the limited liability
companies formed pursuant to the transactions enters into or acquires any
other entity which is engaged in a business that is substantially different
from the business activities the Company, or the limited liability companies,
currently conduct. Such measures may include applying for any required
regulatory consents, or assisting either KeyBank, Firstar, or the limited
liability companies, as the case may be, to prepare such applications. If the
required consents and approvals are not received, the Company may not
25
<PAGE>
engage in the new business activity (such restrictions, including the
restrictions relating to First Union, being collectively referred to herein as
the "Banking Restrictions").
In connection with a December 1995 transaction between the Company and First
Union, the Crestar Alliance, the Firstar Joint Venture, and the KeyBank Joint
Venture, the Company agreed that it would not, without the prior consent of
the affected entity, enter into certain marketing or, in certain instances,
acquisition agreements with third parties located in specified areas where any
of First Union, Crestar Bank, Firstar or KeyBank maintain a significant
banking presence (such restrictions being collectively referred to herein as
the "Territorial Restrictions"). The effect of the Banking Restrictions and
the Territorial Restrictions is to limit in certain respects the Company's
ability to directly seek or take advantage of certain business or marketing
opportunities other than through a venture with the Company's regional bank
partners. The agreements generally do not prohibit the Company from pursuing
transactions indirectly through the respective alliance or joint venture.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation authorize the Company to issue up to
5,000,000 shares of Preferred Stock with such designations, powers,
preferences and rights as may be fixed by the Board of Directors, without any
further vote or action by the shareholders. The issuance of Preferred Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
Since the Company's initial public offering in May 1996, there has been and
may continue to be significant volatility in the market for the Common Stock,
and there can be no assurance that an active market for the Common Stock can
be sustained. See "Price Range of Common Stock." Factors such as changes in
quarterly operating results, the gain or loss of significant contracts, the
entry of new competitors into the Company's markets, changes in management,
announcements of technological innovations or new products by the Company or
its competitors, and general events and circumstances beyond the Company's
control could have a significant impact on the future market prices of the
Common Stock and the relative volatility of such market prices.
EMPLOYEES
At March 19, 1998, the Company had 614 full-time employees, of which 227
were in sales and marketing, 293 were in operations and 94 were corporate and
general administrative employees. Of these employees, 212 were based in
Atlanta, Georgia at the Company's principal executive offices, 221 were based
in Knoxville, Tennessee at the Company's operations center, seven were based
in Arvada, Colorado, and ten were based in Jacksonville, Florida in connection
with the First Union Alliance. The Company's 227 sales and marketing employees
include 164 salespersons located throughout the United States, of whom 53 were
based at branches of banks with which the Company has formed Acquisition
Alliances. None of the Company's employees are represented by a collective
bargaining agreement nor has the Company ever experienced any work stoppage.
Management believes that the Company's relationship with its employees is
good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Atlanta, Georgia
and consist of approximately 38,000 square feet that are leased pursuant to an
agreement scheduled to expire November 30, 2001. The Company relocated its
principal executive offices in October 1996 to allow for the Company's
continued growth. In connection with this relocation, the Company transferred
certain of its operational functions, including the conversion management
functions, from Knoxville, Tennessee and Boulder, Colorado to Atlanta. The
Company's operations center is located in Knoxville, Tennessee and consists of
approximately 26,000 square feet. This facility is leased pursuant to a
sublease agreement scheduled to expire September 1, 2003. The Company leases
an additional 9,000 square feet adjacent to the operations center which houses
files and deployment and programming functions. Certain of the Company's
operations are conducted in facilities located in Jacksonville, Florida and
Arvada, Colorado consisting of approximately 9,360 and 3,040 square feet of
space, respectively. The Jacksonville space is being leased pursuant to an
agreement scheduled to expire in 1998. The
26
<PAGE>
Arvada space is leased on a month to month basis. Certain of the Company's
employees also occupy other office facilities at various locations under
leases and various other agreements, which require aggregate payments that are
not material.
In March 1998, NOVA Services Limited Partnership, a wholly-owned subsidiary
of the Company, purchased a 112,000 square-foot building in Knoxville,
Tennessee for $2.7 million. Prior to the Company's purchase of the property,
the facility was a retail shopping center. The Company intends to relocate its
current Knoxville operations center, as well as files, to approximately 84,000
square feet of space in the newly acquired facility. The remaining 28,000
square feet will be reserved for future expansion or sub-lease to third
parties. The conversion of the new facility into office space and the
relocation to the new facility are scheduled to be completed in the third
quarter of 1998. The deployment and programming functions will be relocated
from the adjacent facilities to the former operations center facility, and the
adjacent facilities will be reserved for future expansion or sub-lease to
third parties.
ITEM 3. 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 effect
on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended December 31, 1997.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below, in accordance with General Instruction G(3) of Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K, is certain information
regarding the executive officers of the Company as of March 16, 1998.
Each executive officer will serve until the first meeting of the board of
directors after the next annual meeting of shareholders and a successor is
elected or appointed and qualified, or until such officer resigns or is
removed by the board of directors.
Edward Grzedzinski, 43, has served with the Company or its predecessor since
February 1991, most recently as a director, Chairman of the Board, President
and Chief Executive Officer. He co-founded the Company's subsidiary and
predecessor, NOVA Information Systems, as its Chief Operating Officer in 1991
and was named Chief Executive Officer in September 1995. From October 1990 to
February 1991, Mr. Grzedzinski served as an officer of Phoenix Consulting
Group, Inc., a transaction processing consulting company. Mr. Grzedzinski has
over 12 years experience in the bankcard industry.
James M. Bahin, 53, has served with the Company or its predecessor since
January 1992, most recently as a director, Vice Chairman of the Board, Chief
Financial Officer and Secretary. Prior to joining the Company, Mr. Bahin
served in various officer capacities with Fuqua Industries, Inc., a
diversified manufacturing and service company, most recently as Senior Vice
President of Operations. Mr. Bahin has over 25 years of financial and
management experience.
Pamela A. Joseph, 39, has served with the Company or its predecessor since
July 1994, most recently as Executive Vice President and Chief Information
Officer. Prior to joining the Company, Ms. Joseph served for over two years as
Director, New Market Development, for VISA and for eight years in various
management positions at Wells Fargo Bank.
John M. Perry, 41, joined the Company in April 1996 as Executive Vice
President, Sales and Marketing. Before coming to the Company, he served as
Executive Vice President and Chief Operating Officer of First Data
Corporation's Client Merchant Services Division. For over seven years prior to
that, he held various executive
27
<PAGE>
level management, sales and marketing positions with Card Establishment
Services, Harbridge Merchant Services, VISA USA and Wells Fargo Bank. From
1980 to 1988, Mr. Perry served in the United States Army finishing his career
as a captain.
Rebecca L. Powell, 45, has served with the Company or its predecessor since
February 1991, most recently as Executive Vice President, Merchant Services
and Operations. Prior to joining the Company, Ms. Powell served for 20 years
in various management positions with National Data Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Shareholder Information" of the Company's 1997 Annual
Report to Shareholders is incorporated herein by reference and filed as part
of Exhibit 13 to this Report.
RECENT SALES OF UNREGISTERED SECURITIES.
On July 21, 1995, in connection with the acquisition of the bankcard
processing operations of the Bank of Boulder, NOVA Information Systems granted
options to acquire an aggregate of 25,600 shares of common stock of NOVA
Information Systems having an original exercise price of $1.18 per share to an
employee of Boulder Bankcard Processing, Inc. and options to acquire an
aggregate of 38,400 shares of common stock of NOVA Information Systems having
an original exercise price of $2.34 per share to employees of NOVA Information
Systems, pursuant to the 1991 Stock Option Plan (as defined herein). This
transaction was effected in reliance upon the exemption from registration set
forth in Section 4(2) of the Securities Act.
On January 31, 1996, in connection with the First Union Alliance with First
Union Corporation and various banking subsidiaries of First Union Corporation
(the "First Union Banks") (First Union Corporation and the First Union Banks
are collectively referred to herein as "First Union"), the Company acquired
all of the outstanding capital stock of NOVA Information Systems and issued
the following securities:
(i) an aggregate of 9,149,209 shares of common stock of the Company to
the First Union Banks in exchange for the transaction processing assets of
First Union (the "First Union Assets");
(ii) 1,168,291 shares of common stock of the Company, 14,832 shares of
Series A Convertible Preferred Stock of the Company, 10,027 shares of
Series B Convertible Preferred Stock of the Company and 5,000 shares of
Series D Preferred Stock of the Company to Warburg, Pincus Investors, L.P.
("Warburg") in exchange for 768,000 shares of common stock of NOVA
Information Systems, a warrant to purchase 512,000 shares of common stock
of NOVA Information Systems, 14,832 shares of Series A Convertible
Preferred Stock of NOVA Information Systems, 10,027 shares of Series B
Convertible Preferred Stock of NOVA Information Systems, and 5,000 shares
of Series D Preferred Stock of NOVA Information Systems;
(iii) 413,324 shares of common stock of the Company, 683.34 shares of
Series A Convertible Preferred Stock of the Company and 3,029 shares of
Series C Convertible Preferred Stock of the Company to WorldCom in exchange
for 256,000 shares of common stock of NOVA Information Systems, a warrant
to purchase 665,600 shares of common stock of NOVA Information Systems,
683.34 shares of Series A Convertible Preferred Stock of NOVA Information
Systems, and 3,029 shares of Series C Convertible Preferred Stock of NOVA
Information Systems;
(iv) 192,000 shares, 153,600 shares and 54,912 shares of common stock of
the Company, respectively, to Edward Grzedzinski, James M. Bahin, and Paul
Bowers in exchange for 192,000 shares, 153,600 shares and 54,912 shares of
common stock of NOVA Information Systems, respectively; and
(v) an aggregate of 246,784 shares of common stock of the Company to
eight members of management of NOVA Information Systems in exchange for an
aggregate of 246,784 shares of common stock of NOVA Information Systems.
28
<PAGE>
This transaction was effected in reliance upon the exemption from
registration set forth in Rule 506 of Regulation D under the Securities Act.
In addition, on January 31, 1996, the Company assumed all obligations under
each outstanding option representing the right to purchase shares of common
stock of NOVA Information Systems granted under the terms of the 1991
Employees' Stock Option and Stock Appreciation Rights Plan of NOVA Information
Systems (the "1991 Stock Option Plan"). Such options were converted into
options representing the right to purchase an equal number of shares of common
stock of the Company at the same exercise price. This transaction was effected
in reliance upon the exemption from registration set forth in Section 4(2) of
the Securities Act.
In March 1996, the Company issued an aggregate of 986,116 shares of common
stock of the Company to certain employees in connection with the exercise of
stock options previously granted by NOVA Information Systems pursuant to the
1991 Stock Option Plan for aggregate consideration of $1,163,616.88 ($1.18 per
share). These transactions were effected in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act.
In April 1996, the Company issued an aggregate of 641,532 shares of common
stock of the Company to certain employees in connection with the exercise of
stock options previously granted by NOVA Information Systems pursuant to the
1991 Stock Option Plan for aggregate consideration of $764,431 ($1.18-$2.34
per share). These transactions were effected in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act.
In May 1996, the Company issued an aggregate of 8,000 shares of common stock
of the Company to one employee in connection with the exercise of stock
options previously granted by NOVA Information Systems pursuant to the 1991
Stock Option Plan for aggregate consideration of $9,440 ($1.18 per share).
This transaction was effected in reliance upon the exemption from registration
set forth in Section 4(2) of the Securities Act.
In January 1998, the Company granted Kessler Financial Services, L.P.
("Kessler") warrants to purchase 50,000 shares of common stock of the Company
(the "Kessler Warrants"). The Kessler Warrants were granted as consideration
for Kessler providing to the Company certain marketing and referral services
pursuant to a marketing agreement. The transaction was effected in reliance
upon the exemption from registration set forth in Section 4(2) of the
Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Selected Consolidated Financial Data" of the Company's
1997 Annual Report to Shareholders is incorporated herein by reference and
filed as part of Exhibit 13 to this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference and filed as part of Exhibit
13 to this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Accompanying Notes to Consolidated
Financial Statements and the section entitled "Report of Independent Auditors"
of the Company's 1997 Annual Report to Shareholders are incorporated herein by
reference and filed as part of Exhibit 13 to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE>
PART III
Certain information required by Part III is omitted from this report but is
incorporated herein by reference to the Company's definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders (the "Proxy Statement"). Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of the Form 10-K, the
information relating to the directors of the Company, including directors who
are executive officers of the Company, is set forth under the caption
"Proposal 1--Election of Directors" in the Proxy Statement and is incorporated
herein by reference. Pursuant to Instruction 3 of Item 401(b) of Regulation S-
K and General Instruction G(3) of Form 10-K, information relating to the
executive officers of the Company is set forth under the caption "Executive
Officers of the Registrant" in Part I, Item 4(A) of this report.
Compliance with Section 16(a) of the Securities Exchange Act of 1934:
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Commission thereunder require the Company's directors and
executive officers and any persons who own more than 10% of the Company's
Common Stock, as well as certain affiliates of such persons, to file reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. with respect to their ownership of the Company's
Common Stock. Directors, executive officers and persons owning more than 10%
of the Company's Common Stock are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file. Based solely on its review of the copies of such reports
received by it and representations that no other reports were required of
those persons, the Company believes that during fiscal 1997, all filing
requirements applicable to its directors and executive officers were complied
with in a timely manner except that Dr. James E. Carnes filed a late Form 3.
The Company is not aware of any other persons other than directors and
executive officers and their affiliates who own more than 10% of the Company's
Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
relating to executive compensation set forth under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by reference;
provided, such incorporation by reference shall not be deemed to include or
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the information
relating to security ownership by certain persons set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the information
relating to certain relationships and related transactions set forth under the
caption "Certain Relationships and Related Transactions" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the related
reports of independent auditors thereon which are required to be filed as
part of this Report are included in the Company's 1997 Annual
30
<PAGE>
Report to Shareholders and are incorporated by reference herein. These
consolidated financial statements are as follows:
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December 31, 1997
and 1996 and the ten month period ended December 31, 1995.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996 and the ten month period ended December 31,
1995.
Consolidated Statements of Cash Flows for the years ended December 31, 1997
and 1996 and the ten month period ended December 31, 1995.
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of the Company is
included in Item 14(d):
Schedule II.--Valuation and Qualifying Accounts
Schedules not included above have been omitted because they are not
applicable, not material, or the required information is given in the
financial statements or notes thereto.
3. EXHIBITS
The following exhibits are incorporated by reference or filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Merchant Business Purchase Agreement, dated October 18, 1994, as
amended November 30, 1994 and December 9, 1994, among NOVA Information
Systems, the Bank of Boulder, Bolder Bancorporation and NOVA Newco,
Inc. (the "Bank of Boulder Business Purchase Agreement")(1)
*2.2 Contribution Agreement, dated October 30, 1995 (the "Contribution
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, the then-current shareholders of NOVA Information
Systems (the "Original Shareholders"), First Union Corporation, the
First Union Banks, and First Fidelity Bancorporation and its banking
subsidiaries (which merged with and into First Union Corporation
effective January 1, 1996)(1)
3.1 Articles of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant, as amended(2)
4.1 Specimen form of Common Stock certificate(1)
4.2 See Articles of Incorporation of the Registrant and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively
4.3 Shareholders Agreement dated January 31, 1996 (the "Shareholders
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, First Union, WorldCom, Warburg and each of the
other Original Shareholders(1), as amended by supplements dated as of
August 15, 1997, August 22, 1997 and September 8, 1997(3)
4.4 Registration Rights Agreement (the "Registration Rights Agreement")
dated January 31, 1996, among the Registrant (formerly NOVA Holdings,
Inc.), Warburg, WorldCom, and First Union(1)
9 Shareholders Agreement, incorporated by reference to Exhibit 4.3(1)
10.1 Shareholders Agreement, incorporated by reference to Exhibit 4.3(1)
10.2 Registration Rights Agreement, incorporated by reference to Exhibit
4.4(1)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 Employment Agreement, dated October 27, 1995, effective January
31,1996, between NOVA Information Systems and Edward Grzedzinski(1)
10.4 Employment Agreement dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems and James M. Bahin(1)
10.5 Employment Agreement, dated April 4, 1997, between NOVA Information
Systems and John M. Perry(4)
10.6 1991 Employees' Stock Option and Stock Appreciation Rights Plan, as
amended(1)
10.7 1996 Employees Stock Incentive Plan, as amended, together with form of
Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement(1)
10.8 1996 Directors Stock Option Plan, as amended and restated(2)
10.9 Contribution Agreement, incorporated by reference to Exhibit 2.2(1)
10.10 Lease Agreement dated May 31, 1996 by and between NOVA Information
Systems and Concourse I, LTD.(5)
10.11 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The
Baptist Health System of East Tennessee, Inc.(1)
10.12 Credit Agreement, dated October 27, 1997 among NOVA Information
Systems, the Lenders named therein, First Union National Bank as
Documentation Agent and Bank of America National Trust and Savings
Association, as Agent.
10.13 Agreement dated February 28, 1996, between NOVA Information Systems
and WorldCom(1)
10.14 Subscribers Agreement, dated May 1, 1993, between NOVA Information
Systems and Total System Services, Inc., and Addendum to Subscribers
Agreement, dated July 1993, between NOVA Information Systems and Total
System Services, Inc.(1)
*10.15 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems and Kessler Financial Services, L.P.(1)
*10.16 Agreement Regarding Merchant Processing Services and Other Matters,
dated May 5, 1995, among NOVA Information Systems, First Alabama Bank
and Regions Financial Corp.(1)
*10.17 Agreement dated June 3, 1992, as amended December 9, 1992, November 2,
1994 between NOVA Information Systems and Mellon Bank, together with
the Letter Agreement dated June 3, 1992 between NOVA Information
Systems and Mellon Bank relating to fees, as amended December 10, 1992
and June 10, 1997(1), both as amended by Letter Agreement dated June
10, 1997.
10.18 Depositary and Processing Agreement, dated September 30, 1993, between
NOVA Information Systems, and Bank of the West(1)
*10.19 Bank of Boulder Purchase Agreement, incorporated by reference to
Exhibit 2.1(1)
*10.20 Non-Competition Agreement, dated December 9, 1994, among NOVA
Information Systems, Boulder Bankcard Processing, Inc. and Steven K.
Bosley(1)
10.21 Marketing Agreement, dated October 1, 1992, between NOVA Information
Systems and MBNA America Bank, N.A.(1)
10.22 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems. and MBNA America Bank, N.A.(1)
10.23 Depositary and Settlement Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems
and FUNB(1)
10.24 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems
and the First Union Banks(1)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25 Merchant Asset Purchase Agreement dated as of May 29, 1997, between
NOVA Information Systems and Crestar Bank(6)
10.26 Agreement Respecting a Limited Liability Company dated October 7, 1997
by and among NOVA Information Systems, Firstar Bank U.S.A., N.A. d/b/a
Elan Financial Services and Firstar Bank Milwaukee, N.A.(7)
**10.27 Agreement Respecting a Limited Liability Company dated December 12,
1997 by and among the Registrant, NOVA Information Systems, and Key
Bank National Association.
**10.28 Merchant Asset Purchase Agreement dated December 30, 1997 by and
between NOVA Information Systems and MBNA America Bank, N.A.
11.1 Statement re: Computation of Pro Forma Earnings Per Share
13 1997 Annual Report to Shareholders--Following portions only:
"Shareholder Information;" "Selected Consolidated Financial Data;"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations;" the Consolidated Financial Statements and
Accompanying Notes to Consolidated Financial Statements and the
"Report of Independent Auditors"
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 was
previously requested regarding certain portions of the indicated Exhibit in
connection with the Company's Registration Statement on Form S-1
(Registration No. 333-3287), which portions have been filed separately with
the Commission.
** Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 has
been requested regarding certain portions of the indicated Exhibit, which
portions have been filed separately with the Commission.
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-3287), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration Statement No. 333-45997) and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed on August 13, 1997, Commission File No.
1-14342, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, filed on June 18, 1996, Commission File No.
1-14342, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
June 12, 1997, Commission File No. 1- 14342, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
November 14, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(B) REPORTS ON FORM 8-K
Report on Form 8-K filed on November 14, 1997, SEC file number 001-14342.
(C) INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Merchant Business Purchase Agreement, dated October 18, 1994, as
amended November 30, 1994 and December 9, 1994, among NOVA Information
Systems, the Bank of Boulder, Bolder Bancorporation and NOVA Newco,
Inc. (the "Bank of Boulder Business Purchase Agreement")(1)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*2.2 Contribution Agreement, dated October 30, 1995 (the "Contribution
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, the then-current shareholders of NOVA Information
Systems (the "Original Shareholders"), First Union Corporation, the
First Union Banks, and First Fidelity Bancorporation and its banking
subsidiaries (which merged with and into First Union Corporation
effective January 1, 1996)(1)
3.1 Articles of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant, as amended(2)
4.1 Specimen form of Common Stock certificate(1)
4.2 See Articles of Incorporation of the Registrant and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively
4.3 Shareholders Agreement dated January 31, 1996 (the "Shareholders
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, First Union, WorldCom, Warburg and each of the
other Original Shareholders(1), as amended by supplements dated as of
August 15, 1997, August 22, 1997 and September 8, 1997(3)
4.4 Registration Rights Agreement (the "Registration Rights Agreement")
dated January 31, 1996, among the Registrant (formerly NOVA Holdings,
Inc.), Warburg, WorldCom, and First Union(1)
9 Shareholders Agreement, incorporated by reference to Exhibit 4.3(1)
10.1 Shareholders Agreement, incorporated by reference to Exhibit 4.3(1)
10.2 Registration Rights Agreement, incorporated by reference to Exhibit
4.4(1)
10.3 Employment Agreement, dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems and Edward Grzedzinski(1)
10.4 Employment Agreement dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems and James M. Bahin(1)
10.5 Employment Agreement, dated April 4, 1997, between NOVA Information
Systems and John M. Perry(4)
10.6 1991 Employees' Stock Option and Stock Appreciation Rights Plan, as
amended(1)
10.7 1996 Employees Stock Incentive Plan, as amended, together with form of
Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement(1)
10.8 1996 Directors Stock Option Plan, as amended and restated(2)
10.9 Contribution Agreement, incorporated by reference to Exhibit 2.2(1)
10.10 Lease Agreement dated May 31, 1996 by and between NOVA Information
Systems and Concourse I, LTD.(5)
10.11 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The
Baptist Health System of East Tennessee, Inc.(1)
10.12 Credit Agreement, dated October 27, 1997 among NOVA Information
Systems, the Lenders named therein, First Union National Bank as
Documentation Agent and Bank of America National Trust and Savings
Association, as Agent.
10.13 Agreement dated February 28, 1996, between NOVA Information Systems
and WorldCom (1)
10.14 Subscribers Agreement, dated May 1, 1993, between NOVA Information
Systems and Total System Services, Inc., and Addendum to Subscribers
Agreement, dated July 1993, between NOVA Information Systems and Total
System Services, Inc.(1)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.15 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems and Kessler Financial Services, L.P.(1)
*10.16 Agreement Regarding Merchant Processing Services and Other Matters,
dated May 5, 1995, among NOVA Information Systems, First Alabama Bank
and Regions Financial Corp.(1)
*10.17 Agreement dated June 3, 1992, as amended December 9, 1992, November 2,
1994 between NOVA Information Systems and Mellon Bank, together with
the Letter Agreement dated June 3, 1992 between NOVA Information
Systems and Mellon Bank relating to fees, as amended December 10, 1992
and June 10, 1997(1), both as amended by Letter Agreement dated June
10, 1997.
10.18 Depositary and Processing Agreement, dated September 30, 1993, between
NOVA Information Systems, and Bank of the West(1)
*10.19 Bank of Boulder Purchase Agreement, incorporated by reference to
Exhibit 2.1(1)
*10.20 Non-Competition Agreement, dated December 9, 1994, among NOVA
Information Systems, Boulder Bankcard Processing, Inc. and Steven K.
Bosley(1)
10.21 Marketing Agreement, dated October 1, 1992, between NOVA Information
Systems and MBNA America Bank, N.A.(1)
10.22 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems. and MBNA America Bank, N.A.(1)
10.23 Depositary and Settlement Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems
and FUNB(1)
10.24 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems
and the First Union Banks(1)
10.25 Merchant Asset Purchase Agreement dated as of May 29, 1997, between
NOVA Information Systems and Crestar Bank(6)
10.26 Agreement Respecting a Limited Liability Company dated October 7, 1997
by and among NOVA Information Systems, Firstar Bank U.S.A., N.A. d/b/a
Elan Financial Services and Firstar Bank Milwaukee, N.A.(7)
**10.27 Agreement Respecting a Limited Liability Company dated December 12,
1997 by and among the Registrant, NOVA Information Systems, and Key
Bank National Association.
**10.28 Merchant Asset Purchase Agreement dated December 30, 1997 by and
between NOVA Information Systems and MBNA America Bank, N.A.
11.1 Statement re: Computation of Pro Forma Earnings Per Share
13 1997 Annual Report to Shareholders--Following portions only:
"Shareholder Information;" "Selected Consolidated Financial Data;"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations;" the Consolidated Financial Statements and
Accompanying Notes to Consolidated Financial Statements and the
"Report of Independent Auditors"
21 Subsidiaries of Registrant, filed herewith
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
- --------
* Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 was
previously requested regarding certain portions of the indicated Exhibit in
connection with the Company's Registration Statement on Form S-1
(Registration No. 333-3287), which portions have been filed separately with
the Commission.
** Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 has
been requested regarding certain portions of the indicated Exhibit, which
portions have been filed separately with the Commission.
35
<PAGE>
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-3287), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration Statement No. 333-45997), and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed on August 13, 1997, Commission File No.
1-14342, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, filed on June 18, 1996, Commission File No.
1-14342, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
June 12, 1997, Commission File No. 1- 14342, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
November 14, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(D) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed herewith:
SCHEDULE II
NOVA INFORMATION SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CURRENT CURRENT BALANCE AT
THE BEGINNING YEAR YEAR THE END OF
OF THE PERIOD COST/EXPENSE WRITE-OFFS THE PERIOD
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING DECEMBER
31, 1997:
Reserve for Doubtful Accounts
and Chargebacks............. $2,707,000 $1,218,000 $1,103,000 $2,822,000
Credit and Fraud Loss
Reserve..................... 750,000 2,029,000 1,315,000 1,464,000
FISCAL YEAR ENDING DECEMBER
31, 1996:
Reserve for Doubtful Accounts
and Chargebacks............. $ 440,000 $3,245,000 $ 978,000 2,707,000
Credit and Fraud Loss
Reserve..................... 883,000 0 133,000 750,000
TEN MONTH PERIOD ENDING
DECEMBER 31, 1995:
Reserve for Doubtful Accounts
and Chargebacks............. $ 206,000 $ 634,000 $ 400,000 $ 440,000
Credit and Fraud Loss
Reserve..................... 691,000 337,000 145,000 883,000
</TABLE>
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
day of March, 1998.
/s/ Edward Grzedzinski
By: __________________________________
EDWARD GRZEDZINSKI CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Company and in the capacities indicated on March , 1998.
SIGNATURE TITLE
/s/ Edward Grzedzinski Director, Chairman of
- ------------------------------------- the Board, President
EDWARD GRZEDZINSKI and Chief Executive
Officer (Principal
Executive Officer)
/s/ James M. Bahin Director, Vice Chairman
- ------------------------------------- of the Board, Chief
JAMES M. BAHIN Financial Officer and
Secretary (Principal
Financial and
Accounting Officer)
/s/ Charles T. Cannada Director
- -------------------------------------
CHARLES T. CANNADA
/s/ Dr. James E. Carnes Director
- -------------------------------------
DR. JAMES E. CARNES
/s/ U. Bertram Ellis, Jr. Director
- -------------------------------------
U. BERTRAM ELLIS, JR.
/s/ Dr. Henry Kressel Director
- -------------------------------------
DR. HENRY KRESSEL
/s/ Joseph P. Landy Director
- -------------------------------------
JOSEPH P. LANDY
/s/ Maurice F. Terbrueggen, Jr. Director
- -------------------------------------
MAURICE F. TERBRUEGGEN, JR.
37
<PAGE>
EXHIBIT 10.12
================================================================================
CREDIT AGREEMENT
dated as of October 27, 1997
among
NOVA INFORMATION SYSTEMS, INC.,
as Borrower,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
FIRST UNION NATIONAL BANK,
SUNTRUST BANK ATLANTA, as Lenders,
FIRST UNION NATIONAL BANK, as Documentation Agent,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent
================================================================================
<PAGE>
The following Table of Contents has been inserted for convenience only and does
not constitute a part of this Agreement.
TABLE OF CONTENTS
PAGE
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS..................... 1
1.1 Certain Defined Terms...................................... 1
1.2 Other Definitional Provisions.............................. 17
1.3 Accounting and Financial Determinations.................... 18
SECTION 2. THE COMMITMENTS..................................... 18
2.1 Revolving Loan Commitment.................................. 18
2.2 LC Commitment.............................................. 19
2.3 Commitment Limits.......................................... 19
2.4 Increase in the Aggregate Commitment....................... 19
SECTION 3. THE LOANS........................................... 22
3.1 Various Types of Loans..................................... 22
3.2 Notice of Borrowing........................................ 22
3.3 Funding.................................................... 22
3.4 Funding Reliance........................................... 22
3.5 Conversion and Continuation of Loans....................... 23
3.6 [RESERVED]................................................. 24
3.7 Repayment of Revolving Loans; Notes........................ 24
3.8 Recordkeeping.............................................. 24
SECTION 4. THE LETTERS OF CREDIT............................... 25
4.1 Request for Issuance of Letters of Credit.................. 25
4.2 Expiration and other Terms................................. 25
4.3 Participation.............................................. 25
4.4 Notification of Demand for Payment......................... 26
4.5 Funding by Issuing Lender.................................. 26
4.6 Funding By Lenders......................................... 26
4.7 Non-Conforming Demand For Payment.......................... 27
4.8 Return of Funds Related to Non-Conforming Demand........... 27
4.9 Return of Letter of Credit................................. 27
4.10 Reimbursement Agreement of the Borrower.................... 27
4.11 Obligation to Reimburse for or Participate in Letter
of Credit Payments......................................... 28
4.12 Mandatory Payment to Agent of LC Obligations............... 29
SECTION 5. INTEREST AND FEES, ETC.............................. 29
5.1 Interest Rates............................................. 29
5.2 Default Interest Rate...................................... 29
5.3 Interest Payment Dates..................................... 30
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.4 Interest Periods........................................... 30
5.5 Setting and Notice of Rates................................ 30
5.6 Computation of Interest................................... 30
5.7 Fees...................................................... 30
SECTION 6. REDUCTION OR TERMINATION OF THE COMMITMENTS;....... 32
6.1 Voluntary Reduction or Termination of the Revolving
Loan Commitments.......................................... 32
6.2 Voluntary Prepayments..................................... 32
6.3 Mandatory Prepayments..................................... 33
6.4 Mandatory Reduction in the Commitments.................... 33
6.5 Making of Payments........................................ 33
6.6 Application of Payments................................... 34
6.7 Due Date Extension........................................ 34
6.8 Sharing of Payments....................................... 34
6.9 Setoff.................................................... 35
6.10 Unconditional Payment..................................... 35
SECTION 7. CHANGES IN CIRCUMSTANCES........................... 36
7.1 Increased Costs........................................... 36
7.2 Change in Rate of Return.................................. 37
7.3 Basis for Determining Interest Rate Inadequate or Unfair... 38
7.4 Changes in Law Rendering Certain Loans Unlawful............ 38
7.5 Funding Losses............................................ 39
7.6 Right of Lenders to Fund Through Other Offices............ 39
7.7 Discretion of Lenders as to Manner of Funding............. 39
7.8 Avoidance of Additional Cost.............................. 40
7.9 Conclusiveness of Statements; Survival of Provisions....... 40
SECTION 8. COLLATERAL AND OTHER SECURITY...................... 41
8.1 Subsidiary Guaranties..................................... 41
8.2 Parent.................................................... 41
SECTION 9. REPRESENTATIONS AND WARRANTIES...................... 41
9.1 Organization, etc......................................... 41
9.2 Authorization............................................. 42
9.3 No Conflict............................................... 42
9.4 Governmental Consents..................................... 42
9.5 Validity.................................................. 42
9.6 Financial Statements...................................... 42
9.7 Material Adverse Change................................... 43
9.8 Litigation and Contingent Obligations..................... 43
9.9 Liens..................................................... 43
9.10 Subsidiaries and Joint Ventures........................... 43
9.11 Pension and Welfare Plans................................. 44
9.12 Investment Company Act.................................... 44
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.13 Public Utility Holding Company Act....................... 45
9.14 Margin Regulation........................................ 45
9.15 Taxes.................................................... 45
9.16 Accuracy of Information.................................. 45
9.17 Environmental Warranties................................. 45
9.18 Use of Loan Proceeds..................................... 47
9.19 Insurance................................................ 47
9.20 Securities Laws.......................................... 47
9.21 Governmental Authorizations.............................. 48
9.22 Representations in Other Agreements True and Correct...... 48
9.23 Possession of Licenses, etc.............................. 48
9.24 VISA/MasterCard.......................................... 48
SECTION 10. AFFIRMATIVE COVENANTS............................. 48
10.1 Reports, Certificates and Other Information............... 48
10.2 Corporate Existence; Foreign Qualification............... 52
10.3 Books, Records and Inspections........................... 52
10.4 Insurance................................................ 53
10.5 Taxes and Liabilities.................................... 53
10.6 Pension Plans and Welfare Plans.......................... 53
10.7 Compliance with Laws..................................... 53
10.8 Maintenance of Permits................................... 53
10.9 Environmental Compliance................................. 53
SECTION 11. NEGATIVE COVENANTS................................ 54
11.1 Limitation on Indebtedness............................... 54
11.2 Liens.................................................... 55
11.3 Consolidation, Merger, etc............................... 56
11.4 Asset Disposition, etc................................... 56
11.5 Dividends, etc........................................... 57
11.6 Investments.............................................. 57
11.7 Acquisitions............................................. 58
11.8 Joint Ventures........................................... 58
11.9 Rental Obligations....................................... 58
11.10 Subordinated Debt........................................ 59
11.11 Take or Pay Contracts.................................... 59
11.12 Regulations G and U...................................... 59
11.13 Subsidiaries............................................. 59
11.14 Other Agreements......................................... 60
11.15 Business Activities...................................... 60
11.16 Transactions with Affiliates............................. 60
11.17 Parent Activities........................................ 60
11.18 Employee Stock Purchase Plan............................. 60
SECTION 12. FINANCIAL COVENANTS............................... 61
12.1 Fixed Charge Coverage Ratio.............................. 61
12.2 Funded Debt Ratio........................................ 61
12.3 Credit Losses and Chargeback Losses...................... 61
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 13. CONDITIONS........................................ 61
13.1 Effective Date........................................... 62
13.2 Acquisition Cost Borrowing............................... 63
13.3 All Loans and Letters of Credit.......................... 64
SECTION 14. EVENTS OF DEFAULT AND THEIR EFFECT................ 65
14.1 Events of Default........................................ 65
14.2 Effect of Event of Default............................... 67
SECTION 15. THE AGENT......................................... 68
15.1 Appointment and Authorization; "Agent"................... 68
15.2 Delegation of Duties..................................... 68
15.3 Liability of Agent....................................... 69
15.4 Reliance by Agent........................................ 69
15.5 Notice of Default........................................ 70
15.6 Credit Decision.......................................... 70
15.7 Indemnification of Agent................................. 70
15.8 Agent in Individual Capacity............................. 71
15.9 Successor Agent.......................................... 71
15.10 Withholding Tax.......................................... 72
SECTION 16. ASSIGNMENTS AND PARTICIPATIONS.................... 74
16.1 Assignments.............................................. 74
16.2 Participations........................................... 75
16.3 Disclosure of Information................................ 75
16.4 Foreign Transferees...................................... 75
SECTION 17. MISCELLANEOUS..................................... 76
17.1 Waivers and Amendments................................... 76
17.2 Notices.................................................. 77
17.3 Payment of Costs and Expenses............................ 77
17.4 Indemnity................................................ 78
17.5 Subsidiary References/Captions........................... 78
17.6 Disclosure of Information................................ 78
17.7 Governing Law............................................ 79
17.8 Counterparts............................................. 79
17.9 SUBMISSION TO JURISDICTION; WAIVER OF VENUE.............. 79
17.10 WAIVER OF JURY TRIAL..................................... 80
17.11 Successors and Assigns................................... 80
</TABLE>
-iv-
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
SCHEDULE 1.1A Schedule of Lenders and Percentages
SCHEDULE 9.8 Litigation and Contingent Obligations
SCHEDULE 9.10 Subsidiaries and Joint Ventures
SCHEDULE 9.11 ERISA
SCHEDULE 9.15 Taxes
SCHEDULE 9.17 Environmental Matters
SCHEDULE 9.19 Insurance
SCHEDULE 11.1 Indebtedness
SCHEDULE 11.2 Liens
SCHEDULE 11.6 Investments
EXHIBITS FORM OF
- --------
EXHIBIT A Revolving Note - (S) 1.1
EXHIBIT B Borrowing Request - (S) 3.2
EXHIBIT C Continuation/Conversion Notice - (S) 3.5
EXHIBIT D LC Application - (S) 4.1
EXHIBIT E Parent Pledge Agreement-(S) 8.2(a)
EXHIBIT F Parent Guaranty-(S) 8.2(b)
EXHIBIT G Subsidiary Guaranty - (S)8.1
EXHIBIT H Compliance Certificate-(S) 10.1.4
EXHIBIT I Opinion of Long, Aldridge & Norman, LLP,
special counsel to the Borrower and the
Subsidiaries - (S) 13.1.5
EXHIBIT J Officer's Certificate - (S) 13.1.8
EXHIBIT K Assignment Agreement-(S) 16.1(a)
EXHIBIT L-1 Confirmation of New Lender - (S)2.4
EXHIBIT L-2 Confirmation of Step Up Lender - (S)2.4
</TABLE>
-v-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of October 27, 1997, by and among NOVA
INFORMATION SYSTEMS, INC., a Georgia corporation (herein called the "Borrower"),
the lenders party hereto (herein, together with any Eligible Assignees thereof,
collectively called the "Lenders" and each individually called a "Lender"), BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Issuing Lender (as
hereinafter defined), FIRST UNION NATIONAL BANK, as Documentation Agent, and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as agent for the Issuing
Lender and the Lenders (herein, in such capacity, together with any successor
thereto in such capacity, called the "Agent").
R E C I T A L S
---------------
WHEREAS, the Lenders have agreed to make available to the Borrower a
revolving credit facility upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acceptance Commission" - see Section 5.7(c).
--------------
"Acquisition" shall mean either (i) the acquisition by the Borrower
directly or indirectly of residual payment rights arising from a CCTP Business
or (ii) an Investment by a Credit Party in which such Credit Party acquires all
or a substantial part of the assets of a CCTP Business or all or a majority of
the capital stock or other equity interest of or in a CCTP Business or (iii) an
Alliance; provided, that (a) if such Acquisition involves the acquisition of
--------
capital stock, such Acquisition must be approved by the Board of Directors of
the CCTP Business; (b) if such Acquisition is not made by the Parent or the
Borrower directly, it shall be made through a Wholly-Owned Subsidiary of the
Borrower; (c) any Acquisition made by a Wholly-Owned Subsidiary shall be funded
by an intercompany loan made by the Borrower to such Wholly-Owned Subsidiary
which loan shall be evidenced by a promissory note; (d) no Default or Event of
Default shall exist either before or after such Acquisition; (e) the conditions
precedent set forth in Sections 13.2 and 13.3 have been satisfied (regardless of
------------- ----
whether a Loan or Letter of Credit is used in connection with such Acquisition);
and (f) the Borrower shall have delivered to Agent the documents described in
<PAGE>
Section 13.2.5 and 13.2.6 dated as of the date of such Acquisition.
- -------------- ------
"Acquisition Adjustments" shall mean all reasonable adjustments to the
operating and non-operating expenses of a CCTP Business following the direct or
indirect acquisition thereof by the Borrower, which adjustments relate to the
incurrence or elimination of certain costs following such acquisition; depending
on individual circumstances, examples of adjustments may include (a) reduction
of an owners' salary from operating expenses if the owner is no longer going to
work at the CCTP Business after the Acquisition (this would also apply to
excessive salaries paid to other departing management and the owner's family);
(b) addition of salaries for new managers; (c) savings as a result of
eliminating authorization charges paid to third party providers; (d) reduction
in redundant back-office processing expenses; (e) addition of expenses that may
have previously been provided by a parent or an affiliated company at less than
market rates (examples: legal, accounting, etc.) and (f) such other reasonable
non-operating expenses as are approved by the Required Lenders in their sole
reasonable credit judgment; provided, that (i) no such adjustments may be
--------
utilized for more than eighteen (18) months following consummation of the
related acquisition and (ii) in the case of any Acquisition in which the
Acquisition Costs exceed $40,000,000, all Acquisition Adjustments shall be
approved in writing by the Required Lenders in their sole discretion.
"Acquisition Costs" shall mean the purchase price and reasonably
related closing costs associated with, and expenditures related to conversion
costs for, an Acquisition by the Parent, the Borrower or a Wholly-Owned
Subsidiary, including, without limitation, one time capital expenditures
relating to such an Acquisition; provided, that such expenditures related to
--------
conversion costs are incurred within eighteen months following such Acquisition.
"Adjusted Consolidated EBITDA" shall mean, for any period, Adjusted
Consolidated Net Income for such period, plus (i) Consolidated Interest Charges
for such period, plus (ii) the aggregate amount deducted in determining such
Adjusted Consolidated Net Income in respect of income taxes, depreciation,
amortization and other similar non-cash charges for such period.
"Adjusted Consolidated Interest Charges" shall mean, for any period,
the aggregate interest expense net of interest income of the Parent and its
Subsidiaries which would have accrued during such period if all Indebtedness
incurred in connection with Acquisitions during such period were incurred on
-2-
<PAGE>
the first day of such period; for purposes hereof, interest expense shall
include, without limitation, (i) the portion of any obligation under capital
leases allocable to interest expense in accordance with GAAP, and (ii) the
portion of any debt discount that shall be amortized in such period.
"Adjusted Consolidated Net Income" shall mean, for any period, the
consolidated net income (or loss) of the Parent and its Subsidiaries for such
period, plus the consolidated net income (or loss) for such period attributable
to the assets or capital stock of the CCTP Business which was the subject of an
Acquisition during such period, after Acquisition Adjustments, provided that
such Acquisition Adjustments are approved in writing by the Required Lenders,
less (a) any extraordinary items of gain under GAAP, plus (b) extraordinary
items of loss under GAAP.
"Adjusted Funded Debt Ratio" shall mean the ratio of Funded
Indebtedness as at any date to Adjusted Consolidated EBITDA for the most recent
four consecutive Fiscal Quarters then ended.
"Affected Lender" - see Section 7.4.
-----------
"Affiliate" of any Person shall mean any other Person which, directly
or indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any commitment with responsibility for
administering, any Pension Plan). A Person shall be deemed to be "controlled
by" any other Person if such other Person possesses, directly or indirectly,
power (i) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing general
partners; or (ii) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent" - see Preamble.
"Agent-Related Person" shall mean BofA and any successor agent arising
under Section 15.9, together with their respective Affiliates (including in the
case of BofA, BRS) and the officers, directors, employees, agents and attorneys-
in-fact of such Persons and Affiliates.
"Aggregate Commitment" shall mean the sum of the Revolving
Loan Commitments and the L/C Commitments.
"Agreement" shall mean this Credit Agreement as hereafter from time to
time amended, modified, restated,
-3-
<PAGE>
refinanced, refunded or renewed in whole or in part.
"Alliance" shall mean (i) any Joint Venture involving a CCTP Business
and/or (ii) the acquisition by the Parent, the Borrower or a Wholly-Owned
Subsidiary of a minority interest in a CCTP Business.
"Alternate Base Rate" shall mean, for any day, a fluctuating rate per
annum equal to the greater of (i) the Base Rate in effect on such day or (ii) a
rate per annum (rounded upward to the next higher 1/8 of 1% if not already an
integral multiple of 1/8 of 1%) equal to the Federal Funds Rate in effect at the
commencement of business on such day plus .5% per annum.
"Applicable Base Rate Margin", "Applicable Eurodollar Rate Margin",
"Applicable Commitment Fee" or "Applicable LC Fee Rate" as the case may be,
shall mean at any time a margin or rate as follows:
<TABLE>
<CAPTION>
Adjusted Applicable Applicable Applicable Applicable
Funded Debt Base Rate Eurodollar Commitment LC Fee
Ratio Margin Rate Fee Rate Rate
Margin
<S> <C> <C> <C> <C>
Greater 0.00% 0.65% 0.200% 0.65%
than 2.50:1
but less
than or
equal to
3.00:1
Greater 0.00% 0.55% 0.175% 0.55%
than 1.50:1
but less
than or
equal to
2.50:1
Greater 0.00% 0.45% 0.150% 0.45%
than 1.00:1
but less
than or
equal to
1.50:1
Less than 0.00% 0.35% 0.125% 0.35%
or equal to
1.00:1
==================================================================
</TABLE>
-4-
<PAGE>
The Applicable Base Rate Margin, Applicable Eurodollar Rate Margin,
Applicable Commitment Fee or Applicable LC Rate Fee as the case may be, shall be
adjusted, on the forty-fifth day after the end of each Fiscal Quarter, based on
the Adjusted Funded Debt Ratio as of the last day of the Fiscal Quarter most
recently ended; it being understood that if the Borrower fails to deliver the
-- ----- ----------
Compliance Certificate required by Section 10.1.4 by the forty-fifth day after
--------------
any Fiscal Quarter (or by the ninetieth day in the case of the last Fiscal
Quarter of a Fiscal Year), then, following written notice from the Agent or the
Required Lenders and until receipt of such Compliance Certificate by the Agent,
the Applicable Base Rate Margin shall be 0.00%, the Applicable Eurodollar Rate
Margin shall be 0.65%, the Applicable Commitment Fee Rate shall be 0.20%, and
the Applicable LC Fee Rate shall be 0.65%. As of the Effective Date, the
Applicable Base Rate Margin is 0.00%, the Applicable Eurodollar Rate Margin is
0.35%, the Applicable Commitment Fee Rate is 0.125% and the Applicable LC Fee
Rate is 0.35%.
"Assignment Agreement" - see Section 16.1.
------------
"Attorney Costs" shall mean and include all fees and disbursements of
McDermott, Will & Emery or other external counsel, the non-duplicative allocated
cost of internal legal services, and all disbursements of internal counsel.
"BofA" shall mean Bank of America National Trust and Savings Association.
"Base Rate" shall mean, at any time, the rate of interest in effect for
such day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." (The "reference rate" is a rate set by
BofA based upon various factors including BofA's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate.)
"Base Rate Loan" shall mean any Loan which bears interest at or by
reference to the Alternate Base Rate.
"BRS" means BancAmerica Robertson Stephens, a Delaware corporation.
"Beneficiary" shall mean the beneficiary under any Letter of Credit.
"Borrower" - see Preamble.
-5-
<PAGE>
"Borrowing" shall mean a borrowing hereunder consisting of Loans made to
the Borrower at the same time by the Lenders pursuant to Section 2. A Borrowing
---------
may be a Base Rate Borrowing or a Eurodollar Borrowing.
"Borrowing Request" - see Section 3.2.
-----------
"Business Day" shall mean: (i) in the case of a Business Day which relates
to a Eurodollar Loan, any day of the year on which banks are open for business
in London, San Francisco, Chicago and New York and on which dealings are carried
on in the London interbank eurodollar market; and (ii) in the case of a Business
Day which relates to a Base Rate Loan, any day of the year on which banks are
open for business in San Francisco and Chicago.
"Capitalized Lease Liabilities" shall mean with respect to any Person, all
monetary obligations of such Person under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as a capitalized lease, and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Cash Equivalents" means (i) securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (ii) certificates of deposit,
eurodollar time deposits, overnight bank deposits, bankers' acceptances and
repurchase agreements of any Lender or any other commercial bank whose unsecured
long-term debt obligations are rated at least A-1 by Standard & Poor's Ratings
Group and A3 by Moody's Investors Service, Inc. having maturities of six months
or less from the date of acquisition, and (iii) commercial paper rated at least
A-1 by Standard & Poor's Ratings Group or P-1 by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments.
"CCTP Business" shall mean (i) any Person engaged in the business of
merchant credit and/or debit card transaction processing or (ii) a portfolio of
merchant credit and/or debit card service agreements the terms of which permit
the assignment thereof to the Borrower or a Wholly-Owned Subsidiary.
"CERCLA" shall mean the Comprehensive Environmental Response
-6-
<PAGE>
Compensation and Liability Act of 1980, as amended.
"CERCLIS" shall mean the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change in Control" shall be deemed to have occurred at such times as: (i)
any person or group of persons (within the meaning of Section 13 or 14 of the
Securities Exchange Act of 1934, as amended) other than the Present Control
Group shall have acquired beneficial ownership of 20% or more of the fully
diluted common stock of the Parent; or (ii) during any period of 12 consecutive
months, individuals who at the beginning of such period constituted the board of
directors of the Parent (together with any new directors whose election by such
board or whose nomination for election by the stockholders of the Parent was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) and who were entitled to vote on such
matters, cease for any reason to constitute a majority of the board of directors
of the Borrower then in office; or (iii) the Parent holds less than 100% of the
fully diluted common stock of the Borrower. For purposes hereof, the Present
Control Group means, at any time, any or all of Warburg Pincus Investors, L.P.
(or its affiliates), First Union Corporation (or its affiliates), WorldCom, Inc.
and Persons who are officers of the Parent.
"Chargeback Losses" shall mean, with respect to any fiscal period, the
losses accrued by the Parent and its Subsidiaries in accordance with GAAP for
chargebacks arising from credit or debit card transactions during such period.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment" shall mean, as to any Lender, its Revolving Loan Commitment
and its L/C Commitment. "Commitments" as to all Lenders, means the Revolving
Loan Commitments and the L/C Commitments of all Lenders.
"Commitment Fee" - see Section 5.7(a).
--------------
"Commitment Increase" - See Section 2.4.
-----------
"Commitment Increase Date" - see Section 2.4.
-----------
"Commitments" - see Section 2.4.
-----------
"Compliance Certificate" - see Section 10.1.4.
--------------
-7-
<PAGE>
"Consolidated Capital Expenditures" shall mean, for any period, the capital
expenditures of the Parent and its Subsidiaries for such period, as the same are
(or would in accordance with GAAP be) set forth in the consolidated statement of
changes in financial position of the Parent and its Subsidiaries for such
period; provided that Consolidated Capital Expenditures shall not include
--------
capital expenditures which constitute Acquisition Costs (other than Acquisition
Costs associated with recurring capital expenditures or replacing existing
capital assets).
"Consolidated EBITDA" shall mean, for any period, Consolidated Net Income
for such period, plus (i) Consolidated Interest Charges for such period, plus
(ii) the aggregate amount deducted in determining such Consolidated Net Income
in respect of income taxes, depreciation, amortization and other similar non-
cash charges for such period.
"Consolidated Interest Charges" shall mean, for any period, the aggregate
interest expense net of interest income of the Parent and its Subsidiaries for
such period, including, without limitation, (i) the portion of any obligation
under capital leases allocable to interest expense in accordance with GAAP, and
(ii) the portion of any debt discount that shall be amortized in such period.
"Consolidated Net Income" shall mean, for any period, the consolidated net
income (or loss) of the Parent and its Subsidiaries for such period, less (a)
any extraordinary items of gain under GAAP, plus (b) extraordinary items of loss
under GAAP.
"Consolidated Revenue" shall mean, for any period, the total revenue
(corresponding to the line item identified in the Borrower's consolidated
statement of operations for the fiscal year ended February 28, 1994 as "net
revenue") of the Parent and its Subsidiaries for such period.
"Contingent Obligation" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the debt,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation under any Contingent Obligation shall (subject to any
limitation set forth therein) be deemed to be the outstanding
-8-
<PAGE>
principal amount (or maximum outstanding principal amount, if larger) of the
debt, obligation or other liability guaranteed thereby.
"Continuation/Conversion Notice" - see Section 3.5.
-----------
"Controlled Group" shall mean all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Parent, are treated as a single employer under section 414(b) or section 414(c)
of the Code or section 4001 of ERISA. For purposes of this definition, the term
Parent shall be deemed to include any and all Credit Parties.
"Converted Revolving Loans" - see Section 3.7
-----------
"Credit Losses" shall mean, with respect to any fiscal period, credit and
fraud losses during such period accrued by the Parent or any of its Subsidiaries
in accordance with GAAP with respect to credit or debit card transactions during
such period.
"Credit Parties" shall mean collectively, the Parent, the Borrower and all
other Subsidiaries; and "Credit Party" shall mean any of the Parent, the
Borrower and any of the other Subsidiaries.
"Default" shall mean any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Disposition" - see Section 6.3.
-----------
"Dollars" and the sign "$" shall mean lawful money of the United States of
America.
"Effective Date" shall mean the date this Agreement is effective pursuant
to Section 17.8.
------- ----
"Eligible Assignee" means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having a combined capital and
surplus of at least $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least having a combined
capital and surplus of at least $100,000,000, provided that such bank is acting
through a branch or agency located in the United States; and (c) a Person
-9-
<PAGE>
that is primarily engaged in the business of commercial banking and that is (i)
a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a
Subsidiary, or (iii) a Person of which a Lender is a Subsidiary.
"Environmental Laws" shall mean all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
common law and consent decrees and administrative orders) relating to public
health and safety and protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Eurodollar Lending Office" shall mean the office of BofA specified as its
Eurodollar Lending Office on the signature page hereto, or such other office of
BofA as it may from time to time specify to the Borrower and the Agent.
"Eurodollar Loan" shall mean any Loan which bears interest at a rate
determined by reference to the Eurodollar Rate (Reserve Adjusted).
"Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any
Interest Period, the rate of interest per annum determined by the Agent to be
the arithmetic mean (rounded upward, if necessary, to the next higher 1/16 of
1%) of the rates per annum notified to the Agent by BofA as the rate of interest
at which Dollar deposits in the approximate amount of the amount of the Loan to
be made or continued as, or converted into, a Eurodollar Loan by BofA and having
a maturity comparable to such Interest Period would be offered to major banks in
the London interbank market at their request at approximately 11:00 a.m. (London
time) two Business Days prior to the commencement of such Interest Period.
"Eurodollar Rate (Reserve Adjusted)" shall mean, with respect to any
Eurodollar Loan for any Interest Period, a rate per annum (rounded upward, if
necessary, to the nearest 1/100 of 1%) determined by the Agent pursuant to the
following formula:
Eurodollar Rate = Eurodollar Rate
---------------
(Reserve Adjusted) 1-Eurodollar
Reserve Percentage
"Eurodollar Reserve Percentage" shall mean, for any day for any Interest
Period, the maximum reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%) in effect on such day (whether or not applicable to
any Lender) under
-10-
<PAGE>
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities").
"Event of Default" shall mean any of the events described in Section 14.1.
------------
"Federal Funds Rate" shall mean at any time an interest rate per annum
equal to the weighted average of the rates for overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day for such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it, it
being understood that the Federal Funds Rate for any day which is not a Business
Day shall be the Federal Funds Rate for the next preceding Business Day.
"Fiscal Quarter" or "FQ" shall mean any fiscal quarter of a Fiscal Year.
"Fiscal Year" or "FY" shall mean any period of twelve consecutive calendar
months ending on December 31st; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1997 Fiscal Year") refer to the
Fiscal Year ending on the December 31st occurring during such calendar year.
"Funded Indebtedness" shall mean, without duplication, Indebtedness of the
Parent and its Subsidiaries described in clauses (i), (ii), (iii), (iv) and (vi)
----------- ---- ----- ---- ---
of the definition thereof (but in the case of clause (i), excluding advances by
----------
Settlement Banks made pursuant to Settlement Agreements).
"GAAP" - see Section 1.3.
-----------
"Hazardous Material" shall mean: (i) any "hazardous substance," as defined
by CERCLA; (ii) any "hazardous waste," as defined by the Resource Conservation
and Recovery Act, as amended; (iii) any petroleum product; or (iv) any pollutant
or contaminant or hazardous, dangerous or toxic chemical, material or substance
within the meaning of any other applicable federal, state or local law,
regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, all
as amended or hereafter amended.
-11-
<PAGE>
"Hedging Facilities" shall mean any agreement (including any master
agreement and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward rate
agreement, commodity swap, commodity option, equity or equity index swap or
option, bond option, interest rate option, forward foreign exchange agreement,
rate cap, collar or floor agreement, currency swap agreement, cross-currency
rate swap agreement, swaption, currency option or any other similar agreement
(including any option to enter into any of the foregoing).
"Hedging Obligations" shall mean, with respect to any Person, all
obligations and liabilities of such Person of any kind arising under all Hedging
Facilities (including but not limited to obligations and liabilities arising in
connection with or as a result of early or premature termination of a Hedging
Facility, whether or not occurring as a result of a default thereunder),
absolute or contingent, due or to become due, now existing or hereafter created
or incurred.
"Holder" shall mean any holder of a Note or LC Obligation.
"Indebtedness" shall mean, with respect to any Person at any date, without
duplication: (i) all obligations of such Person for borrowed money or in
respect of loans or advances (including, without limitation, advances by
Settlement Banks made pursuant to a Settlement Agreement), (ii) all obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments; (iii) all obligations in respect of letters of credit, whether or
not drawn, and bankers' acceptances issued for the account of such Person; (iv)
all Capitalized Lease Liabilities of such Person; (v) all Hedging Obligations of
such Person; (vi) all obligations of such Person secured by a Lien; (vii) all
trade payables of such Person; (viii) all other items (exclusive of negative
goodwill) which, in accordance with GAAP, would be included as liabilities on
the liability side of the balance sheet of such Person; (ix) whether or not so
included as liabilities in accordance with GAAP, all obligations of such Person
to pay the deferred purchase price of property or services and Indebtedness
secured by a Lien on property owned or being purchased by such Person (including
Indebtedness arising under conditional sales or other title retention
agreements) whether or not such Indebtedness shall have been assumed by such
Person or is limited in recourse; and (x) all Contingent Obligations of such
Person whether or not in connection with the foregoing.
"Interest Period" - see Section 5.4.
-----------
"Investment" shall mean any investment in any Person,
-12-
<PAGE>
whether by means of share purchase, capital contribution, loan, time deposit or
otherwise.
"IRS" shall mean the Internal Revenue Service.
"Issuing Lender" shall mean BofA in its capacity as the issuer of Letters
of Credit for the Borrower's account pursuant to the terms of this Agreement.
"Joint Venture" shall mean any partnership, limited liability company,
joint venture or other legal arrangement (whether created by contract or
conducted through a separate legal entity) now or hereafter formed by the
Parent, the Borrower or any of the Subsidiaries with another Person in order to
conduct a common venture or enterprise with such Person.
"LC Amount" - see Section 2.2.
-----------
"LC Application" - see Section 4.1.
-----------
"LC Commitments" - see Section 2.2.
-----------
"LC Commitment Fee" - see Section 5.7(c).
--------------
"LC Obligations" shall mean any and all obligations of every description of
the Borrower in connection with the Letters of Credit issued pursuant to this
Agreement, including without limitation all reimbursement obligations (whether
absolute or contingent) under any LC Application, and all obligations in respect
of related fees or expenses.
"Lenders" or "Lender" - see Preamble.
"Lending Office" shall mean, with respect to any Lender, any office
designated by such Lender in its sole discretion beneath its signature hereto
(or in an Assignment Agreement) or otherwise from time to time by written notice
to the Borrower and the Agent, as a Lending Office for purposes hereunder. A
Lender may designate separate Lending Offices for the purposes of making,
maintaining or continuing Base Rate Loans or Eurodollar Rate Loans and, with
respect to Eurodollar Rate Loans, such Lending Office may be a foreign branch or
an Affiliate of such Lender or such Lender's holding company.
"Letters of Credit" - see Section 2.2.
-----------
"Liabilities" shall mean all obligations of the Credit Parties to the
Lenders, the Issuing Lender and the Agent howsoever created, arising or
evidenced, whether direct or
-13-
<PAGE>
indirect, joint or several, absolute or contingent, or now or hereafter
existing, or due or to become due, which arise out of or in connection with (i)
this Agreement, the Notes, the Letters of Credit or the other Related Documents,
or (ii) any agreement entered into by the Borrower with respect to any Hedging
Obligation.
"Lien" shall mean any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement intended as security, encumbrance, lien
(statutory or other), claim or other priority or preferential arrangement of any
kind or nature whatsoever.
"Litigation" shall mean any litigation, proceeding (including without
limitation any governmental proceeding or arbitration proceeding), claim,
lawsuit, and/or investigation pending or threatened against or involving the
Credit Parties, any of their respective businesses or operations, or any
Acquisition.
"Loans" - see Section 2.1.
-----------
"Loan Documents" shall mean this Agreement and the Related Documents
"Material Adverse Change" or "Material Adverse Effect" shall mean any
change, event, action, condition or effect which individually or in the
aggregate (i) impairs the validity or enforceability of any of the Loan
Documents, or (ii) materially and adversely affects the consolidated business,
operations, licenses, prospects or financial condition of the Credit Parties,
taken as a whole or the ability of the Credit Parties to perform their
respective obligations under any of the Loan Documents.
"Material Litigation" or "Material Litigation Development" shall mean any
Litigation, or development in any Litigation, as the case may be (i) which
involves any of the Loan Documents or other transactions contemplated hereby or
thereby, or (ii) which could have a Material Adverse Effect.
"Net Disposition Proceeds" shall mean, with respect to the disposition of
any asset by any Person, the aggregate amount of cash and readily marketable
cash equivalents received by such Person in respect of such disposition minus
-----
the sum of (i) reasonable costs and expenses (including costs of discontinuance
and Taxes other than income Taxes) incurred in connection with such disposition
and required to be paid in cash, and (ii) the estimated income Tax to be paid by
the Borrower or such Person in connection with such disposition. For purposes
of
-14-
<PAGE>
this definition, the Net Proceeds received by any Person in respect of any
disposition shall include such Cash Equivalents as may be received ("subsequent
cash proceeds") by such Person at any time or from time to time in connection
with the sale, transfer, lease or other disposition, or otherwise in respect of,
any consideration other than cash or readily marketable Cash Equivalents
received by such Person in respect of such disposition, less the estimated
income Tax to be paid in connection with the receipt of such subsequent cash
proceeds that were not theretofore deducted in computing Net Proceeds.
"New Lender" - see Section 2.4.
-----------
"Notes" shall mean the Revolving Notes, together with any promissory note
issued and accepted by any Lender in replacement of or substitution for any
Revolving Note.
"Parent" shall mean NOVA Corporation, a Georgia corporation, its successors
and assigns.
"Parent Guaranty" - See Section 8.2(b).
--------------
"Parent Pledge Agreement" - See Section 8.2(a).
--------------
"Pension Plan" shall mean a "pension plan," as such term is defined in
section 3(2) of ERISA (including a multiemployer plan as defined in section
4001(a)(3) of ERISA), to which the Parent or any corporation, trade or business
that is, along with the Parent, a member of a Controlled Group, may have
liability, including any liability by reason of having been a substantial
employer within the meaning of section 4063 of ERISA at any time during the
preceding five years, or by reason of being deemed to be a contributing sponsor
under section 4069 of ERISA. For purposes of this definition, the term Parent
shall be deemed to include any and all Credit Parties.
"Percentage" shall mean, relative to any Lender, the percentage set forth
opposite such Lender's name on Schedule 1.1A, as such Percentage may be adjusted
-------------
from time to time pursuant to Sections 2.4 or 16.1.
------------ ----
"Permitted Liens" - see Section 11.2.
------------
"Person" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Quarterly Payment Date" shall mean the last Business Day of
-15-
<PAGE>
each March, June, September and December.
"Related Documents" shall mean the Notes, the LC Applications, the Letters
of Credit, the Parent Pledge Agreement, the Parent Guaranty, the Subsidiary
Guaranties, and any and all other documents or instruments furnished or required
to be furnished pursuant to Section 8 or Section 13, as the same may be amended
--------- ----------
or modified from time to time.
"Release" shall mean a "release," as such term is defined in CERCLA.
"Reportable Event" shall have the meaning assigned to such term in ERISA.
"Required Lenders" shall mean Lenders having at least 66-2/3% or more of
the Commitments, or if the Commitments have terminated or expired, 66-2/3% of
the aggregate Loans and LC Obligations outstanding at such time.
"Responsible Officer" shall mean, in the case of any Credit Party, any of
the following officers of such Credit Party: the president, the chief financial
officer, the secretary, the controller, or the treasurer. If any of the titles
of the preceding officers are changed after the date hereof, the term
"Responsible Officer" shall thereafter mean any officer performing substantially
the same functions as are presently performed by one or more of the officers
listed in the first sentence of this definition.
"Revolving Conversion Date" shall mean September 30, 2000.
"Revolving Loan Commitments" - see Section 2.1.
-----------
"Revolving Loans" - see Section 2.1.
-----------
"Revolving Note" shall mean a promissory note, substantially in the form of
Exhibit A with blanks appropriately completed in conformity herewith, evidencing
- ---------
the Revolving Loans of any Lender, together with any promissory note issued and
accepted by any Lender in replacement of or substitution for such promissory
note.
"Revolving Termination Date" shall mean the earlier of (i) September 30,
2002, or (ii) the date of termination in whole of the Commitments pursuant to
Sections 6.1 or 14.2.
- ------------ ----
"Settlement Account" shall mean any deposit account of any Credit Party
maintained pursuant to the terms of a Settlement
-16-
<PAGE>
Agreement (a) through which settlements are made in accordance with a Settlement
Agreement or (b) which is used to hold reserve funds required by such Settlement
Agreement; "Settlement Account" shall include, without limitation, those
accounts listed as Settlement Accounts on Schedule 9.29.
-------------
"Settlement Agreement" shall mean an agreement between any Credit Party and
a Settlement Bank pursuant to which the Settlement Bank agrees to perform
clearing and settlement services for such Credit Party in connection with the
CCTP Business of such Credit Party.
"Settlement Bank" shall mean each financial institution which is a
qualified acquiring member for any credit or debit card association and which
provides clearing and settlement services to a Credit Party.
"Significant Subsidiary" shall mean any Subsidiary which meets either of
the following tests: (i) the assets or the liabilities of such Subsidiary exceed
$1,000,000 or (ii) as at the date of determination, such Subsidiary represents
more than 2.5% of Consolidated EBITDA for the four Fiscal Quarters then most
recently ended.
"Step-Up Lender" - see Section 2.4.
-----------
"Subordinated Debt" shall mean Indebtedness having payment terms and other
terms, and subordinated in form and substance, satisfactory to the Required
Lenders; provided, that in no event shall such Indebtedness begin to amortize
--------
prior to the Revolving Termination Date.
"Subsidiary" shall mean a corporation of which the Parent and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of directors.
"Subsidiary Guaranty" - see Section 8.1.
-----------
"Taxes" shall mean all taxes of any nature whatsoever and however
denominated, including, without limitation, excise, import, governmental fees,
duties and all other charges, as well as additions to tax, penalties and
interest thereon, imposed by any government or instrumentality, whether federal,
state, local, foreign or other.
"Transferee" - see Section 16.3.
------------
"Type of Loan or Borrowing" - see Section 3.1. The various
-----------
-17-
<PAGE>
Types of Loans or Borrowings under this Agreement are as follows: Base Rate
Loans or Borrowings and Eurodollar Loans or Borrowings.
"Visa/Master Card" - see Section 9.24.
------------
"Welfare Plan" shall mean a "welfare plan," as such term is defined in
section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means any Subsidiary all of the outstanding
voting securities of which shall at the time be owned of record by the Borrower.
SECTION 1.2 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in any Related Document, or any certificate, report or
other document made or delivered pursuant to this Agreement, unless the
context therein shall clearly otherwise require.
(b) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement.
(c) The words "amended or modified" when used in this Agreement or
any Related Document shall mean with respect to this Agreement or any
Related Document such document as from time to time, in whole or in part,
amended, modified, supplemented, restated, refinanced, refunded or renewed.
(d) In the computation of periods of time in this Agreement from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding."
(e) This Agreement and the other Loan Documents are the result of
negotiations among the Agent, the Borrower and the other parties, have been
reviewed by counsel to the Agent, the Borrower and such other parties, and
are the products of all parties. Accordingly, they shall not be construed
against the Lenders or the Agent merely because of the Agent's or Lenders'
involvement in their preparation.
SECTION 1.3 Accounting and Financial Determinations. For purposes of this
---------------------------------------
Agreement, unless otherwise specified, all
-18-
<PAGE>
accounting terms used herein or in any Related Document shall be interpreted,
all accounting determinations and computations hereunder or thereunder shall be
made, and all financial statements required to be delivered hereunder or
thereunder shall be prepared in accordance with, those generally accepted
accounting principles ("GAAP") applied in the preparation of the financial
statements referred to in Section 9.6.
-----------
SECTION 2. THE COMMITMENTS
Subject to the terms and conditions of this Agreement and relying on the
representations and warranties herein set forth:
SECTION 2.1 Revolving Loan Commitment. Each of the Lenders, severally and
-------------------------
for itself alone, agrees to make loans (herein collectively called "Loans" or
"Revolving Loans" and individually called a "Loan" or "Revolving Loan") to the
Borrower on a revolving basis from time to time before the Revolving Termination
Date, in such Lender's Percentage of such aggregate amounts as the Borrower may
from time to time request from all Lenders; provided, that, in no event shall
--------
the Borrower request Revolving Loans to be made by the Lenders on the same day
in an aggregate principal amount of less than $250,000. The aggregate principal
amount of Revolving Loans which any Lender shall be committed to have
outstanding to the Borrower shall not at any one time exceed the amount set
opposite such Lender's name on Schedule 1.1 hereto under the heading "Revolving
------------
Loan Commitment." The aggregate principal amount of Revolving Loans which all
Lenders shall be committed to have outstanding to the Borrower shall not exceed
the limits specified in Section 2.1. The foregoing commitment of each
-------
Lender is herein called its "Revolving Loan Commitment" and collectively the
"Revolving Loan Commitments."
SECTION 2.2 LC Commitment. The Issuing Lender agrees for itself and the
-------------
Lenders to issue from time to time before the Revolving Termination Date such
standby letters of credit (such letters of credit being herein collectively
called "Letters of Credit" and individually a "Letter of Credit") as the
Borrower may request, it being understood that, pursuant to Section 4.3,
-----------
concurrently with the issuance of each such Letter of Credit, each Lender shall
be deemed to have automatically purchased from the Issuing Lender a
participation in such Letter of Credit equal to its Percentage multiplied by the
face amount of such Letter of Credit. The aggregate amount of all Letters of
Credit (other than Letters of Credit with respect to which the Borrower has
pledged cash collateral in accordance with the terms of Section 4.2) issued and
-----------
outstanding pursuant to this Section 2.2 or drawn
-------
-19-
<PAGE>
and not reimbursed pursuant to Section 4.10 (the "LC Amount") shall not at any
------------ ---------------
one time exceed $10,000,000. The foregoing commitment of each Lender is herein
called its "LC Commitment" and collectively the "LC Commitments."
SECTION 2.3 Commitment Limits. Prior to the Revolving Conversion Date,
-----------------
the aggregate principal amount of Revolving Loans which all Lenders shall be
committed to have outstanding hereunder to the Borrower, when added to the LC
Amount, shall not at any one time exceed $80,000,000 (or such other amount as
may be fixed pursuant to Sections 2.4, 6.1 or 6.3). After the Revolving
------------ --- ---
Conversion Date, the aggregate principal amount of Revolving Loans (excluding
the Converted Revolving Loans), when added to the LC Amount, shall not exceed
$50,000,000 (or such reduced amount as may be fixed pursuant to Section 6.1).
-----------
SECTION 2.4 Increase in the Aggregate Commitment. The Borrower may at any
------------------------------------
time, upon 5 day's notice to the Agent, propose that the Aggregate Commitment be
increased (the amount of such increase being a "Commitment Increase"), through
the increase of the Commitments of one or more of the Lenders (each such Lender
that is willing to increase its Commitment hereunder being a "Step-up Lender")
and/or by the addition of one or more other lenders (each of which shall be an
Eligible Assignee) specified by the Borrower (each a "New Lender") as banks and
as parties to this Agreement, such Commitment Increase to be effective as at a
date specified by the Borrower (a "Commitment Increase Date") in such notice;
provided, however, that: (a) such notice of Commitment Increase shall specify as
- -------- -------
to each Step-Up Lender and/or New Lender, the amount of the Commitment of such
Lender after giving effect to such Commitment Increase; (b) it shall be in each
Lender's sole discretion whether to increase its Commitment hereunder in
connection with the proposed Commitment Increase; (c) the Borrower may not
propose more than one Commitment Increase; (d) the minimum proposed Commitment
Increase per notice of Commitment Increase shall be $5,000,000; (e) the minimum
Commitment of each New Lender that becomes a party to this Agreement pursuant to
this Section 2.6 shall be at least equal to $5,000,000; (f) in no event shall
-----------
the Aggregate Commitment at any time exceed $100,000,000; (g) No Commitment
Increase shall be permitted at any time after the Borrower shall have reduced or
terminated any Commitment pursuant to Section 6.1 or 6.4; and (h) no Default or
------- --- ---
Event of Default shall have occurred and be continuing on such Commitment
Increase Date.
SECTION 2.4.1 Effectiveness of Commitment Increase. Promptly upon
------------------------------------
its receipt of a notice of Commitment Increase, the Agent shall notify the
Lenders thereof. In the event that by 10:00 A.M. on the applicable Commitment
Increase Date, the Agent
-20-
<PAGE>
shall have received to the satisfaction of the Agent each of the following (the
"Commitment Increase Closing Items"):
(x) from each Step-Up Lender and/or New Lender, as applicable, a duly
executed confirmation of Step-Up Commitment and/or New Lender Commitment,
such confirmation to be substantially in the form of Exhibit L-1 or L-2, as
----------- ---
applicable, and to be completed to reflect the amount of the Commitment of
such Lender as specified in the Borrower's notice of Commitment Increase,
and
(y) for each Step-up Lender and/or New Lender, as applicable, (i) a
Note dated such Commitment Increase Date, in the maximum amount of such
Lender's Commitment, (ii) updated confirmations in form and substance
satisfactory to the Agent of the documents furnished pursuant to Schedules
---------
13.1.5, 13.1.6 and 13.1.7, (iii) an officer's certificate of the Borrower
------ ------ ------
to the effect that as of such Commitment Increase Date,
(A) no Default or Event of Default exists or will result from
such increased Commitment,
(B) the representations and warranties of the Parent, the
Borrower and the Subsidiaries contained in Section 9 are true and
---------
correct with the same effect as though made on such date, and
(C) no Material Litigation exists except as disclosed on
Schedule 9.8, and since the Effective Date no Material Litigation
------------
Development has occurred with respect to any Litigation so disclosed
on Schedule 9.8;
------------
and (iv) payment for the account of such Step-Up Lender or New Lender,
as the case may be, of such facility fee as shall have been agreed to in
writing between the Borrower and such Step-Up Lender or New Lender, as the
case may be, prior to such Commitment Increase Date;
then the Commitment Increase specified by the Borrower in its notice of
Commitment Increase shall become effective on such Commitment Increase Date,
whereupon each New Lender (if any) shall automatically become a party to this
Agreement, be bound by the provisions hereof and be included in the definition
of "Lender" and "Lenders" hereunder.
SECTION 2.4.2. Implementation of Commitment Increase. Upon the
-------------------------------------
effectiveness of such Commitment Increase, (i) the Agent shall promptly notify
the Lenders (including any New Lenders) and
-21-
<PAGE>
the Borrower of the occurrence of such Commitment Increase, (ii) the Agent shall
promptly distribute a revised Schedule 1.1A giving effect to such Commitment
-------------
Increase, (iii) the Borrower shall effect a combination of borrowings and/or
prepayments so that after giving effect thereto the aggregate principal amount
of the Loans then outstanding of each Lender shall be prorata according to its
Percentage, and (iv) each Lender's participation in Letters of Credit shall be
deemed to be adjusted so that each Lender's undivided interest in each Letter of
Credit then outstanding shall be prorata according to its Percentage. In the
event that by 10:00 A.M. on the applicable Commitment Increase Date the Agent
shall not have received each of the Commitment Increase Closing Items, or the
Borrower by notice to the Agent prior to the applicable Commitment Increase Date
shall have withdrawn its notice of Commitment Increase, then the Borrower's
notice of Commitment Increase shall be deemed not to have been made, whereupon
any Commitment Increase Closing Items delivered to the Agent in respect thereof
shall be deemed to be of no effect and all the rights and obligations of the
parties shall continue as if no such notice had been given."
SECTION 3. THE LOANS
SECTION 3.1 Various Types of Loans. Each Loan shall be either a Base Rate
----------------------
Loan or a Eurodollar Loan (each being herein called a "Type" of Loan), as the
Borrower shall specify in the related Borrowing Request or
Continuation/Conversion Notice pursuant to Section 3.2 or Section 3.5. Base
----------- -----------
Rate Loans and Eurodollar Loans may be outstanding at the same time; provided,
--------
that (a) in the case of Eurodollar Loans, not more than five different Interest
Periods shall be outstanding at any one time for all such Loans, and (b) the
Borrower shall specify Loans and Interest Periods such that no scheduled payment
of any principal on any Loan shall result in a break-up of any Interest Period.
SECTION 3.2 Notice of Borrowing. The Borrower shall give an irrevocable
-------------------
notice (herein called a "Borrowing Request") to the Agent of each proposed
Borrowing by 10:00 A.M., San Francisco time, in the case of a Base Rate
Borrowing, on the proposed date of such Borrowing, and, in the case of a
Eurodollar Borrowing, on a day which is at least three Business Days prior to
the proposed date of such Borrowing. Each Borrowing Request shall be effective
upon receipt by the Agent, shall be in writing (or by telephone to be promptly
confirmed in writing) by the Borrower substantially in the form of Exhibit B,
---------
and shall specify the date, amount and Type of Borrowing, and in the case of a
Eurodollar Borrowing, the initial Interest Period for such Borrowing. Each
Borrowing involving Loans of the same Type shall
-22-
<PAGE>
be on a Business Day and, in the case of Base Rate Loans, shall be in an
aggregate principal amount of at least $100,000 or any larger integral multiple
of $50,000 and, in the case of Eurodollar Loans shall be in an aggregate amount
of at least $250,000 or any larger integral multiple of $50,000.
SECTION 3.3 Funding. Promptly upon receipt of a Borrowing Request, the
-------
Agent shall advise each Lender thereof. Not later than 12:30 P.M., San
Francisco time, on the date of a proposed Borrowing, each Lender shall provide
the Agent at the payment office of the Agent with immediately available funds
covering such Lender's Percentage of the Borrowing, and subject to receipt by
the Agent of the documents required under Section 13 with respect to such
----------
Borrowing the Agent shall pay over such funds to the Borrower on the requested
Borrowing date. All Borrowings shall be pro rata among the Lenders in
accordance with their respective Commitments.
SECTION 3.4 Funding Reliance. Unless the Agent shall have been notified
----------------
by telephone, confirmed in writing, by any Lender by 3:00 P.M., San Francisco
time, on the day prior to a Borrowing that such Lender will not make available
the amount which would constitute its Percentage of such Borrowing on the date
specified therefor, the Agent may assume, subject to the satisfactory
fulfillment by the Borrower of the conditions precedent set forth in Section 13,
----------
that such Lender has made such amount available to the Agent and, in reliance
upon such assumption, shall make available to the Borrower a corresponding
amount. If and to the extent that such Lender shall not have made such amount
available to the Agent, such Lender and the Borrower severally agree to repay
the Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date the Agent made such amount available to the
Borrower to the date such amount is repaid to the Agent, at the interest rate
applicable at the time to Loans comprising such Borrowing.
SECTION 3.5 Conversion and Continuation of Loans. The Borrower may, by
------------------------------------
delivery to the Agent of a Continuation/ Conversion Notice (herein called a
"Continuation/Conversion Notice") in the form of Exhibit C attached hereto with
---------
appropriate insertions, before 10:00 A.M., San Francisco time, three Business
Days prior to conversion or continuation, convert or continue Loans as follows:
(a) convert Eurodollar Loans into Base Rate Loans, (b) convert Base Rate Loans
into Eurodollar Loans, and (c) continue any Eurodollar Loan into a subsequent
Interest Period of the same duration or of any other duration permitted
hereunder, subject to the following:
(i) the Interest Period applicable to any
-23-
<PAGE>
Eurodollar Loan resulting from a conversion shall be specified by the
Borrower in the Continuation/ Conversion Notice delivered pursuant to this
Section; provided, however, that if no such Interest Period shall be
-------- -------
specified, the Borrower shall be deemed to have selected an Interest Period
of one month's duration. If the Borrower shall not have given timely notice
to continue any Loan into a subsequent Interest Period and shall not
otherwise have given notice to convert such Loan, such Loan unless repaid
pursuant to the terms hereof shall automatically be converted into a Base
Rate Loan;
(ii) if less than all Loans at the time outstanding shall be
converted or continued, such conversion or continuation shall be made pro
rata among the Lenders, as applicable, in accordance with the respective
principal amounts of Loans of such Type (and have the same Interest Period)
held by such Lenders immediately prior to such conversion or continuation;
(iii) in the case of a conversion or continuation of less than all
Loans, the aggregate principal amount of such Loans converted or continued
shall be not less than $100,000 or any larger integral multiple of $50,000;
(iv) if any Eurodollar Loan is converted at a time other than the
last day of an Interest Period applicable thereto, the Borrower shall at
the time of conversion pay any loss or expense (including, without
limitation, breakage losses and expenses) associated therewith pursuant to
Section 7.5;
-----------
(v) any portion of a Loan maturing or required to be repaid in less
than one month may not be converted into, or continued as, a Eurodollar
Loan; and
(vi) any portion of a Eurodollar Loan required to be paid on any
principal payment date occurring in less than one month after the end of
the then-current Interest Period applicable to such Loan shall be
automatically converted at the end of such Interest Period into a Base Rate
Loan.
Notwithstanding the foregoing, so long as any Default shall exist, no Loans
shall be converted into Eurodollar Loans or continued as Eurodollar Loans into a
subsequent Interest Period.
-24-
<PAGE>
SECTION 3.6 [RESERVED]
SECTION 3.7 Repayment of Revolving Loans; Notes. Subject to prepayment
-----------------------------------
pursuant to Section 6.3, the aggregate principal amount of Revolving Loans shall
-----------
be payable (and the Borrower agrees to pay such aggregate outstanding principal
amount of Revolving Loans) in eight consecutive equal principal installments on
each Quarterly Payment Date commencing on December 31, 2000, and to and
including the Revolving Termination Date, each such installment to be equal to
1/8th of the amount by which on the Revolving Conversion Date, the aggregate
principal amount of Revolving Loans plus the LC Amount exceeds $50,000,000 (the
principal of the Revolving Loans equal to the amount of such excess being herein
called the "Converted Revolving Loans"), except that the installment on the
Revolving Termination Date shall be in the aggregate unpaid principal amount of
all Revolving Loans outstanding on such date. The Revolving Loans of each
Lender shall be evidenced by a Revolving Note, respectively, payable to the
order of such Lender in the principal amount of the Revolving Loan Commitment of
such Lender (or, if less, in the aggregate unpaid principal amount of all of
such Lender's Revolving Loans hereunder outstanding on the Revolving Termination
Date).
SECTION 3.8 Recordkeeping. Each Lender shall record in its records, or at
-------------
its option on the schedule attached to its relevant Note, the date and amount of
each Loan made by such Lender, each repayment or conversion thereof, and in the
case of each Eurodollar Loan the dates on which each Interest Period for such
Loan shall begin and end. The information so recorded shall be rebuttable
presumptive evidence of the accuracy thereof. The failure to so record any such
information or any error in so recording any such information shall not,
however, limit or otherwise affect the obligations of the Borrower hereunder or
under any Note to repay the principal amount of the Loans together with all
interest accruing thereon.
-25-
<PAGE>
SECTION 4. THE LETTERS OF CREDIT
SECTION 4.1 Request for Issuance of Letters of Credit. (a) The Borrower
-----------------------------------------
shall give the Agent and the Issuing Lender at least five Business Days' prior
written notice of a request for issuance of each Letter of Credit, each such
request to be accompanied by an application substantially in the form of Exhibit
-------
D (an "LC Application") duly executed by the Borrower and in all respects in
- -
form and substance satisfactory to the Agent and the Issuing Lender, together
with such other documentation as the Agent or the Issuing Lender may request in
support thereof. The Agent shall promptly notify each Lender of the Borrower's
request that such Letter of Credit be issued.
(b) It is hereby agreed that, notwithstanding the execution by Borrower of
any printed form letter of credit application (the "Application") used by the
Issuing Lender from time to time in connection with the issuance of Letters of
Credit hereunder, this Agreement, and not any such Application shall govern (i)
the time and amount of payment of principal and interest, fees and commissions,
and any other charges, reimbursements or adjustments, (ii) standards of conduct
and liability, (iii) the occurrence of defaults and acceleration of
indebtedness, (iv) notices and communications, and (v) "Collateral" (as defined
in the Application) and any rights with respect to any such Collateral; and
otherwise in the case of any conflict or inconsistency whatsoever between this
Agreement and any such Standby Credit Agreement, this Agreement shall control in
all respects.
SECTION 4.2 Expiration and other Terms. Each Letter of Credit shall
--------------------------
expire on or before the date which is the earlier of one year following the
issuance of such Letter of Credit or thirty days prior to the Revolving
Termination Date unless the Borrower shall have pledged cash collateral to the
Agent therefore in an amount, and pursuant to documentation reasonably
satisfactory to each Lender, the Issuing Lender and the Agent.
SECTION 4.3 Participation. Concurrently with the issuance of each
-------------
Letter of Credit, the Issuing Lender shall be deemed to have sold and
transferred to each other Lender, and each Lender shall be deemed irrevocably
and unconditionally to have automatically purchased and received from the
Issuing Lender, without recourse or warranty, an undivided interest and
participation, to the extent of such other Lender's Percentage, in such Letter
of Credit and the Borrower's related LC Obligations and any security therefor.
-26-
<PAGE>
SECTION 4.4 Notification of Demand for Payment. The Issuing Lender shall
----------------------------------
promptly notify the Agent (who shall in turn promptly notify the Borrower and
each Lender) of the amount of each demand for payment under a Letter of Credit
and of the date on which such payment is to be made.
SECTION 4.5 Funding by Issuing Lender. With respect to each demand for
-------------------------
payment pursuant to a Letter of Credit, the Issuing Lender shall, promptly
following its receipt thereof, examine all documents purporting to represent
such demand to ascertain that the same appear on their face to be in conformity
with the terms and conditions of such Letter of Credit. If the Issuing Lender
determines that a demand for payment under a Letter of Credit conforms to the
terms and conditions of such Letter of Credit, then the Issuing Lender shall
make payment to the Beneficiary in accordance with the terms of such Letter of
Credit.
SECTION 4.6 Funding By Lenders. If the Issuing Lender makes any payment
------------------
under any Letter of Credit and the Borrower has not reimbursed the Issuing
Lender in full for such payment on the date on which payment is made under a
Letter of Credit, or if any reimbursement received by the Issuing Lender from
the Borrower is or must be returned or rescinded upon or during any bankruptcy
or reorganization of the Borrower or otherwise, each Lender, promptly upon
notice, shall make available to the Agent, for the account of the Issuing Lender
in Dollars and in same day funds, such Lender's Percentage of the amount of such
payment. If and to the extent any Lender shall not have made such amount
available to the Agent on any such date, such Lender agrees to pay interest on
such amount to the Agent for the account of the Issuing Lender forthwith on
demand for each day from and including the date on which such payment was to be
made to but excluding the date such amount is made available to the Agent for
the account of the Issuing Lender. Such interest shall be determined at a rate
per annum equal to the Federal Funds Rate from time to time in effect, based
upon a year of 360 days. Any Lender's failure to make available to the Agent
its Percentage of any payment under a Letter of Credit shall not relieve any
other Lender of its obligation to make available to the Agent its Percentage of
such payment on the date such payment is to be made, but no Lender shall be
responsible for the failure of any other Lender to make available to the Agent
such other Lender's Percentage of any such payment.
SECTION 4.7 Non-Conforming Demand For Payment. If, after examination of a
---------------------------------
demand for payment under a Letter of Credit, the Issuing Lender shall have
determined that such demand does not conform to the terms and conditions of such
Letter of Credit,
-27-
<PAGE>
then the Issuing Lender shall, as soon as reasonably practicable, give notice to
the related Beneficiary and to the Borrower to the effect that demand was not in
accordance with the terms and conditions of such Letter of Credit, stating the
reasons therefor and that the relevant document is being held at the disposal of
the Beneficiary or is being returned to the Beneficiary, as the Issuing Lender
may elect. The Beneficiary may attempt to correct any such non-conforming demand
for payment under such Letter of Credit if, and to the extent that, the
Beneficiary is entitled (without regard to the provisions of this sentence) and
able to do so.
SECTION 4.8 Return of Funds Related to Non-Conforming Demand. If the
------------------------------------------------
Issuing Lender does not disburse funds to the Beneficiary for any reason after
having received such funds from any Lender pursuant to Section 4.6, the Issuing
-----------
Lender shall return such funds to such Lender on the next following Business Day
together with interest on such funds from and including the date on which the
Issuing Lender received such funds to but excluding the day on which the Issuing
Lender so returns such funds at the Federal Funds Rate for each such day, based
upon a year of 360 days.
SECTION 4.9 Return of Letter of Credit. With respect to each Letter of
--------------------------
Credit, the Issuing Lender shall have the right, provided the Issuing Lender is
not then in default under such Letter of Credit by reason of its having
wrongfully failed to honor a demand for payment previously made by Beneficiary
under such Letter of Credit, to require the Beneficiary to surrender such Letter
of Credit to the Issuing Lender on the stated expiration date. The Borrower
agrees, if necessary, to use its best efforts (which shall not include the
incurrence of costs outside the ordinary course of business) to cause the
Beneficiary to surrender such Letter of Credit.
SECTION 4.10 Reimbursement Agreement of the Borrower. The Borrower hereby
---------------------------------------
unconditionally and irrevocably agrees to reimburse the Issuing Lender,
immediately upon demand, for each payment made by the Issuing Lender under a
Letter of Credit honoring a demand for payment made by the Beneficiary
thereunder, with interest on the amount so paid by the Issuing Lender from and
including the date paid by the Issuing Lender to but not including the date the
Issuing Lender is reimbursed therefor, at a rate per annum equal to the
Alternate Base Rate from time to time in effect (but not less than the Alternate
Base Rate in effect on the date of such payment by the Issuing Lender) plus 1.0%
per annum. Interest shall be computed for the actual number of days elapsed on
the basis of a year consisting of 360 days. Upon receipt of each payment under
this Section 4.10, the Issuing
------------
-28-
<PAGE>
Lender shall promptly pay to each Lender which previously made the entire
payment required under Section 4.6, in Dollars and in the kind of funds
-----------
received, an amount equal to such Lender's Percentage of such received payment.
SECTION 4.11 Obligation to Reimburse for or Participate in Letter of
-------------------------------------------------------
Credit Payments. The Borrower's obligation to reimburse the Issuing Lender for
- ---------------
payments made by the Issuing Lender under any Letter of Credit honoring a
demand for payment by the Beneficiary thereunder, and each Lender's obligation
to participate in and make available to the Issuing Lender its Percentage of
such payments in accordance with this Agreement, shall be irrevocable, absolute
and unconditional under any and all circumstances including, without limitation,
any of the following circumstances:
(a) any lack of legality, validity, regularity or enforceability of
this Agreement, any Letter of Credit or any other Related Document;
(b) the existence of any claim, setoff, defense or other right which
the Borrower may have or have had at any time against any Beneficiary, the
Agent, the Issuing Lender, any other Lender, any transferee of any Letter
of Credit (or any Person for whom any such transferee may be acting) or any
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
Beneficiary of any Letter of Credit);
(c) any draft, certificate or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(d) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Related Documents;
(e) payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate or other document that does not
comply with the terms of such Letter of Credit unless such payment by the
Issuing Lender constituted gross negligence or willful misconduct of the
Issuing Lender; or
-29-
<PAGE>
(f) the occurrence of any Default or Event of Default;
provided, however, that the Borrower shall not be obligated to reimburse
-------- -------
the Issuing Lender for, and no Lender shall be obligated to participate in,
any wrongful payment made by the Issuing Lender under any Letter of Credit
as a result of acts or omissions constituting gross negligence or willful
misconduct on the part of the Issuing Lender or any of its officers,
employees or agents.
SECTION 4.12 Mandatory Payment to Agent of LC Obligations. The Borrower
--------------------------------------------
agrees that, on any termination of the LC Commitments pursuant to Section 6.1 or
-----------
Section 14.2, it will pay to the Agent for the account of the Issuing Lender and
- ------------
the other Lenders in Dollars and in same day funds an amount equal to the
principal amount of all LC Obligations under any LC Application, whether or not
the related Letter of Credit has been drawn (which amount shall be retained by
the Agent in a separate collateral account, bearing interest for the account of
the Borrower, as security for the LC Obligations and other Liabilities) plus the
then aggregate accrued amount of unpaid fees arising under Section 5.7(c).
--------------
SECTION 5. INTEREST AND FEES, ETC.
SECTION 5.1 Interest Rates. With respect to each Loan, the Borrower
--------------
hereby promises to pay interest on the unpaid principal amount thereof for the
period commencing on the date of such Loan until such Loan is paid in full, as
follows:
(a) At all times while such Loan is a Base Rate Loan, at a rate per
annum equal to the Alternate Base Rate from time to time in effect, plus
the Applicable Base Rate Margin; and
(b) At all times while such Loan is a Eurodollar Rate Loan, for each
Interest Period, at a rate per annum equal to the Eurodollar Rate (Reserve
Adjusted) applicable to such Interest Period, plus the Applicable
Eurodollar Margin.
SECTION 5.2 Default Interest Rate. Notwithstanding the provisions of
---------------------
Section 5.1, in the event that any Default or Event of Default shall occur
- -----------
hereunder, the Borrower hereby promises to pay interest on the unpaid principal
amount of such Loan for the period commencing on the date of such Default or
Event of Default until such Default or Event of Default is cured or waived in
-30-
<PAGE>
accordance with Section 17.1 at a rate per annum equal to the interest rate
------------
otherwise in effect hereunder from time to time, plus 2.0% per annum.
SECTION 5.3 Interest Payment Dates. Accrued interest on each Base Rate
----------------------
Loan shall be payable on each Quarterly Payment Date, on each date such Base
Rate Loan is converted into a Eurodollar Loan and at final maturity, commencing
with the first of such dates to occur after the date hereof. Accrued interest
on each Eurodollar Loan shall be payable on the last day of each Interest Period
relating to such Loan (and if such Interest Period exceeds three months, also
payable on the date which falls three months after the beginning of such
Interest Period), and at final maturity. After maturity, accrued interest on
all Loans shall be payable on demand.
SECTION 5.4 Interest Periods. Each "Interest Period" for a Eurodollar
----------------
Rate Loan shall commence on the date such Eurodollar Rate Loan was made or
converted from a Loan of a different Type, or on the expiration of the
immediately preceding Interest Period for such Eurodollar Loan, and shall end on
the date which is one, two, three or six months thereafter, as the Borrower may
specify pursuant to Section 3.2 or Section 3.5 hereof. Each "Interest Period"
----------- -----------
for a Eurodollar Loan which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (unless such next succeeding
Business Day is the first Business Day of a calendar month, in which case with
respect to a Eurodollar Loan such Interest Period shall end on the next
preceding Business Day).
SECTION 5.5 Setting and Notice of Rates. The applicable Eurodollar Rate
---------------------------
for each Interest Period shall be determined by the Agent, and notice thereof
shall be given by the Agent promptly to the Borrower and each Lender. Each
determination of the applicable Eurodollar Rate by the Agent shall be conclusive
and binding upon the parties hereto, in the absence of demonstrable error. If
the Agent is unable to determine such a rate, the provisions of Section 7.3
-----------
shall apply.
SECTION 5.6 Computation of Interest. Interest on all Base Rate Loans
-----------------------
calculated under clause (i) of the definition of "Alternate Base Rate" shall be
computed for the actual number of days elapsed on the basis of a 365-, or if
applicable, 365-day year. All other computations of fees and interest shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
SECTION 5.7 Fees. The Borrower agrees to pay the following fees (all such
----
fees being non-refundable):
-31-
<PAGE>
(a) The Borrower agrees to pay to the Agent for the account of each
Lender for the period (including any portion thereof when any of its
Commitments are suspended by reason of the Borrower's inability to satisfy
any condition of Section 13) commencing on the Effective Date and
----------
continuing through the Revolving Termination Date, a commitment fee (the
"Commitment Fee") at a rate per annum equal to the Applicable Commitment
Fee Rate on such Lender's Percentage of the average daily unused portion of
Revolving Loan Commitments (such unused portion at any time being equal to
the amount of the Revolving Loan Commitment minus the aggregate principal
amount of Revolving Loans then outstanding minus the then LC Amount). Such
Commitment Fees shall be payable by the Borrower in arrears on each
Quarterly Payment Date, commencing with the first such day following the
Effective Date, and on the Revolving Termination Date.
(b) The Borrower agrees to pay to Agent all fees set forth in that
certain fee letter dated as of October 27, 1997 herewith between the
Borrower and Agent.
(c) The Borrower agrees to pay (i) to the Agent for the account of
each Lender a Commitment Fee for each Letter of Credit (the "LC Commitment
Fee"), from the date of issuance thereof to the earlier to occur of the
expiration or termination thereof or the date of payment by the Agent
thereunder, at a rate per annum equal to the Applicable LC Fee Rate
(provided that if any Default or Event of Default exists, such fee shall be
at a rate equal to 2.0% per annum above the rate otherwise in effect),
times the aggregate outstanding amount of each such Letter of Credit, such
fee to be payable in arrears on the Quarterly Payment Date (or at such
other times as the Agent shall request, for any period prior to such date
or time for which such Commitment Fee shall not have been theretofore paid)
and (ii) to the Issuing Lender an acceptance commission (the "Acceptance
Commission") for each Letter of Credit at a rate equal to 0.075% times the
aggregate face amount of each such Letter of Credit, such fee to be payable
upon issuance of the respective Letter of Credit and from time to time on
demand the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the Issuing Bank relating to
Letters of Credit as from time to time in effect.
-32-
<PAGE>
(d) Concurrent with the execution and delivery of this Agreement, the
Borrower agrees to pay directly to the Agent for the account of the Lenders
prorata according to their respective Percentages, a Facility Fee equal to
0.10% of the Aggregate Commitment.
All such fees shall be computed for the actual number of days elapsed on the
basis of a 360-day year without regard to any Default or Event of Default.
SECTION 6. REDUCTION OR TERMINATION OF THE COMMITMENTS;
PAYMENTS AND PREPAYMENTS
SECTION 6.1 Voluntary Reduction or Termination of the Revolving Loan
--------------------------------------------------------
Commitments. The Borrower may from time to time prior to the Revolving
- -----------
Termination Date on at least three Business Days' prior written notice received
by the Agent (which shall promptly forward a copy thereof to each Lender)
permanently reduce the amount of the Revolving Loan Commitments (such reduction
to be pro rata among the Lenders according to their respective Percentages) to
an amount not less than the aggregate principal amount of the Revolving Loans
outstanding plus the LC Amount.
Any such reduction shall be in an aggregate amount of $250,000 or an
integral multiple thereof. The Borrower may at any time on like notice prior to
the Revolving Termination Date terminate the LC Commitments and the Revolving
Loan Commitments upon payment in full of the Revolving Loans (and other
obligations of the Borrower hereunder pertaining to the Revolving Loans) and
upon cash collateralization of all outstanding Letters of Credit pursuant to
Section 4.12.
- ------------
SECTION 6.2 Voluntary Prepayments. The Borrower may from time to time
---------------------
prepay the Loans in whole or in part without premium or penalty; provided, that
--------
(a) the Borrower shall give the Agent (which shall promptly advise each Lender)
(i) in the case of Eurodollar Loans, written notice not later than 9:00 A.M.,
San Francisco time, on the third Business Day prior to such prepayment and (ii)
in the case of Base Rate Loans, written notice not later than 9:00 A.M., San
Francisco time, on the date of such prepayment, in each case specifying the
Loans to be prepaid, and the date and amount of prepayment, (b) subject to
Section 7.5, Eurodollar Loans shall be prepaid only on the last day of the
- -----------
Interest Period relating thereto, (c) each partial prepayment shall be, in the
case of Eurodollar Loans, in a principal amount of $250,000 or any larger
integral multiple of $50,000, and, in the case of Base Rate Loans, in a
principal
-33-
<PAGE>
amount of $250,000 or any larger integral multiple of $50,000, (d) any
prepayment of the entire principal amount of all Loans shall include accrued
interest to the date of prepayment, and (e) prepayments of the Converted
Revolving Loans occurring on or after the Revolving Conversion Date shall be
applied against the remaining scheduled principal installments on such Loans
pro rata according to the Dollar amount of such principal installments.
- --- ----
SECTION 6.3 Mandatory Prepayments. If, on any date, the Borrower or any
---------------------
Subsidiary shall sell, assign, lease, transfer, contribute, convey or otherwise
dispose of (any of the foregoing being a "Disposition") any of its assets, other
than a disposition made in accordance with Section 11.4, the Borrower shall
------------
promptly notify the Agent of such disposition, including the amount of Net
Disposition Proceeds received by the Borrower or any Subsidiary in respect of
such disposition (and the amount and other type of consideration so received).
The Borrower shall promptly apply such Net Disposition Proceeds to repay (i) at
all times prior to the Revolving Conversion Date, first, any Revolving Loans
then outstanding, second, any LC Obligations then outstanding, and third, any
remaining Liabilities, and (ii) at all times on and after the Revolving
Conversion Date, first, any Converted Revolving Loans then outstanding (such
repayments to be applied against the remaining principal installments of such
Converted Revolving Loans pro rata according to the Dollar amount of such
--- ----
principal installments), second, any remaining Revolving Loans then outstanding,
third, any LC Obligations then outstanding, and fourth, any remaining
Liabilities.
SECTION 6.4 Mandatory Reduction in the Commitments. (a) On the Revolving
--------------------------------------
Conversion Date, the aggregate Revolving Loan Commitment shall automatically
reduce to $50,000,000 unless prior to such date the aggregate Revolving Loan
Commitment was reduced pursuant to Section 6.1 to an amount less than
-----------
$50,000,000.
(b) Each repayment of the Revolving Loans pursuant to Section 6.3 shall
-----------
automatically reduce the Revolving Loan Commitments by a like amount.
(c) Each reduction of the Revolving Loan Commitments shall be prorata
among the Lenders according to their respective Percentages.
SECTION 6.5 Making of Payments. Except as otherwise provided, all
------------------
payments (including those made pursuant to Section 5.7, Section 6.2 or Section
----------- ----------- -------
6.3) in respect of the Loans or the Letters of Credit shall be made by the
- ---
Borrower to the Agent in immediately available funds for the account of the
Lenders pro rata according to the respective unpaid principal
-34-
<PAGE>
amounts of the Loans or LC Obligations held by them. All payments of fees
pursuant to Section 5.7 shall be made by the Borrower to the Agent for
-----------
the account of the Lenders pro rata according to their respective Percentages.
All such payments shall be made to the Agent at the address set forth on the
signature pages hereof for making of payments or at such other address within
the United States of America as the Agent may hereafter specify for such
purpose, not later than 12:30 P.M., San Francisco time, on the date due; and
funds received after that hour shall be deemed to have been received by the
Agent on the next following Business Day. The Agent shall promptly remit to each
Lender or other Holder of a Loan or LC Obligation its pro rata share (based on
its Percentage) of all such payments received in collected funds by the Agent
for the account of such Lender or Holder. All payments under Sections 7.1 and
------------
7.4 shall be made by the Borrower directly to the Lender or Lenders entitled
- ---
thereto. All payments under Section 15.5 shall be made directly to, and for the
------------
sole account of, the Agent.
SECTION 6.6 Application of Payments. Subject to Sections 6.2 and 6.3, so
----------------------- ------------ ---
long as no Default shall exist or result therefrom, any payment (including any
prepayment) of principal or interest shall be applied to such Revolving Loans as
the Borrower shall direct in a notice to the Agent (or, absent such a notice, as
the Agent shall determine in its discretion).
SECTION 6.7 Due Date Extension. If any payment provided for hereunder
------------------
falls due on a Saturday, Sunday or other day which is not a Business Day, then
such due date shall be extended to the next following Business Day (except as
provided in the last sentence of Section 5.4), and additional interest shall
-----------
accrue and be payable for the period of such extension.
SECTION 6.8 Sharing of Payments. (a) If any Lender shall obtain any
-------------------
payment or other recovery (whether voluntary, involuntary, by application of
offset or otherwise) on account of any Loan or LC Obligation (other than
pursuant to the terms of Section 7) in excess of its pro rata share (based on
---------
its Percentage) of payments and other recoveries obtained by all Lenders of
Loans or LC Obligations on account of principal of and interest on Loans or
reimbursement or fees with respect to LC Obligations then held by them, such
Lender shall purchase from the other Lenders such participation in the Loans and
LC Obligations held by them as shall be necessary to cause such purchasing
Lender to share the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess payment or other
- -------- -------
recovery is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and each Lender which has sold a participation to the
-35-
<PAGE>
purchasing Lender shall repay to the purchasing Lender the purchase price to the
ratable extent of such recovery together with an amount equal to such selling
Lender's ratable share (according to the proportion of (i) the amount of such
selling Lender's required repayment to the purchasing Lender to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered.
(b) The Borrower agrees that any Lender so purchasing a participation from
another Lender pursuant to Section 6.8(a) may, to the fullest extent permitted
--------------
by law, exercise all its rights of payment (including pursuant to Section 6.9)
-----------
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, exercise its rights in respect to such secured
claim in a manner consistent with the rights of the Lenders entitled under this
Section to share in the benefits of any recovery of such secured claim.
SECTION 6.9 Setoff. Each Lender shall, upon the occurrence of any Event
------
of Default described in Section 14.1.1 or Section 14.1.3 or, with the consent of
-------------- --------------
the Required Lenders, upon the occurrence of any other Event of Default, have
the right to appropriate and apply to the payment of the Liabilities owing to it
(whether or not then due), and (as security for such Liabilities) the Borrower
hereby grants to each Lender a continuing security interest in, any and all
balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter maintained with such Lender. Any such appropriation and application
shall be subject to the provisions of Section 6.8. Each Lender agrees promptly
-----------
to notify the Borrower and the Agent after any such setoff and application made
by such Lender; provided, however, that the failure to give such notice shall
-------- -------
not affect the validity of such setoff and application. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such
Lender may have.
SECTION 6.10 Unconditional Payment. The Borrower is and shall be
---------------------
obligated to pay principal, interest and any and all other amounts which become
payable hereunder or under the other Related Documents (hereinafter referred to
as "Payments") without abatement, postponement, diminution or deduction, and
free and clear of, and without deduction for, any and all present and future
taxes, levies, imposts, duties, fees, charges, deductions
-36-
<PAGE>
or withholdings of any nature (hereinafter referred to as "Deductions"). In the
event that the laws of the United States or of any state in the United States
require withholding of any Deductions from Payments to be delivered to any
Lender (other than the Agent), then the Agent shall withhold from portions of
the Payments delivered by the Agent to any such Lender the sums required by law
to be so withheld, and Borrower agrees to pay the full amount of all Payments to
the Agent.
Notwithstanding the foregoing, in the event the Agent is also a Lender
hereunder and in the event that Borrower is required to withhold Deductions from
Payments made to Agent on account of Agent's monetary participation as Lender in
the Loans, as opposed to its role as Agent, then Borrower shall withhold such
Deductions from Payments owing to Agent for its own account. In the event that
Agent is organized under the laws of a jurisdiction other than the U.S., prior
to the due date of any payments under the Loans or LC Obligations, Agent shall
deliver to the Borrower, on or about the first scheduled payment date in each
calendar year, a United States Internal Revenue Service Form 4224 or Form 1001,
as may be applicable (or any successor form), appropriately completed.
SECTION 7. CHANGES IN CIRCUMSTANCES
SECTION 7.1 Increased Costs. If (a) Regulation D of the Board of
---------------
Governors of the Federal Reserve System, or (b) after the date hereof, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any Lending Office of
such Lender) with any request or directive (whether or not having the force of
law) or any such authority, central bank or comparable agency,
(i) shall subject any Lender (or any Lending Office of such Lender)
to any tax, duty or other charge with respect to its Eurodollar Loans, its
Loans or its LC Obligations or its obligation to make Eurodollar Loans, or
issues Letters of Credit or shall change the basis of taxation of payments
to any Lender of the principal of or interest on its Eurodollar Loans or
any other amounts due under this Agreement in respect of its Eurodollar
Loans or its obligation to make Eurodollar Loans or its LC Obligations
(except for changes in the rate of Tax, other than Taxes covered by Section
-------
6.10,
----
-37-
<PAGE>
on the overall gross or net income of such Lender or its Lending Office);
or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to Section 5 or in the definition
---------
of Eurodollar Rate (Reserve Adjusted)), special deposit or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, any Lender (or any Lending Office of such Lender); or
(iii) shall impose on any Lender (or its Lending Office) any other
condition affecting its Eurodollar Loans or its LC Obligations;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) such Lender (or any
Lending Office of such Lender) of making or maintaining any Eurodollar Loan, or
any Letter of Credit or participation therein or to reduce the amount of any sum
received or receivable by such Lender (or the Lending Office or such Lender)
under this Agreement or under its Loans with respect thereto, then within thirty
days after demand by such Lender (which demand shall be accompanied by a
statement setting forth the basis of such demand), the Borrower shall pay
directly to such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or such reduction.
SECTION 7.2 Change in Rate of Return. If any change in, or the
------------------------
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority having jurisdiction over any Lender affects or
would affect the amount of capital required or expected to be maintained by such
Lender or any person controlling such Lender, and such Lender reasonably
determines that the rate of return on its or such controlling person's capital
as a consequence of its Commitments, the Loans or the Letters of Credit made by
such Lender (or any participating interest therein held by such Lender) is
reduced to a level below that which such Lender or such controlling person could
have achieved but for the occurrence of any such circumstance, then, in any such
case the Borrower shall, within thirty days after demand by such Lender to the
Borrower of a written request therefor, pay directly to such Lender additional
amounts sufficient to compensate such Lender or such controlling person
-38-
<PAGE>
for such reduction in rate of return. A statement of such Lender as to any such
additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower. In determining such amount, such Lender may use any method of
averaging and attribution that it shall deem reasonably applicable. Each Lender
shall notify the Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation pursuant
to this Section 7.2.
-----------
SECTION 7.3 Basis for Determining Interest Rate Inadequate or Unfair. If
--------------------------------------------------------
with respect to any Interest Period:
(a) the Agent determines that deposits in Dollars (in the applicable
amounts) are not being offered to BofA in the relevant market for such
Interest Period, or the Agent otherwise determines (which determination
shall be binding and conclusive on all parties) that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable Eurodollar
Rate; or
(b) any Lender advises the Agent that the Eurodollar Rate (Reserve
Adjusted) as determined by the Agent, will not adequately and fairly
reflect the cost to such Lender of maintaining or funding such Loans for
such Interest Period, or that the making or funding of Eurodollar Loans has
become impracticable as a result of an event occurring after the date of
this Agreement which in the opinion of such Lender materially changes such
Loans,
then, so long as such circumstances shall continue: (i) the Agent shall
promptly notify the other parties thereof, (ii) no Lender shall be under any
obligation to make or convert into Eurodollar Loans so affected, and (iii) on
the last day of the then current Interest Period for Loans of the Type so
affected, such Loans shall, unless then repaid in full, automatically convert
to Base Rate Loans. If conditions subsequently change so that the foregoing
conditions no longer exist, the Agent in the case of clause (A) or such Lender
in the case of clause (B) will promptly notify the Borrower and the Lenders
thereof, and upon the receipt of such notice, the obligations of all Lenders to
make or continue Eurodollar Loans shall be reinstated.
SECTION 7.4 Changes in Law Rendering Certain Loans Unlawful. In the event
-----------------------------------------------
that any change in (including the
-39-
<PAGE>
adoption of any new) applicable laws or regulations, or any change in the
interpretation of applicable laws or regulations by any governmental or other
regulatory body charged with the administration thereof, should make it unlawful
for a Lender or the Lending Office of such Lender ("Affected Lender") to make,
maintain or fund a Type of Eurodollar Loans, then (a) the Affected Lender shall
promptly notify each of the other parties hereto, (b) the obligation of all
Lenders to make or convert into the Type of Eurodollar Loans made unlawful for
the Affected Lender shall, upon the effectiveness of such event, be suspended
for the duration of such unlawfulness, and (c) on the last day of the current
Interest Period for Eurodollar Loans (or, in any event, if the Affected Lender
so requests, on such earlier date as may be required by the relevant law,
regulation or interpretation), the Eurodollar Loans shall, unless then repaid in
full, automatically convert to Base Rate Loans. If conditions subsequently
change so that the foregoing conditions no longer exist, such Lender will
promptly notify the Borrower and the other Lenders thereof, and upon the receipt
of such notice, the obligations of all Lenders to make or continue Eurodollar
Loans shall be reinstated.
SECTION 7.5 Funding Losses. The Borrower hereby agrees that upon written
--------------
demand by any Lender with a copy to Agent (which demand shall be accompanied by
a statement setting forth the basis for the calculations of the amount being
claimed) the Borrower will indemnify such Lender against any net loss or expense
which such Lender may sustain or incur (including, without limitation, any net
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund or maintain Eurodollar
Loans, but not including lost profits), as reasonably determined by such Lender,
as a result of (a) any payment or prepayment or conversion of any Eurodollar
Loan of such Lender on a date other than the last day of an Interest Period for
such Loan, or (b) any failure of the Borrower to borrow or convert any Loans on
a date specified therefor in a Borrowing Request or Continuation/Conversion
request pursuant to this Agreement. For this purpose, all notices to the Agent
pursuant to this Agreement shall be deemed to be irrevocable.
SECTION 7.6 Right of Lenders to Fund Through Other Offices. Each Lender
----------------------------------------------
may, if it so elects, fulfill its Commitment as to any Eurodollar Loan by
causing its Lending Office to make such Loan; provided, that in such event for
--------
the purposes of this Agreement, such Loan shall be deemed to have been made by
such Lender and the obligation of the Borrower to repay such Loan shall
nevertheless be to such Lender and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or
-40-
<PAGE>
affiliate.
SECTION 7.7 Discretion of Lenders as to Manner of Funding.
---------------------------------------------
Notwithstanding any provision of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain its funding of all or any part of its
Loans in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if such
Lender had actually funded and maintained each Eurodollar Loan during each
Interest Period for such Loan through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
Eurodollar Rate, as the case may be, for such Interest Period.
SECTION 7.8 Avoidance of Additional Cost. If at any time the Borrower is
----------------------------
required to pay to any Affected Lender any additional amount pursuant to
Sections 7.1 or 7.2, then (i) such Affected Lender shall make all reasonable
- ------------ ---
efforts to transfer its rights and obligations hereunder to another Lending
Office of such Affected Lender, and to take such other steps as may be
available, so that the payment under Section 7.1 or 7.2 would no longer be
----------- ---
required or the amount of such payment would be reduced, and (ii) if at the end
of 30 days the efforts referred to in clause (i) have not been made or have not
----------
been successful, then, on request by the Borrower, such Affected Lender shall
pursuant to Section 16.1 make all reasonable efforts to transfer at par (or less
------------
than par if concurrently with such transfer the Borrower shall fully reimburse
such Affected Lender for any loss to such Affected Lender arising from such
transfer at less than par), its rights and obligations hereunder to another
lender or financial institution (which shall, in any event, be an Eligible
Assignee) satisfactory to the Borrower and the Agent, such transfer to be
pursuant to documentation satisfactory to the Borrower and the Agent.
Notwithstanding the foregoing, no Affected Lender shall be required under this
Section 7.8 to take any action which (a) would be inconsistent with applicable
- -----------
law or regulations or with such Affected Lenders's internal policies, (b) in the
judgment of such Affected Lender, would be disadvantageous to such Affected
Lender. The Borrower shall use its reasonable efforts to cooperate with any
efforts by an Affected Lender to take action pursuant to this Section 7.8.
-----------
SECTION 7.9 Conclusiveness of Statements; Survival of Provisions.
----------------------------------------------------
Determinations and statements of any Lender pursuant to Section 7.1, Section
----------- -------
7.2, Section 7.3, Section 7.4 or Section 7.5 shall be conclusive absent
----------- ----------- -----------
demonstrable error. No Lender shall assert any demand for payment under
Sections 7.1 or 7.2 more than six months after knowledge by such Lender of the
- ------------ ---
event giving rise to such demand. The provisions of Sections 7.1, 7.2
------------ ---
-41-
<PAGE>
and 7.5 shall survive for one year after the termination of this Agreement.
---
SECTION 8. COLLATERAL AND OTHER SECURITY
SECTION 8.1 Subsidiary Guaranties. With respect to all Significant
---------------------
Subsidiaries existing on the Effective Date, concurrently with or prior to the
Effective Date, and, with respect to all Significant Subsidiaries created or
acquired after the Effective Date, concurrently with the creation or acquisition
thereof, each of such Significant Subsidiaries has executed and delivered or
shall execute and deliver to the Agent a guaranty, substantially in the form of
Exhibit G (herein, as the same may be amended or modified, called the
- ---------
"Subsidiary Guaranty") covering the payment and performance of all of the
Liabilities.
SECTION 8.2 Parent. Concurrently with or prior to the Effective Date, the
------
Parent shall execute and deliver to the Agent the following:
(a) Pledge Agreement. A pledge agreement, substantially in the form
----------------
of Exhibit E (herein, as the same may be amended or modified, called the
---------
"Parent Pledge Agreement") covering, among other things, all of the issued
and outstanding stock of the Borrower; and
(b) Guaranty. A guaranty, substantially in the form of Exhibit F
-------- ---------
(herein, as the same may be amended or modified, called the "Parent
Guaranty") covering the payment and performance of all of the Liabilities.
SECTION 9. REPRESENTATIONS AND WARRANTIES
To induce the Lenders and the Issuing Lender to enter into this Agreement
and to make Loans and to issue or participate in the issuance of Letters of
Credit hereunder, each of the Parent and the Borrower represents and warrants to
the Agent, the Issuing Lender and to each of the Lenders that:
SECTION 9.1 Organization, etc. Each of the Parent and the Borrower is a
------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Borrower is a wholly-owned subsidiary of the Parent.
Each Subsidiary is a corporation duly organized and validly existing and in good
standing under the laws of its state of incorporation; and each Credit Party is
duly qualified to transact business and in good
-42-
<PAGE>
standing as a foreign corporation authorized to do business in each jurisdiction
where the nature of its business makes such qualification necessary or failure
to so qualify could have a Material Adverse Effect.
SECTION 9.2 Authorization. Each Credit Party (to the extent it is a named
-------------
party thereto) has the corporate power to execute, deliver and perform the Loan
Documents, and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of the Loan Documents.
SECTION 9.3 No Conflict. The execution, delivery and performance by each
-----------
Credit Party (to the extent it is a named party thereto) of the Loan Documents
does not and will not (a) contravene or conflict with any provision of any
applicable law, statute, rule, regulation or court order applicable to such
Credit Party, (b) contravene or conflict with, result in any breach of, or
constitute a default under, any material agreement or instrument binding on it,
(c) result in the creation or imposition of or the obligation to create or
impose any Lien (except for Permitted Liens) upon any of the property or assets
of the Credit Parties, or (d) contravene or conflict with any provision of the
articles of incorporation or by-laws of such Credit Party.
SECTION 9.4 Governmental Consents. No order, consent, approval, license,
---------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Effective Date and except for
filings or recordings of the UCC statements with respect to the stock pledged by
the Parent pursuant to Section 8.2(a)) or exemption by, any governmental or
--------------
public body or authority, or any subdivision thereof, is required in connection
with the execution, delivery and performance by the Credit Parties (to the
extent each is a named party thereto) of the Loan Documents.
SECTION 9.5 Validity. Each of the Credit Parties (to the extent each is a
--------
named party thereto) has (or prior to the date of the initial Borrowing will
have) duly executed and delivered the Loan Documents, and each of such documents
constitutes (or upon execution and delivery will constitute) the legal, valid
and binding obligation of the Credit Party thereto, enforceable in accordance
with its terms subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and to the effect of general principles of equity, including (without
limitation) concepts of materiality, reasonableness, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at law).
-43-
<PAGE>
SECTION 9.6 Financial Statements.
--------------------
(a) The Parent's audited consolidated financial statements as at
December 31, 1996, copies of which have been furnished to each Lender, have
been prepared in conformity with GAAP applied on a basis consistent with
that of the preceding Fiscal Year, and accurately present the financial
condition of the Parent and its Subsidiaries as at such dates and the
results of operations for the periods then ended. With respect to the
Parent's audited consolidated Financial Statements as at December 31, 1996,
the Parent has furnished to each Lender the certificate referred to in
Section 10.1.1(b).
-----------------
(b) The Parent's unaudited consolidated financial statements as at
June 30, 1997, copies of which have been furnished to each Lender, have
been prepared in conformity with GAAP applied on a basis consistent with
that of the preceding Fiscal Year, and accurately present the financial
condition of the Parent and its Subsidiaries in all material respects as at
such dates and the results of operations for the periods then ended.
SECTION 9.7 Material Adverse Change. No Material Adverse Change has
-----------------------
occurred since December 31, 1996.
SECTION 9.8 Litigation and Contingent Obligations. No Material Litigation
-------------------------------------
is pending or threatened except as set forth (including estimates of the Dollar
amounts involved) in Schedule 9.8. The Credit Parties have no material
------------
Contingent Obligations other than as provided for or disclosed on Schedule 9.8
------------
or in the financial statements referred to in Section 9.6.
-----------
SECTION 9.9 Liens. None of the assets of the Credit Parties is subject to
-----
any Lien, except for Permitted Liens.
SECTION 9.10 Subsidiaries and Joint Ventures. As of the Effective Date,
-------------------------------
the Parent has no Subsidiaries, except for the Borrower and the Wholly-Owned
Subsidiaries listed on Schedule 9.10. Each of the Subsidiaries listed on
-------------
Schedule 9.10 is a Significant Subsidiary except LinkNet, Inc. As of the
- -------------
Effective Date, neither the Parent, the Borrower, nor any Subsidiary is a party
to any Joint Ventures, except for Alliances listed on Schedule 9.10.
-------------
-44-
<PAGE>
SECTION 9.11 Pension and Welfare Plans.
-------------------------
(a) During the twelve-consecutive-month period prior to the Effective
Date of this Agreement and prior to the date of any Borrowing hereunder, no
steps have been taken to terminate or completely or partially withdraw from
any Pension Plan or Welfare Plan, and no contribution failure has occurred
with respect to any Pension Plan sufficient to give rise to a Lien under
section 302(f) of ERISA;
(b) no condition exists or event or transactions have occurred with
respect to any Pension Plan which might result in the incurrence by any
Credit Party or any other member of the Controlled Group of any material
liability, fine, Tax or penalty;
(c) except as disclosed in Schedule 9.11, neither the Credit Parties
-------------
nor any member of the Controlled Group has any vested or contingent
liability with respect to any post-retirement benefit under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of Title
I of ERISA;
(d) with respect to each Pension Plan maintained or contributed to by
any Credit Party which is intended to qualify under Section 401 of the
Code, a favorable determination letter has been received from the Internal
Revenue Service stating that such Pension Plan so qualifies and, except as
disclosed on Schedule 9.11, nothing has occurred since the date of issuance
-------------
of such determination letter which would cause any such Pension Plan to
cease to qualify under Section 401 of the Code;
(e) each fiduciary (as defined in section 3(21) of ERISA) with
respect to any Pension Plan or Welfare Plan and any Person who handles
funds of any Pension Plan or Welfare Plan is bonded in accordance with
Section 412 of ERISA; and
(f) no Pension Plan maintained by or contributed to by any Credit
Party or any other member of the Controlled Group and subject to section
302 of ERISA or section 412 of the Code has incurred an accumulated funding
deficiency as defined in section 302(a)(2) of ERISA and section 412(a) of
the Code, whether or not waived.
SECTION 9.12 Investment Company Act. None of the Credit
----------------------
-45-
<PAGE>
Parties is an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
SECTION 9.13 Public Utility Holding Company Act. None of the Credit
----------------------------------
Parties is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 9.14 Margin Regulation. None of the Credit Parties is engaged
-----------------
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G or Regulation U of the Board of Governors of the Federal
Reserve System).
SECTION 9.15 Taxes. Except as disclosed on Schedule 9.15, each of the
----- -------------
Credit Parties has filed all tax returns and reports required by law to have
been filed by it and has paid or provided adequate reserves for all Taxes
thereby shown to be owing, except any such Taxes which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves have been established and are being maintained in accordance with GAAP.
There is no ongoing audit or, to the Borrower's knowledge, other governmental
investigation of the tax liability of any Credit Party and there is no
unresolved claim in excess of $500,000 by a taxing authority concerning any
Credit Party's tax liability, for any period for which returns have been filed
or were due. The liability stated for Taxes as of December 31, 1996 in the
financial statements described in Section 9.6 is sufficient in all material
-----------
respect for all Taxes as of such date.
SECTION 9.16 Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously herewith furnished by or on behalf of any Credit Party in
writing to the Agent, the Issuing Lender or any Lender for purposes of or in
connection with the Loan Documents or any information contemplated hereby or
thereby is, and all other such factual information hereafter furnished by or on
behalf of any Credit Party to the Agent, the Issuing Lender or any Lender will
be, true and accurate in every material respect on the date as of which such
information is dated or certified and with respect to information furnished
prior to the Effective Date, as of the Effective Date, and such information is
not, or shall not be, as the case may be, when taken together with all other
information provided, incomplete by omitting to state any material fact
necessary to make such information not misleading.
-46-
<PAGE>
SECTION 9.17 Environmental Warranties. Except as set forth
------------------------
in Schedule 9.17:
-------------
(a) all facilities and property (including underlying groundwater)
owned or leased by any Credit Party have been, and continue to be, owned or
leased in material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or threatened
(i) claims, complaints, notices or requests for information received by any
Credit Party with respect to any alleged violation of any Environmental
Law, or (ii) complaints, notices or inquiries as to such Credit Party
regarding potential liability under any Environmental Law;
(c) there have been no releases of Hazardous Materials at, on or
under any property now or previously owned or leased by any Credit Party
that, individually or in the aggregate, have, or could reasonably have, a
Material Adverse Effect;
(d) the Credit Parties have been issued and are in material
compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or desirable
for their businesses, the failure to obtain or comply with which could
reasonably have a Material Adverse Effect;
(e) no property now or previously owned or leased by any Credit Party
is listed or proposed for listing (with respect to owned property only) on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by any Credit Party that, individually or in the
aggregate, could reasonably have a Material Adverse Effect;
(g) no Credit Party has directly transported or directly arranged for
the transportation of any Hazardous Material to any location which is
listed or proposed for listing on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar state list or which is the subject
of federal, state or
-47-
<PAGE>
local enforcement actions or other investigations which may lead to
material claims against such Credit Party for any remedial work, damage to
natural resources or personal injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by any Credit
Party that, individually or in the aggregate, could reasonably have a
Material Adverse Effect; and
(i) no conditions exist at, on or under any property now or
previously owned or leased by any Credit Party which, with the passage of
time, or the giving of notice or both, would give rise to liability of any
Credit Party under any Environmental Law.
SECTION 9.18 Use of Loan Proceeds/Letters of Credit. (a) The proceeds of
--------------------------------------
the Revolving Loans will be used to (i) finance Acquisitions made by Credit
Parties and pay Acquisition Costs incurred by Credit Parties, (ii) fund cash
payments required in relation to Alliances, (iii) fund conversion costs
associated with Alliances, (iv) provide funds for working capital expenses
(including integration expenses and chargeback losses), (v) reimburse draws
under Letters of Credit and (vi) provide cash collateral to Settlement Banks to
the extent required pursuant to the respective Settlement Agreement.
(b) Letters of Credit will be issued as irrevocable stand-by letters of
credit supporting any continuing or future obligations of the Borrower and its
Subsidiaries arising pursuant to the terms of an Acquisition or as collateral
required pursuant to any Settlement Agreements.
SECTION 9.19 Insurance. Schedule 9.19 hereto sets forth a true and
--------- -------------
correct summary of all material insurance carried by the Credit Parties. The
Credit Parties are adequately insured for their benefit under policies issued by
insurers of recognized responsibility. No notice of any pending or threatened
cancellation or premium increase has been received by any Credit Party with
respect to any of such insurance policies. The Credit Parties are in
substantial compliance with all conditions contained in such insurance policies.
SECTION 9.20 Securities Laws. Neither the Borrower nor any of its
---------------
Affiliates, nor anyone acting on behalf of any such Person, has directly or
indirectly offered any interest in the Loans or any other Liabilities for sale
to, or solicited any offer to acquire any such interest from, or has sold any
such
-48-
<PAGE>
interest to, any Person that would subject the issuance or sale of the Loans or
any other Liabilities to registration under the Securities Act of 1933, as
amended.
SECTION 9.21 Governmental Authorizations. The Credit Parties have all
---------------------------
licenses, franchises, permits and other governmental authorizations necessary
for all businesses presently carried on by them (including ownership and leasing
the real and personal property owned and leased by them), except where failure
to obtain such licenses, franchises, permits and other governmental
authorizations would not have a Material Adverse Effect.
SECTION 9.22 Representations in Other Agreements True and Correct. Each
----------------------------------------------------
of the representations and warranties made by the Credit Parties which are
contained in each Related Document (each as originally executed notwithstanding
any amendment, modification or termination thereof except to the extent
consented to by the Required Lenders) is true and correct in all material
respects.
SECTION 9.23 Possession of Licenses, etc. (a) Each Credit Party owns or
----------------------------
possesses all patents, trademarks, services marks, tradenames, copyrights,
licenses and other rights that are necessary in any material respect for the
operation of its properties and businesses, and (b) no Credit Party is in
violation of any provision thereof in any material respect.
SECTION 9.24 VISA/MasterCard. The Borrower is registered as a member
----------------
service provider with both VISA U.S.A. Inc. and MasterCard International
Incorporated ("VISA/MasterCard") and is registered as such for each clearing
bank with which it conducts business and is required to be so registered. The
Borrower has complied with all requirements of VISA/MasterCard necessary or
desirable to the conduct of its business, the failure to comply with which would
have a Material Adverse Effect.
SECTION 10. AFFIRMATIVE COVENANTS
Each of the Parent and the Borrower agrees that, on and after the Effective
Date and for so long thereafter as the Issuing Lender or any Lender has any
Commitment hereunder or any of the Liabilities remain unpaid or outstanding, it
will:
SECTION 10.1 Reports, Certificates and Other Information. Furnish or
-------------------------------------------
cause to be furnished to the Agent, the Issuing Lender and each Lender:
-49-
<PAGE>
10.1.1 Audit Report. As soon as available, but in any event within
------------
ninety days after the end of each Fiscal Year of the Parent: (a) copies of
the consolidated balance sheet of the Parent as at the end of such Fiscal
Year and the related statements of earnings, stockholders' equity and cash
flows for such Fiscal Year, in each case setting forth the figures for the
previous year, prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein, and with
respect to the consolidated statements certified, without qualification by
Ernst & Young (or such other independent certified public accountants of
recognized standing acceptable to the Required Lenders); and (b) a letter
addressed to the Parent from such accountants stating that such accountants
have been informed that a primary intent of the Parent in using the
professional services such accountants provided to the Parent in reporting
on the consolidated financial statements and in issuing the certificate
referred to above was to benefit or influence the Agent and the Lenders,
and identifying the Agent and the Lenders as parties that the Parent has
indicated intend to rely on such professional services provided to the
Parent by such accountants;
10.1.2 [Reserved]
10.1.3 Quarterly Reports. As soon as available, but in any event
-----------------
within forty-five days after the end of each calendar quarter, copies of
the unaudited consolidated balance sheet of the Parent as at the end of
such calendar quarter and the related unaudited statements of earnings and
cash flows for such calendar quarter and the portion of the Fiscal Year
through such calendar quarter, in each case setting forth in comparative
form the figures for (a) the corresponding periods of the previous Fiscal
Year and (b) the corresponding periods from the planned and forecast
referenced in Section 10.1.6 below, prepared in reasonable detail and in
--------------
accordance with GAAP applied consistently throughout the periods reflected
therein;
10.1.4 Compliance Certificate. Within forty-five days after the end
----------------------
of each Fiscal Quarter (excluding any Fiscal Quarter which is also the end
of a Fiscal Year) and contemporaneously with the furnishing of a copy of
each set of the statements and reports provided for in Sections 10.1.1 and
---------------
10.1.3, a duly completed certificate, substantially in the form of Exhibit
------ -------
H (the "Compliance Certificate"), signed by the chief financial officer of
-
the Borrower, containing, among
-50-
<PAGE>
other things, a computation of the Adjusted Funded Debt Ratio and showing a
computation of, and compliance with, each of the applicable financial
ratios and restrictions contained in Sections 11 and 12 and certifying that
----------- --
as of such date (a) no Default or Event of Default has occurred and is
continuing, (b) the representations and warranties of the Parent, the
Borrower and the Subsidiaries contained in Section 9 are true and correct
---------
with the same effect as though made on such date, and (c) no Material
Litigation exists except as disclosed on Schedule 9.8, and since the
------------
Effective Date no Material Litigation Development has occurred with respect
to any Litigation so disclosed on Schedule 9.8;
------------
10.1.5 Auditors' Materials. Upon request by the Agent and promptly
-------------------
upon receipt thereof by any Credit Party, copies of all detailed financial
and management reports regarding any Credit Party submitted by independent
public accountants in connection with each annual or interim audit report
made by such accountants of the books of the Credit Parties;
10.1.6 Business Plan. As soon as available, but in any event within
-------------
thirty days after the beginning of each Fiscal Year of the Parent, a copy
of the consolidated plan and forecast (including a projected closing
consolidated balance sheet, income statement and funds flow statements) of
the Parent for each month of such Fiscal Year;
10.1.7 Reports to SEC and to Shareholders. Promptly upon the filing
----------------------------------
or making thereof, copies of each filing and report (including Forms 10K,
10Q and 8K) made by any Credit Party with or to any securities exchange or
the Securities and Exchange Commission and of each communication from the
Parent to shareholders generally;
10.1.8 Notice of Default, Litigation and License Matters. Promptly
-------------------------------------------------
upon learning of the occurrence of any of the following, written notice
thereof, describing the same and the steps being taken by the Parent or the
Borrower, as the case may be, with respect thereto: (a) the occurrence of
a Default or Event of Default, (b) the institution of any Material
Litigation or the occurrence of any Material Litigation Development, (c)
the commencement of any dispute which might lead to the material
modification, transfer, revocation, suspension or termination of any
Related Document, (d) any Material Adverse Change, or (e) any event in
relation to VISA/MasterCard which might be
-51-
<PAGE>
deemed to be materially adverse to the Parent or the Borrower, as the case
may be;
10.1.9 Insurance Reports. (a) Within ninety days after the end of
-----------------
each Fiscal Year of the Parent, a certificate signed by a Responsible
Officer that summarizes the insurance policies carried by each Credit Party
(such certificate to be in form and substance satisfactory to the Required
Lenders), (b) written notification thirty days prior to any cancellation or
material change of any such insurance by the respective Credit Party and
within five days after receipt of any notice (whether formal or informal)
of cancellation or material change by any of its insurers;
10.1.10 ERISA Liability. Promptly upon learning of the occurrence of
---------------
the following, written notice thereof describing the same and the steps
being taken by the respective Credit Party with respect thereto: (a) the
failure of any member of the Controlled Group to make a required
contribution to any Pension Plan if such failure is sufficient to give rise
to a Lien under section 302(f)(1) or accumulated funding deficiency under
section 302 of ERISA, (b) the institution of any steps by any member of the
Controlled Group to withdraw from, or the institution of any steps by any
Credit Party to terminate, any Pension Plan, (c) the taking of any action
with respect to a Pension Plan which could result in the requirement that
any Credit Party furnish a bond or other security to the Pension Benefit
Guaranty Corporation or such Pension Plan, or (d) the occurrence of any
event with respect to any Pension Plan which could result in the incurrence
by any Credit Party of any liability, fine, Tax or penalty in excess of
$500,000 or any increase in excess of $500,000 in the vested or contingent
liability of any Credit Party with respect to any post-retirement Welfare
Plan benefit;
10.1.11 Pension Plan Withdrawals. With respect to each Pension Plan
------------------------
which is a "multi-employer plan," as defined in section 4001 of ERISA as to
which any member of the Controlled Group may incur any liability, (a) no
less frequently than annually, a written estimate (which shall be based on
information received from each such plan, it being expressly understood
that the Parent and the Borrower shall take all reasonable steps to obtain
such information) of the withdrawal liability that would be incurred by the
Controlled Group in the event that all members of the Controlled Group were
to completely withdraw from such plan, and
-52-
<PAGE>
(b) written notice thereof, as soon as it has reason to believe (on the
basis of the most recent information available to it) that the sum of (i)
the withdrawal liability that would be incurred by the Controlled Group if
all members of the Controlled Group completely withdrew from all multi-
employer plans as to which any member of the Controlled Group has an
obligation to contribute, and (ii) the aggregate amount of the outstanding
withdrawal liability (without unaccrued interest) incurred by the
Controlled Group to multi-employer plans, would exceed $500,000;
10.1.12 Environmental Liabilities. Promptly upon learning thereof,
-------------------------
written notice (together with copies, if available) of all written claims,
complaints, notices or inquiries relating to any Credit Party's (a)
properties or facilities, or (b) compliance with Environmental Laws,
together with a description of the steps being taken by such Credit Party
with respect thereto;
10.1.13 Acquisitions. Promptly upon execution and delivery thereof
------------
by all of the parties thereto, written notice of any letters of intent
pursuant to which any Credit Party intends to undertake an Acquisition for
which the Acquisition Costs exceed $10,000,000; and
10.1.14 Other Information. From time to time such other information
-----------------
and certifications concerning the Credit Parties as the Agent or the Lender
may reasonably request.
SECTION 10.2 Corporate Existence; Foreign Qualification. Do and cause to
------------------------------------------
be done at all times all things necessary to (a) maintain and preserve the
corporate existence of each Credit Party, provided, however, that the Parent or
-------- -------
the Borrower shall be entitled to dissolve in good faith inactive or immaterial
Subsidiaries, (b) be, and ensure that each Credit Party is, duly qualified to do
business and in good standing as foreign corporations in each jurisdiction where
the nature of its business makes such qualification necessary or failure to so
qualify could have a Material Adverse Effect, and (c) comply, and cause the
Parent and the Subsidiaries to comply, with all contractual obligations and
requirements of law binding upon such entity, except to the extent that the
failure to comply therewith could not in the aggregate have a Material Adverse
Effect.
SECTION 10.3 Books, Records and Inspections. (a) Maintain, and cause each
------------------------------
of the Subsidiaries to maintain, complete and accurate books and records; (b)
permit, and cause each of the Subsidiaries to permit, access at reasonable times
by the Agent,
-53-
<PAGE>
the Issuing Lender and each Lender to its books and records; (c) permit, and
cause the Parent and each of the Subsidiaries to permit, the Agent, the Issuing
Lender and each Lender to inspect at reasonable times its properties and
operations; and (d) permit, and cause the Parent and each of the Subsidiaries to
permit, the Agent, the Issuing Lender and each Lender to discuss its business,
operations and financial condition with its officers.
SECTION 10.4 Insurance.
---------
(a) Maintain, and cause each of the Subsidiaries to maintain with
responsible insurance companies, insurance with respect to its properties
and business including business interruption insurance against such
casualties and contingencies and of such types and in such amounts as is
customary in the industry in which such parties are engaged.
(b) Maintain, and cause each of the Subsidiaries to maintain, a
sufficient amount of insurance so that neither the Credit Parties nor the
Agent, the Issuing Lender or any Lender will be considered a co-insurer or
co-insurers.
(c) Upon the reasonable request of the Agent, furnish the Agent with
copies of all insurance policies, binders and cover notes or other evidence
of property or casualty insurance obtained by any Credit Party.
SECTION 10.5 Taxes and Liabilities. Pay, and cause each of the
---------------------
Subsidiaries to pay, when due all Taxes and other material liabilities, except
as contested in good faith and by appropriate proceedings and with respect to
which reserves have been established and are being maintained, in accordance
with GAAP.
SECTION 10.6 Pension Plans and Welfare Plans. Maintain, and cause each of
-------------------------------
the Subsidiaries to maintain, each Pension Plan and Welfare Plan as to which it
may have any liability, in compliance in all material respects with all
applicable requirements of law.
SECTION 10.7 Compliance with Laws. Comply, and cause each of the
--------------------
Subsidiaries to comply, with all federal, state and local laws, rules and
regulations related to its businesses (including, without limitation, all such
laws, rules and regulations relating to Hazardous Materials or the disposal
thereof) if the failure so to comply could reasonably have a Material Adverse
Effect.
SECTION 10.8 Maintenance of Permits. Maintain, and cause each of the
----------------------
Subsidiaries to maintain, all permits, licenses and consents as may be required
for the conduct of its business by any state, federal or local government agency
or instrumentality (including, without limitation, any such license, consent or
-54-
<PAGE>
permit relating to Hazardous Materials or the disposal thereof) if the failure
to maintain such licenses, permits and consents could reasonably have a Material
Adverse Effect.
SECTION 10.9 Environmental Compliance. Except where such failure would
------------------------
not have a Material Adverse Effect, maintain, and cause each of the Subsidiaries
to maintain (a) all necessary permits, approvals, certificates, licenses and
other authorizations relating to environmental matters in effect and use and
operate all of its facilities and properties in material compliance with all
Environmental Laws, and (b) appropriate procedures for the handling of all
Hazardous Materials in material compliance with all applicable Environmental
Laws, and comply with such procedures at all times.
SECTION 11. NEGATIVE COVENANTS
Each of the Parent and the Borrower agrees that, on and after the Effective
Date and for so long thereafter as the Issuing Lender or any Lender has any
Commitment hereunder or any of the Liabilities remains unpaid or outstanding, it
will:
SECTION 11.1 Limitation on Indebtedness. Not, and not permit any
--------------------------
Subsidiary to, incur or at any time be liable with respect to any Indebtedness
except:
(a) Indebtedness outstanding under any Loan Document in respect of
the Loans and other Liabilities;
(b) Indebtedness outstanding on the Effective Date described on
Schedule 11.1; provided, that Indebtedness permitted by this clause (b)
------------- --------
does not include any extension, renewal or refunding of any such
outstanding Indebtedness;
(c) Indebtedness of Subsidiaries owing to the Borrower; provided,
--------
that such Indebtedness is evidenced by a promissory note;
(d) Indebtedness of the Borrower or a Subsidiary secured by a
Permitted Lien;
(e) Indebtedness of the Borrower or a Subsidiary in respect of
Capitalized Lease Liabilities in an aggregate principal amount not
exceeding $10,000,000;
(f) Subordinated Debt of the Borrower or a Subsidiary incurred in
connection with an Acquisition.
(g) Indebtedness in respect of deferred Taxes;
-55-
<PAGE>
(h) unsecured Indebtedness in respect of current accounts payable
arising in the ordinary course of business (including open accounts
extended by supplies on normal trade terms) in connection with purchases of
goods and services, but excluding Funded Indebtedness or Contingent
Obligations; and
(i) other unsecured Indebtedness which when added to the Indebtedness
outstanding pursuant to clauses (e) and (f) of this Section 11.1 does not
------------
exceed $20,000,000.
SECTION 11.2 Liens. Not, and not permit any Subsidiary to, create, assume
-----
or suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except for the following (collectively called "Permitted Liens"):
(a) Liens in favor of the Agent for the benefit of the Issuing Lender
and Lenders pursuant to this Agreement and the Related Documents;
(b) Liens for current Taxes not delinquent or for Taxes being
contested in good faith and by appropriate proceedings and with respect to
which adequate reserves are being maintained in accordance with GAAP;
(c) Liens shown on Schedule 11.2;
-------------
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to some obligations on
surety or appeal bonds;
(e) Liens of mechanics, carriers, materialmen and other like Liens
arising in the ordinary course of business in respect of obligations which
are not delinquent or which are being contested in good faith and by
appropriate proceedings and with respect to which adequate reserves are
being maintained in accordance with GAAP;
(f) Liens arising in the ordinary course of business for sums being
contested in good faith and by appropriate proceedings and with respect to
which adequate reserves are being maintained in accordance with GAAP, or
for sums not due, and in either case not involving any deposits or advances
for borrowed money or the deferred purchase price of property or services;
-56-
<PAGE>
(g) Liens on Settlement Accounts securing obligations of the Borrower
or any of its Subsidiaries under Settlement Agreements with Settlement
Banks; provided that the aggregate amount of all deposits subject to such
--------
Liens does not at any time exceed $40,000,000;
(h) purchase money security interests on any property acquired or
held by the Parent, the Borrower or its Subsidiaries (including property
acquired pursuant to an Acquisition), securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such property; provided that (i) any such Lien attaches to such
-------- ----
property concurrently with or within 20 days after the acquisition thereof,
(ii) such Lien attaches solely to the property so acquired in such
transaction, (iii) the principal amount of the debt secured thereby does
not exceed 100% of the cost of such property, and (iv) the principal amount
of the Indebtedness secured by any and all such purchase money security
interests shall not at any time exceed $10,000,000; and
(i) Other Liens not of the type described in the foregoing clauses
-------
(a) through (h) securing Indebtedness in an aggregate principal amount not
--- ---
to exceed at any one time outstanding $2,500,000.
SECTION 11.3 Consolidation, Merger, etc. Not, and not permit any
---------------------------
Subsidiary to, liquidate or dissolve, consolidate with, or merge into or with,
any other Person, or purchase or otherwise acquire all or substantially all of
the assets of any Person (or of any division thereof) except:
(a) any such Subsidiary may liquidate or dissolve voluntarily into,
and may merge with and into, the Borrower or any other Subsidiary;
(b) the Borrower may dissolve any inactive Subsidiary which is not a
Significant Subsidiary; and
(c) subject to the limitations set forth in Section 13.2, the Credit
------------
Parties may make Acquisitions.
SECTION 11.4 Asset Disposition, etc. Not, and not permit any Subsidiary
-----------------------
to, sell, assign, lease, transfer, contribute, convey or otherwise dispose of,
or grant options, warrants or other rights with respect to, any of its assets to
any Person, unless:
(a) such sale, assignment, transfer, lease, contribution, conveyance
or other disposition is in the ordinary course of its business;
-57-
<PAGE>
(b) in any one Fiscal Year the aggregate proceeds of such assets,
together with the proceeds of all other assets sold, transferred, leased,
contributed or conveyed during such Fiscal Year (otherwise than in the
ordinary course of business) by the Parent or any of its Subsidiaries
pursuant to this clause, does not exceed $2,500,000; or
(c) the proceeds of such sale, assignment or transfer are within
twelve months of such sale, assignment or transfer reinvested in
replacement assets or other income producing assets, or are reinvested in
the business for similar purposes, provided that (i) the aggregate proceeds
of such sale, assignment or transfer does not exceed $12,500,000 in any
twelve month period, and (ii) if not so reinvested within twelve months of
such sale, assignment or transfer, such proceeds shall be applied to a
mandatory prepayment pursuant to Section 6.3.
-----------
SECTION 11.5 Dividends, etc. Not (a) declare, pay or make any dividend or
---------------
distribution (in cash, property or obligations) on any shares of any class of
capital stock (now or hereafter outstanding) of the Parent or the Borrower or on
any warrants, options or other rights with respect to any shares of any class of
capital stock (now or hereafter outstanding) of the Parent or the Borrower
(other than dividends or distributions payable in its common stock or warrants
to purchase its common stock or splitups or reclassifications of its stock into
additional or other shares of its common stock) or (b) except pursuant to
Section 11.18, apply or permit any of the Subsidiaries to apply, any funds,
- -------------
property or assets to the purchase, redemption, sinking fund or other retirement
of any shares of any class of capital stock (now or hereafter outstanding) of
the Parent or the Borrower or any option, warrant or other right to acquire
shares of capital stock of the Parent or the Borrower (other than any such
payment pursuant to stock appreciation rights granted and exercised in
accordance with applicable rules and regulations of the Securities and Exchange
Commission); or (c) make any deposit for any of the foregoing purposes.
SECTION 11.6 Investments. Not, and not permit any Subsidiary to, make,
-----------
incur, assume or suffer to exist any Investment in any other Person, except:
(i) Investments existing on the Effective Date and identified in
Schedule 11.6;
-------------
(ii) Cash Equivalent Investments;
(iii) without duplication, Investments permitted as Indebtedness
pursuant to Section 11.1;
------------
-58-
<PAGE>
(iv) Investments by the Borrower in any of its Wholly-Owned
Subsidiaries, by way of initial contributions to capital made at the time
of such Wholly-Owned Subsidiary's organization; provided, that (A) the
--------
conditions set forth in Section 11.11 have been satisfied prior to the
-------------
making of such Investment and (B) the aggregate amount of all such
contributions to capital made to any Wholly-Owned Subsidiary shall not
exceed 10% of the total Investment of the Borrower in such Wholly-Owned
Subsidiary;
(v) Investments which are Acquisitions, provided, however, that prior
-------- -------
to making any Acquisition, the conditions set forth in Section 13.2.4,
--------------
13.2.5 and 13.2.6 shall be satisfied, regardless of whether a Loan
------ ------
or Letter of Credit is used in connection with such Acquisition;
(vi) Cash deposits held from time to time in Settlement Accounts; and
(vii) Investments in Joint Ventures to the extent permitted in
Section 11.8.;
-------------
provided, however, that no Investment otherwise permitted by clause (iii), (iv)
- -------- ------- ------------ ----
or (v) shall be permitted to be made if, immediately before or after giving
---
effect thereto, any Default or Event of Default shall exist.
SECTION 11.7 Acquisitions. Not, and not permit any of the Subsidiaries
------------
to, make any acquisition of assets outside the ordinary course of business,
except for Acquisitions by the Credit Parties, provided, however, that prior to
-------- -------
making any Acquisition, the conditions set forth in Section 13.2.4, 13.2.5 and
-------------- ------
13.2.6 shall be satisfied, regardless of whether a Loan or Letter of Credit is
- ------
used in connection with such Acquisition.
SECTION 11.8 Joint Ventures. Not, and not permit the Parent or any of the
--------------
Subsidiaries to, enter into any Joint Venture, except for:
(i) arrangements with independent sales organizations, trade or
similar associations or organizations or associate banks, in each case to
the extent made in the ordinary course of business; and
(ii) profit sharing arrangements with other banks established in
connection with an Acquisition in payment or partial payment of the
purchase price;
(iii) Alliances as to which the aggregate Investment of the Parent,
the Borrower and the Subsidiaries does not
-59-
<PAGE>
exceed $20,000,000, and
(iv) Alliances listed in Schedule 9.10;
-------------
provided, however, that the aggregate Investment of the Parent, the Borrower and
- -------- -------
the Subsidiaries in all Alliances permitted under clauses (iii) and (iv) above
shall not exceed $100,000,000 at any one time outstanding.
SECTION 11.9 Rental Obligations. Not, and not permit any of the
------------------
Subsidiaries to, enter into at any time any arrangement which involves the
leasing by any Credit Party from any lessor of any real or personal property (or
any interest therein), except arrangements which, together with all other such
arrangements then in effect, will not require the payment of an aggregate amount
of rentals by all Credit Parties in excess of $2,000,000 for any Fiscal Year or
$10,000,000 during the full remaining term of such arrangements; provided,
--------
however, that any calculation made for purposes of this Section shall
- -------
exclude (a) any amounts required to be expended for maintenance and repairs,
insurance, Taxes, assessments, and other similar charges, (b) escalations
resulting from a rise in the consumer price or similar index, and (c) rental
obligations comprising Capitalized Lease Liabilities of the Borrower and its
Subsidiaries.
SECTION 11.10 Subordinated Debt. Not, and not permit any Subsidiary to:
-----------------
(a) make any payment (whether of principal, interest or otherwise) on
any Subordinated Debt on any day other than the stated, scheduled date for
such payment set forth in the documents and instruments evidencing such
Subordinated Debt; or
(b) make any payment on any Subordinated Debt in contravention or
violation of the subordination provisions thereof; or
(c) prepay, redeem, purchase or defease any Subordinated Debt, or
make any deposit for any of the foregoing purposes; or
(d) enter into any amendment or modification of any Subordinated Debt
which would in any manner adversely affect the rights of the Lenders in
respect of such Subordinated Debt.
SECTION 11.11 Take or Pay Contracts. Not, and not permit any Subsidiary
---------------------
to, enter into or be a party to any arrangement for the purchase of materials,
supplies, other property or services if such arrangement by its express terms
requires that payment be made by the Borrower or such Subsidiary regardless
of
-60-
<PAGE>
whether such materials, supplies, other property or services are delivered or
furnished to it.
SECTION 11.12 Regulations G and U. Not, and not permit any Subsidiary to,
-------------------
use or permit any proceeds of the Loans or LC Obligations to be used, either
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying margin stock" within the meaning of
Regulations G and U of the Board of Governors of the Federal Reserve System, as
amended from time to time.
SECTION 11.13 Subsidiaries. (a) Notwithstanding any provision of this
------------
Agreement to the contrary, not create or permit to exist any Subsidiary other
than (i) the Wholly-Owned Subsidiaries listed on Schedule 9.10 or (ii)
-------------
Significant Subsidiaries which concurrently with the creation thereof execute a
Guaranty. (accompanied by such supporting documents, including an opinion of
counsel, as shall be satisfactory to the Agent) or (iii) Subsidiaries which are
not Significant Subsidiaries.
(b) Not permit any of the Subsidiaries to create or permit to exist any
Subsidiary of such Subsidiary.
(c) Not permit LinkNet, Inc. to be a Significant Subsidiary unless
concurrently with its becoming a Significant Subsidiary it shall execute and
deliver to the Agent a Guaranty (accompanied by such supporting documents,
including an opinion of counsel, as shall be satisfactory to the Agent).
SECTION 11.14 Other Agreements. Not, and not permit any Subsidiary to,
----------------
enter into any agreement containing any provision which (a) would be violated or
breached by the performance of its obligations hereunder or under any instrument
or document delivered or to be delivered by it hereunder or in connection
herewith, (b) prohibits or restricts the creation or assumption of any Lien upon
its properties, revenues or assets (whether now owned or hereafter acquired) as
security for the Liabilities hereunder, (c) prohibits or restricts the ability
of any Subsidiary to make dividends or advances or payments to the Borrower, or
(d) prohibits or restricts the ability of the Borrower or any Subsidiary to
amend or otherwise modify this Agreement or any other document executed in
connection herewith.
SECTION 11.15 Business Activities. Not, and not permit any Subsidiary to,
-------------------
(a) engage in any type of business except the businesses which the Credit
Parties are presently engaged in, or (b) substantially alter the methods by
which the Credit Parties conduct such businesses.
SECTION 11.16 Transactions with Affiliates. Not, and not permit any
----------------------------
Subsidiary to, enter into, or cause, suffer or permit to exist any arrangement
or contract with any of its other
-61-
<PAGE>
Affiliates unless such arrangement (a) is fair and equitable to the respective
Credit Party, (b) is of a sort which would be entered into by a prudent Person
in the position of such Credit Party with a Person which is not one of its
Affiliates, and (c) is on terms which are not less favorable to such Credit
Party than are obtainable from a Person which is not one of its Affiliates.
SECTION 11.17 Parent Activities. Not permit the Parent to have any
-----------------
business or activities other than (a) the holding of the capital stock of the
Borrower, (b) the assets and operations of the Parent existing on the Effective
Date, (c) the Investments permitted by clause (v) of Section 11.6, and (d) the
------------
execution and delivery by the Parent of its Guaranty and Pledge Agreement
hereunder pursuant to this Agreement.
SECTION 11.18 Employee Stock Purchase Plan. Not apply or permit any
----------------------------
of the Subsidiaries to apply, any funds, property or assets to the purchase or
retirement of any shares of any class of capital stock (now or hereafter
outstanding) of the Parent or the Borrower, provided, however, that so
-------- -------
long as no Default or Event of Default shall exist or result therefrom, the
Parent or the Borrower may, pursuant to any employee stock purchase plan,
repurchase in any one Fiscal Year, shares for a purchase price not to exceed
$5,000,000 for all such shares so repurchased by the Parent or the Borrower
during such Fiscal Year.
SECTION 12. FINANCIAL COVENANTS
Each of the Parent and Borrower agrees that, on and after the Effective
Date and for so long thereafter as any Lender has any Commitment hereunder or
any of the Liabilities remain unpaid or outstanding, it will:
SECTION 12.1 Fixed Charge Coverage Ratio. Not permit as of the end of any
---------------------------
Fiscal Quarter the ratio of (a) the sum of Adjusted Consolidated EBITDA plus
----
operating lease payments to (b) the sum of Adjusted Consolidated Interest
Charges plus scheduled principal payments on Funded Indebtedness plus operating
---- ----
and capitalized lease payments plus Consolidated Capital Expenditures, each for
----
the four consecutive Fiscal Quarters then ended, to be less 1.50:1.
SECTION 12.2 Funded Debt Ratio. Not permit at any time the ratio of
-----------------
Funded Indebtedness at such date to Consolidated EBITDA, for the most recent
four consecutive Fiscal Quarters then ended, to exceed 3.00:1. (For purposes of
this Section 12.2, Consolidated EBITDA shall be determined by including
------------
historical EBITDA for Acquisitions therefore made, but excluding Acquisition
Adjustments relating to such Acquisitions).
-62-
<PAGE>
SECTION 12.3 Credit Losses and Chargeback Losses. For any four
-----------------------------------
consecutive Fiscal Quarter period then most recently ended, not permit the
aggregate of Credit Losses and (without duplication) Chargeback Losses to exceed
an amount equal to the sum of 5% of Consolidated Revenue for such period, plus
up to $5,000,000 of Credit Losses and/or Chargeback Losses to the extent and
only to the extent that such losses have theretofore been funded by Loans under
this Agreement.
SECTION 13. CONDITIONS TO EFFECTIVENESS
OF THIS AGREEMENT
The obligation of each of the Lenders to make its Loans and of the Issuing
Lender to issue Letters of Credit is subject to the performance by the Borrower
of all of its obligations under this Agreement and to the satisfaction of the
following conditions precedent:
SECTION 13.1 Effective Date. Prior to or as of the Effective Date the
--------------
Agent shall have received all of the following, each, except to the extent
otherwise specified below, duly executed by a Responsible Officer, dated as of
the Effective Date, in form and substance satisfactory to the Agent, and each in
sufficient number of signed counterparts to provide one for each Lender:
13.1.1 For each Lender, an appropriately completed Revolving Note,
payable to the order of such Lender;
13.1.2 The Parent Pledge Agreement, together with the stock
certificates pledged thereunder accompanied by stock powers duly executed
in blank;
13.1.3 The Parent Guaranty;
13.1.4 A Subsidiary Guaranty of each Significant Subsidiary set forth
on Schedule 9.10.
-------------
13.1.5 A favorable opinion of Long, Aldridge & Norman, counsel to the
Borrower and the Parent, substantially in the form of Exhibit I hereto, and
---------
addressing such other legal matters as the Agent may require;
13.1.6 An officer's certificate of the Parent, the Borrower and each
Significant Subsidiary, each substantially in the form of Exhibit J hereto
---------
and dated as of the date hereof, signed by the president or any vice-
president of the Parent, Borrower or Significant Subsidiary, as the case
may be and attested to by the secretary or any assistant secretary,
together with certified copies of the Parent's and Borrower's and
-63-
<PAGE>
each Significant Subsidiary's articles of incorporation, by-laws,
resolutions and any other document pursuant to the terms thereof;
13.1.7 Evidence of the good standing of the Parent, the Borrower and
each Subsidiary in the jurisdiction in which it is incorporated;
13.1.8 Evidence that the Borrower shall have paid to the Agent the
fees and expenses provided for herein;
13.1.9 Evidence that the existing Credit Agreement, amended and
restated as of January 31, 1996, among the Borrower, certain financial
institutions party thereto and BofA, as agent, has been terminated and all
principal, interest, fees and expenses and other Liabilities (as defined
therein) thereunder shall have been paid (and, all security has been
released except for the pledge by the Parent pursuant to Section
-------
-64-
<PAGE>
8.2 (a));
--------
13.1.10 Such other information and documents as may reasonably be
required by the Agent, the Issuing Lender or their counsel.
SECTION 13.2 Acquisition Cost Borrowing. In the case of a Revolving Loan
---------------------------
or Letter of Credit issued in connection with any Acquisition after the
Effective Date, the Agent shall have received all of the following, each, except
to the extent otherwise specified below, duly executed by a Responsible Officer,
dated the date of such Loan or Letter of Credit (or such other date as shall be
satisfactory to the Agent), in form and substance satisfactory to the Agent, and
each in sufficient number of signed counterparts to provide one for each Lender:
13.2.1 To the extent that the anticipated Acquisition Costs of such
Acquisition exceed $10,000,000, a certificate executed by a Responsible
Officer of the Borrower to the effect that (i) attached thereto is the
principal agreement governing such Acquisition, (ii) such agreement has
been duly executed by all parties thereto, and (iii) such Acquisition shall
be duly consummated in accordance with the terms of such agreement, without
material modification or waiver of any of such terms;
13.2.2 If the proceeds of such Revolving Loan are to be loaned to a
Wholly-Owned Subsidiary for purposes of effectuating the Acquisition, a
Subsidiary Guaranty;
13.2.3 If the related Acquisition is structured as an acquisition of
stock by merger of a Wholly-Owned Subsidiary, a secretary's certificate of
such Wholly-Owned Subsidiary, dated as of the date of such Revolving Loan,
certifying a copy of the merger agreement and the articles of merger or
merger certificate, each as duly executed by such Wholly-Owned Subsidiaries
and the third-party Person whose capital stock is acquired in connection
with such Acquisition;
13.2.4 A certificate executed by the chief financial officer of the
Borrower, dated as of the date of such Revolving Loan, to the effect that
(a) the Borrower has obtained all financing necessary to fund such
Acquisition, (b) to the extent that the anticipated Acquisition Costs
related to such Acquisition exceed $10,000,000, such Acquisition Costs
equal or exceed the principal amount of such Revolving Loan, (c) attached
thereto is an itemized description and Dollar amount of all such
Acquisition Costs, (d) attached thereto is a business description and
summary
-65-
<PAGE>
of the terms of the Acquisition being funded by such Revolving Loan; (e)
attached thereto is a computation of the Acquisition Adjustments with
respect to the related Acquisition, and (f) the conditions in Section
13.2.6 are satisfied; and
13.2.5 In the case of an Acquisition with respect to which the
anticipated Acquisition Costs exceed $25,000,000, a duly completed
Compliance Certificate, dated as of the date of such Revolving Loan, signed
by the chief financial officer of the Borrower, containing, among other
things, on a pro forma basis for the most recent four consecutive Fiscal
Quarters then ended and on a projected basis for the following four
consecutive Fiscal Quarters (such computation on a projected basis to
commence as of the first day of the Fiscal Quarter in which such Revolving
Loan is requested), in each case after giving effect to Acquisition
Adjustments, (a) a computation of, and showing compliance with, each of the
applicable financial ratios and restrictions contained in Sections 11 and
-----------
12, and (b) a computation of the Adjusted Funded Debt Ratio, such
--
computation in each case to show an Adjusted Funded Debt Ratio of not
greater than 2.00:1; and
13.2.6 The Acquisition Costs of such Acquisition shall not exceed
$60,000,000 and the Acquisition Costs of such Acquisition, when added to
the Acquisition Costs of all other Acquisitions consummated in the previous
twelve month period shall not exceed $100,000,000.
SECTION 13.3 All Loans and Letters of Credit. The obligation of each
-------------------------------
Lender to make each Loan of any Type and of the Issuing Lender to issue each
Letter of Credit (including the initial Loan and Letter of Credit) is subject to
the following further conditions precedent:
13.3.1 Receipt by the Agent of a Borrowing Request or an LC
Application, as applicable;
13.3.2 As of the date of such Loan or Letter of Credit, (a) no
Default or Event of Default exists or will result from the making of such
Loan or issuance of such Letter of Credit, (b) the representations and
warranties of the Parent, the Borrower and the Subsidiaries contained in
Section 9 are true and correct with the same effect as though made on the
---------
date of the making of such Loan or issuance of such Letter of Credit, and
(c) no Material Litigation exists except as disclosed on Schedule 9.8, and
------------
since the Effective Date no Material Litigation Development
-66-
<PAGE>
has occurred with respect to any Litigation so disclosed on Schedule 9.8;
------------
13.3.3 Such other information and documents as may reasonably be
required by the Agent, the Issuing Lender or their counsel.
SECTION 14. EVENTS OF DEFAULT AND THEIR EFFECT
SECTION 14.1 Events of Default. An "Event of Default" shall exist if any
-----------------
one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
14.1.1 Non-Payment of Loans, etc. (a) Default in the payment or
-------------------------
prepayment when due of any principal of any Loan; or (b) default in the
payment or prepayment when due of any reimbursement obligation with respect
to any LC Obligation; or (c) default and continuance for five days in the
payment when due of any interest, fee or other amount owing by the Borrower
pursuant to this Agreement.
14.1.2 Non-Payment of Other Indebtedness. Default in the payment
---------------------------------
when due (subject to any applicable grace period), whether by acceleration
or otherwise, of any Indebtedness of any Credit Party (other than trade
payable in the ordinary course of business and Indebtedness in respect of
this Agreement) in an amount in excess of $2,500,000 or default in the
performance or observance of any obligation or condition with respect to
any such Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or to permit the holder or holders
thereof, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity.
14.1.3 Bankruptcy, Insolvency, etc. Any Credit Party becomes
---------------------------
insolvent or generally fails to pay, or admits in writing its inability to
pay, debts as they become due; or any Credit Party applies for, consents
to, or acquiesces in the appointment of, a trustee, receiver or other
custodian for any Credit Party or any material portion of the property
thereof, or makes a general assignment for the benefit of creditors; or, in
the absence of such application, consent or acquiescence, a trustee,
receiver or other custodian is appointed for any Credit Party or for a
substantial part of the property of any thereof and is not discharged
within sixty days; or any bankruptcy, reorganization, debt arrangement,
or other case or
-67-
<PAGE>
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary dissolution, not under any
bankruptcy or insolvency law, of a Subsidiary other than the Borrower), is
commenced in respect of any Credit Party and if such case or proceeding is
not commenced by any Credit Party, it is consented to or acquiesced in by
such Credit Party or remains for thirty days undismissed; or any Credit
Party takes any corporate action to authorize, or in furtherance of, any of
the foregoing.
14.1.4 Defaults Under this Agreement. Failure by the Borrower or the
-----------------------------
Parent to comply with or perform any of the covenants or agreements set
forth in Sections 10.1.8, 10.3, 11 and 12.
--------------- ---- -- --
14.1.5 Other Noncompliance with this Agreement. Failure by the
---------------------------------------
Parent, the Borrower or any Subsidiary to comply with or perform any other
provision of this Agreement or the Related Documents applicable to it
(other than those listed in Section 14.1.4 or those constituting an Event
--------------
of Default under any of the other provisions of this Section 14) and
----------
continuance of such failure for thirty days after notice thereof to the
Borrower from the Agent, any Lender, or any Holder.
14.1.6 Representations and Warranties. Any representation or
------------------------------
warranty made by any Credit Party herein or in any of the Related Documents
is false or misleading in any material respect as of the date hereof or as
of the date hereafter certified, or any schedule, certificate, financial
statement, report, notice, or other writing furnished by any Credit Party
to the Agent or any Lender is false or misleading in any material respect
on the date as of which the facts therein set forth are stated or
certified.
14.1.7 Pension Plans and Welfare Plans. With respect to any Pension
-------------------------------
Plan as to which any Credit Party may have any liability, there shall exist
a deficiency of more than $500,000 in the Pension Plan assets available to
satisfy the benefits guaranteeable under ERISA with respect to such Pension
Plan, and steps are undertaken to terminate such plan or such Pension Plan
is terminated or any Credit Party withdraws from or institutes steps to
withdraw from such Pension Plan or any material Reportable Event with
respect to such Pension Plan shall occur. With respect to any Welfare
Plans as to which any Credit Party may have any liability, there shall
occur any event which could result in the incurrence by such Credit Party
of
-68-
<PAGE>
any increase in excess of $500,000 in the vested or contingent liability of
such Credit Party with respect to any post-retirement Welfare Plan benefit.
14.1.8 Adverse Judgment. One or more final judgments or decrees
----------------
shall be entered against any Credit Party involving, in the aggregate, a
liability (not covered by collectible insurance) of $2,500,000 or more and
all such judgments or decrees in excess of $500,000 shall not have been
vacated, satisfied, discharged or stayed or bonded pending appeal within
thirty consecutive days from the entry thereof.
14.1.9 Related Documents. Any Credit Party shall fail to comply with
-----------------
any of the provisions of the Related Documents applicable to it within any
applicable grace period or, if no grace period is specified, within thirty
days after notice of such failure has been given to the Borrower by the
Agent; or any of the Related Documents shall fail to remain in full force
and effect (other than pursuant to its terms) and such failure shall
continue for ten days after notice of such failure has been given to the
Borrower by the Agent; or any action shall be taken by any Credit Party to
discontinue any of the Related Documents to which it is a party or to
assert the invalidity of any thereof.
14.1.10 Change in Control. The occurrence of a Change in Control.
-----------------
14.1.11 Settlement Agreements. Any materially adverse development in
---------------------
arrangements of any Credit Party with a Settlement Bank, including, without
limitation, the occurrence of any material default under a Settlement
Agreement; provided, however, that no termination of any Settlement
-------- -------
Agreement shall be considered an adverse development so long as a successor
Settlement Bank agrees to assume all settlement obligations of the
predecessor Settlement Bank, and such termination otherwise does not result
in a Material Adverse Effect.
SECTION 14.2 Effect of Event of Default. If any Event of Default
--------------------------
described in Section 14.1.3 shall occur and be continuing, the Commitments (if
--------------
they have not theretofore terminated) shall immediately terminate and all
Liabilities shall become immediately due and payable, all without notice of any
kind; and, in the case of any other Event of Default, the Agent may (or shall,
upon the written request of the Required Lenders) declare the Commitments (if
they have not theretofore terminated) to be terminated and all Liabilities to be
due and payable,
-69-
<PAGE>
whereupon the Commitments (if they have not theretofore terminated) shall
immediately terminate and all Liabilities shall become immediately due and
payable, all without presentment, demand, protest or notice of any kind. The
Agent shall promptly advise the Borrower and each Lender of any such
declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing or any provision of Section 17.1, the
------------
effect as an Event of Default of any event described in Section 14.1.3 may be
--------------
waived by the written concurrence of the Holders of 100% of the aggregate unpaid
principal amount of the Loans and LC Obligations, and the effect as an Event of
Default of any other event described in this Section 14 may be waived as
----------
provided in Section 17.1.
------------
SECTION 15. THE AGENT
SECTION 15.1 Appointment and Authorization; "Agent". (a) Each Lender
-------------------------------------
hereby irrevocably (subject to Section 15.09) appoints, designates and
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent. Without limiting the generality
of the foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) The Issuing Lender shall act on behalf of the Lenders with respect to
any Letters of Credit Issued by it and the documents associated therewith until
such time and except for so long as the Agent may agree at the request of the
Required Lenders to act for such Issuing Lender with respect thereto; provided,
--------
however, that the Issuing Lender shall have all the benefits and immunities (i)
- -------
provided to the Agent in this Section 15 with respect to any acts taken or
omissions suffered by the Issuing Lender in connection with Letters of Credit
Issued by it or proposed to be Issued by it and the application and agreements
for letters of credit pertaining to the Letters of Credit as fully as if the
term "Agent," as used
-70-
<PAGE>
in this Section 15, included the Issuing Lender with respect to such acts or
omissions, and (ii) as additionally provided in this agreement with respect to
the Issuing Lender.
SECTION 15.2 Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
SECTION 15.3 Liability of Agent. None of the Agent-Related Persons shall
------------------
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Borrower or any
Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of the Borrower's Subsidiaries or Affiliates.
-71-
<PAGE>
SECTION 15.4 Reliance by Agent. (a) The Agent shall be entitled to rely,
-----------------
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the Required Lenders and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 13, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Lender for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Lender.
SECTION 15.5 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Lenders in
accordance with Section 14.2; provided, however, that unless and until the Agent
-------- -------
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Lenders.
SECTION 15.6 Credit Decision. Each Lender acknowledges that none of the
---------------
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of any
or all of the Credit Parties, shall be deemed to constitute any representation
or
-72-
<PAGE>
warranty by any Agent-Related Person to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and credit
worthiness of any or all of the Credit Parties, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to any or all of
the Credit Parties hereunder. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and credit
worthiness of any or all of the Credit Parties. Except for notices, reports and
other documents expressly herein required to be furnished to the Lenders by the
Agent, the Agent shall not have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or credit worthiness of any
or all of the Credit Parties which may come into the possession of the Agent-
Related Persons.
SECTION 15.7 Indemnification of Agent. Whether or not the transactions
------------------------
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
-------- -------
that no Lender shall be liable for the payment to the Agent-Related Persons of
any portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking in
this Section shall survive the payment of all Liabilities hereunder and the
resignation or replacement of the Agent.
SECTION 15.8 Agent in Individual Capacity. BofA and its Affiliates may
----------------------------
make loans to, issue letters of credit for the
-73-
<PAGE>
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or other
business with the Borrower and its Subsidiaries and Affiliates as though BofA
were not the Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, BofA or its
Affiliates may receive information regarding the Borrower or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Borrower or such Affiliates) and acknowledge that the Agent shall
be under no obligation to provide such information to them. With respect to its
Loans, BofA shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" include BofA in its individual capacity.
SECTION 15.9 Successor Agent. The Agent may, and at the request of the
---------------
Required Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent resigns under this Agreement, the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders [which successor agent shall
be approved by the Borrower (such approval not to be unreasonably withheld)].
If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with the
Lenders and the Borrower, a successor agent from among the Lenders. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 15 and
Sections 17.3 and 17.4 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Lenders shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above.
Notwithstanding the foregoing, however, BofA may not be removed as the Agent at
the request of the Required Lenders unless BofA shall also simultaneously be
replaced as "Issuing Lender" hereunder pursuant to documentation in form and
substance reasonably satisfactory to BofA.
SECTION 15.10 Withholding Tax. (a) If any Lender is a "foreign
---------------
corporation, partnership or trust" within the meaning of the Code and such
Lender claims exemption from, or a reduction of, U.S. withholding tax under
Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the
Agent, to deliver to the Agent:
-74-
<PAGE>
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest or
fees in the first calendar year and before the payment of any interest or
fees in each third succeeding calendar year during which interest or fees
may be paid under this Agreement;
(ii) if such Lender claims that interest or fees paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224 before
the payment of any interest or fees is due in the first taxable year of
such Lender and in each succeeding taxable year of such Lender during which
interest or fees may be paid under this Agreement; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Liabilities of the Borrower owing to such Lender, such Lender agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Liabilities of the Borrower owing to such Lender. To the
extent of such percentage amount, the Agent will treat such Lender's IRS Form
1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Liabilities of the
Borrower owing to such Lender, such Lender agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such
-75-
<PAGE>
Lender not providing such forms or other documentation an amount equivalent to
the applicable withholding tax imposed by Sections 1441 and 1442 of the Code,
without reduction.
(e) If the IRS or any other governmental authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered or was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all Liabilities and the resignation or replacement
of the Agent.
SECTION 16. ASSIGNMENTS AND PARTICIPATIONS
SECTION 16.1 Assignments. (a) With the prior written consent of the Agent
-----------
and the Borrower (not to be unreasonably withheld), each Lender shall have the
right at any time to assign, to any Eligible Assignee, all, or any ratable part
of all, of such Lender's rights and obligations under the Loan Documents
including its rights in respect of Loans, Notes, Letters of Credit and LC
Obligations and its obligations in respect of Commitments to make Loans or
participate in Letters of Credit. Any such assignment shall be pursuant to an
assignment agreement, substantially in the form of Exhibit K (an "Assignment
---------
Agreement"), duly executed by such Lender and the Eligible Assignee, and
acknowledged by the Agent. Although its failure to do so will not affect any of
the rights or obligations provided for therein or herein, the Borrower agrees to
duly acknowledge any Assignment Agreement executed by any assigning Lender
promptly after its receipt of the same. No assignment by the Issuing Lender
shall relieve it from its obligations in respect of the Letters of Credit, it
being understood that any assignment by the Issuing Lender as to Letters of
Credit shall be deemed to automatically constitute an assignment by the Issuing
Lender and the purchase by the Eligible Assignee of a participating interest in
such Letters of Credit.
(b) Each assignment, if to a Person other than a Lender, shall be in an
amount equal to or in excess of $5,000,000. In the case of any such assignment,
upon the execution and delivery of such Assignment Agreement by such Lender and
the Borrower to the Agent, the payment by the assignor and/or Eligible Assignee
of a processing and recording fee of $3,000 to the Agent and the
-76-
<PAGE>
making of any payment by the Eligible Assignee required by the assigning Lender,
this Agreement shall be deemed to be amended to the extent, and only to the
extent, necessary to reflect the addition of such Eligible Assignee, and the
Eligible Assignee shall for all purposes be a Lender party hereto and shall
have, to the extent of such assignment, the same rights and obligations as a
Lender hereunder, including the right to approve or disapprove actions which, in
accordance with the terms hereof, require the approval of the Lenders or the
Required Lenders, as the case may be, and the obligations to make Loans and to
participate in Letters of Credit.
(c) Upon the consummation of any assignment, the assigning Lender shall be
relieved from its obligations hereunder to the extent of the obligations so
assigned (except, (i) obligations of the Issuing Lender in respect of the
Letters of Credit issued by it, and (ii) to the extent, if any, that the
Borrower, any other Lender or the Agent has rights against such assigning Lender
as a result of any default by such Lender under this Agreement) and appropriate
arrangements shall be made so that, if required, replacement Notes are issued to
such assigning Lender and new Notes or, as appropriate, replacement Notes are
issued to the Eligible Assignee, in each case in principal amounts reflecting
their outstanding Loans as adjusted pursuant to such Assignment Agreement.
Promptly following the consummation of each assignment, the Agent shall furnish
to the Borrower, the Issuing Lender and each Lender revised Schedule 1.1A,
-------------
revised to reflect such assignment.
(d) Notwithstanding Sections 16.1(a) and (b), at any time an Event of
---------------- ---
Default shall exist, consent of the Borrower shall not be required in connection
with any assignment by a Lender pursuant to Section 16.
----------
SECTION 16.2 Participations. Each Lender may grant participations in all
--------------
or any part of its Loans, Notes, Letters of Credit and LC Obligations to any
commercial bank, insurance company or other financial institution. A
participant shall not have any rights under this Agreement or any other document
delivered in connection herewith (the participant's rights against such Lender
in respect of such participation to be those set forth in the agreement executed
by such Lender in favor of the participant relating thereto, which agreement
with respect to such participation shall not restrict such Lender's ability to
make any modification, amendment or waiver to this Agreement without the consent
of the participant except that the consent of such participant may be required
in connection with matters requiring the consent of all of the Lenders under
Section 17.1). All amounts payable by the Borrower under this Agreement shall
- ------------
be determined as if the Lender had not sold such participation. In the event of
any such sale by a Lender of participating interests to a participant, such
Lender's obligations under this Agreement
-77-
<PAGE>
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any obligation for
all purposes under this Agreement, and the Borrower and the Agent shall continue
to deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement.
SECTION 16.3 Disclosure of Information. The Borrower authorizes each
-------------------------
Lender to disclose to any participant, assignee or Eligible Assignee (each, a
"Transferee") and any prospective Transferee any and all financial and other
information in such Lender's possession concerning the Borrower and its
Subsidiaries which has been delivered to such Lender by the Borrower in
connection with such Lender's credit evaluation of the Borrower prior to
entering into this Agreement or which has been delivered to such Lender by the
Borrower pursuant to this Agreement; provided that such Lender shall promptly
--------
notify the Borrower of such disclosure.
SECTION 16.4 Foreign Transferees. If, pursuant to this Section 16, any
------------------- ----------
interest in this Agreement or any Loan, Letter of Credit, Note or LC Obligation
is transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any state thereof, the transferor
Lender shall cause such Transferee (other than any participant), and may cause
any participant, concurrently with the effectiveness of such transfer, (a) to
represent to the transferor Lender (for the benefit of the transferor Lender,
the Agent, and the Borrower) that under applicable law and treaties no Taxes
will be required to be withheld by the Agent, the Borrower or the transferor
Lender with respect to any payments to be made to such Transferee in respect of
the Loans, Notes or Letters of Credit, (b) to furnish to the transferor Lender,
the Agent and the Borrower either U.S. Internal Revenue Service Form 4224 or
U.S. Internal Revenue Service Form 1001 (wherein such transfer claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder), and (c) to agree (for the benefit of the
transferor Lender, the Agent and the Borrower) to provide the transferor Lender,
the Agent and the Borrower a new Form 4224 or Form 1001 upon the obsolescence of
any previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Transferee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
-78-
<PAGE>
SECTION 17. MISCELLANEOUS
SECTION 17.1 Waivers and Amendments. The provisions of any of the Loan
----------------------
Documents may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and consented to by the Borrower
and the Required Lenders; provided, that no such amendment, modification or
--------
waiver:
(a) which would modify any requirement hereunder that any particular
action be taken by all Lenders or by the Required Lenders, shall be
effective without the consent of each Lender;
(b) which would modify this Section 17.1, change the definition of
------------
"Required Lenders," change any Percentage for any Lender (except pursuant
to Sections 2.4 or 16.1), reduce any fees, extend the Revolving Termination
------------ ----
Date, or subject any Lender to any additional obligations, shall be
effective without the consent of each Lender;
(c) which would permit the release of all or substantially all of the
stock pledged by the Parent pursuant to Section 8.2(a), shall be effective
--------------
without the consent of each Lender;
(d) which would extend the due date for, or reduce the amount of, any
payment or prepayment of principal of or interest on any Loan or any
reimbursement obligation, interest or fees with respect to any LC
Obligation, shall be effective without the consent of the Holder of such
Loan or LC Obligation; or
(e) which would affect adversely the interests, rights or obligations
of the Agent (in its capacity as the Agent), shall be effective without
consent of the Agent.
SECTION 17.2 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing (including bank wire, telex or similar
writing) and shall be given to such party at its address or telex number set
forth on the signature pages hereof or such other address or telex number as
such party may hereafter specify for the purpose by notice to the Agent and the
Borrower. Each such notice, request or other communication shall be effective
(a) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is received, (b) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or
-79-
<PAGE>
(c) if given by any other means, when delivered at the address specified in this
Section; provided, that notices to the Agent under Sections 3, 4 and 15 shall
-------- ---------- - --
not be effective until received by the Agent.
SECTION 17.3 Payment of Costs and Expenses. The Borrower agrees to pay on
-----------------------------
demand all reasonable expenses of the Agent (including Attorney Costs) in
connection with:
(a) the negotiation, preparation, execution and delivery of the Loan
Documents, including schedules and exhibits, and any amendments, waivers,
consents, supplements or other modifications to any of the Loan Documents
as may from time to time hereafter be required, whether or not the
transactions contemplated hereby or thereby are consummated,
(b) the filing, recording, refiling or rerecording of any of the Loan
Documents and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements and modifications to any thereof
and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or rerecorded by the terms of
the Loan Documents, and
(c) the preparation and/or review of the form of any document or
instrument relevant to the Loan Documents.
The Borrower further agrees to pay, and to save the Agent and the Lenders
harmless from all liability for, any stamp or other Taxes which may be payable
in connection with the execution or delivery of this Agreement, the Borrowings
hereunder, or the Loan Documents. The Borrower also agrees to reimburse the
Agent, the Issuing Lender and each Lender (without duplication) upon demand for
all reasonable out-of-pocket expenses (including Attorney Costs) incurred by the
Agent, the Issuing Lender or such Lender in connection with (x) the negotiation
of any restructuring or "work-out," whether or not consummated, of any
Liabilities and (y) the enforcement of any Liabilities and the consideration of
legal issues relevant hereto and thereto. All obligations of the Borrower
provided for in this Section 17.3 shall survive termination of this Agreement.
------------
SECTION 17.4 Indemnity. The Borrower agrees to indemnify each Lender and
---------
hold each Lender harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, Attorney
Costs for any Lender) in connection with any investigative, administrative or
judicial proceedings whether or not such Lender shall be designated a party
thereto, which may be reasonably incurred by
-80-
<PAGE>
such Lender (or by the Agent or the Issuing Lender in connection with its
actions as Agent or Issuing Lender hereunder), relating to or arising out of
this Agreement or any actual or proposed use of the proceeds of the Loans or LC
Obligations hereunder; provided, that no Lender shall have the right to be
--------
indemnified hereunder for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction. All obligations of the Borrower
provided for in this Section 17.4 shall survive termination of this Agreement.
------------
SECTION 17.5 Subsidiary References/Captions. The provisions of this
------------------------------
Agreement relating to Subsidiaries shall apply only during such times as the
Borrower has one or more Subsidiaries. Section captions used in this Agreement
are for convenience only, and shall not affect the construction of this
Agreement.
SECTION 17.6 Disclosure of Information. The Agent and each Lender agrees
-------------------------
to maintain the confidentiality of all information provided to it by the
Borrower and each of its Affiliates under this Agreement, provided that the
Agent and each Lender shall be permitted to disclose information regarding the
Credit Parties (i) to any other Agent or Lender, or to any actual or potential
Eligible Assignee or participant (provided that such Eligible Assignee or
participant agrees to be similarly bound by the confidentiality hereof), (ii) to
any Affiliate, agent, or employee of a Lender who agrees to be bound by this
Section 17.6, (iii) upon order of any court or administrative agency, (iv) upon
- ------------
the request or demand of any regulatory agency or authority having jurisdiction
over such party, (v) which has been publicly disclosed, (vi) which has been
obtained from any Person that is not a party hereto or an Affiliate, agent or
employee of any such party, (vii) in connection with the exercise of any remedy
hereunder or under any other Loan Document, (viii) to any Lender's certified
public accountants and attorneys, or (ix) to any rating agency.
SECTION 17.7 Governing Law. This Agreement, the Notes and each Loan shall
-------------
be a contract made under and governed by the laws of the State of New York,
without regard to conflict of laws principles. All obligations of the Borrower
and rights of the Agent, the Issuing Lender, the Lenders and any other Holders
of the Liabilities expressed herein or in any of the Loan Documents shall be in
addition to and not in limitation of those provided by applicable law.
SECTION 17.8 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the different parties on separate counterparts and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Agreement. This Agreement shall
become effective as of the date hereof (the "Effective Date")
-81-
<PAGE>
when (i) counterparts executed by all the parties shall have been delivered to
the Agent (or, in the case of any Lender as to which an executed counterpart
shall not have been so lodged, the Agent shall have received telegraphic,
facsimile, telex or other written confirmation from such Lender of execution of
a counterpart hereof by such Lender, and (ii) the conditions in Section 13.1
------- ----
have been satisfied or waived by the Required Lenders, and at such time the
Agent shall notify the Borrower, the Issuing Lender and each Lender.
SECTION 17.9 SUBMISSION TO JURISDICTION; WAIVER OF VENUE. THE BORROWER,
-------------------------------------------
ON BEHALF OF ITSELF AND EACH SUBSIDIARY (A) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK AND/OR ANY COURT OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS, AND THE BORROWER
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR UNITED STATES
COURT, AND (B) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST
THE AGENT, THE ISSUING LENDER OR ANY LENDER OR THE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR PROPERTY OF ANY THEREOF, ARISING OUT OF OR RELATING TO THIS
AGREEMENT, IN ANY COURT OTHER THAN AS HEREINABOVE SPECIFIED IN THIS SECTION
-------
17.9. THE BORROWER, ON BEHALF OF ITSELF AND EACH SUBSIDIARY, HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY ACTION OR PROCEEDING (WHETHER
BROUGHT BY THE BORROWER, ANY SUBSIDIARY, THE AGENT, THE ISSUING LENDER, ANY
LENDER, OR OTHERWISE) IN ANY COURT HEREINABOVE SPECIFIED IN THIS SECTION 17.9 AS
------------
WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR
PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM NON
----- ---
CONVENIENS OR OTHERWISE. THE BORROWER ON BEHALF OF ITSELF AND EACH SUBSIDIARY
- ----------
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.
SECTION 17.10 WAIVER OF JURY TRIAL. THE BORROWER, THE ISSUING LENDER, THE
--------------------
AGENT AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
ANY RIGHTS UNDER THE LOAN DOCUMENTS OR UNDER ANY OTHER DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL
BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT, THE ISSUING LENDER AND THE LENDERS ENTERING INTO THIS
AGREEMENT.
SECTION 17.11 Successors and Assigns. This Agreement shall
----------------------
-82-
<PAGE>
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that: (a) the Borrower may
-------- -------
not assign or transfer its rights or obligations hereunder without the prior
written consent of the Agent, the Issuing Lender and all Lenders; and (b) the
rights of the Lenders to make assignments or grant participations are subject to
the provisions of Section 16.
----------
-83-
<PAGE>
Delivered under seal at Chicago, Illinois, as of the day and year first
above written.
NOVA INFORMATION SYSTEMS, INC.
By: /s/ James M. Bahin
-------------------------------------------
Name: James M Bahin
Title: Vice Chairman & Chief Financial Officer
Address:
One Concourse Parkway, Suite 300
Atlanta, GA 30328
Attn: James M. Bahin
Telephone: (770) 396-1456
Facsimile: (770) 698-1013
Attested to by:
/s/ Carole A. Loftin
- ---------------------------- [Corporate Seal]
Vice President and Corporate
Counsel
-84-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent,
Lender and Issuing Lender
By: /s/ L. Dustin Vincent, Jr.
----------------------------------
Name: L. Dustin Vincent, Jr.
Title: Managing Director
Address for notices (other than Notices of
Borrowing and Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association, as Agent
Credit Products-High Technology-SF
#3697
555 California Street, 41st Floor
San Francisco, CA 94104
Attn: Michael McCutchin
Managing Director
Telephone: (415) 622-4589
Facsimile: (415) 622-2514
Address for Notices of Borrowing and Notices of
Conversion/
Continuation:
Bank of America National Trust
and Savings Association
Agency Administrative Services
#5596
1850 Gateway Boulevard
Concord, CA 94520
Attn: Blanca Vinje
Telephone: (510) 675-8432
Facsimile: (510) 675-8500
Address for payments:
Bank of America National Trust
and Savings Association
ABA No. 1210-0035-8
1850 Gateway Boulevard
Concord, CA 94520
Attn: Agency Administrative
Services #5596
For Credit to Bancontrol
A/C No. 12334-14348
Ref: NOVA INFORMATION
-85-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Lender
Address for notices (other than Notices of
Borrowing and Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association, as Agent
Credit Products-High Technology-SF
#3697
555 California Street, 41st Floor
San Francisco, CA 94104
Attn: Michael McCutchin
Managing Director
Telephone: (415) 622-4589
Facsimile: (415) 622-2514
Lending Office (Base Rate and Eurodollar Loans):
1850 Gateway Boulevard, 4th Floor
Concord, CA 94520
Attn: Lorine Stafford
Telephone: (510) 675-7153
Facsimile: (510) 675-7531
-86-
<PAGE>
SUNTRUST BANK, ATLANTA
By: /s/ Thomas P. Hackett
-------------------------------
Name: Thomas P. Hackett
Title: Assistant Vice President
25 Park Place
Mail Code 127/23rd Floor
Post Office Box 4418
Atlanta, GA 30302
Attn: Daniel S. Komitor
Vice President
Telephone: (404)724-3889
Facsimile: (404) 575-2988
[For Advances/Paydowns/Account
Information, please contact:]
SunTrust Bank, Atlanta
25 Park Place
Mail Code 112
Post Office Box 4418
Atlanta, GA 30302
Attn: Stephanie Creech
Corporate Banking Assistant
Telephone: (404) 581-1601
Facsimile: (404) 230-1940
Lending Office (Base Rate Loans)
Address: 25 Park Place
Mail Code 112
Post Office Box 4418
Atlanta, GA 30302
Attention: Stephanie Creech
Telephone: (404) 581-1601
Facsimile: (404) 230-1940
Lending Office (Eurodollar Rate
Loans)
Address: 25 Park Place
Mail Code 112
Post Office Box 4418
Atlanta, GA 30302
Attention: Stephanie Creech
Telephone: (404) 581-1601
Facsimile: (404) 230-1940
-87-
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ P. Michael Dunlap
-------------------------------
Name: P. Michael Dunlap
Title: Vice President
By: /s/ Jeana H. Kelly
-------------------------------
Name: Jeana H. Kelly
Title: Assistant Vice President
4570 Ashford Dunwoody Road
Atlanta, GA 30346
Attn: Thomas P. Hackett
Telephone: (404) 865-2363
Facsimile: (404) 865-2388
Lending Office (Base Rate Loans)
4570 Ashford Dunwoody Road
Atlanta, GA 30346
Attn: Thomas P. Hackett
Telephone: (404) 865-2363
Facsimile: (404) 865-2388
Lending Office (Eurodollar Rate
Loans)
4570 Ashford Dunwoody Road
Atlanta, GA 30346
Attn: Thomas P. Hackett
Telephone: (404) 865-2363
Facsimile: (404) 865-2388
-89-
<PAGE>
ACCEPTANCE AND ACKNOWLEDGEMENT
------------------------------
NOVA CORPORATION hereby agrees to be bound by all of the representations,
warranties, covenants and other provisions applicable to it contained in this
Agreement.
NOVA CORPORATION
By: /s/ James M. Bahin
-------------------------------------------
Name: James M Bahin
Title: Vice Chairman & Chief Financial Officer
Attested to by:
/s/ Carole A. Loftin
- ---------------------------- [Corporate Seal]
Vice President and Corporate
Counsel
Address:
c/o NOVA Information Systems, Inc.
One Concourse Parkway, Suite 300
Atlanta, GA 30328
Telephone: (770) 396-1456
Facsimile: (770) 698-1013
-90-
<PAGE>
SCHEDULE 1.1A
Lenders
<TABLE>
<CAPTION>
Revolving Loan Lender's
Lender Commitment Percentage
- ---------------------- -------------- -----------
<S> <C> <C>
Bank of America $35,000,000 43.750%
National Trust and
Savings Association
First Union National $30,000,000 37.500%
Bank
SunTrust Bank $15,000,000 18.750%
$80,000,000 100%
</TABLE>
-91-
<PAGE>
EXHIBIT A
FORM OF REVOLVING NOTE
Chicago, Illinois
$_________ October 27, 1997
The undersigned, FOR VALUE RECEIVED, promises to pay to the order of
____________________________________________________ (the "Lender") at the
principal office of Bank of America National Trust and Savings Association (the
"Agent") in San Francisco, California, _________________________ MILLION DOLLARS
($_________) or, if less, the aggregate unpaid principal amount of all Revolving
Loans (as defined in the Credit Agreement, hereinafter referred to) made by the
Lender to the undersigned pursuant to the Credit Agreement, payable in
installments as set forth in the Credit Agreement, with a final installment (in
the amount necessary to pay in full this Note) due and payable on the
Termination Date (as defined in the Credit Agreement).
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
--- -----
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds.
This Note is a Revolving Note described in, and is subject to the
terms and provisions of, a Credit Agreement, dated as of October 27, 1997 (as
the same may at any time be amended or modified and in effect, the "Credit
Agreement"), among the undersigned, the lenders party thereto (including the
Lender), the Issuing Lender (as defined therein) and the Agent, and payment of
this Note is secured by certain of the Related Documents (as defined in the
Credit Agreement). Reference is hereby made to the Credit Agreement for a
statement of the prepayment rights and obligations of the undersigned, a
description of the properties mortgaged and assigned, the nature and extent of
the collateral security and the rights of the parties to the Related Documents
in respect of such collateral security, and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon the
occurrence of any Event of Default as specified in the Credit Agreement, the
principal balance hereof and the interest accrued hereon may be declared to be
forthwith due and
<PAGE>
payable, and any indebtedness of the holder hereof to the undersigned may be
appropriated and applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including attorneys' fees and legal expenses, incurred by the holder of this
Note in endeavoring to collect any amounts payable hereunder which are not paid
when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED UNDER SEAL IN CHICAGO, ILLINOIS AND SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK .
NOVA INFORMATION SYSTEMS, INC.
By:_________________________
Name:_______________________
Title:______________________
Attested to by
______________________________
______________________________ [Corporate Seal]
-2-
<PAGE>
EXHIBIT B
FORM OF BORROWING REQUEST
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
Agency Administrative Services #5596
1850 Gateway Boulevard, 5/th/ Floor
Concord, CA 94520-3281
Attention: NOVA Info. Systems AO
FAX: (510) 675-8500
TEL: (510) 675-8432
Ladies and Gentlemen:
This Borrowing Request is delivered to you pursuant to Sections 3.2
------------
and 13.3.1 of the Credit Agreement, dated as of October 27, 1997 (as amended or
------
modified, the "Credit Agreement"), among NOVA Information Systems, Inc., a
Georgia corporation (the "Borrower"), the lenders that are or from time to time
become party thereto (the "Lenders"), the Issuing Lender and Bank of America
National Trust and Savings Association, as agent for the Lenders and the Issuing
Lender (in such capacity, the "Agent"). Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
The Borrower hereby requests that a Revolving Loan be made in the
aggregate principal amount of $________ on ___________, 19__ (the "Requested
Loan Date") as a [Base Rate Loan] [Eurodollar Rate Loan having an Interest
Period of _____ months].
The Borrower hereby certifies and warrants that on the date the
Borrowing requested hereby is made, after giving effect to the making of such
Borrowing:
(a) No Default or Event of Default has occurred and is continuing or
will result from the making of such Loan.
(b) The representations and warranties of the Borrower contained in
Section 9[, (except Sections 9.6,
--------- ------------
B-1
<PAGE>
9.7 and 9.8)]/1/ are true and correct with the same effect as though made
--- ---
on the date hereof.
(c) Except as disclosed to the Agent, the Issuing Lender and the
Lenders in writing and agreed to in writing by the Required Lenders in
their sole discretion, no Material Litigation not disclosed on Schedule 9.8
------------
to the Credit Agreement exists and since the Effective Date of the Credit
Agreement, no Material Litigation Development has occurred with respect to
any Litigation so disclosed on Schedule 9.8.
------------
(d) No Material Adverse Change has occurred since the date of the
most recent financial statements delivered or required to be delivered
pursuant to Section 9.6 of the Credit Agreement except as disclosed to the
------- ---
Agent, the Issuing Lender and the Lenders in writing and agreed to in
writing by the Required Lenders in their sole discretion.
(e) All conditions precedent to the making of such loan, as specified
in Sections 13.1, 13.2, and/or 13.3 of the Credit Agreement will be satisfied as
--------------------------------
of the Requested Loan Date.
The Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct in all material respects at such time as if then made, it will
immediately so notify the Agent. Except to the extent, if any, that prior to
the time of the Borrowing requested hereby the Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein shall
be deemed once again to be certified as true and correct at the date of such
Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of
the following persons as set forth on Annex I attached hereto.
-------
This certificate is given by the undersigned in his capacity as a
corporate officer, and the undersigned shall have no personal liability with
respect to the content hereof.
The Borrower has caused this Borrowing Request to be executed and
delivered, and the certification and warranties
- ----------------------------
/1/ To be incerted in any request following the initial loans or initial
issuance of any Letter of Credit.
B-2
<PAGE>
contained herein to be made, by a Responsible Officer this ____ day of
_____________, 19__.
NOVA INFORMATION SYSTEMS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
B-3
<PAGE>
EXHIBIT C
FORM OF CONTINUATION/CONVERSION NOTICE
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
Agency Administrative Services #5596
1850 Gateway Boulevard, 5/th/ Floor
Concord, CA 94520-3281
Attention: NOVA Info. Systems AO
FAX: (510) 675-8500
TEL: (510) 675-8432
Ladies and Gentlemen:
This Continuation/Conversion Notice is delivered to you pursuant to
Section 3.5 of the Credit Agreement, dated as of October 27, 1997 (as amended or
- -----------
modified, the "Credit Agreement"), among NOVA Information Systems, Inc., a
Georgia corporation (the "Borrower"), the lenders that are or from time to time
become party thereto (the "Lenders"), the Issuing Lender and Bank of America
National Trust and Savings Association, as agent for the Lenders and the Issuing
Lender (in such capacity, the "Agent"). Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
The Borrower hereby requests that on ___, 19 ,
(1) $_______ of the presently outstanding principal amount of the
Revolving Loans originally made on __________, 19__ [and $_____ of the
presently outstanding principal amount of the Revolving Loans originally
made on _________, 19 ,]
(2) and all presently being maintained as [Base Rate Loans]
[Eurodollar Rate Loans],
(3) be [converted into] [continued as],
(4) [Base Rate Loans] [Eurodollar Rate Loans having an
Interest Period of ___ months].
C-1
<PAGE>
The Borrower hereby represents and warrants that no Default or Event
of Default has occurred and is continuing or will result from the conversion or
continuation herein requested.
Except to the extent, if any, that prior to the time of the
continuation or conversion requested hereby the Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein shall
be deemed to be certified at the date of such continuation or conversion as if
then made.
The Borrower has caused this Continuation/Conversion Notice to be
executed and delivered, and the certification and warranties contained herein to
be made, by a Responsible Officer this ___ day of _________, 19__.
NOVA INFORMATION SYSTEMS, INC.
By:_______________________________
Name: ____________________________
Title:____________________________
C-2
<PAGE>
EXHIBIT D
FORM OF LC APPLICATION
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
Agency Administrative Services #5596
1850 Gateway Boulevard, 5/th/ Floor
Concord, CA 94520-3281
Attention: NOVA Info. Systems AO
FAX: (510) 675-8500
TEL: (510) 675-8432
Ladies and Gentlemen:
This LC Application is delivered to you pursuant to Sections 4.1 and
------------
13.3.1 of the Credit Agreement, dated as of October 27, 1997 (as amended or
- ------
modified, the "Credit Agreement") among NOVA Information Systems, Inc., a
Georgia corporation (the "Borrower"), the lenders who are or from time to time
become party thereto (the "Lenders"), the Issuing Lender and Bank of America
National Trust and Savings Association, as agent for the Lenders and the Issuing
Lender (in such capacity, the "Agent"). Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
We hereby request that on ____________, 19__, (the "Requested Issuance
Date") the Issuing Lender issue the Letter of Credit specified on Annex I
-------
attached hereto (the "Requested LC").
To induce the Issuing Lender to issue the Requested LC, the Borrower
hereby represents and warrants to the Issuing Lender, the Agent and the Lenders
that:
(a) No Default or Event of Default has occurred and is continuing or
will result from the issuance of such Letter of Credit.
(b) The representations and warranties of the Borrower contained in
Section 9 [(except Sections 9.6,
--------- ------------
D-1
<PAGE>
9.7 and 9.8)]/1/ are true and correct with the same effect as though made
--- ---
on the date hereof.
(c) Except as disclosed to the Agent, the Issuing Lender and the
Lenders in writing and agreed to in writing by the Required Lenders in
their sole discretion, no Material Litigation not disclosed on Schedule 9.8
------------
to the Credit Agreement exists and since the Effective Date of the Credit
Agreement, no Material Litigation Development has occurred with respect to
any Litigation so disclosed on Schedule 9.8.
------------
(d) No Material Adverse Change has occurred since the date of the
most recent financial statements delivered or required to be delivered
pursuant to Section 9.6 of the Credit Agreement except as disclosed to the
------- ---
Agent, the Issuing Lender and the Lenders in writing and agreed to in
writing by the Required Lenders in their sole discretion.
(e) All conditions precedent to the making of such Requested LC as
specified in Sections 13.1, 13.2 and/or 13.3 of the Credit Agreement will be
-------------------------------
satisfied as of the Requested Issuance Date.
The Borrower agrees that if prior to the time of the issuance of the
Letter of Credit requested hereby, any matter certified to herein by it will not
be true and correct in all material respects at such time as if then made, it
will immediately so notify the Issuing Lender and the Agent. Except to the
extent, if any, that prior to the time of the issuance of the Letter of Credit
requested hereby, the Issuing Lender and the Agent shall receive written notice
to the contrary from the Borrower, each matter certified to herein shall be
deemed once again to be certified as true and correct at the date of such
borrowing as if then made.
This certificate is given by the undersigned in his capacity as a
corporate officer, and the undersigned shall have no personal liability with
respect to the content hereof.
/1/ To be inserted in any request following the initial Loans or initial
issuance of any Letter of Credit.
D-2
<PAGE>
The Borrower has caused this LC Application to be executed and
delivered, and the certification and warranties contained herein to be made, by
a Responsible Officer this ____ day of ____________, 19__.
NOVA INFORMATION SYSTEMS, INC.
By:_______________________________
Name: ____________________________
Title:____________________________
D-3
<PAGE>
ANNEX I
[ATTACH LC APPLICATION]
D-4
<PAGE>
EXHIBIT E
FORM OF PARENT PLEDGE AGREEMENT
THIS PARENT PLEDGE AGREEMENT, dated as of October 27, 1997 (herein, as
the same may from time to time be amended, supplemented or modified and in
effect, called the "Pledge Agreement"), by NOVA Corporation, a Georgia
corporation (the "Pledgor"), and in favor of BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as agent for the lenders party to the Credit Agreement
referred to below and the Issuing Lender (herein, in such capacity, together
with any successor thereto in such capacity, called the "Agent").
Recitals
--------
WHEREAS, pursuant to that certain Credit Agreement, dated as of
October 27, 1997, between NOVA Information Systems, Inc., a Georgia corporation
(the "Borrower"), the lenders party thereto (the "Lenders"), the letter of
credit issuer (the "Issuing Lender") and the Agent (herein, as the same may from
time to time be amended or modified and in effect, the "Credit Agreement"), the
Lenders and the Issuing Lender have agreed to make Loans and issue or
participate in the issuance of Letters of Credit to or for the account of the
Pledgor for the purposes described in the Credit Agreement;
WHEREAS, the Borrower is a wholly-owned Subsidiary of the Pledgor and
it is in the best interests of the Pledgor to cause this Parent Pledge Agreement
to be executed on its behalf in as much as the Borrower (and thereby the
Pledgor) will derive substantial direct and indirect benefits from Loans to be
made under the Credit Agreement; and
WHEREAS, it is a condition precedent to the making of the Loans to the
Borrower under the Credit Agreement that the Pledgor execute and deliver this
Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in order to induce
the Lenders and the Issuing Lender to make the Loans and issue or participate in
the issuance of Letters of Credit to or for the account of the Borrower under
the Credit Agreement, the parties hereto agree as follows:
E-1
<PAGE>
SECTION 1. DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Pledge
---------------------
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Collateral" - see Section 2.
---------
"Issuer" shall mean the Borrower.
"Pledge Supplement" shall mean a document in the form of Annex I
-------
attached hereto as completed by the Pledgor.
"Pledged Shares" - means any and all issued and outstanding shares of
stock of the Issuer.
SECTION 1.2 Credit Agreement Definitions. Unless otherwise defined
----------------------------
herein, terms used in this Pledge Agreement (and in its preamble and recitals)
which are defined in the Credit Agreement have the meanings provided in the
Credit Agreement including, without limitation, "Commitments", "Default",
"Liabilities", "Event of Default", and "Loans".
SECTION 2. PLEDGE
To secure the prompt and complete payment and performance of the
Liabilities including, without limitation, the obligations of the Pledgor
hereunder, the Pledgor hereby pledges, hypothecates, assigns, transfers, sets
over and delivers unto the Agent for the benefit of the Lenders and the Issuing
Lender a continuing security interest in all of the Pledgor's right, title and
interest in and to the following, whether now owned or existing or hereafter
acquired or arising (herein collectively called the "Collateral"):
(a) the shares of stock listed in Schedule I hereto, and the
----------
certificates representing or evidencing the Pledged Shares, and, in the
case of any uncertificated equity securities pledged hereunder, such
uncertificated equity securities shall contain a notation of the security
interest and the pledge granted to the Agent hereunder on the books and
records of the issuer of the uncertificated equity securities in the name
of the Agent, and all cash, securities, interest, dividends, rights and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Pledged Shares;
E-2
<PAGE>
(b) all other tangible and intangible property and interests therein
hereafter delivered to the Agent or any Lender or the Issuing Lender by the
Pledgor in substitution for or in addition to any of the foregoing, all
certificates, notes and instruments representing or evidencing such other
property, and in the case of uncertificated equity securities, all
notations of the security interest hereafter delivered on the books and
records of the issuer of the uncertificated equity securities in the name
of the Agent, and all cash, securities, interest, dividends, and other
payments, rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all thereof; and
(c) all proceeds of all of the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests,
privileges and preferences appertaining or incidental thereto, unto the Agent,
its successors and assigns, forever, subject, however, to the terms, covenants
------- -------
and conditions hereafter set forth.
SECTION 3. REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Pledged Shares. The Pledgor represents and warrants to
--------------
the Agent, the Lenders and the Issuing Lender that:
(a) The Pledged Shares are duly authorized, validly issued, are fully
paid and non-assessable and represent 100% of the issued and outstanding
capital stock of the Issuer;
(b) The Agent for the benefit of the Lenders and the Issuing Lender
has, provided it retains possession of the Pledged Shares and other
Collateral, a valid perfected security interest in the Collateral and the
proceeds thereof free of all Liens except Permitted Liens, claims and
rights of third parties whatsoever subject to the making of the Loans;
(c) The Pledgor will, at all times, keep pledged to the Agent
pursuant hereto all uncertificated equity securities or shares of the
capital stock of the Issuer, and all other certificates or instruments
which the Pledgor may now or hereafter own evidencing any ownership of the
Issuer;
E-3
<PAGE>
(d) The Pledgor will endorse and deliver to the Agent for pledge
hereunder, promptly upon its obtaining thereof, any additional Pledged
Shares (or other Collateral to the extent required herein). As of the date
of any such delivery of additional shares, interests, uncertificated equity
securities, certificates or instruments to the Agent, the Pledgor will
represent and warrant that: (i) the Pledgor owns such shares,
certificates, uncertificated equity securities and instruments and the
proceeds thereof free and clear of all Liens except Permitted Liens, claims
and rights of any other Person other than the Liens granted hereunder and
Permitted Liens, (ii) the Pledgor has good title to said shares,
certificates and instruments and has the right to deliver, pledge, assign
and transfer such shares, certificates or instruments to the Agent pursuant
to this Pledge Agreement, (iii) the Pledgor has pledged to the Agent, as of
such date, all of the capital stock and uncertificated equity securities of
each of the Issuers, and (iv) provided that the Agent retains possession
thereof, the Agent has a valid, first priority perfected security interest
in said shares, interests, certificates or instruments and the proceeds
thereof free of all Liens except Permitted Liens, claims and rights of
third parties whatsoever; and
(e) All documentary, stamp or other taxes or fees owing in connection
with the issuance, transfer and/or pledge of the Pledged Shares and other
certificates or instruments have been paid and will hereafter be paid by
the Pledgor as such become due and payable.
SECTION 3.2 Collateral. The Pledgor further represents and warrants
----------
to the Agent that it is the lawful owner of the Collateral existing on the date
hereof, free of all Liens except Permitted Liens, claims and rights of any other
Person other than the Lien granted hereunder and Permitted Liens, with full
right to deliver, pledge, assign and transfer such Collateral to the Agent as
Collateral hereunder.
SECTION 3.3 Organization. The Pledgor additionally represents and
------------
warrants to the Agent that:
(a) it is a corporation duly formed, validly existing and in good
standing under the laws of the State of Georgia;
(b) the Pledgor is duly qualified to transact business and is in good
standing as a foreign corporation
E-4
<PAGE>
authorized to do business in each jurisdiction where the nature of each of
its businesses makes such qualification necessary where failure to so
qualify could reasonably be expected to have a Material Adverse Effect;
(c) Pledgor has the corporate power to execute, deliver and perform
this Pledge Agreement and such execution, delivery and performance have
been duly authorized by all necessary corporate action (including, without
limitation, shareholder approval, if necessary), have received or made all
necessary governmental approvals, licenses, authorizations, validations,
filings, recordings, registrations or exemptions except to the extent the
failure thereof shall not constitute a Material Adverse Change (if any
shall be required), and do not and will not contravene or conflict with any
provision of law or of the corporate charter or by-laws of the Pledgor or
of any material agreement or instrument binding upon Pledgor or any of its
property, except to the extent the failure thereof shall not constitute a
Material Adverse Change; and
(d) this Pledge Agreement is the legal, valid and binding obligation
of the Pledgor, enforceable against the Pledgor in accordance with its
terms.
SECTION 3.4 Effectiveness. Each representation and warranty made or
-------------
to be made under this Pledge Agreement by the Pledgor shall be deemed remade as
of and on the date of each Loan made or Letter of Credit issued from time to
time under or in connection with the Credit Agreement with the same effect as if
made contemporaneously with the making of each such Loan or issuance of such
Letter of Credit and as of and at the date of delivery of any additional
Collateral to the Agent.
SECTION 4. COVENANTS
So long as any of the Liabilities remain outstanding, the Pledgor
will, unless the Required Lenders shall otherwise consent in writing:
(a) At its sole expense, promptly deliver to the Agent, from time to
time upon request of the Agent, such stock powers, uncertificated equity
securities' powers and rights and other documents, satisfactory in form and
substance to the Agent, with respect to the Collateral as the Agent may
reasonably request, to preserve and
E-5
<PAGE>
protect, and to enable the Agent to enforce, its rights and remedies
hereunder;
(b) Not sell, assign, exchange or otherwise transfer any of its rights
to any of the Collateral except for the pledge hereunder and the Lien and
Permitted Liens created hereby;
(c) Promptly endorse and deliver to the Agent for pledge hereunder,
any additional Pledged Shares obtained by it;
(d) Not create or suffer to exist any Lien except for Permitted Liens,
security interest or other charge or encumbrance against, in or with
respect to any of the Collateral except for the pledge hereunder and the
Lien and Permitted Liens created hereby;
(e) Not enter into any agreement or permit to exist any restriction
with respect to any of the Collateral except for the Permitted Liens and
other than restrictions under applicable securities laws on transferability
of Collateral which constitutes a security and pursuant hereto;
(f) Not take or fail to take any action which would in any manner
impair the enforceability of the Agent's Lien and security interest in any
of the Collateral;
(g) Own all Collateral free and clear of all Liens except Permitted
Liens, claims and rights of any Person other than the Agent, have good
title to all of the Collateral and have the right to pledge such
Collateral;
(h) Promptly cause the Issuer to note the Lien of the Agent on any
uncertificated equity securities in its books and records;
(i) Own 100% of the voting stock of the Issuer.
SECTION 5. CARE OF COLLATERAL
The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if it takes such action for that
purpose as the Pledgor requests in writing, but failure of the Agent to comply
with any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure of the Agent to preserve or protect any rights
with respect
E-6
<PAGE>
to the Collateral against prior or other parties, or to do any act with respect
to preservation of the Collateral not so requested by the Pledgor, shall of
itself be deemed a failure to exercise reasonable care in the custody or
preservation of the Collateral.
SECTION 6. CERTAIN RIGHTS REGARDING
COLLATERAL AND LIABILITIES
SECTION 6.1. Subject to Sections 6.3 and 7 hereof, the Agent may,
------------ -
from time to time after the occurrence and during the continuance of any Default
pursuant to Section 14.1.3 of the Credit Agreement or any Event of Default, in
--------------
its sole discretion and without notice to the Pledgor:
(a) transfer all or any part of the Collateral into the name of the
Agent or its nominee, with or without disclosing that such Collateral is
subject to the Lien and security interest hereunder;
(b) notify the parties obligated on any of the Collateral to make
payment to the Agent of any amounts due or to become due thereunder;
(c) enforce collection of any of the Collateral by suit or otherwise;
(d) only upon the occurrence and during the continuance of an Event of
Default, surrender, release or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than
the original period) any obligations of any nature of any party with
respect thereto; and
(e) take control of any proceeds of the Collateral;
it being understood that, notwithstanding anything herein to the contrary, if
- -- ----- ---------- ----
the Agent shall transfer all or any part of the Pledged Shares into its name or
the name of its nominee pursuant to Section 6.1(a) above solely as a result of
--------------
the occurrence and continuance of a Default under Section 14.1.3 which Default
--------------
does not mature into an Event of Default and which Default is subsequently
cured, the Agent shall, upon such cure, transfer such Pledged Shares into the
name of the Pledgor or its nominee; provided, that, any such transfer by the
-------- ----
Agent to the Pledgor or its nominee shall not impair the validity of the
security interest in the Pledged Shares granted hereunder and concurrent
therewith the Pledgor shall execute and deliver to the Agent blank stock powers
for such Pledged Shares.
E-7
<PAGE>
SECTION 6.2. The Agent may, from time to time, in its sole discretion
and without notice to the Pledgor, take any or all of the following actions:
(a) retain or obtain a Lien upon, or a security interest in, any
property to secure payment and performance of any of the Liabilities or any
obligation hereunder;
(b) retain or obtain the primary or secondary obligation of any
obligor or obligors, with respect to any of the Liabilities or any
obligation hereunder;
(c) create, extend or renew for any period (whether or not longer than
the original period) or alter or exchange any of the Liabilities, or
release or compromise any obligation of the Pledgor hereunder or any
obligation of any nature of any other obligor with respect to any of the
Liabilities or any obligation hereunder;
(d) release or fail to perfect its Lien upon or security interest in,
or impair, surrender, release or permit any substitution or exchange for,
all or any part of any property securing any of the Liabilities or any
obligation hereunder, or create, extend or renew for any period (whether or
not longer than the original period) or release, compromise, alter or
exchange any obligations of any nature of any obligor with respect to any
such property; and
(e) after the occurrence and during the continuance of a Default
pursuant to Section 14.1.3 of the Credit Agreement or any Event of Default,
--------------
resort to the Collateral for payment of any of the Liabilities or any
obligation hereunder, whether or not the Agent (i) shall have resorted to
any other property securing any of the Liabilities or (ii) shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Liabilities or any obligation hereunder (all of the
actions referred to in preceding clauses (i) and (ii) being hereby
expressly waived by the Pledgor).
SECTION 6.3. The Agent shall have no right to vote the Pledged Shares
or other Collateral or give consents, waivers or ratifications in respect
thereof except after the occurrence and during the continuance of a Default
pursuant to Section 14.1.3 of the Credit Agreement or any Event of Default.
--------------
After the occurrence and during the continuance of such a Default or Event of
Default,
E-8
<PAGE>
the Pledgor shall have the right to vote any and all of the Pledged Shares and
other Collateral and give consents, waivers and ratifications in respect thereof
unless and until it receives notice from the Agent that such right has been
terminated. The Pledgor agrees to deliver (properly endorsed when required) to
the Agent, during the continuance of such a Default or Event of Default,
promptly upon request of the Agent, such proxies and other documents as may be
necessary for the Agent to exercise the voting power with respect to any and all
of the Pledged Shares and other Collateral then or previously owned by the
Pledgor.
SECTION 7. DIVIDENDS, ETC.
SECTION 7.1 No Default. So long as no Default pursuant to Section
---------- -------
14.1.3 of the Credit Agreement nor any Event of Default shall have occurred and
- ------
be continuing:
(a) Subject to the provisions of the Credit Agreement, the Pledgor
shall be entitled to receive and retain any and all cash dividends and
other payments on the Collateral which it is otherwise entitled to receive,
but any and all stock and/or liquidating dividends, distributions in
property, returns of capital or other distributions made on or in respect
of the Collateral, whether resulting from a subdivision, combination,
reclassification or conversion of the outstanding capital stock of any
issuer, or received in exchange for the Collateral or any part thereof, or
as a result of any merger, consolidation, acquisition or other exchange of
assets to which any issuer may be a party or otherwise, and any and all
cash and other property received in exchange for any Collateral shall be
and become part of the Collateral pledged hereunder and, if received by the
Pledgor, shall forthwith be delivered to the Agent or its designated
nominee (accompanied, if appropriate, by proper instruments of assignment
and/or stock powers executed by the Pledgor in accordance with the Agent's
instructions) to be held subject to the terms of this Pledge Agreement.
(b) If the Collateral or any part thereof shall have been registered
in the name of the Agent, or its agent, the Agent shall execute and deliver
(or cause to be executed and delivered) to the Pledgor all such dividend
orders and other instruments as the Pledgor may request for the purpose of
enabling the Pledgor to receive the dividends or other payments which it is
E-9
<PAGE>
authorized to receive and retain pursuant to paragraph (a) above.
-------------
SECTION 7.2 Occurrence of Default. Upon the occurrence and during
---------------------
the continuance of a Default pursuant to Section 14.1.3 of the Credit Agreement
--------------
or any Event of Default, all rights of the Pledgor pursuant to Section 7.1(a)
--------------
hereof shall cease and the Agent shall have the sole and exclusive right and
authority to receive and retain the dividends and other payments which the
Pledgor would otherwise be authorized to retain. All such dividends, and all
other distributions and payments made on or in respect of the Collateral which
may at any time and from time to time be held by the Pledgor, shall, until
delivery to the Agent, be held by the Pledgor separate and apart from its other
property in trust for the Agent. Any and all money and other property paid over
to or received by the Agent pursuant to the provisions of this Section 7.2 shall
-----------
be retained by the Agent as additional Collateral hereunder and be applied in
accordance with the provisions hereof. Notwithstanding anything herein to the
contrary, if the Agent shall transfer all or any part of the Collateral into its
name or the name of its nominee pursuant to Section 6.1(a) above solely as a
--------------
result of the occurrence and continuance of a Default under Section 13.1.3 which
--------------
Default does not mature into an Event of Default and which Default is
subsequently cured, the Agent shall, upon such cure, transfer such Collateral
into the name of the Pledgor or its nominee; provided, that, any such transfer
-------- ----
by the Agent to the Pledgor or its nominee shall not impair the validity of the
security interest in the Collateral granted hereunder and concurrent therewith
the Pledgor shall execute and deliver to the Agent blank stock powers for any
Pledged Shares constituting Collateral.
SECTION 8. DEFAULT
SECTION 8.1 Occurrence of Default. Upon the occurrence and during
---------------------
the continuance of a Default pursuant to Section 14.1.3 of the Credit Agreement
--------------
or any Event of Default, the Agent may exercise from time to time any rights and
remedies available to it under the Uniform Commercial Code as in effect from
time to time in New York or otherwise available to it, including, without
limitation, sale, assignment, or other disposal of the Collateral in exchange
for cash or credit. If any notification of intended disposition of any of the
Collateral is required by law, such notification, if sent by certified mail,
shall be deemed reasonably and properly given if mailed at least ten (10) days
before such disposition, postage prepaid, addressed to the Pledgor at the
address of the Pledgor shown below, or at any other addresses of the Pledgor
appearing on the records of the Agent. Any proceeds of
E-10
<PAGE>
any disposition of Collateral shall be applied as provided in Section 9 hereof.
---------
No rights and remedies of the Agent expressed hereunder are intended to be
exclusive of any other right or remedy, but every such right or remedy shall be
cumulative and shall be in addition to all other rights and remedies herein
conferred, or conferred upon the Agent under any other agreement or instrument
relating to any of the Liabilities or security therefor or now or hereafter
existing at law or in equity or by statute. No delay on the part of the Agent in
the exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by the Agent of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy.
No action of the Agent permitted hereunder shall impair or affect the rights of
the Agent in and to the Collateral.
SECTION 8.2 Sale of Collateral. Upon the occurrence and during the
------------------
continuance of a Default pursuant to Section 14.1.3 of the Credit Agreement or
--------------
any Event of Default:
(a) The Pledgor agrees that in any sale of any of the Collateral the
Agent is authorized to comply with any limitation or restriction in
connection with such sale as counsel may advise the Agent is necessary in
order to avoid any violation of applicable law (including, without
limitation, compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders
and purchasers have certain qualifications, and restrict such prospective
bidders and purchasers to persons who will represent and agree that they
are purchasing for their own account for investment and not with a view to
the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall the Agent be
liable nor accountable to the Pledgor for any discount allowed by reason of
the fact that such Collateral is sold in compliance with any such
limitation or restriction.
(b) If the Agent decides to exercise its right to sell all or any of
the Pledged Shares or other Collateral, upon written request, the Pledgor
shall furnish or cause to be furnished to the Agent all such information
available to it as the Agent may reasonably request in order to qualify
such Pledged Shares or other Collateral as exempt securities, or the sale
or resale of
E-11
<PAGE>
such Pledged Shares or other Collateral as exempt transactions, under
federal and state securities laws. The Pledgor agrees to allow, and to
cause the Issuer to allow, the Agent and any underwriter access at
reasonable times and places to the books, records and premises of the
Pledgor and the Issuer. The Pledgor further agrees to assist, and cause the
Issuer to assist, the Agent, any underwriter, any agent of any thereof, and
any counsel, accountant or other expert for any thereof, in inspection,
evaluation, and any other "due diligence" action of or with respect to any
such books, records and premises; and the Pledgor further agrees to use its
reasonable best efforts to cause any independent public accountant for the
Issuer to furnish a letter to the Agent and underwriters in customary form
and covering matters of the type customarily covered by letters of
accountants for issuers to underwriters.
SECTION 9. APPLICATION OF PROCEEDS
The proceeds of sale of Collateral sold pursuant to the terms of
Section 8 hereof, and, after a Default pursuant to Section 14.1.3 of the Credit
- --------- --------------
Agreement or any Event of Default, the cash held as Collateral (if any)
hereunder may, in the discretion of the Agent, be held by the Agent as
Collateral for, and/or then or at any time thereafter be applied in the
following order of priority:
FIRST: To the payment of all reasonable costs and expenses of such
-----
sale, collection or other realization and all other expenses, liabilities
and advances made or incurred by the Agent in connection therewith and all
amounts for which the Agent is entitled to indemnification hereunder and
all advances made by the Agent hereunder for the account of the Borrower
and for the payment of all costs and expenses paid or incurred by the Agent
in connection with the exercise of any right or remedy hereunder, all in
accordance with Section 10;
----------
SECOND: To the ratable payment in full of all accrued and unpaid fees
------
owing to the Agent, the Issuing Lender and the Lenders;
THIRD: To the ratable payment in full of all accrued and unpaid
-----
interest owing to the Lenders;
E-12
<PAGE>
FOURTH: To the ratable payment in full of all other Liabilities owing
------
to the Agent, the Issuing Lender or the Lenders; and
FIFTH: After payment in full of the amounts specified in the
-----
preceding paragraphs, to the payment to or upon the order of the Pledgor,
or whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds;
SECTION 10. AUTHORITY OF THE AGENT;
INDEMNIFICATION
The Agent may execute any of its duties hereunder by or through agents
or employees and shall (upon notice to the Pledgor) be entitled to retain
counsel and to act in reasonable reliance upon the advice of such counsel
concerning all matters pertaining to its duties hereunder. Neither the Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it hereunder or in connection herewith
including actions taken or omitted to be taken as a result of its negligence,
except for its or their own gross negligence or willful misconduct or for
violation of law as determined by a court of competent jurisdiction or in
connection with litigation between Pledgor and the Agent unless otherwise
determined or agreed to in such litigation. The Pledgor hereby agrees to pay on
demand all reasonable expenses of the Agent (including the fees and out-of-
pocket expenses of counsel to the Agent and of local counsel, if any, who may be
retained by counsel to the Agent) incurred by the Agent in connection with the
enforcement of this Pledge Agreement (including, without limitation, reasonable
costs and expenses incurred by any agent employed by the Agent) and agrees to
indemnify and hold the Agent (and any such agent employed by the Agent) harmless
from and against any and all liabilities, losses, damages, costs and expenses of
any kind (including, without limitation, the reasonable fees and disbursements
of counsel for the Agent) which may be incurred by the Agent (or such agent
employed by the Agent) hereunder or in connection herewith (including without
limitation, any liability arising by reason of the negligence of the Agent),
provided, that the Agent, or such agent employed by the Agent, as the case may
- -------- ----
be, shall not have the right to be indemnified hereunder for its own gross
negligence or willful misconduct or for violation of this Pledge Agreement or
law as determined by a court of competent jurisdiction or in connection with
litigation between the Pledgor and the Agent unless so determined or agreed to
in such
E-13
<PAGE>
litigation. All obligations of the Pledgor provided for in this Section
-------
10 shall survive termination of this Pledge Agreement.
- --
SECTION 11. TERMINATION
The Pledgor agrees that its pledge hereunder shall (notwithstanding,
without limitation, that at any time or from time to time all Liabilities may
have been paid in full) terminate only when all Liabilities (including, without
limitation, any extensions or renewals of any thereof), but excluding contingent
liabilities which expressly survive the termination of the Credit Agreement or
the other Related Documents and all interest thereon and all reasonable expenses
(including, without limitation, attorneys' fees and legal expenses) paid or
incurred by the Agent or the holder or the holders of the Notes in endeavoring
to enforce this Pledge Agreement, the Credit Agreement and the other Related
Documents to which the Agent is a beneficiary shall have been finally paid in
full and all other obligations of the Pledgor hereunder and thereunder have been
fully performed, and all Commitments under the Credit Agreement have been
terminated, at which time the Agent shall reassign and redeliver (or cause to be
reassigned and redelivered) to the Pledgor, or to such Person or Persons as the
Pledgor shall designate, such of the Collateral (if any) as shall not have been
sold or otherwise applied by the Agent pursuant to the terms hereof and shall
still be held by it hereunder, together with appropriate instruments of
reassignment and release. Any such reassignment shall be without recourse upon,
or representation or warranty by, the Agent and at the sole cost and expense of
the Pledgor.
SECTION 12. MISCELLANEOUS PROVISIONS
SECTION 12.1 Amendments and Waivers. No amendment, modification,
----------------------
termination or waiver of any provision of this Pledge Agreement, and no consent
to any departure by the Pledgor here from, shall in any event be effective
unless the same shall be in writing and signed by the Agent and the Required
Lenders, and then any such amendment, modification, termination, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 12.2 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing (including bank wire, facsimile or
similar writing) and shall be given to such party at its address or facsimile
number set forth on the signature pages hereof or such other address or
facsimile number as such party may hereafter specify for the purpose of
E-14
<PAGE>
notice to the Agent and the Pledgor. Each such notice, request or other
communication shall be effective (a) if given by facsimile, when such facsimile
is transmitted to the facsimile number specified in this Section and the
appropriate answerback is received or (b) if given by any other means, when
delivered at the address specified in this Section.
SECTION 12.3 Captions. Section captions in this Pledge Agreement are
--------
for convenience only, and shall not affect the construction of this Pledge
Agreement.
SECTION 12.4 Waivers. The Pledgor hereby expressly waives: (a)
-------
notice of the acceptance by the Agent of this Pledge Agreement, (b) notice of
the existence or creation or non-payment of all or any of the Liabilities, (c)
presentment, demand, notice of dishonor, protest, and, to the extent permitted
by law, all other notices whatsoever, and (d) all diligence in collection or
protection of or realization upon the Liabilities or any thereof, any obligation
hereunder, or any security for or guaranty of any of the foregoing.
SECTION 12.5 Further Assurances. The Pledgor agrees that, if at any
------------------
time all or any part of any payment theretofore applied by the Agent to any of
the Liabilities is or must be rescinded or returned by the Agent for any reason
whatsoever (including, without limitation, the insolvency, bankruptcy or
reorganization of the Pledgor or its Subsidiaries), such Liabilities shall, for
the purposes of this Pledge Agreement, to the extent that such payment is or
must be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by the Agent, and the pledge by the Pledgor
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such Liabilities, all as though such application by the Agent had not been
made.
SECTION 12.6 Governing Law; Terms; Interpretation.
------------------------------------
This Pledge Agreement shall be a contract made under and governed by the laws of
the state of New York , without regard to its conflicts of law principles. All
obligations of the Pledgor and rights of the Agent expressed herein or in the
other Related Documents shall be in addition to and not in limitation of those
provided by applicable law.
SECTION 12.7 Conditions of Effectiveness. No action of the Agent
---------------------------
permitted hereunder shall in any way affect or impair the rights of the Agent
and the obligations of the Pledgor under this Pledge Agreement. The Pledgor
hereby acknowledges that there are no conditions to the effectiveness of this
Pledge Agreement.
E-15
<PAGE>
SECTION 12.8 Liabilities. All obligations of the Pledgor and rights
-----------
of the Agent (and any other holder of Notes or Liabilities expressed in this
Pledge Agreement) shall be in addition to and not in limitation of those
provided in applicable law or in any other written instrument or agreement
relating to any of the Liabilities.
SECTION 12.9 Counterparts. This Pledge Agreement may be executed in
------------
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute but one and the same Pledge
Agreement. The Pledgor hereby acknowledges receipt of a true, correct and
complete counterpart of this Pledge Agreement.
SECTION 12.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE. THE
-------------------------------------------
PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT AND/OR UNITED STATES COURT SITTING IN THE SOUTHERN DISTRICT OF NEW YORK
OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE
AGREEMENT AND THE PLEDGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE
OR UNITED STATES COURT, AND (B) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST THE AGENT OR THE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
PROPERTY OF THE AGENT, ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT, IN
ANY COURT OTHER THAN AS HEREINABOVE SPECIFIED IN THIS SECTION 12.10. THE
-------------
PLEDGOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH ACTION
OR PROCEEDING (WHETHER BROUGHT BY EITHER OR BOTH OF THE PLEDGOR, THE AGENT, OR
OTHERWISE) IN ANY COURT HEREINABOVE SPECIFIED IN THIS SECTION 12.10 AS WELL AS
-------------
ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR PROCEEDING,
ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR
----- --- ----------
OTHERWISE. THE PLEDGOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
SECTION 12.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
PLEDGE AGREEMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, AND AGREE THAT
ANY SUCH ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT
ENTERING INTO THIS PLEDGE AGREEMENT.
E-16
<PAGE>
SECTION 12.12 Successors and Assigns. This Pledge Agreement shall be
----------------------
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that the Pledgor may not
-------- -------
assign or transfer its rights or obligations hereunder without the prior written
consent of the Agent.
E-17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered under seal as of the date first
above written.
NOVA CORPORATION
a Georgia corporation, as Pledgor
By: _______________________________
Its: ______________________________
Address: One Concourse Parkway
Suite 300
Atlanta, Georgia 30328
Fax: (770) 698-1013
Attested to by:
____________________
____________________ [Corporate Seal]
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By: _______________________________
Its: ______________________________
Address:
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attn: Agency Management Services
#5596
Facsimile: (415) 622-4894
E-18
<PAGE>
SCHEDULE I
LISTING OF STOCK PLEDGED (PLEDGED SHARES)
NOVA Information Systems, Inc. has 20,500,000 shares of authorized
capital stock, of which 20,000,000 have been designated as common stock and
500,000 have been designated as preferred stock.
The following are all of the issued and outstanding shares of NOVA
Information Systems, Inc. as of October 27, 1997.
<TABLE>
<CAPTION>
Certificate Number of
Number Shares
- ----------- -------------------------------------------------
<C> <S>
18 652,850 Shares of Common Stock
5 15,515.34 Shares of Series A Convertible
Preferred Stock
2 10,027 Shares of SEries B Convertible Preferred
Stock
2 3,029 Shares of Series C Convertible Preferred
Stock
3 5,000 Shares of Series D Non-Convertible
Preferred Stock
</TABLE>
All of the shares of Common Stock described above have voting rights.
Series A, Series B and Series C Preferred Stock have the power to vote for The
Board of Directors. Series D Preferred Stock do not have voting rights other
than those guaranteed by the Georgia Corporation Code.
All of the issued and outstanding shares of NOVA Information Systems,
Inc. are owned by NOVA Corporation.
E-19
<PAGE>
ANNEX I
PLEDGE SUPPLEMENT
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, Ca 94520-3281
Attention: NOVA Information Systems, Inc.
Ladies and Gentlemen:
This Pledge Supplement is delivered to you pursuant to (i) the Credit
Agreement, dated as of October 27, 1997 (as amended or modified, the "Credit
Agreement"), among NOVA Information Systems, Inc., a Georgia corporation (the
"Borrower"), the lenders that are or from time to time become party thereto (the
"Lenders"), the Issuing Lender and Bank of America National Trust and Savings
Association, as agent for the Lenders and the Issuing Lender (in such capacity,
the "Agent") and (ii) the Pledge Agreement, dated as of October 27, 1997
(herein, as the same may from time to time be amended or modified and in effect,
called the "Pledge Agreement"), by the Borrower in favor of the Agent. Unless
otherwise defined herein, capitalized terms used herein have the meanings
provided in the Pledge Agreement.
Schedule I of the Pledge Agreement is hereby supplemented by adding
the following thereto:
[Describe shares of stock, etc.]
The Borrower has caused this Pledge Supplement to be executed and
delivered by a Responsible Officer this __th day of ________, 1997.
NOVA INFORMATION SYSTEMS, INC.
By:___________________________
Name:_________________________
Title:________________________
E-20
<PAGE>
EXHIBIT F
FORM OF PARENT GUARANTY
THIS GUARANTY, dated as of October 27, 1997 (herein called this
"Guaranty"), is executed by the undersigned in favor of Bank of America National
Trust and Savings Association, as agent for the Lenders and the Issuing Lender
under the Credit Agreement referred to below (in such capacity, together with
any successor thereto in such capacity, called the "Agent"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in said
Credit Agreement.
W I T N E S E T H:
- - - - - - - - -
WHEREAS, NOVA Information Systems, Inc., a Georgia corporation (the
"Borrower"), has entered into a Credit Agreement, dated as of October 27, 1997
(as amended or otherwise modified from time to time, the "Credit Agreement")
with the lenders who are or may become party to the Credit Agreement (together
with their respective successors and assigns, the "Lenders"), the Issuing Lender
and the Agent, pursuant to which the Lenders and the Issuing Lender have agreed
to make Loans to and issue or participate in the issuance of Letters of Credit
for the account of the Borrower; and
WHEREAS, the undersigned will benefit from the making of Loans and the
issuance of the Letters of Credit pursuant to the Credit Agreement and is
willing to guaranty the Liabilities (as defined below) as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby, as primary
obligor and not merely as surety, guarantees the full and prompt payment when
due, whether at stated maturity, by required prepayment, declaration, demand,
acceleration or otherwise (including amounts that would become due but for the
operation of the automatic stay under section 362(a) of the Bankruptcy Code (11
U.S.C. (S) 362(a)), and at all times thereafter, of all obligations (monetary or
otherwise) of the Borrower to each of the Lenders, the Issuing Lender and the
Agent, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
including (without limitation) all obligations which arise out of or in
connection with the Credit Agreement or any Related Document, in each case as
the same may be amended, modified, extended or renewed from time to time (all
such obligations being herein collectively called the "Liabilities"), and the
undersigned further agrees to pay all reasonable expenses (including reasonable
F-1
<PAGE>
attorneys' fees and legal expenses) paid or incurred by the Lenders, the Issuing
Lender and the Agent in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing this Guaranty; provided, however, that the liability
-------- -------
of the undersigned hereunder shall be limited to the maximum amount of the
Liabilities which the undersigned may guaranty without violating any fraudulent
conveyance or fraudulent transfer law (plus all costs and expenses paid or
incurred by the Agent, the Lenders or the Issuing Lender in enforcing this
Guaranty against the undersigned).
1. The undersigned agrees that, in the event of the occurrence of an
Event of Default pursuant to Section 14.1.3 of the Credit Agreement, and if any
such event shall occur at a time when any of the Liabilities may not then be due
and payable, the undersigned will pay to the Agent for the benefit of the
Lenders and the Issuing Lender forthwith the full amount which would be payable
hereunder by the undersigned if all Liabilities were then due and payable.
2. To secure all obligations of the undersigned hereunder, the Agent
for the benefit of the Lenders and the Issuing Lender shall have a lien upon and
security interest in (and may, without demand or notice of any kind, at any time
and from time to time when any amount shall be due and payable by the
undersigned hereunder, appropriate and apply toward the payment of such amount,
in such order of application as the Agent may elect) any and all balances,
credits, deposits (general or specific, time or demand, provisional or final),
accounts or moneys of or in the name of the undersigned now or hereafter
maintained with the Agent, any Lender or the Issuing Lender and any and all
property of every kind or description of or in the name of the undersigned now
or hereafter, for any reason or purpose whatsoever, in the possession or control
of, or in transit to, the Agent, any Lender or the Issuing Lender or any agent
or bailee for the Agent, any Lender or the Issuing Lender.
3. This Guaranty shall in all respects be a continuing, absolute and
unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of the undersigned or that
at any time or from time to time all Liabilities may have been paid in full),
subject to discontinuance as to the undersigned only upon actual receipt by the
Agent of written notice from the undersigned, or any person duly authorized and
acting on behalf of the undersigned, of the discontinuance hereof as to the
undersigned; provided, however, that no such notice of discontinuance shall
-------- -------
affect or impair any of the agreements and obligations of the undersigned
hereunder with respect to any and all Liabilities existing prior to the time of
actual receipt of such notice by the Agent, any and all Liabilities
F-2
<PAGE>
created or acquired thereafter pursuant to any previous commitments created or
acquired thereafter pursuant to any previous commitments made by the Agent, the
Lenders or the Issuing Lender, any and all extensions or renewals of any of the
foregoing, any and all interest on any of the foregoing, and any and all
expenses paid or incurred by the Agent, any Lender or the Issuing Lender in
endeavoring to collect any of the foregoing and in enforcing this Guaranty
against the undersigned; and all of the agreements and obligations of the
undersigned under this Guaranty shall, notwithstanding any such notice of
discontinuance, remain fully in effect until all such Liabilities (other than
Liabilities which expressly survive the payment in full of the Loans and LC
Obligations and the termination of the Commitments but including any extensions
or renewals of any thereof) and all such interest and expenses shall have been
paid in full and all Commitments have terminated.
4. The undersigned further agrees that, if at any time all or any
part of any payment theretofore applied by the Agent to any of the Liabilities
is or must be rescinded or returned by the Agent, the Lenders or the Issuing
Lender for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of the Borrower or the undersigned), such
Liabilities shall, for the purposes of this Guaranty, to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence, notwithstanding such application by the Agent, and this Guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent had not been made.
5. The undersigned agrees that the Agent, any Lender or the Issuing
Lender may, from time to time, whether before or after any discontinuance of
this Guaranty, at its sole discretion and without notice to the undersigned,
take any or all of the following actions without affecting the obligations of
the undersigned hereunder:
(a) Retain or obtain a security interest in any property to secure
any of the Liabilities or any obligation hereunder;
(b) Retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to the undersigned with respect to any of
the Liabilities;
(c) Extend or renew for one or more periods (whether or not longer
than the original period), or alter or exchange, any of the Liabilities, or
release or compromise any obligation of the
F-3
<PAGE>
undersigned hereunder or any obligation of any nature of the undersigned
with respect to any of the Liabilities;
(d) Release its security interest in, or surrender, release or permit
any substitution or exchange for, all or any part of any property securing
any of the Liabilities or any obligation hereunder, or extend or renew for
one or more periods (whether or not longer than the original period) or
release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property; and
(e) Resort to the undersigned for payment of any of the Liabilities,
whether or not the Agent (i) shall have resorted to any property securing
any of the Liabilities or any obligation hereunder or (ii) shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Liabilities (all of the actions referred to in
preceding clauses (i) and (ii) being hereby expressly waived by the
----------- ----
undersigned).
6. Any amounts received by the Agent from whatsoever source on
account of the Liabilities may be applied in whole or in part by the Agent
against, all or any part of the Liabilities in such order as the Agent shall
elect.
7. No payment made by or for the account of the undersigned pursuant
to this Guaranty shall entitle the undersigned by subrogation or otherwise to
any payment by the Borrower or from or out of any property of the Borrower and
the undersigned shall not exercise any right or remedy against the Borrower or
any property of the Borrower by reason of any performance by the undersigned of
this Guaranty. The undersigned expressly waives, to the fullest extent
permitted by law, all claims or rights of the undersigned against the Borrower,
arising out of any payment by the undersigned under this Guaranty, whether
arising by way of any subrogation, contribution, reimbursement or otherwise and
agrees that, to the extent that any such rights may not be waived under
applicable law, it will contribute such rights to the Borrower as a capital
contribution concurrently with the arising of such rights.
8. The undersigned hereby expressly waives:
F-4
<PAGE>
(a) Notice of the acceptance by the Agent, any Lender or the Issuing
Lender of this Guaranty;
(b) Notice of the existence or creation or non-payment of all or any
of the Liabilities;
(c) Presentment, demand, notice of dishonor, protest and all other
notices whatsoever; and
(d) All diligence in collection or protection of or realization upon
the Liabilities or any thereof, any obligation hereunder, or any security
for or guaranty of any of the foregoing.
9. The creation or existence from time to time of additional
Liabilities to the Agent, the Lenders or the Issuing Lender or any of them is
hereby authorized, without notice to the undersigned, and shall in no way affect
or impair the rights of the Agent, the Lenders or the Issuing Lender or the
obligations of the undersigned under this Guaranty of such additional
Liabilities.
10. Subject to the provisions of Section 16 of the Credit Agreement,
the Agent, any Lender and the Issuing Lender may, from time to time, whether
before or after any discontinuance of this Guaranty, without notice to the
undersigned, assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this Guaranty, and each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this Guaranty to the same extent as
if such assignee or transferee were a Lender; provided, however, that unless
-------- -------
such Lender shall otherwise consent in writing, the Lender shall have an
unimpaired right prior and superior to that of any such assignee or transferee,
to enforce this Guaranty, for its benefit, as to those of the Liabilities which
it has not assigned or transferred.
11. The undersigned hereby warrants to the Agent, the Lenders and the
Issuing Lender that the undersigned now has and will continue to have
independent means of obtaining information concerning the affairs, financial
condition and business of the Borrower. The Agent, the Lenders and the Issuing
Lender shall not have any duty or responsibility to provide the undersigned with
any credit or other information concerning the affairs, financial condition or
business of the Borrower which may come into the Agent's, any such Lender's or
the Issuing Lender's possession.
F-5
<PAGE>
12. The undersigned hereby warrants and agrees that:
(a) The undersigned is a corporation duly existing and in good
standing under the laws of the State of Georgia and the undersigned is duly
qualified and in good standing and authorized to do business in each
jurisdiction where, because of the nature of its activities or properties,
the failure to so qualify would have a Material Adverse Effect;
(b) The undersigned has full power and authority to execute and
deliver this Guaranty;
(c) The execution, delivery and performance by the undersigned of
this Guaranty are within the undersigned's powers, have been duly
authorized by all necessary action, have received all necessary
governmental approval (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of the organizational
documents of the undersigned or of any agreement binding upon the
undersigned;
(d) This Guaranty is the legal, valid and binding obligation of the
undersigned enforceable against the undersigned in accordance with its
terms, except as enforceability may be limited by bankruptcy or other laws
relating to or affecting creditors' rights generally or by equitable
principles; and
(e) This Guaranty will directly or indirectly benefit the
undersigned.
(f) The representations and warranties set forth in Section 9 which
---------
relate to the undersigned are true and correct in all material respects.
13. No delay on the part of the Agent, any Lender or the Issuing
Lender in the exercise of any right or remedy shall operate as a waiver thereof,
and no single or partial exercise by the Agent, any Lender or the Issuing Lender
of any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon the Agent, the Lenders
and the Issuing Lender except as expressly set forth in a writing duly signed
and delivered on behalf of the Agent for the benefit of the Lenders and the
Issuing Lender. No action of the Agent, any Lender or the Issuing Lender
permitted hereunder shall
F-6
<PAGE>
in any way affect or impair the rights of the Agent, any Lender or the Issuing
Lender or the obligations of the undersigned under this Guaranty. For the
purposes of this Guaranty, Liabilities shall include all obligations of the
Borrower to the Agent, any Lender or the Issuing Lender, notwithstanding any
right or power of the Borrower or anyone else to assert any claim or defense as
to the invalidity or unenforceability of any such obligation, and no such claim
or defense shall affect or impair the obligations of the undersigned hereunder.
The undersigned agrees that the obligations of the undersigned under this
Guaranty shall be absolute and unconditional irrespective of any circumstance
whatsoever which might constitute a legal or equitable discharge or defense of
the undersigned. The undersigned hereby acknowledges that there are no
conditions to the effectiveness of this Guaranty.
14. Pursuant to the Credit Agreement, (a) this Guaranty has been
delivered to the Agent and (b) the Agent has been authorized to enforce this
Guaranty on behalf of itself and each of the Lenders and the Issuing Lender.
All payments by the undersigned pursuant to this Guaranty shall be made to the
Agent for the ratable benefit of the Lenders.
15. This Guaranty shall be binding upon the undersigned, and upon any
successors and assigns of the undersigned.
16. THIS GUARANTY HAS BEEN DELIVERED AT CHICAGO, ILLINOIS, AND SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CHOICE OF LAW. WHEREVER
POSSIBLE EACH PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH MANNER AS
TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
GUARANTY SHALL BE PROHIBITED BY OR INVALID UNDER SUCH LAW, SUCH PROVISION SHALL
BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
GUARANTY.
17. The undersigned hereby irrevocably agrees that any legal action
or proceeding pertaining to this Guaranty may be brought in the courts of the
State of New York , or of the United States of America for the Southern District
of New York , and by its execution and delivery hereof the undersigned
irrevocably submits to the jurisdiction of such courts and appoints Prentice-
Hall, having an address as of the date hereof of 33 North LaSalle Street,
Chicago, Illinois 60602, as its agent to receive service of process in any such
action or proceeding. The undersigned hereby irrevocably agrees that service of
process in such action or proceeding may be made either by mailing, by
registered or certified mail, postage prepaid, a copy of the summons or
complaint, or other legal process in such action or proceeding to
F-7
<PAGE>
the undersigned at the address shown on the signature page hereof, or by
delivering a copy of such process to the undersigned in care of the
undersigned's agent for such purpose at such agent's address in Chicago,
Illinois. Service of process in any such action or proceeding, effected as
aforesaid, shall be effective upon receipt by the undersigned or such agent and
shall be deemed personal service upon the undersigned and shall be legal and
binding upon the undersigned for all purposes, notwithstanding any failure by
the undersigned's agent to forward copies of such process to the undersigned.
The undersigned hereby waives, to the fullest extent permitted by law, any
objection it may now or hereafter have to the laying of venue in any such action
or proceeding in any such court as well as any right it may now or hereafter
have to remove any such action or proceeding, once commenced, to another court
on the grounds of forum non conveniens or otherwise.
18. THE UNDERSIGNED AND (BY ACCEPTING THE BENEFITS HEREOF) THE AGENT,
EACH LENDER AND THE ISSUING LENDER, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER
THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B)
ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
19. THE UNDERSIGNED FURTHER AGREES TO PERFORM ALL OF THE COVENANTS
AND OTHER PROVISIONS OF THE CREDIT AGREEMENT WHICH RELATE TO IT.
* * *
F-8
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered under
seal as of the day and year first above written.
NOVA CORPORATION
By:______________________________
Name: __________________________
Title:___________________________
Attested to by:
____________________
____________________
[Corporate Seal]
F-9
<PAGE>
EXHIBIT G
FORM OF SUBSIDIARY GUARANTY
THIS GUARANTY, dated as of October 27, 1997 (herein called this
"Guaranty"), is executed by the undersigned in favor of Bank of America National
Trust and Savings Association, as agent for the Lenders and the Issuing Lender
under the Credit Agreement referred to below (in such capacity, together with
any successor thereto in such capacity, called the "Agent"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in said
Credit Agreement.
W I T N E S E T H:
- - - - - - - - -
WHEREAS, NOVA Information Systems, Inc., a Georgia corporation (the
"Borrower"), has entered into a Credit Agreement, dated as of October 27, 1997
(as amended or otherwise modified from time to time, the "Credit Agreement")
with the lenders who are or may become party to the Credit Agreement (together
with their respective successors and assigns, the "Lenders"), the Issuing Lender
and the Agent, pursuant to which the Lenders and the Issuing Lender have agreed
to make Loans to and issue or participate in the issuance of Letters of Credit
for the account of the Borrower; and
WHEREAS, the undersigned will benefit from the making of Loans and the
issuance of the Letters of Credit pursuant to the Credit Agreement and is
willing to guaranty the Liabilities (as defined below) as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby, as primary
obligor and not merely as surety, guarantees the full and prompt payment when
due, whether at stated maturity, by required prepayment, declaration, demand,
acceleration or otherwise (including amounts that would become due but for the
operation of the automatic stay under section 362(a) of the Bankruptcy Code (11
U.S.C. (S) 362(a)), and at all times thereafter, of all obligations (monetary or
otherwise) of the Borrower to each of the Lenders, the Issuing Lender and the
Agent, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
including (without limitation) all obligations which arise out of or in
connection with the Credit Agreement or any Related Document, in each case as
the same may be amended, modified, extended or renewed from time to time (all
such obligations being herein collectively called the "Liabilities"), and the
undersigned further agrees to pay all reasonable expenses (including reasonable
G-1
<PAGE>
attorneys' fees and legal expenses) paid or incurred by the Lenders, the Issuing
Lender and the Agent in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing this Guaranty; provided, however, that the liability
-------- -------
of the undersigned hereunder shall be limited to the maximum amount of the
Liabilities which the undersigned may guaranty without violating any fraudulent
conveyance or fraudulent transfer law (plus all costs and expenses paid or
incurred by the Agent, the Lenders or the Issuing Lender in enforcing this
Guaranty against the undersigned).
1. The undersigned agrees that, in the event of the occurrence of an
Event of Default pursuant to Section 14.1.3 of the Credit Agreement, and if any
such event shall occur at a time when any of the Liabilities may not then be due
and payable, the undersigned will pay to the Agent for the benefit of the
Lenders and the Issuing Lender forthwith the full amount which would be payable
hereunder by the undersigned if all Liabilities were then due and payable.
2. To secure all obligations of the undersigned hereunder, the Agent
for the benefit of the Lenders and the Issuing Lender shall have a lien upon and
security interest in (and may, without demand or notice of any kind, at any time
and from time to time when any amount shall be due and payable by the
undersigned hereunder, appropriate and apply toward the payment of such amount,
in such order of application as the Agent may elect) any and all balances,
credits, deposits (general or specific, time or demand, provisional or final),
accounts or moneys of or in the name of the undersigned now or hereafter
maintained with the Agent, any Lender or the Issuing Lender and any and all
property of every kind or description of or in the name of the undersigned now
or hereafter, for any reason or purpose whatsoever, in the possession or control
of, or in transit to, the Agent, any Lender or the Issuing Lender or any agent
or bailee for the Agent, any Lender or the Issuing Lender.
3. This Guaranty shall in all respects be a continuing, absolute and
unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of the undersigned or that
at any time or from time to time all Liabilities may have been paid in full),
subject to discontinuance as to the undersigned only upon actual receipt by the
Agent of written notice from the undersigned, or any person duly authorized and
acting on behalf of the undersigned, of the discontinuance hereof as to the
undersigned; provided, however, that no such notice of discontinuance shall
-------- -------
affect or impair any of the agreements and obligations of the undersigned
hereunder with respect to any and all Liabilities existing prior to the time of
actual receipt of such notice by the Agent, any and all Liabilities created or
acquired thereafter pursuant to any previous commitments
G-2
<PAGE>
made by the Agent, the Lenders or the Issuing Lender, any and all extensions or
renewals of any of the foregoing, any and all interest on any of the foregoing,
and any and all expenses paid or incurred by the Agent, any Lender or the
Issuing Lender in endeavoring to collect any of the foregoing and in enforcing
this Guaranty against the undersigned; and all of the agreements and obligations
of the undersigned under this Guaranty shall, notwithstanding any such notice of
discontinuance, remain fully in effect until all such Liabilities (other than
Liabilities which expressly survive the payment in full of the Loans and LC
Obligations and the termination of the Commitments but including any extensions
or renewals of any thereof) and all such interest and expenses shall have been
paid in full and all Commitments have terminated.
4. The undersigned further agrees that, if at any time all or any
part of any payment theretofore applied by the Agent to any of the Liabilities
is or must be rescinded or returned by the Agent, the Lenders or the Issuing
Lender for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of the Borrower or the undersigned), such
Liabilities shall, for the purposes of this Guaranty, to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence, notwithstanding such application by the Agent, and this Guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent had not been made.
5. The undersigned agrees that the Agent, any Lender or the Issuing
Lender may, from time to time, whether before or after any discontinuance of
this Guaranty, at its sole discretion and without notice to the undersigned,
take any or all of the following actions without affecting the obligations of
the undersigned hereunder:
(a) Retain or obtain a security interest in any property to secure
any of the Liabilities or any obligation hereunder;
(b) Retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to the undersigned with respect to any of
the Liabilities;
(c) Extend or renew for one or more periods (whether or not longer
than the original period), or alter or exchange, any of the Liabilities, or
release or compromise any obligation of the undersigned hereunder or any
obligation of any
G-3
<PAGE>
nature of the undersigned with respect to any of the Liabilities;
(d) Release its security interest in, or surrender, release or permit
any substitution or exchange for, all or any part of any property securing
any of the Liabilities or any obligation hereunder, or extend or renew for
one or more periods (whether or not longer than the original period) or
release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property; and
(e) Resort to the undersigned for payment of any of the Liabilities,
whether or not the Agent (i) shall have resorted to any property securing
any of the Liabilities or any obligation hereunder or (ii) shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Liabilities (all of the actions referred to in
preceding clauses (i) and (ii) being hereby expressly waived by the
----------- ----
undersigned).
6. Any amounts received by the Agent from whatsoever source on
account of the Liabilities may be applied in whole or in part by the Agent
against, all or any part of the Liabilities in such order as the Agent shall
elect.
7. No payment made by or for the account of the undersigned pursuant
to this Guaranty shall entitle the undersigned by subrogation or otherwise to
any payment by the Borrower or from or out of any property of the Borrower and
the undersigned shall not exercise any right or remedy against the Borrower or
any property of the Borrower by reason of any performance by the undersigned of
this Guaranty. The undersigned expressly waives, to the fullest extent
permitted by law, all claims or rights of the undersigned against the Borrower,
arising out of any payment by the undersigned under this Guaranty, whether
arising by way of any subrogation, contribution, reimbursement or otherwise and
agrees that, to the extent that any such rights may not be waived under
applicable law, it will contribute such rights to the Borrower as a capital
contribution concurrently with the arising of such rights.
8. The undersigned hereby expressly waives:
(a) Notice of the acceptance by the Agent, any Lender or the Issuing
Lender of this Guaranty;
G-4
<PAGE>
(b) Notice of the existence or creation or non-payment of all or any
of the Liabilities;
(c) Presentment, demand, notice of dishonor, protest and all other
notices whatsoever; and
(d) All diligence in collection or protection of or realization upon
the Liabilities or any thereof, any obligation hereunder, or any security
for or guaranty of any of the foregoing.
9. The creation or existence from time to time of additional
Liabilities to the Agent, the Lenders or the Issuing Lender or any of them is
hereby authorized, without notice to the undersigned, and shall in no way affect
or impair the rights of the Agent, the Lenders or the Issuing Lender or the
obligations of the undersigned under this Guaranty of such additional
Liabilities.
10. Subject to the provisions of Section 16 of the Credit Agreement,
the Agent, any Lender and the Issuing Lender may, from time to time, whether
before or after any discontinuance of this Guaranty, without notice to the
undersigned, assign or transfer any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer thereof, such Liabilities shall be and remain Liabilities
for the purposes of this Guaranty, and each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this Guaranty to the same extent as
if such assignee or transferee were a Lender; provided, however, that unless
-------- -------
such Lender shall otherwise consent in writing, the Lender shall have an
unimpaired right prior and superior to that of any such assignee or transferee,
to enforce this Guaranty, for its benefit, as to those of the Liabilities which
it has not assigned or transferred.
11. The undersigned hereby warrants to the Agent, the Lenders and the
Issuing Lender that the undersigned now has and will continue to have
independent means of obtaining information concerning the affairs, financial
condition and business of the Borrower. The Agent, the Lenders and the Issuing
Lender shall not have any duty or responsibility to provide the undersigned with
any credit or other information concerning the affairs, financial condition or
business of the Borrower which may come into the Agent's, any such Lender's or
the Issuing Lender's possession.
12. The undersigned hereby warrants and agrees that:
G-5
<PAGE>
(a) The undersigned is a corporation duly existing and in good
standing under the laws of the State of Georgia and the undersigned is duly
qualified and in good standing and authorized to do business in each
jurisdiction where, because of the nature of its activities or properties,
the failure to so qualify would have a Material Adverse Effect;
(b) The undersigned has full power and authority to execute and
deliver this Guaranty;
(c) The execution, delivery and performance by the undersigned of
this Guaranty are within the undersigned's powers, have been duly
authorized by all necessary action, have received all necessary
governmental approval (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of the organizational
documents of the undersigned or of any agreement binding upon the
undersigned;
(d) This Guaranty is the legal, valid and binding obligation of the
undersigned enforceable against the undersigned in accordance with its
terms, except as enforceability may be limited by bankruptcy or other laws
relating to or affecting creditors' rights generally or by equitable
principles; and
(e) This Guaranty will directly or indirectly benefit the
undersigned.
13. No delay on the part of the Agent, any Lender or the Issuing
Lender in the exercise of any right or remedy shall operate as a waiver thereof,
and no single or partial exercise by the Agent, any Lender or the Issuing Lender
of any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon the Agent, the Lenders
and the Issuing Lender except as expressly set forth in a writing duly signed
and delivered on behalf of the Agent for the benefit of the Lenders and the
Issuing Lender. No action of the Agent, any Lender or the Issuing Lender
permitted hereunder shall in any way affect or impair the rights of the Agent,
any Lender or the Issuing Lender or the obligations of the undersigned under
this Guaranty. For the purposes of this Guaranty, Liabilities shall include all
obligations of the Borrower to the Agent, any Lender or the Issuing Lender,
notwithstanding any right or power of the Borrower or anyone else to assert any
claim or defense as to the
G-6
<PAGE>
invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the obligations of the undersigned hereunder. The
undersigned agrees that the obligations of the undersigned under this Guaranty
shall be absolute and unconditional irrespective of any circumstance whatsoever
which might constitute a legal or equitable discharge or defense of the
undersigned. The undersigned hereby acknowledges that there are no conditions to
the effectiveness of this Guaranty.
14. Pursuant to the Credit Agreement, (a) this Guaranty has been
delivered to the Agent and (b) the Agent has been authorized to enforce this
Guaranty on behalf of itself and each of the Lenders and the Issuing Lender.
All payments by the undersigned pursuant to this Guaranty shall be made to the
Agent for the ratable benefit of the Lenders.
15. This Guaranty shall be binding upon the undersigned, and upon any
successors and assigns of the undersigned.
16. THIS GUARANTY HAS BEEN DELIVERED AT CHICAGO, ILLINOIS, AND SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CHOICE OF LAW. WHEREVER
POSSIBLE EACH PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH MANNER AS
TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
GUARANTY SHALL BE PROHIBITED BY OR INVALID UNDER SUCH LAW, SUCH PROVISION SHALL
BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
GUARANTY.
17. The undersigned hereby irrevocably agrees that any legal action
or proceeding pertaining to this Guaranty may be brought in the courts of the
State of New York , or of the United States of America for the Southern District
of New York, and by its execution and delivery hereof the undersigned
irrevocably submits to the jurisdiction of such courts and appoints Prentice-
Hall, having an address as of the date hereof of 33 North LaSalle Street,
Chicago, Illinois 60602, as its agent to receive service of process in any such
action or proceeding. The undersigned hereby irrevocably agrees that service of
process in such action or proceeding may be made either by mailing, by
registered or certified mail, postage prepaid, a copy of the summons or
complaint, or other legal process in such action or proceeding to the
undersigned at the address shown on the signature page hereof, or by delivering
a copy of such process to the undersigned in care of the undersigned's agent for
such purpose at such agent's address in Chicago, Illinois. Service of process
in any such action or proceeding, effected as aforesaid, shall be effective upon
receipt by the undersigned or such agent and shall be deemed personal
G-7
<PAGE>
service upon the undersigned and shall be legal and binding upon the undersigned
for all purposes, notwithstanding any failure by the undersigned's agent to
forward copies of such process to the undersigned. The undersigned hereby
waives, to the fullest extent permitted by law, any objection it may now or
hereafter have to the laying of venue in any such action or proceeding in any
such court as well as any right it may now or hereafter have to remove any such
action or proceeding, once commenced, to another court on the grounds of forum
non conveniens or otherwise.
18. THE UNDERSIGNED AND (BY ACCEPTING THE BENEFITS HEREOF) THE AGENT,
EACH LENDER AND THE ISSUING LENDER, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER
THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B)
ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
* * *
G-8
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered
under seal as of the day and year first above written.
_________________________________
By:______________________________
Name:____________________________
Title:___________________________
Attested to by:
____________________
____________________ [Corporate Seal]
G-9
<PAGE>
EXHIBIT H
COMPLIANCE CERTIFICATE
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
Unit 5596
1455 Market Street, 12th FL
San Francisco, California 94103
Attention: Wendy Young
Ladies and Gentlemen:
This certificate (the "Certificate") is delivered to you pursuant to
Section 10.1.4 of the Credit Agreement, dated as of October 27, 1997 (as amended
- --------------
or modified, the "Credit Agreement"), among NOVA Information Systems, Inc., a
Georgia corporation (the "Borrower"), the lenders who are or from time to time
become party thereto (the "Lenders"), Bank of America Illinois, as Issuing
Lender and Bank of America National Trust and Savings Association, as agent for
the Lenders and the Issuing Lender (in such capacity, the "Agent"). Unless
otherwise defined herein, capitalized terms used herein have the meanings
provided in the Credit Agreement.
The undersigned hereby certifies and warrants to the Agent, the
Issuing Lender and the Lenders that he is the chief financial officer of the
Borrower (in such capacity, the "CFO") and that, as such, he is authorized to
execute this Certificate on behalf of the Borrower and further certifies and
warrants to the Agent, the Issuing Lender and the Lenders on behalf of the
Borrower that as at ____________, 19__ (the "Computation Date") the following is
a true and correct computation of the ratios and financial restrictions
contained in the Credit Agreement:
1. Section 12.1 - Fixed Charge Coverage Ratio This ratio shall be
------------------------------------------
measured at the end of each Fiscal Quarter for the four consecutive Fiscal
Quarters then ended.
(a) Adjusted Consolidated EBITDA : $_______
(b) Operating lease payments : $_______
H-1
<PAGE>
(c) The sum of Items 1(a) and 1(b) :$_______
(d) Adjusted Consolidated Interest
Charges : $_______
(e) Scheduled principal payments on
Funded Indebtedness : $_______
(f) Operating and capitalized lease
payments : $_______
(g) Consolidated Capital
Expenditures : $_______
(h) The sum of Items 1(d), 1(e), 1(f)
and 1(g) : $_______
(i) The ratio of Item 1(c) to
Item 1(h) : ___:___
(j) The ratio in Item 1(i) may not be
less than the ratio applicable to such
Fiscal Quarter, as set forth below :
Four Consecutive Fiscal Quarters Ending
---------------------------------------
__________, 199__. ___:___
(Not to be less than 1.50:1)
2. Section 12.2 - Funded Debt Ratio This ratio shall apply at all
--------------------------------
times and shall be measured at the end of each Fiscal Quarter for the most
recent four consecutive Fiscal Quarters then ended.
(a) Funded Indebtedness as of the
Computation Date : $_______
(b) Consolidated EBITDA for the
four consecutive Fiscal Quarters
then ended : $_______
(c) The ratio of Item 2(a) to Item
2(b) : ___:___
H-2
<PAGE>
(d) The ratio in Item 2(c) may not
exceed the ratio applicable to such
Fiscal Quarter, as set forth below :
Four Consecutive Fiscal Quarters Ending
---------------------------------------
___________, 199__. (Not to exceed 3.00:1)
___:___
(For purposes heretofore, Consolidated EBITDA shall be determined
by including historical EBITDA for Acquisitions therefore made,
but excluding Acquisition Adjustments relating to such
Acquisitions).
3. Section 12.3 Credit Losses and Chargeback Losses This test
-------------------------------------------------
shall be measured at the end of each Fiscal Quarter for the most recent Four
Fiscal Quarters then ended.
(a) Credit Losses : $_____
(b) Chargeback Losses : $_____
(c) The sum of Items 3 (a) and 3 (b) : $_____
(d) Consolidated Revenue as of most recent
Fiscal Quarter : $_____
(e) 5% of item 3(d) $_____
(f) Up to $5,000,000 of Credit and/or
Chargeback Losses theretofore funded
by Loans under the Credit Agreement $_____
(g) Sum of Item 3(e) and 3(f) $_____
(h) Item 3(c) not to exceed Item 3(g) $_____
4. Section 10.1.4 - Adjusted Funded Debt Ratio. This ratio shall be
-------------------------------------------
measured at the end of each Fiscal Quarter for the most recent four consecutive
Fiscal Quarters then ended.
(a) Funded Indebtedness as of the
Computation Date : $_______
(b) Consolidated EBITDA for the
most recent four consecutive Fiscal
Quarters then ended : $_______
H-3
<PAGE>
(c) Adjustments to Consolidated EBITDA $_______
(d) Item 4(b) [plus/ minus] Item 4 (c) $_______
(e) Ratio of Item 4(a) to Item 4 (d) : ___:___
The Borrower hereby certifies and warrants that as of the date hereof:
(a) No Default or Event of Default has occurred and is continuing.
(b) The representations and warranties of the Borrower contained in
Section 9, (except Sections 9.6, 9.7 and 9.8) are true and correct with the same
- --------- ------------ --- ---
effect as though made on the date hereof.
(c) Except as disclosed to the Agent, the Issuing Lender and the
Lenders in writing and agreed to in writing by the Required Lenders in their
sole discretion, no Material Litigation not disclosed on Schedule 9.8 to the
------------
Credit Agreement exists and since the Effective Date of the Credit Agreement, no
Material Litigation Development has occurred with respect to any Litigation so
disclosed on Schedule 9.8.
------------
(d) No Material Adverse Change has occurred since the date of the
most recent financial statements delivered or required to be delivered pursuant
to Section 9.6 of the Credit Agreement except as disclosed to the Agent, the
-----------
Issuing Lender and the Lenders in writing and agreed to in writing by the
Required Lenders in their sole discretion.
This certificate is given by the undersigned in his capacity as a
corporate officer, and the undersigned shall have no personal liability with
respect to the content hereof.
H-4
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Certificate to be
executed and delivered and the certifications and warranties contained herein to
be made, by its Chief Financial Officer this ___ day of ________, 19__.
NOVA INFORMATION SYSTEMS, INC.
By:_______________________________
Name:_____________________________
Title: Chief Financial Officer
H-5
<PAGE>
EXHIBIT I
OPINION OF LONG, ALDRIDGE & NORMAN, LLP
I-1
<PAGE>
EXHIBIT J
FORM OF OFFICER'S CERTIFICATE
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent for the Lenders
and the Issuing Lender
High Technology #3697
555 California Street, 41/st/ Floor
San Francisco, CA 94104-1502
Attention: Michael McCutchin, Managing Director
Ladies and Gentlemen:
This certificate (the "Certificate") is delivered to you pursuant to
Section 13.1.7 of the Credit Agreement, dated as of October 27, 1997 (as amended
- --------------
or modified, the "Credit Agreement"), among NOVA Information Systems, Inc., a
Georgia corporation (the "Borrower"), the lenders who are or from time to time
become party thereto (the "Lenders"), the Issuing Lender and Bank of America
National Trust and Savings Association, as agent for the Lenders and the Issuing
Lender (in such capacity, the "Agent"). Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
The undersigned hereby certifies and warrants to the Agent, the
Issuing Lender and the Lenders that he is the [President/Vice President] of [the
Parent] [the Borrower][Subsidiary] (the "Company"), and that, as such, he is
authorized to execute this Certificate on behalf of the Company and further
certifies and warrants to the Agent, the Issuing Lender and the Lenders on
behalf of the Company that:
1. The following named individuals are, and have been since
__________ __, 19__,/1/ elected officers of the Company, and each holds the
office of the Company set forth opposite his name. The signature written
opposite the name and title of each such officer is his correct signature.
- --------------------
/1/ Insert date occurring before any action taken with regard to the Credit
Agreement or the Related Documents.
J-1
<PAGE>
Name Office Signature
---- ------ ---------
- -------------------- --------------------------- ----------------------------
- -------------------- --------------------------- ----------------------------
- -------------------- --------------------------- ----------------------------
2. Attached hereto as Annex A is a certified copy of the Articles of
-------
Incorporation of the Company as filed in the Office of the Secretary of State of
the State of [Georgia] on _______________, 19__, together with all amendments
thereto adopted through the date hereof.
3. Attached hereto as Annex B is a true and correct copy of the By-
-------
Laws of the Company which were duly adopted, and are in full force and effect of
the date hereof.
4. Attached hereto as Annex C is a true and correct copy of
-------
resolutions which were duly adopted on __________, 1995 [by unanimous written
consent of the Board of Directors of the Company] [at a meeting of the Board of
Directors of the Company duly called and held, at which meeting a quorum of such
Board was at all times present in person and acting], and such resolutions have
not been rescinded, amended or modified.
This certificate is given by the undersigned in his capacity as a
corporate officer, and the undersigned shall have no personal liability with
respect to the content hereof.
IN WITNESS WHEREOF, the Company has caused this certificate to be
executed by the [President/Vice President] this ___ day of __________, 199_.
[COMPANY]
By:_______________________________
Name:_____________________________
Title:____________________________
J-2
<PAGE>
The undersigned hereby certifies and warrants to the Agent, the
Issuing Lender and the Lenders that he is the [Secretary/Assistant Secretary] of
the Company, and that, as such, he is authorized to execute this Certificate on
behalf of the Company and further certifies and warrants to the Agent, the
Issuing Lender and the Lenders on behalf of the Company that:
1. [Name of Person making above certifications] is the duly elected
and qualified [President/Vice President] of the Company and the signature above
is his genuine signature.
2. The certifications made by [name of Person making above
certifications] in items 2, 3 and 4 above are true and correct.
This certificate is given by the undersigned in his capacity as a
corporate officer, and the undersigned shall have no personal liability with
respect to the content hereof.
IN WITNESS WHEREOF, the Company has caused this certificate to be
executed by the [Secretary/Assistant Secretary] this ____ day of __________,
199_.
[COMPANY]
By:______________________________
Name:____________________________
Title:___________________________
J-3
<PAGE>
EXHIBIT K
FORM OF ASSIGNMENT AGREEMENT
ASSIGNMENT AND ACCEPTANCE dated ______________, 19__ between
___________________________ (the "Assignor") and ____________________________
(the "Assignee").
PRELIMINARY STATEMENTS
A. Reference is made to the Credit Agreement dated as of October 27,
1997 (as amended and modified, the "Credit Agreement") among NOVA Information
Systems, Inc., a Georgia corporation (the "Borrower"), the lenders who are or
from time to time become party thereto (the "Lenders"), the Issuing Lender and
Bank of America National Trust and Savings Association, as agent for the Lenders
and the Issuing Lender (in such capacity, the "Agent"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in the
Credit Agreement.
B. The Assignor is a Lender under and as defined in the Credit
Agreement and, as such, presently holds a percentage of the rights and
obligations of the Lenders under the Credit Agreement. On the terms and
conditions set forth below, the Assignor desires to sell and assign to the
Assignee, and the Assignee desires to purchase and assume from the Assignor, a
______% interest in and to all of the Assignor's rights and obligations under
the Credit Agreement as of the Assignment Effective Date (as defined below) (the
"Assigned Percentage").
NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, the Assigned
Percentage of the Assignor's rights and obligations under the Credit
Agreement as of the Assignment Effective Date (including, without
limitation, the Assigned Percentage of (i) the Assignor's Revolving Loan
Commitment as in effect on the Assignment Effective Date, (ii) the
Revolving Loans owing to the Assignor on the Assignment Effective Date and
(iii) the Revolving Notes held by the Assignor on the Assignment Effective
Date).
2. The Assignor (i) represents and warrants that as of the date
hereof its Commitment (without giving effect to assignments thereof which
have not yet become effective) is
K-1
<PAGE>
$_____________; (ii) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (iii) makes no
representations or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any Related
Document furnished pursuant thereto; (iv) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any guarantor or the performance or observance
by the Borrower or any guarantor of any of their obligations under the
Credit Agreement or any Related Document furnished pursuant thereto, and
(v) attaches the Notes and requests that the Agent exchange such Notes for
[new Notes, dated __________, 19__, in the principal amount of $___________
(Revolving Note), payable to the order of the Assignee] [new Notes dated
______________, 19__, in the principal amount of $_________ (Revolving
Note), payable to the order of the Assignor].
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter this Assignment and Acceptance; (ii) agrees that it
will, independently and without reliance upon the Agent, the Issuing
Lender, the Assignor or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the Credit Agreement
as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (iv) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement are required to be performed by it as a
Lender; (v) specifies as its Lending Office for Base Rate Loans (and
address for notices) and Lending Office for Eurodollar Loans the offices
set forth beneath its name on the signature page hereof; and (vi)
represents and warrants that it is an Eligible Assignee as such term is
defined in the Credit Agreement.
4. The effective date for this Assignment and Acceptance shall be
_______________ (the "Assignment
K-2
<PAGE>
Effective Date")./1/ Following the execution of this Assignment and
Acceptance, it will be delivered to the Agent for acceptance and recording
by the Agent.
5. Upon such acceptance and recording, as of the Assignment Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording, from and after the Assignment
Effective Date, the Agent shall make all payments under the Credit
Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the
Credit Agreement and the Notes for periods prior to the Assignment
Effective Date directly between themselves.
- --------------------
/1/ Such date shall be at least two (2) Business Days after the execution of
this Assignment and Acceptance.
K-3
<PAGE>
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the internal laws of the State of New York .
[NAME OF ASSIGNOR]
By: ______________________________
Name:______________________________
Title:_____________________________
[NAME OF ASSIGNEE]
By: ______________________________
Name:______________________________
Title:_____________________________
Lending Office (Base Rate Loans)
(and address for notices)
[Address]
Lending Office (Eurodollar Rate Loans):
[Address]
Accepted this _____ day
of ______________, 19__
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: _________________________
Name:________________________
Title:_______________________
K-4
<PAGE>
EXHIBIT L-1
FORM OF CONFIRMATION OF NEW LENDER
----------------------------------
Section 2.4
Reference is made to the Credit Agreement, dated as of October 27,
1997 (herein, as heretofore amended, modified or supplemented, called the
"Credit Agreement"), among NOVA Information Systems, Inc., a Georgia corporation
(the "Borrower"), the Lenders and Agent parties thereto. Terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement.
1. As of __________, 199_ (the "Increase Commitment Date"), pursuant
and subject to the provisions of Section 2.4 of the Credit Agreement (the "New
-----------
Lender") hereby becomes a party to and a Lender under the Credit Agreement with
a Commitment equal to $__________.
2. The New Lender acknowledges and agrees that:
(a) neither any Agent nor any other Lender makes any representation
or warranty or assumes any responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit
Agreement or any other instrument or document furnished pursuant thereto or
the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document
furnished pursuant thereto,
(b) neither any Agent nor any other Lender makes any representation
or warranty or assumes any responsibility with respect to the financial
condition or creditworthiness of the Borrower or the performance or
observance by the Borrower of any of its obligations under the Credit
Agreement or any other instrument or document furnished pursuant thereto,
(c) the New Lender (i) has made and will continue to make such
inquiries and has taken and will continue to take such care on its own
behalf as would have been the case had it made Loans directly to the
Borrower without the intervention of any Agent or any other Person, and
(ii) has made and will continue to make its own credit analysis and
decisions relating to the Credit Agreement independently and without
reliance upon any Agent or any other Person, and
L-1-1
<PAGE>
based on such documents and information as it has deemed appropriate.
3. If the New Lender is a Non-United States Person, it hereby agrees
to deliver to the Agent a written representation and warranty substantially
similar to that contained in Section of the Credit Agreement.
--------------
This Confirmation shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to conflict of laws
principles.
__________________________________
By:___________________________
Name:___________________
Copies of all notices, etc,
should be sent to:
Attention:____________________
Telephone:____________________
Telecopy: ____________________
Telex: ____________________
Lending Office (Base Rate Loans):
Lending Office (Eurodollar Rate Loans):
Accepted this ____ day
of _______, 19__.
L-1-2
<PAGE>
EXHIBIT L-2
FORM OF CONFIRMATION OF STEP-UP LENDER
--------------------------------------
Section 2.4
Reference is made to the Credit Agreement, dated as of October 27,
1997 (herein, as heretofore amended, modified or supplemented, called the
"Credit Agreement"), among NOVA Information Systems, Inc., a Georgia corporation
(the "Borrower"), and the Lenders and Agent parties thereto. Terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement.
As of _______ 19__ (the "Increase Commitment Date"), pursuant and
subject to the provisions of Section 2.4 of the Credit Agreement, ___________
-----------
(the "Step-up Lender") increases its Commitment from $______ to $______.
This Confirmation shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to conflict of laws
principles.
[NAME OF ____________
STEP-UP LENDER]
By:___________________________
Title:___________________
Copies of all notices, etc,
should be sent to:
Attention:____________________
Telephone:____________________
Telecopy: ____________________
Telex: ____________________
Lending Office (Base Rate Loans):
------------------------------
------------------------------
------------------------------
L-2-1
<PAGE>
Lending Office (Eurodollar Rate Loans):
------------------------------
------------------------------
------------------------------
Accepted this __ day
of ____________, 19__.
BANK OF AMERICAN NATIONAL TRUST
AND SAVINGS ASSOCIATION as Agent
By:_____________________________
Title:_____________________
<PAGE>
June 10, 1997
Mr. Rick Pylant
Vice President
Network Services Division
Mellon Bank, N.A.
1070 One Mellon Bank Center
Pittsburgh, PA 15258-0001
Dear Rick:
This letter will constitute an amendment to the Agreement ("Agreement")
dated June 3, 1992 among NOVA Information Systems, Inc. ("NOVA"), Inter-Banc,
Inc. and Mellon Bank, N.A. ("Mellon").
The Agreement is hereby amended as follows:
1. Fees. In order to induce NOVA to continue presenting transactions to
-----
Mellon under the Agreement, Mellon has agreed to lower its fees. The fees under
the Agreement are set forth on a Fee Letter dated June 3, 1992 ("Fee Letter"),
which was amended by a Fee Letter amendment dated December 10, 1992 ("Fee Letter
Amendment"). Therefore, the Fee Letter as amended by Schedule 1 of the Fee
Letter Amendment ("Schedule 1") is hereby amended as set forth on Exhibit A,
Fees. Exhibit A will replace and supersede the Fee Letter and Schedule 1.
Exhibit A is effective as of March 1, 1997. With respect to all services to be
provided by Mellon "at cost," Mellon will provide to NOVA adequate documentation
regarding Mellon's actual costs.
2. Billing Disputes. Section 6 of the Agreement is amended by adding the
-----------------
following new Subsection (d):
(d) The parties will work diligently to resolve billing disputes within 30
days of the date of Mellon's invoice. Neither party may invoice or collect
from the other party any charges attributable to transactions or events
occurring more than 30 days prior to the date such party is first notified
in writing of a misbilled item.
3. Rights of Termination. Section 14(a)(iv) shall be deleted in it
---------------------
entirety and shall be replaced with the addition of Sections 15(f) and 15(g)
to Section 15 Term; Termination.
----------------------------
Section 15(f). This Agreement may be terminated by Mellon upon 60 days prior
written notice in the event NOVA experiences a "Change of Control". NOVA
must provide Mellon with written notification of "Change of Control" within
thirty (30) days of the occurrence of any of the following events.
"Change of Control" shall mean (a) any Person or group of Persons within (as
used in Sections 13 and 14 of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the rules and regulations thereunder) shall have become
the beneficial owner (as defined in Rules 13d-3 and 13d-5 promulgated by the
Securities and Exchange Commission under the Exchange Act) of 20% or more of
NOVA's outstanding voting stock, or (b) a change in the board of directors
of NOVA shall have occurred which results in a majority of directors not
being "Continuing Directors". For purposes of this provision, "Continuing
Directors" are members of NOVA's board of directors who (a) were directors
as of the date of this Amendment, (b) have been directors for at least two
years or (c) were nominated or elected with the affirmative vote of a
majority of the Continuing Directors on the board.
<PAGE>
June 10, 1997
Page 2
Section 15(g). This Agreement may be terminated by NOVA upon 60 days prior
written notice in the event of the current shareholders of Mellon (or its
parent corporation) shall cease to hold at least 20% of all the issued and
outstanding shares of capital stock of Mellon (or its parent corporation),
or there shall occur any sale, acquisition, merger, exchange or similar
transaction involving the assets of the Network Services Division of Mellon
to where they are owned or controlled by a party other than Mellon.
4. Agreement. All provisions of the Agreement not mentioned above will
----------
remain in full force and effect. The Agreement consists of: A) the Consent
Letter and the Fee Letter, both dated June 3, 1992, and B) all amendments to the
Agreement (except Amendment No. 2 dated April 28, 1994 which has been superseded
by a separate agreement between the parties), including the following:
i) Amendment No. 1 dated December 9, 1992.
ii) Amendment to the Fee Letter dated December 10, 1992.
iii) Letter Agreement dated November 2, 1994.
5. Notice of Termination. NOVA also hereby nullifies the notice of
----------------------
termination of the Agreement to you from Edward Grzedzinski dated January 24,
1997. Further, the parties agree that, notwithstanding anything contained in
the Agreement to the contrary, the current term of the Agreement shall expire
on June 30, 1998. Provided, however, the Agreement shall automatically renew
for additional successive one-year terms unless either party provides notice of
intent not to renew at least 120 days prior to the expiration of the then
current term. If Mellon and NOVA agree to enter into an agreement regarding
terminal driving services, the term of the Agreement may be negotiated by the
parties.
If this letter accurately reflects our agreement regarding the amendment to the
Agreement, please sign the enclosed copy in the space provided and return it to
us by June 16, 1997.
We look forward to working with you and to continuing a mutually beneficial
relationship in the future.
Very truly yours,
/s/ Pamela A. Joseph
Pamela A. Joseph
Senior Vice President and
Chief Information Officer
Accepted and agreed to this 11th day of June, 1997.
----
Mellon Bank, N.A.
By: /s/ Richard B. Pylant
-------------------------------------------
Name: Richard B. Pylant
--------------------------------------
Title: National Sales Director--FVP
--------------------------------------
<PAGE>
EXHIBIT 10.27
AGREEMENT RESPECTING A LIMITED LIABILITY COMPANY
THIS AGREEMENT is made as of this 12th day of December 1997, by and among
KEYBANK NATIONAL ASSOCIATION, a national banking association ("KeyBank"), NOVA
CORPORATION, a corporation chartered under the laws of the State of Georgia
("NOVA Corp"), and NOVA INFORMATION SYSTEMS, INC., a wholly owned subsidiary of
NOVA Corp that is a corporation chartered under the laws of the State of Georgia
with its main office located in Atlanta, Georgia ("NOVA"). For purposes of this
Agreement, capitalized terms used herein, unless otherwise defined herein, shall
have the meaning ascribed to such terms in the Definitional Supplement attached
hereto as Exhibit A, which is incorporated herein by this reference.
---------
R E C I T A L S:
---------------
WHEREAS, KeyBank seeks to form an alliance with a company providing Bank
Card Processing services to maximize efficiencies and create economies of scale;
WHEREAS, NOVA is a company engaged in the business of providing Bank Card
Processing services, including the business of providing Bank Card Processing
services to commercial establishments that accept Credit Card and Debit Card
products;
WHEREAS, KeyBank Sub and NOVA desire to become members of a limited
liability company to provide Bank Card Processing services for Merchants,
including New Merchants;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
set forth herein, the parties hereby agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF NOVA
NOVA Corp and NOVA jointly and severally represent and warrant to KeyBank
as follows:
1.01 Each of NOVA Corp and NOVA is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia and has due
authority to conduct business in all states where it conducts business, except
where the failure to have such authority has not and will not have a Material
Adverse Effect.
1.02 The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not conflict in any material respect
with, or constitute a material breach or Default under, the organizational
documents of NOVA Corp or NOVA or under the terms and conditions of any Contract
to which NOVA Corp or NOVA is a party.
<PAGE>
1.03 The NOVA Corp Financial Statements fairly present the financial
condition of NOVA Corp and its subsidiaries as of their respective dates, and
the results of operations of NOVA Corp and its subsidiaries for the periods
indicated, in accordance with GAAP applied on a consistent basis throughout the
periods involved, subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments, none of which are reasonably likely
to be, either individually or in the aggregate, material in amount. Neither
NOVA Corp nor any of its subsidiaries has any Liabilities required to be
disclosed by NOVA Corp in financial statements prepared in accordance with GAAP
applied on a basis consistent throughout the periods involved other than (i)
Liabilities disclosed in the NOVA Corp Financial Statements, (ii) Liabilities
for which NOVA Corp has made adequate reserves as reflected in the NOVA Corp
Financial Statements, and (iii) Liabilities, ordinary in nature and amount,
incurred since September 30, 1997 in the ordinary course of business. To the
Knowledge of NOVA, there is no basis for a material write-down in the value of
the Assets shown in the NOVA Corp Financial Statements. Since September 30,
1997, there has been no Material Adverse Effect on NOVA Corp or any of its
subsidiaries.
1.04 Except where such failure to file has not and will not have a Material
Adverse Effect, since January 1, 1996, NOVA Corp has filed all forms, reports,
statements and other documents required to be filed by it with the Securities
and Exchange Commission. The NOVA Corp SEC Reports, as amended to date, (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, as the case may be, and (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
1.05 Neither NOVA Corp nor NOVA has received notice from any Regulatory
Authority indicating that such Regulatory Authority would oppose or not grant or
issue its Consent, if required, with respect to the transactions contemplated by
this Agreement and the other Operative Documents.
1.06 Except as set forth on Schedule 1.06(a), no action of, or filing
----------------
with, or Consent of, any Regulatory Authority is required by NOVA Corp or NOVA
to authorize, or is otherwise required in connection with, the execution and
delivery by NOVA Corp or NOVA of this Agreement or the other Operative Documents
or, if required, the requisite filing has been made and all necessary Consents
have been obtained. Except as disclosed on Schedule 1.06(b), no filing with, or
----------------
Consent of, any third party is required by virtue of the execution of this
Agreement or any other Operative Document by NOVA Corp or NOVA, or the
consummation of the transactions contemplated herein by NOVA Corp or NOVA, to
avoid the violation or breach of, or Default under, the terms of any Law,
Permit, Order or Contract to which NOVA Corp or NOVA or any of their
subsidiaries is a party or to which any of their respective Assets is subject.
Neither NOVA Corp nor NOVA has received notice from any third party indicating
that such third party would oppose or not grant or issue its Consent, if
-2-
<PAGE>
required, with respect to the transactions contemplated by this Agreement and
the other Operative Documents.
1.07 Except as set forth in Schedule 1.07, there is no Litigation relating
-------------
to NOVA's Merchant Business (including Litigation conducted by or related to any
Payment Network) that is pending or, to the knowledge of NOVA, threatened
against NOVA Corp or NOVA that, if adversely determined, would have a Material
Adverse Effect on NOVA Corp or NOVA. Schedule 1.07 indicates which of such
-------------
Litigation is being defended by an insurance carrier, and which of such
Litigation being so defended is being defended under a reservation of rights.
NOVA has made available to KeyBank correct and complete copies of all pleadings,
briefs and other documents filed in each pending Litigation listed in Schedule
--------
1.07, and the Orders, indictments and information, grand jury subpoenas and
- ----
civil investigative demands, plea agreements, stipulations and awards listed in
Schedule 1.07.
- -------------
1.08 NOVA has the Permits relating to NOVA's Merchant Business that are
listed on Schedule 1.08. These Permits include all of the Permits necessary for
-------------
the conduct by NOVA of its Merchant Business, except where the failure to have
the Permits does not and will not have a Material Adverse Effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF KEYBANK
KeyBank represents and warrants to NOVA Corp and NOVA as follows:
2.01 KeyBank is duly organized and validly existing as a national banking
association under the laws of the United States, and has due authority to
conduct the KeyBank Merchant Business in all states where it conducts the
KeyBank Merchant Business, except where the failure to have such authority has
not and will not have a Material Adverse Effect. POSSI is duly organized,
validly existing, and in good standing as a corporation under the laws of the
State of Ohio and has due authority to conduct its business in all states where
it conducts its business, except where the failure to have such authority has
not and will not have a Material Adverse Effect.
2.02 The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not conflict in any material respect
with, or constitute a material breach or Default under, the organizational
documents of KeyBank or POSSI or under the terms and conditions of any Contract
to which KeyBank or POSSI is a party.
2.03 The terms of the Assigned Agent Bank Agreements, the Assigned Agent
Bank Merchant Agreements, the Assigned Third Party Agreements, and the Assigned
Merchant Agreements and the KeyBank Merchant Regulations comply in all material
respects with applicable Laws, Orders and Permits. With respect to the KeyBank
-3-
<PAGE>
Merchant Business generally, KeyBank and POSSI are not, and have not been, in
material violation of any applicable Law, Order or Permit.
2.04 KeyBank is a principal member in good standing of the Credit Card
Associations. KeyBank and the KeyBank Merchant Business complies in all material
respects with all applicable rules, regulations and certification requirements
of the Credit Card Associations, including but not limited to applicable "Year
2000" certification requirements. KeyBank has provided (or will provide prior
to Closing) NOVA with true, complete, and correct copies of all Contracts
between KeyBank and any of the Credit Card Associations.
2.05 KeyBank has not received notice from any Regulatory Authority
indicating that such Regulatory Authority would oppose or not grant or issue its
Consent, if required, with respect to the transactions contemplated by this
Agreement and the other Operative Documents.
2.06 Except as set forth on Schedule 2.06 and except with respect to the
-------------
POSSI Assets, KeyBank is the owner of, and has good and valid title to, the
Contributed Assets, free and clear of all Liens. Without limiting the
generality of the foregoing, no Person other than KeyBank has any right, title,
or interest in the Contributed Assets except for (i) Merchants with respect to
Merchant Agreements to which they are a party, (ii) Agent Banks with respect to
the Agent Bank Agreement to which they are a party and with respect to any Agent
Bank Merchant Agreement to which they are a party, (iii) any third parties with
respect to the Assigned Third Party Agreements to which they are a party, (iv)
POSSI with respect to the POSSI Assets and (v) Merchants with respect to the
POSSI Equipment Leases to which they are a party. POSSI is the owner of, and
has good and valid title to, all of the POSSI Assets , other than POSSI Assets
disposed of by POSSI since September 30, 1997 in the ordinary course of
business. All of the POSSI Assets will be assigned to the Company pursuant to
the Assignment and Assumption Agreements.
2.07 The KeyBank Merchant Business Financial Statements fairly present the
financial condition of the KeyBank Merchant Business as of their respective
dates, and the results of its operations for the periods indicated, in
accordance with GAAP applied on a consistent basis throughout the periods
involved, subject, in the case of any interim financial statements, to normal
year-end adjustments, none of which are reasonably likely to be, either
individually or in the aggregate, material in amount, and, in the case of 1996
financial statements, for the realization of $1.56 million in gain from the sale
of assets to POSSI, which may not have been in accordance with GAAP. The
KeyBank Merchant Business has no Liabilities required to be disclosed by KeyBank
in financial statements prepared in accordance with GAAP applied on a basis
consistent throughout the periods involved other than (i) Liabilities disclosed
in the KeyBank Merchant Business Financial Statements, (ii) Liabilities for
which KeyBank has made adequate reserves as reflected in the KeyBank Merchant
Business Financial Statements, and (iii) Liabilities, ordinary in nature and
amount, incurred since September 30, 1997 in the ordinary course of business.
To the Knowledge of KeyBank, there is no basis for a material write-down in the
value of the Assets shown in the KeyBank Merchant Business Financial Statements.
-4-
<PAGE>
Since September 30, 1997, there has been no Material Adverse Effect on the
KeyBank Merchant Business.
2.08 The information relative to Merchants' (i) Credit Card sales volume
and (ii) Debit Card sales volume set forth on Schedule 2.08 is accurate and
-------------
complete in all material respects as of the date hereof and for the periods
indicated.
2.09 Schedule 2.09 lists each of the Agent Bank Agreements now in effect,
-------------
each of which shall be assigned to the Company pursuant to the Assignment and
Assumption Agreements. KeyBank has provided (or will provide prior to Closing)
NOVA with true, complete, and correct copies of all such Agent Bank Agreements.
KeyBank has also made available to NOVA lists of all Merchants, including Agent
Bank Merchants, and will provide NOVA with updated lists of such Merchants as of
the Closing Date. The Merchant Agreements with all such Merchants shall be
assigned to the Company pursuant to the Assignment and Assumption Agreements.
Except as set forth on Schedule 2.09, the Agent Bank Agreements and the Agent
-------------
Bank Merchant Agreements are freely assignable by KeyBank without the consent of
the applicable Agent Bank. KeyBank has no reason to believe that the rate of
fraud, Credit Loss, bankruptcy or termination with respect to the Merchant
Agreements or the Agent Bank Agreements will exceed rates experienced in the
past (except as may result from changes in general economic conditions).
KeyBank has not received or given any notice of material Default or termination
under, and has not received an adverse comment from any Regulatory Authority in
respect of, any of the Merchant Agreements, Agent Bank Agreements, Agent Bank
Merchant Agreements, or Assigned Third Party Agreements.
2.10 All Merchant Agreements are substantially in the form of one of the
Merchant Agreements attached hereto as Exhibit 2.10 and are freely assignable by
------------
KeyBank without the Consent of the applicable Merchant or any other party.
KeyBank has obtained ACH Agreements with respect to each such Merchant, all of
which are freely assignable by KeyBank without the Consent of the applicable
Merchant or any other party.
2.11 Except for the Agent Bank Agreements, KeyBank is not party to any
agreements, written or oral, with any agent bank, other financial institution,
independent sales or service organization or any similar third party which
provides for any one or more of the following: (i) the deposit of Credit Card
or Debit Card transaction records; (ii) the settlement of Credit Card or Debit
Card transactions; (iii) the processing of Credit Card or Debit Card
transactions; or (iv) the referral of merchants to KeyBank. Schedule 2.11
-------------
identifies each agreement with a trade or other similar association of merchants
to which KeyBank is a party and that relates to the KeyBank Merchant Business.
2.12 Except for disputes that have arisen in the ordinary course of
business and that are, to the Knowledge of KeyBank, ordinary in nature and
amount, KeyBank is not engaged in any dispute with any Merchant, Agent Bank, or
any party to any Assigned Third Party Agreement. KeyBank has no reason to
believe, and has received no written notice, that the consummation of the
transactions contemplated hereunder will have any material adverse effect on the
-5-
<PAGE>
business relationship of KeyBank with any Merchant, Agent Bank, or any party to
any Assigned Third Party Agreement.
2.13 Schedule 2.13 identifies the Merchants that have an annual processed
-------------
Credit Card sales volume in excess of $5,000,000. To the Knowledge of KeyBank,
KeyBank has not received notice of the insolvency, receivership, bankruptcy or
similar event of any Merchant identified on Schedule 2.13.
-------------
2.14 KeyBank is a member in good standing of the EFT Networks identified
on Schedule 2.14. KeyBank and the KeyBank Merchant Business are in full
-------------
compliance in all material respects with the applicable rules and regulations of
the EFT Networks.
2.15 Except as set forth on Schedule 2.15(a), no action of, or filing
----------------
with, or Consent of, any Regulatory Authority is required by KeyBank to
authorize, or is otherwise required in connection with, the execution and
delivery by KeyBank of this Agreement or the other Operative Documents or, if
required, the requisite filing has been made and all necessary Consents have
been obtained. Except as disclosed on Schedule 2.15(b), no filing with, or
----------------
Consent of, any third party is required by virtue of the execution by KeyBank of
this Agreement or any other Operative Document, or the consummation by KeyBank
of the transactions contemplated herein, to avoid the violation or breach of, or
Default under, or the creation of a Lien on any of the Contributed Assets
pursuant to, the terms of any Law, Permit, Order or Contract to which any Key
Entity is a party or to which any of the Contributed Assets is subject.
2.16 Except as set forth on Schedule 2.16, there is no Litigation
-------------
relating to the KeyBank Merchant Business (including Litigation conducted by or
related to any Payment Network) that is pending or, to the Knowledge of KeyBank,
threatened against KeyBank that, if adversely determined, would have a Material
Adverse Effect on the KeyBank Merchant Business. Schedule 2.16 indicates which
-------------
of such Litigation is being defended by an insurance carrier, and which of such
Litigation being so defended is being defended under a reservation of rights.
KeyBank has made available to NOVA correct and complete copies of all pleadings,
briefs and other documents filed in each pending Litigation listed in Schedule
--------
2.16, and the Orders, indictments and information, grand jury subpoenas and
- ----
civil investigative demands, plea agreements, stipulations and awards listed in
Schedule 2.16.
- -------------
2.17 KeyBank and POSSI have the Permits relating to the KeyBank Merchant
Business that are listed on Schedule 2.17. These Permits include all of the
-------------
Permits necessary for the conduct by KeyBank and POSSI of the KeyBank Merchant
Business, except where the failure to have the Permits does not and will not
have a Material Adverse Effect.
2.18 Except for the Merchant Agreements and related ACH Agreements and
guaranties, the Agent Bank Agreements, the Assigned Third Party Agreements, the
Retained Third Party Agreements, and the agreements identified in Section 2.22
or in Schedule 2.22(a) or 2.22(b), KeyBank is not party to or bound by, and the
Contributed Assets do not include:
-6-
<PAGE>
(a) any Contract related to the KeyBank Merchant Business by which
Company, upon consummation of the KeyBank Contribution or otherwise, will
be bound and that entails the expenditure or receipt by KeyBank of more
than $100,000 in any year and cannot be canceled on notice of ninety (90)
days or less without liability for any penalty or premium;
(b) any Contract related to the KeyBank Merchant Business containing
covenants limiting the freedom of KeyBank or POSSI to compete in the
Merchant Business in any geographic area; or
(c) any Contract entitling any person or other entity to any profits,
revenues or cash flows of the KeyBank Merchant Business or requiring any
payments or other distributions based on such profits, revenues or cash
flows.
2.19 Except as set forth in Schedule 2.19 and where the failure to be
-------------
valid and binding, in full force and effect and enforceable does not and will
not have a Material Adverse Effect, all of the Assigned Merchant Agreements,
Assigned Agent Bank Agreements, Assigned Agent Bank Merchant Agreements, and
Assigned Third Party Agreements are valid and binding, in full force and effect
and enforceable in accordance with their terms, subject to (i) applicable
bankruptcy, reorganization, insolvency, moratorium or other similar Laws from
time to time in effect affecting creditors' rights generally and (ii) equitable
principles of general application. Except for (i) the Assets to be made
available to the Company by KeyBank pursuant to the Services Agreement, (ii) the
Assets to be made available to the Company by NOVA pursuant to the Processing
Agreement, (iii) rights under the Retained Third Party Agreements, and (iv) all
software licenses other than the Workflow System that cannot be transferred
because of license restrictions, the Contributed Assets constitute substantially
all of the Assets necessary for the conduct of the KeyBank Merchant Business as
it is currently conducted.
2.20 Schedule 2.20(a) identifies all of the Retained Third Party
----------------
Agreements. Schedule 2.20(b) identifies the Assigned Third Party Agreements,
----------------
and KeyBank has provided to NOVA true, complete and correct copies of all such
Assigned Third Party Agreements.
2.21 Except for discussions with third parties and related activities in
connection with the possible disposition of all or a portion of the KeyBank
Merchant Business, including the transactions contemplated by this Agreement and
the other Operative Documents, since September 30, 1997, KeyBank has conducted
the KeyBank Merchant Business only in the ordinary course.
2.22 Schedule 2.22(a) sets forth the names, title and current
----------------
compensation (broken down by category, e.g. salary and incentive compensation)
of all sales and marketing employees of the KeyBank Merchant Business. Except
as set forth on Schedule 2.22(b), no such employee is a party to any employment
----------------
agreement with KeyBank. Except as set forth on Schedule 2.22(b), there are no
----------------
labor contracts, collective bargaining agreements, letters of understanding or
other arrangements, formal or informal, with any union or labor organization
-7-
<PAGE>
covering any of the employees of the KeyBank Merchant Business, and no such
employees are represented by any union or labor organization.
2.23 With respect to the employees of the KeyBank Merchant Business, (i)
KeyBank complies in all material respects with all federal and state Laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and (ii) KeyBank is not and has not been engaged in
any unfair labor practice, and no unfair labor practice complaint against
KeyBank is pending before the National Labor Relations Board, with respect to
any such employees.
2.24 Schedule 2.24 identifies, and describes the functions of, all
-------------
computer software and databases (including but not limited to those relating to
the "Workflow System") owned, licensed, leased, internally developed or
otherwise used in connection with the KeyBank Merchant Business.
2.25 The value of all slow moving or obsolete Equipment reflected in the
consolidated balance sheet of the KeyBank Merchant Business has been written
down to net realizable market value on a basis consistent with GAAP. The
quantities of point-of-sale terminals, printers and other point-of-sale Assets
utilized by Merchants that are included in the Contributed Assets are not
excessive and are reasonable in the present circumstances of the KeyBank
Merchant Business.
2.26 The POSSI Balance Sheet fairly presents the financial condition of
POSSI as of September 30, 1997 in accordance with GAAP applied on a consistent
basis, subject to normal year-end adjustments, none of which are reasonably
likely to be, either individually or in the aggregate, material in amount.
POSSI has no Liabilities required to be disclosed by POSSI in financial
statements prepared on that basis other than (i) Liabilities disclosed in the
POSSI Balance Sheet, (ii) Liabilities for which POSSI has made adequate reserves
as reflected in the POSSI Balance Sheet, and (iii) Liabilities, ordinary in
nature and amount, incurred since September 30, 1997 in the ordinary course of
business. To the Knowledge of POSSI, there is no basis for a material write-
down in the value of the Assets shown in the POSSI Balance Sheet. Since
September 30, 1997, there has been no Material Adverse Effect on POSSI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALL PARTIES
3.01 ALL PARTIES. NOVA Corp and NOVA jointly and severally represent
and warrant to KeyBank, and KeyBank represents and warrants to NOVA Corp and
NOVA, that each has the corporate power and authority to execute and deliver
this Agreement and to perform their obligations hereunder; such execution,
delivery and performance have been duly authorized by all necessary action on
their part; and this Agreement constitutes their valid and legally binding
obligation, enforceable against them in accordance with the terms hereof, except
as may be limited by (a) applicable bankruptcy, reorganization, insolvency,
-8-
<PAGE>
moratorium or other similar Laws from time to time in effect affecting
creditors' rights generally or (b) equitable principles of general application.
ARTICLE IV
FORMATION OF COMPANY AND RELATED MATTERS
4.01 FORMATION OF COMPANY. KeyBank has caused the Company to be formed by
filing a Certificate of Formation (in the form of Exhibit 4.01 attached hereto)
------------
with the Delaware Secretary of State. Upon the consummation of the KeyBank
Contribution, KeyBank, KeyBank Sub and POSSI shall be the sole Members of the
Company, with KeyBank and POSSI owning, in the aggregate, fifty-one percent
(51%) Membership Interests and KeyBank Sub owning a forty-nine percent (49%)
Membership Interest. In connection therewith:
(a) The name of the Company shall be "Key Merchant Services, LLC," or
such other name as KeyBank and NOVA may mutually agree upon in writing.
(b) The purposes of the Company shall be to provide transaction
processing and electronic payment services to Merchants. Unless approved
by a Supermajority Vote, however, the business of the Company will be
limited to the Merchant Business and Bank Card Processing relating thereto.
For as long as KeyBank maintains a national bank charter, the Company will
not engage in any activities that are not permitted activities for national
banking associations, or for entities in which national banking
associations are permitted to invest, as set forth in the Operating
Agreement.
(c) The initial principal place of business of the Company shall be in
Atlanta, Georgia.
(d) Prior to the Closing, KeyBank shall cause the Company to execute
the Company Supplement attached to this Agreement as Exhibit 4.01(d)
---------------
evidencing the Company's contractual obligation to comply with the terms of
this Agreement and the other Operative Documents.
(e) KeyBank shall cause KeyBank Sub and POSSI to comply with and
perform all of its obligations under all of the Operative Documents. In
that regard, KeyBank shall enter into and deliver at the Closing the
Guaranty and Agreement to Comply attached hereto as Exhibit 4.01(e) (the
---------------
"Guaranty and Agreement to Comply").
4.02 CONTRIBUTION/COMPANY INTEREST PURCHASE.
(a) Following the formation of the Company, but prior to the Closing,
KeyBank shall, and shall cause KeyBank Sub and POSSI to, assign, transfer,
convey and deliver to the Company, in contributions intended to qualify
under Section 721 of the Code, free and clear of all Liens, and the
-9-
<PAGE>
Company shall acquire from KeyBank, KeyBank Sub and POSSI (the "KeyBank
Contribution"), all right, title and interest of KeyBank, KeyBank Sub and
POSSI in the KeyBank Merchant Assets and, simultaneously therewith, KeyBank
and POSSI shall assign to the Company, and the Company shall assume and
agree thereafter to pay and discharge when due, the Assumed Liabilities
(the date of the KeyBank Contribution is referred to herein as the
"Contribution Date"). The Company shall not assume or become liable for
the payment of any Credit Losses, Chargebacks or other Liabilities of any
Key Entity, any Merchant or any Agent Bank, except for Assumed Liabilities.
Accordingly, at the Contribution Date, KeyBank, KeyBank Sub and POSSI shall
cause to be delivered to the Company the KeyBank Merchant Assets to be
contributed by them hereunder, together with such instruments of transfer
and other documentation as shall be necessary to transfer good and
marketable title thereof to the Company. The parties shall carry out the
assignment by KeyBank, KeyBank Sub and POSSI, and the assumption by the
Company, of the Assumed Liabilities by execution and delivery, at the
Contribution Date, of Assignment and Assumption Agreements substantially in
the form of Exhibit 4.02(a) attached hereto. Notwithstanding any
---------------
provisions of this or any other agreement to the contrary (except Section
3.06(b) of the Operating Agreement), the Capital Accounts of KeyBank,
KeyBank Sub and POSSI, upon consummation of the KeyBank Contribution, shall
be as set forth on Schedule 4.02(a) attached hereto.
----------------
(b) At the Closing, NOVA shall purchase from KeyBank and POSSI, and
KeyBank shall sell and cause POSSI to sell to NOVA, an aggregate fifty-one
percent (51%) Membership Interest in the Company (the "NOVA Company
Interest Purchase"). KeyBank Sub shall retain a forty-nine percent (49%)
Membership Interest in the Company. The purchase price to be paid by NOVA
in connection with the NOVA Company Interest Purchase (the "Purchase
Price") shall be determined in accordance with Section 4.03. The NOVA
Company Interest Purchase shall be evidenced by the Bill of Sale attached
hereto as Exhibit 4.02(b).
---------------
(c) Immediately following the consummation of the NOVA Company Interest
Purchase, NOVA shall, and KeyBank shall cause KeyBank Sub to, execute and
deliver the Operating Agreement attached hereto as Exhibit 4.02(c).
---------------
(d) As a condition to the NOVA Company Interest Purchase, KeyBank
covenants and agrees that, effective for the taxable year in which the
Closing occurs, it shall make a timely and proper election pursuant to Code
Section 197(f)(9)(B), and the proposed or final Treasury Regulations
thereunder, to, notwithstanding any other provision of the Code, recognize
gain on the NOVA Company Interest Purchase, and pay income tax on such
gain, at the highest rate of income tax applicable to KeyBank under the
Code (the "Recognition of Gain Election"). For the purposes of this
Section 4.02(d), the gross gain recognized by KeyBank in connection with
the NOVA Company Interest Purchase shall, notwithstanding anything to the
contrary in this Agreement or under the Code, be equal to $74,100,000 (the
"Gross Gain Amount").
-10-
<PAGE>
(e) Notwithstanding anything to the contrary herein or in any other
Operative Document, KeyBank shall, and shall cause KeyBank Sub and POSSI
to, fully cooperate in assisting NOVA, on behalf of the Company, to cause
the Company to make a proper 754 election (the "754 Election") under the
Code, and the Treasury Regulations thereunder, such that the 754 Election
shall be effective for the Company's first taxable year.
(f) Notwithstanding anything to the contrary herein, KeyBank shall make
an election pursuant to Code Section 453(d) (the "Election Out of
Installment Method") such that the general rule of Code Section 453(a) will
not apply to the NOVA Company Interest Purchase. KeyBank's Election Out of
Installment Method shall be made in the manner prescribed by the
appropriate forms on or before the due date (including extensions) to file
its return for the taxable year in which the Closing occurs. As a result
of the Election Out of Installment Method, KeyBank shall recognize gross
gain from the NOVA Company Interest Purchase for the taxable year in which
the Closing occurs in an amount equal to the Gross Gain Amount.
4.03 DETERMINATION OF PURCHASE PRICE. The Purchase Price shall be payable
over a period of three (3) years following the Closing in the manner set forth
in this Section 4.03, and shall be contingent upon the attainment of the
"Merchant Business Gross Revenue" (as defined below) thresholds set forth in
this Section 4.03.
(a) YEAR 1 PAYMENT. On the Closing Date, NOVA shall make a preliminary
payment to KeyBank in the amount of [*]. On or before December 31, 1998, an
estimate of the portion of the purchase price payable to KeyBank in the
first year (the "Estimated Year 1 Payment") shall be calculated based on an
estimate of the "Merchant Business Gross Revenue" (as defined below)
attributable to the Company's Merchant Business during the period starting
on the day immediately after the Closing Date and ending on December 31,
1998 ("Year 1"; the Merchant Business Gross Revenue attributable to Year 1*
being the "Year 1 Merchant Business Gross Revenue"). Specifically, the
Estimated Year 1 Payment shall be an amount corresponding to the
appropriate level of estimated Year 1 Merchant Business Gross Revenue, as
listed in the table set forth below (the "Payment Table"):
[*] CONFIDENTIAL TREATMENT REQUESTED.
-11-
<PAGE>
<TABLE>
<CAPTION>
MERCHANT BUSINESS GROSS REVENUE PAYMENT TO KEYBANK
EARNED DURING SUBJECT YEAR*
- --------------------------------------------------------------------------------
<S> <C>
Equal to or exceeding $63,050,000 [*]
- --------------------------------------------------------------------------------
Less than $63,050,000, but equal to or [*]
exceeding $53,350,000
- --------------------------------------------------------------------------------
Less than $53,350,000, but equal to or [*]
exceeding $38,800,000
- --------------------------------------------------------------------------------
Less than $38,800,000 [*]
- --------------------------------------------------------------------------------
</TABLE>
* For Year 1, the Merchant Business Gross Revenue will be annualized by
multiplying the actual amount of such revenue by a fraction, the numerator
of which is 365 and the denominator of which is the number of days during
the period starting on the day immediately after the Closing Date and
ending on December 31, 1998.
On or before December 31, 1998, (i) if the Estimated Year 1 Payment
exceeds [*], NOVA shall pay the amount of the excess to KeyBank
or (ii) if the Estimated Year 1 Payment is less than [*], KeyBank
shall reimburse NOVA for the amount of the shortfall. On or before January
31, 1999, the amount of the payment (the "Year 1 Payment") due to KeyBank
based on the actual Year 1 Merchant Business Gross Revenue will be
determined, and (x) if the Year 1 Payment exceeds the Estimated Year 1
Payment, NOVA shall pay the amount of the excess to KeyBank or (y) if the
Year 1 Payment is less than the Estimated Year 1 Payment, KeyBank shall
reimburse NOVA the amount of the shortfall.
(b) YEAR 2 PAYMENT. On January 1, 1999, NOVA shall make a preliminary
payment to KeyBank in the amount of [*]. On or before December 31, 1999, an
estimate of the portion of the purchase price payable to KeyBank with
respect to the second year (the "Estimated Year 2 Payment") shall be
calculated based on an estimate of the Merchant Business Gross Revenue
attributable to the Company's Merchant Business during the year ended
December 31, 1999 ("Year 2"; the Merchant Business Gross Revenue
attributable to Year 2 being the "Year 2 Merchant Business Gross Revenue").
Specifically, the Estimated Year 2 Payment shall be an amount corresponding
to the appropriate level of estimated Year 2 Merchant Business Gross
Revenue, as listed in the Payment Table. On or before December 31, 1999,
(i) if the Estimated Year 2 Payment exceeds [*], NOVA shall pay the amount
of the excess to KeyBank or (ii) if the Estimated Year 2 Payment is less
than [*], KeyBank shall reimburse NOVA for the amount of the shortfall. On
or before January 31, 2000, the amount of the payment (the "Year 2
Payment") due to KeyBank based on the actual Year 2 Merchant Business Gross
Revenue will be determined, and (x) if the Year 2 Payment exceeds the
Estimated Year 2 Payment, NOVA shall pay the amount of the
[*] CONFIDENTIAL TREATMENT REQUESTED.
-12-
<PAGE>
excess to KeyBank or (y) if the Year 2 Payment is less than the Estimated
Year 2 Payment, KeyBank shall reimburse NOVA the amount of the shortfall.
(c) YEAR 3 PAYMENT. On January 1, 2000, NOVA shall make a preliminary
payment to KeyBank in the amount of [*]. On or before December 31, 2000, an
estimate of the portion of the purchase price payable to KeyBank with
respect to the third year (the "Estimated Year 3 Payment") shall be
calculated based on an estimate of the Merchant Business Gross Revenue
attributable to the Company's Merchant Business during the year ended
December 31, 2000 ("Year 3"; the Merchant Business Gross Revenue
attributable to Year 3 being the "Year 3 Merchant Business Gross Revenue").
Specifically, the Estimated Year 3 Payment shall be an amount corresponding
to the appropriate level of estimated Year 3 Merchant Business Gross
Revenue, as listed in the Payment Table. On or before December 31, 2000,
(i) if the Estimated Year 3 Payment exceeds [*], NOVA shall pay the amount
of the excess to KeyBank or (ii) if the Estimated Year 3 Payment is less
than [*], KeyBank shall reimburse NOVA for the amount of the shortfall. On
or before January 31, 2001, the amount of the payment (the "Year 3
Payment") due to KeyBank based on the actual Year 3 Merchant Business Gross
Revenue will be determined, and (x) if the Year 3 Payment exceeds the
Estimated Year 3 Payment, NOVA shall pay the amount of the excess to
KeyBank or (y) if the Year 3 Payment is less than the Estimated Year 3
Payment, KeyBank shall reimburse NOVA the amount of the shortfall.
(d) CATCH-UP PAYMENT. In addition to the Year 1 Payment, Year 2
Payment, and Year 3 Payment, NOVA shall make an additional payment to
KeyBank (the "Catch-Up Payment"), to the extent that the sum of the Year 1
Payment, the Year 2 Payment, and the Year 3 Payment is less than the Total
Payment due to KeyBank, based on the sum of the Year 1 Merchant Business
Gross Revenue, Year 2 Merchant Business Gross Revenue, and Year 3 Merchant
Business Gross Revenue, as set forth in the following table:
<TABLE>
<CAPTION>
MERCHANT BUSINESS GROSS REVENUE TOTAL PAYMENT DUE TO KEYBANK
EARNED DURING 3 YEARS
- --------------------------------------------------------------------------------
<S> <C>
Equal to or exceeding $189,150,000 [*]
- --------------------------------------------------------------------------------
Less than $189,150,000, but equal to [*]
or exceeding $160,050,000
- --------------------------------------------------------------------------------
Less than $160,050,000, but equal to [*]
or exceeding $116,400,000
- --------------------------------------------------------------------------------
Less than $116,400,000 [*]
- --------------------------------------------------------------------------------
</TABLE>
Any such Catch-Up Payment will be due on or before January 31, 2001. If
the sum of the Year 1 Payment, the Year 2 Payment, and the Year 3 Payment
[*] CONFIDENTIAL TREATMENT REQUESTED.
-13-
<PAGE>
equals the total payment due to KeyBank, based on the sum of the Year 1
Merchant Business Gross Revenue, Year 2 Merchant Business Gross Revenue,
and Year 3 Merchant Business Gross Revenue, as set forth in the foregoing
table, no Catch-Up Payment will be due.
(e) "Merchant Business Gross Revenue" means, with respect to any given
period of time, all revenue sources of the Company's Merchant Business,
including but not limited to training fees, set up fees, terminal rental
and lease fees and the actual gross discount and Transaction fees generated
by the Company's Merchant Business during such period of time; except that,
in the event of any material decrease in discounts resulting from a
decrease in interchange fees mandated by the Credit Card Associations,
"Merchant Business Gross Revenue" will include, with respect to any given
period of time, the gross discounts that would have been generated by the
Company's Merchant Business during such period of time if there had not
been such decrease in the interchange fees and discounts.
(f) In no event will the aggregate Purchase Price exceed [*].
(g) Notwithstanding the foregoing, in the event that, pursuant to
Section 15.01 of the Operating Agreement, KeyBank Sub purchases NOVA's
Membership Interest or NOVA purchases KeyBank Sub's Membership Interest
before December 31, 2000, the Purchase Price will be determined in
accordance with Section 15.01(e) of the Operating Agreement.
4.04 TIME AND PLACE OF CLOSING. The Closing will take place at 10:00 a.m.
on the Closing Date and shall be effective as of the close of business on the
Closing Date. Subject to the terms and conditions of this Agreement, unless
otherwise mutually agreed upon in writing by an executive officer of each of
NOVA and KeyBank, the parties shall use their reasonable efforts to cause the
Closing Date to occur at the earliest practicable date in 1998, but not later
than the later of (i) January 31, 1998, or (ii) the third (3rd) Business Day
following the effective date (including expiration of any applicable waiting
period) of the last required Consent of any Regulatory Authority (having
authority over and approving or exempting the transactions contemplated by this
Agreement). The place of Closing shall be at the offices of KeyBank, 127 Public
Square, Cleveland, Ohio 44114, or such other place as may mutually be agreed
upon by NOVA and KeyBank.
4.05 DEFAULT BY ANY PARTY HERETO AT THE CLOSING. If KeyBank (or KeyBank
Sub or POSSI) or NOVA shall fail or refuse to consummate either the KeyBank
Contribution or the NOVA Company Interest Purchase in accordance with Section
4.02 above, other than as may result from the exercise of a party's rights under
this Agreement, or if the parties shall fail or refuse to consummate any of the
other transactions described in this Agreement that are to be consummated prior
to or on the Closing Date, the non-defaulting party, at its option and without
prejudice to its rights against any defaulting party, may either (i)
unilaterally delay the Closing while taking appropriate remedial action, or (ii)
refuse to consummate such transactions and thereby terminate all of its
obligations hereunder without any Liability. The parties hereto acknowledge
that the NOVA Company Interest Purchase and the KeyBank Contribution, together
[*] CONFIDENTIAL TREATMENT REQUESTED.
-14-
<PAGE>
with the 754 Election, the Recognition of Gain Election and the Election Out of
Installment Method are unique and otherwise not available and agree that, in
addition to any other remedies, the non-defaulting party may invoke any
equitable remedies to enforce delivery or consummation of the NOVA Company
Interest Purchase, the KeyBank Contribution or the 754 Election, the Recognition
of Gain Election and the Election Out of Installment Method, as the case may be,
including, without limitation, any action or suit for specific performance.
ARTICLE V
CERTAIN KEYBANK RESPONSIBILITIES AND COMMITMENTS
5.01 REGULATORY APPROVALS.
(a) For KeyBank. KeyBank shall be responsible, at its own expense, for
-----------
obtaining all Consents of Regulatory Authorities required for it (or
KeyBank Sub or POSSI) to participate in a limited liability company of the
type described in this Agreement or as otherwise are necessary for KeyBank
(or KeyBank Sub or POSSI) to consummate the transactions hereby
contemplated, including but not limited to the Consents of Regulatory
Authorities identified on Schedule 2.15(a) attached hereto.
----------------
(b) For NOVA. KeyBank shall reasonably cooperate with NOVA and provide
--------
such information and/or assistance as KeyBank can reasonably provide to
assist NOVA in obtaining any and all required Consents of Regulatory
Authorities as provided under Section 6.01 hereof.
5.02 SERVICES AGREEMENT. At the Closing, KeyBank shall enter into a
Services Agreement with the Company in the form of Exhibit 5.02 attached hereto.
------------
ARTICLE VI
CERTAIN NOVA RESPONSIBILITIES AND COMMITMENTS
6.O1 REGULATORY APPROVAL(S).
(a) NOVA shall be responsible, at its own expense, for obtaining all
Consents of Regulatory Authorities required for it to participate in a
limited liability company of the type described in this Agreement or as
otherwise are necessary for NOVA to consummate the transactions hereby
contemplated, including but not limited to the Consents of Regulatory
Authorities identified on Schedule 1.06(a) attached hereto.
----------------
(b) NOVA shall reasonably cooperate with KeyBank and provide such
information and/or assistance as NOVA can reasonably provide to assist
-15-
<PAGE>
KeyBank in obtaining any and all required Consents of Regulatory
Authorities as provided under Section 5.01 hereof.
6.02 PROCESSING AGREEMENT. At the Closing, NOVA shall enter into a
Processing Agreement with the Company in the form of Exhibit 6.02 attached
------------
hereto.
ARTICLE VII
CONDUCT OF BUSINESS PENDING
CONSUMMATION; ADDITIONAL AGREEMENTS
7.01 COVENANTS OF NOVA CORP AND NOVA. From the date of this Agreement
until the earlier of the Closing or the termination of this Agreement, except as
expressly contemplated by this Agreement, neither NOVA Corp nor NOVA shall take
any action which would materially and adversely affect the ability of any party
to obtain any Consents required for the transactions contemplated hereby without
imposition of a Burdensome Condition, or which would materially and adversely
affect the ability of any party to perform its obligations under this Agreement.
7.02 COVENANTS OF KEYBANK. From the date of this Agreement until the
earlier of the Closing or the termination of this Agreement, except as expressly
contemplated by this Agreement:
(a) KeyBank shall, and shall cause POSSI to, (i) engage in the KeyBank
Merchant Business only in the usual, regular and ordinary course and (ii)
use reasonable commercial efforts to preserve intact the KeyBank Merchant
Business organization and Assets.
(b) KeyBank shall take, and shall cause KeyBank Sub, POSSI and the
Company to take, all necessary and appropriate actions required by Article
IV of this Agreement, including the execution, delivery and performance by
the Company of the Company Supplement and the performance by the Company of
its obligations under this Agreement and the Company Supplement.
(c) Neither KeyBank, KeyBank Sub, POSSI nor the Company shall do or
agree or commit to do any of the following:
(i) impose, or suffer the imposition of, any Lien on the KeyBank
Merchant Assets or permit any such Lien to exist (other than Liens
in effect as of the date hereof that are specifically disclosed as
Liens in the Schedules hereto); or
(ii) sell, lease, mortgage or otherwise dispose of any KeyBank
Merchant Asset other than in the ordinary course of business; or
-16-
<PAGE>
(iii) commence any Litigation relating to the KeyBank Merchant
Business other than in accordance with past practice or settle any such
Litigation involving any restrictions upon the operations of the
KeyBank Merchant Business; or
(iv) except in the ordinary course of business, modify, amend,
terminate or enter into any material Contract that will become in whole
or in part an Assumed Liability hereunder, or waive, release,
compromise or assign any material rights or claims relating to the
KeyBank Merchant Business; or
(v) cause or allow the Company to incur any indebtedness, make
any distributions, add any additional Members, allow any Member to make
any additional contributions of capital to the Company, or make or
allow any transfer of its Membership Interests.
7.03 ADVERSE CHANGES IN CONDITION. KeyBank and NOVA will each promptly
give written notice to the other party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it which (i) is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on it or (ii) would cause or constitute a material breach of any of its
representations, warranties or covenants contained in this Agreement or any
other Operative Document, and to use its reasonable efforts to prevent or
promptly to remedy the same.
7.04 ANTITRUST NOTIFICATIONS. To the extent required by the HSR Act, the
parties hereto will promptly file with the United States Federal Trade
Commission and the United States Department of Justice the notification and
report form required for the transactions contemplated hereby and any
supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act and will comply in all material
respects with the requirements of the HSR Act. Filing fees incurred in
connection with the HSR Act shall be paid fifty percent (50%) by KeyBank and
fifty percent (50%) by NOVA, with NOVA paying the $45,000 HSR Act filing fee on
behalf of NOVA and KeyBank, and KeyBank will reimburse NOVA, by wire transfer on
the same day NOVA pays the fee, in the amount of $22,500.
7.05 AGREEMENT AS TO EFFORTS TO CONSUMMATE.
(a) Subject to the terms and conditions of this Agreement, each party
agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws to consummate and make effective, as soon
as practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to
lift or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the
conditions referred to in Article VIII of this Agreement; provided, that
nothing herein shall preclude any party from exercising its rights under
-17-
<PAGE>
this Agreement. Each party shall use its reasonable efforts to obtain all
Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
(b) Notwithstanding the conditions to Closing set forth in Article VIII
below, if any required Consent under any Contract to be assigned to and
assumed by the Company hereunder is not obtained by the Closing Date, and
the parties hereto waive such Consent and proceed with the Closing, each
party shall nevertheless continue to pursue such Consents, and, at the
request of the Company, each party shall cooperate with the Company in any
reasonable arrangement designed to provide to the Company the benefits and
burdens of any such Contract or the Assets relating thereto. Nothing
contained in this Agreement or any Assignment and Assumption Agreement
shall be deemed to constitute any assignment or attempted assignment by any
party of any Contract if any assignment or attempted assignment would
constitute a Default thereunder. Each party shall use its reasonable
efforts to execute all agreements to which it is intended to be a party in
connection with the transactions contemplated hereby, including the Company
Supplement and all other Operative Documents.
7.06 INVESTIGATION AND CONFIDENTIALITY. Prior to the Closing, each party
shall keep the other parties advised of all material developments relevant to
its Merchant Business, and to the consummation of the KeyBank Contribution and
the NOVA Company Interest Purchase, and shall permit the other parties to make
or cause to be made such investigation of the Merchant Business and properties
of it and its financial and legal conditions as the other parties reasonably
requests, provided that such investigation shall be reasonably related to the
transactions contemplated hereby and shall not unreasonably interfere with
normal operations. No investigation by a party shall affect the representations
and warranties of the other parties.
7.07 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, neither KeyBank, nor any Affiliate or
Representative thereof, shall, at any time on or after the date hereof and until
the earlier of the Closing or the termination of this Agreement in accordance
with its terms, directly or indirectly, solicit any Acquisition Proposal by any
Person or furnish any non-public information about the KeyBank Merchant Business
that it is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal. KeyBank shall
promptly notify NOVA in the event KeyBank receives an Acquisition Proposal.
7.08 KEYBANK MERCHANT BUSINESS EMPLOYEES.
(a) The KeyBank Merchant Business employees identified on Schedule
--------
7.08 attached hereto will be offered employment by the Company, such
----
employment to be effective at the Closing Date. Except as provided in this
Section 7.08, the offers of such employment shall be made at such time, in
such manner and pursuant to such terms and conditions of employment as may
be agreed upon by KeyBank and NOVA. Without limiting the foregoing:
-18-
<PAGE>
(i) From the Closing through December 31, 1998, the Company shall
pay each Company Employee the same base salary as was paid by KeyBank
to the Company Employee immediately prior to the Closing, subject to
normal merit adjustments. Merit adjustments will be effective April 1,
1998. From the Closing through December 31, 1998, the Company shall
provide to each Company Employee the same level of incentive
compensation opportunity as is provided under KeyBank's 1998 Incentive
Compensation Plan, a copy of which is attached as Exhibit 7.08(a)(i).
------------------
(ii) With respect to all benefits provided by the Company to the
Company Employees, credit shall be given for periods of employment with
KeyBank (or any predecessor to or Affiliate of KeyBank) for all
purposes, including eligibility, vesting, and seniority, but excluding
benefit accrual.
(iii) The Company shall provide the same group medical and dental
benefits to all Company Employees as are provided to NOVA employees
under its group medical and dental plans, except that (A) any waiting
period will be waived, (B) any limitation relating to preexisting
conditions will be waived and (C) the "in network" level of benefits
will be available to all Company Employees in areas where network
providers are not reasonably available, regardless of the providers
used by such Company Employees.
(iv) The Company shall provide to all full-time Company Employees at
least the same number of vacation days (up to a maximum of 20 days) per
year as they were entitled to receive from KeyBank immediately prior to
the Closing.
(v) The Company shall provide the same tuition reimbursement
benefits provided by KeyBank to Company Employees who were enrolled in
KeyBank's tuition reimbursement program immediately prior to the
Closing and who are scheduled to graduate on or before December 31,
1999.
(vi) If, during the twelve (12) month period following the Closing
Date, any Company Employee is terminated as a "Result of Reduction in
Staff," and not as as result of "Discharge for Cause" or "Voluntary
Resignation," as those terms are defined in the 1998 KeyCorp Separation
Pay Plan, which is attached hereto as Exhibit 7.08(a)(vi), such Company
-------------------
Employee shall be entitled to, and the Company shall pay, such
separation pay and benefits as is set forth in the 1998 KeyCorp
Separation Pay Plan (subject to mutually agreed upon modifications).
(b) Subject to Section 7.08(a), during the term of this Agreement,
unless the parties otherwise agree, the compensation and benefits provided
by the Company to the Company Employees will, in the aggregate, be not less
favorable to such employees than the compensation and benefits currently
provided, in the aggregate, by NOVA to its employees at similar levels and
with similar responsibilities.
-19-
<PAGE>
(c) With respect to all KeyBank Merchant Business employees not
identified on Schedule 7.08, NOVA will provide such employees the
-------------
opportunity to apply for positions of similar responsibility with NOVA or
the Company and, if any applications are accepted, such employees will be
provided a reasonable relocation package in the event that employment with
NOVA or the Company requires such employees to be relocated to Knoxville,
Tennessee or any other location of NOVA or the Company.
(d) After the Closing, to the extent that KeyBank owes to Company
Employees incentive compensation for the calendar year ended December 31,
1997, the Company will pay such incentive compensation to the Company
Employees, and KeyBank will reimburse the Company for the amount of the
payment.
7.09 TERMINATION OF CERTAIN RETAINED THIRD PARTY AGREEMENTS. The parties
hereto acknowledge and agree that the Retained Third Party Agreements specified
on Schedule 7.09 or the services provided thereunder shall be terminated by
--------------
KeyBank insofar as they relate to the KeyBank Merchant Business; KeyBank shall
consult with NOVA regarding the terms of any such termination. The Company
shall reimburse KeyBank for any losses, expenses, charges, penalties,
Liabilities or fees (collectively, "Termination Fees") associated with,
resulting from, or arising out of, the termination, non-renewal, or other
discontinuance of any of such Retained Third Party Agreements; provided that,
notwithstanding anything to the contrary herein or in any other Operative
Document, in no event shall the Company's aggregate financial liability or
responsibility for such Termination Fees exceed $4,000,000. Any and all
Termination Fees in excess of $4,000,000 shall be the sole responsibility of,
and incurred and paid by, KeyBank.
7.10 RESERVE ACCOUNTS. To the extent assignable, KeyBank will, within
nine (9) months after the Closing Date, transfer to the Company any amounts
remaining in reserve accounts established and maintained by Merchants or Agent
Banks and held by KeyBank in connection with the Assigned Merchant Agreements or
Assigned Agent Bank Agreements. To the extent that any such reserve accounts
are not assignable, KeyBank will cooperate reasonably with the Company in
devising a method of transferring the benefits of the reserve accounts to the
Company.
7.11 WORKING CAPITAL REQUIREMENTS. Unless and until other financing can
be arranged (but in no event longer than six months after the Closing Date),
NOVA will lend to the Company and POSSI all funds necessary to meet their normal
working capital requirements. The interest rate or rates charged by NOVA to the
Company and POSSI will, from time to time, be the same as the interest rate or
rates charged to NOVA under its principal credit facility for loans made to NOVA
at the same time or times as the loans are made by NOVA to the Company. To the
extent permitted by NOVA's principal bank lender, the loans by NOVA to the
Company and POSSI will be unsecured. At the Closing, the Company, POSSI and
NOVA will execute and deliver a credit agreement, containing commercially
reasonable terms, governing the loans by NOVA to the Company and POSSI (the
"Credit Agreement").
-20-
<PAGE>
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and consummate the
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by KeyBank and NOVA pursuant to Section
13.01 of this Agreement.
(a) Regulatory Approval. All material Consents of, filings and
-------------------
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the transactions contemplated by this
Agreement shall have been obtained or made and shall be in full force and
effect, and all waiting periods required by Law shall have expired. No
such Consent shall be conditioned or restricted by a Burdensome Condition.
(b) Third-Party Consents and Approvals. In addition to the Consent of
----------------------------------
Regulatory Authorities referenced in Section 8.01(a) above, each party
shall have obtained all material third-party Consents required for
consummation of the KeyBank Contribution and the NOVA Company Interest
Purchase. No such Consent shall be conditioned or restricted by a
Burdensome Condition.
(c) Legal Proceedings. No court, governmental authority or Regulatory
-----------------
Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
materially restricts or makes illegal consummation of any of the
transactions contemplated by this Agreement.
8.02 CONDITIONS TO CLOSING.
(a) In addition to the conditions set forth in Section 8.01 hereof,
the consummation by KeyBank of the transactions contemplated hereby is
subject to the following conditions, unless waived in writing by KeyBank:
(i) The warranties and representations of NOVA Corp and NOVA
contained in this Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though
made on the Closing Date, and NOVA Corp and NOVA shall have performed
and complied in all material respects with the obligations required by
this Agreement to be performed or complied with by them at or prior to
the Closing Date, and an executive officer of each of NOVA and NOVA
Corp shall deliver a certificate to KeyBank at the Closing certifying
as such (the "NOVA Closing Certificates", the form of which is attached
as Exhibit 8.02(a)); and
---------------
-21-
<PAGE>
(ii) NOVA shall have made the deliveries contemplated by Section
8.04 hereof.
(b) In addition to the conditions set forth in Section 8.01 hereof, the
consummation by NOVA Corp and NOVA of the transactions contemplated hereby
is subject to the following conditions, unless waived in writing by NOVA:
(i) The warranties and representations of KeyBank contained in
this Agreement shall be true and correct in all material respects as of
the date when made and as of the Closing Date as though made on the
Closing Date, and KeyBank shall have performed and complied in all
material respects with the obligations required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, and
an executive officer of KeyBank shall deliver a certificate to NOVA at
the Closing certifying as such (the "KeyBank Closing Certificate", the
form of which is attached as Exhibit 8.02(b)); and
---------------
(ii) KeyBank shall have made the deliveries contemplated by
Section 8.03 hereof.
8.03 DELIVERIES BY KEYBANK. KeyBank shall deliver or cause to be
delivered to NOVA and/or the Company (as applicable), at or prior to the Closing
Date, the following, all in form reasonably satisfactory to NOVA's counsel:
(a) Such certificates and documents of officers of KeyBank and public
officials as shall be reasonably requested by NOVA's counsel to establish
the existence and good standing of KeyBank, KeyBank Sub and the Company and
the due corporate power and corporate authorization of KeyBank, KeyBank
Sub, POSSI and the Company to execute and deliver this Agreement and the
other Operative Documents and to consummate the transactions contemplated
hereby and thereby;
(b) The Assignment and Assumption Agreements, duly executed by KeyBank,
KeyBank Sub and POSSI;
(c) The Services Agreement, duly executed by KeyBank;
(d) The Operating Agreement, duly executed by KeyBank Sub;
(e) An opinion of Thompson Hine & Flory LLP, counsel to KeyBank, in
form and substance reasonably satisfactory to NOVA and its counsel;
(f) The Company Supplement, duly executed by the Company;
(g) The KeyBank Closing Certificate;
-22-
<PAGE>
(h) The Credit Agreement, duly executed by the Company;
(i) The Guaranty and Agreement to Comply, duly executed by KeyBank; and
(j) Any other instruments and documents required by this Agreement or
any other Operative Document to be delivered by KeyBank to NOVA or the
Company, including without limitation those documents necessary to complete
the formation of the Company as provided herein, and such other instruments
and documents which NOVA or its counsel may reasonably request consistent
with the provisions hereof and thereof.
8.04 DELIVERIES BY NOVA. NOVA shall deliver or cause to be delivered to
KeyBank or the Company (as applicable), at or prior to the Closing, the
following, all in form reasonably satisfactory to KeyBank's counsel:
(a) Such certificates and documents of officers of NOVA and public
officials as shall be reasonably requested by KeyBank's counsel to
establish the existence and good standing of NOVA Corp and NOVA and the due
corporate power and corporate authorization of NOVA Corp and NOVA to
execute and deliver this Agreement and the other Operative Documents and to
consummate the transactions contemplated hereby and thereby;
(b) The Processing Agreement, duly executed by NOVA;
(c) The Operating Agreement, duly executed by NOVA;
(d) The Credit Agreement, duly executed by NOVA;
(e) An opinion of Long Aldridge & Norman LLP, counsel to NOVA, in form
and substance reasonably acceptable to KeyBank, NOVA, and their respective
counsel;
(f) The NOVA Closing Certificates; and
(g) Any other instruments and documents required by this Agreement or
any other Operative Document to be delivered by NOVA to KeyBank or the
Company, including without limitation such instruments and documents which
KeyBank or its counsel may reasonably request consistent with the
provisions hereof and thereof.
8.05 DELIVERIES BY THE COMPANY. At the Closing, and upon consummation
of the NOVA Company Interest Purchase, KeyBank and NOVA shall cause the Company
to deliver to NOVA or KeyBank (as applicable) the following:
(a) The Assignment and Assumption Agreements, duly executed by the
Company;
-23-
<PAGE>
(b) The Services Agreement, duly executed by the Company;
(c) The Processing Agreement, duly executed by the Company;
(d) The Credit Agreement, duly executed by the Company; and
(e) Any other instruments and documents required by this Agreement or
any other Operative Document to be delivered by the Company to NOVA or
KeyBank, and such other instruments and documents which NOVA or KeyBank may
reasonably request consistent with the provisions hereof.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
-------------------------------------------
INDEMNIFICATION
---------------
9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by KeyBank and NOVA in this Agreement shall survive until March
31, 1999; provided that, if one party gives the other parties written notice
identifying a breach of any such representation or warranty before March 31,
1999, the matter identified in the notice will survive until it is resolved in
accordance with the provisions hereof.
9.02 KEYBANK'S OBLIGATION TO INDEMNIFY. Subject to the limitations in
Sections 9.01 and 9.05, from and after the date hereof, KeyBank shall indemnify,
defend and hold harmless the NOVA Entities and the Company, and their respective
directors, officers, employees and Representatives, from and against any and all
actions, claims, losses, Credit Losses, Chargebacks, costs, Liabilities,
damages, deficiencies, diminution in value, and expenses (including reasonable
attorneys' fees and other costs of litigation) (collectively, "Claims")
resulting from or arising out of any misrepresentation, breach of, or inaccuracy
in, any of the representations or warranties made by KeyBank in this Agreement
or the breach by KeyBank of any of its obligations under this Agreement.
9.03 NOVA CORP AND NOVA'S OBLIGATION TO INDEMNIFY. Subject to the
limitations in Sections 9.01 and 9.05, from and after the date hereof, NOVA Corp
and NOVA shall jointly and severally indemnify, defend and hold harmless the Key
Entities and the Company, and their respective directors, officers, employees
and Representatives, from and against any and all Claims resulting from or
arising out of any misrepresentation, breach of, or inaccuracy in, any of the
representations or warranties made by NOVA Corp or NOVA in this Agreement or the
breach by NOVA Corp or NOVA of any of its obligations under this Agreement.
9.04 PROCEDURE FOR THIRD-PARTY CLAIMS. Promptly after a party to whom an
indemnification obligation is owed hereunder (an "Indemnified Party") receives
notice of the commencement of any action or proceeding (a "Proceeding") in
respect of which indemnification may be sought hereunder, the Indemnified Party
will notify the party that is obligated to indemnify hereunder (an "Indemnifying
-24-
<PAGE>
Party"); but the omission so to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any obligation hereunder unless, and only to the
extent that, such omission results in the Indemnifying Party's forfeiture of
substantive rights or defenses. If any such Proceeding shall be brought against
the Indemnified Party, the Indemnifying Party shall, upon written notice given
within a reasonable period of time following the Indemnified Party's notice to
the Indemnifying Party of any such Proceeding, be entitled to assume the defense
thereof at its own expense with counsel chosen by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party; provided that any Indemnified
Party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, the Indemnifying Party shall not,
without the prior written consent of the Indemnified Party, settle, compromise
or consent to the entry of any judgment in any pending or threatened Proceeding
unless the settlement, compromise or judgment entry includes an unconditional
release of the Indemnified Party hereunder from all liability arising out of
such Proceeding.
9.05 DEDUCTIBLE; CAP. Notwithstanding the foregoing, no party will be
required to indemnify any other parties for any Claims with respect to a breach
of the representations and warranties hereunder unless the aggregate amount of
such Claims to which such party is obligated to indemnify exceeds $250,000.
Once the aggregate amount of such Claims exceeds $250,000, the amount of
indemnification that the party is required to pay hereunder will be limited to
the excess of the aggregate amount of the Claims over $250,000; except that, no
such limitation will apply to Claims caused by the fraud of the party required
to pay the indemnification. No party will be required to pay indemnification
hereunder in excess of [*].
ARTICLE X
CONFIDENTIAL INFORMATION; BOOKS AND RECORDS
-------------------------------------------
10.01 CONFIDENTIAL INFORMATION.
(a) All technical or business information, including but not limited
to customer data, marketing plans, customer lists, customer information,
customer account numbers, the status of any account, pricing information,
computer access codes, instruction and/or procedural manuals and financial
data of any party ("Confidential Information") furnished or disclosed by
the other parties or obtained by a party from the Company shall be deemed
the property of the disclosing party or the Company, as applicable, and,
when in tangible form, shall be returned by the receiving party to the
disclosing party or the Company, as applicable, upon request along with any
copies as may be authorized herein.
(b) "Confidential Information" shall not include: (1) information
previously known to the receiving party free of any obligation to keep it
confidential; (2) information that has been or subsequently is made
public, through no wrongful act of the receiving party; or (3) information
that is received from a third party without restriction and without breach
of this Agreement.
[*] CONFIDENTIAL TREATMENT REQUESTED.
-25-
<PAGE>
(c) Each shall hold Confidential Information in confidence and shall
not disclose Confidential Information to anyone except such of its
employees and Representatives to whom such disclosure is necessary for the
purpose of the performance of this Agreement or for the purposes set forth
in Section 10.01(b) or 10.01(c) of the Operating Agreement, except in the
following circumstances: (1) as required by the Payment Networks; (2) as
required by Law, regulation or Regulatory Authority; or (3) to defend
against a claim brought against the party. Each party shall appropriately
notify each employee and Representative to whom Confidential Information is
disclosed that any such disclosures are made in confidence and must be kept
in confidence by such employee or Representative.
(d) If the transactions contemplated by this Agreement are not
consummated, the parties shall maintain the confidentiality of
Confidential Information, and such Confidential Information shall not be
used to the detriment of the disclosing party or otherwise in any manner,
and all such Confidential Information in tangible form (including copies
and extracts thereof) shall be returned to the disclosing party immediately
upon its written request.
(e) The obligations of the parties hereunder shall survive and be
enforceable by temporary and permanent injunctive relief against the
breaching party and its directors, officers, employees and Representatives
notwithstanding any termination of this Agreement.
10.02 CONFIDENTIALITY OF AGREEMENT.
(a) Except as required by Law or the Payment Network Regulations or as
permitted by Section 10.01(b) or 10.01(c) of the Operating Agreement, each
party shall keep confidential and not disclose, and shall cause its
officers, employees, and Representatives to keep confidential and not
disclose, any of the terms and conditions of this Agreement or any other
Operative Document to any third party without the prior written consent of
the other parties to this Agreement and the other Operative Documents. In
the event that disclosure is required, each party will consult with the
other parties prior to issuing any press release or otherwise making any
public statement with respect to the transactions contemplated by this
Agreement.
(b) The obligations of the parties hereunder shall survive and be
enforceable by temporary and permanent injunctive relief against the
breaching party and its directors, officers, employees and Representatives
notwithstanding any termination of this Agreement.
10.03 BOOKS AND RECORDS.
(a) As soon after the Closing Date as is practicable, and in no event
later than the Transition Date, KeyBank shall deliver to NOVA, for and on
behalf of the Company, originals in its possession of all Assigned Merchant
-26-
<PAGE>
Agreements, Assigned Agent Bank Agreements, Assigned Agent Bank Merchant
Agreements, Assigned Third Party Agreements, and related documentation.
Upon the Company's reasonable request, KeyBank shall cause to be delivered
to the Company any or all other original books, records and/or
documentation relating to the Contributed Assets as are reasonably related
to the KeyBank Merchant Business or the enforcement of the Company's rights
with respect to the Contributed Assets. In each case, however, the books
and records relating to the Contributed Assets for the period prior to the
Closing Date, wherever located, that are held by a party hereto or under
the control of a party hereto (the "Inspected Party") shall be open for
inspection by the other parties, and such other parties' authorized agents
and representatives and regulators may, at such other parties' own expense,
make such copies of any excerpts from such books, records and documents as
it shall reasonably deem necessary; provided that any such inspection: (i)
shall be conducted during normal business hours from time to time
reasonably established by the Inspected Party; (ii) shall, if the Inspected
Party so requests, be conducted in the presence of an officer or designated
representative of the Inspected Party; and (iii) shall be conducted in
accordance with reasonable security programs and procedures from time to
time established by the Inspected Party, including but not limited to such
confidentiality agreements as the Inspected Party may reasonably request.
(b) All books and records relating to the Contributed Assets shall be
maintained by the Company or by KeyBank, as the case may be, for a period
of seven (7) years after the termination of the Operating Agreement, unless
the parties shall, applicable Law permitting, agree upon a shorter period;
provided that, in the event, as of the end of such period, any taxable year
of the Company, NOVA or KeyBank is still under examination or open for
examination by any taxing authority and that party has given notice of that
fact to the other party, such books and records shall be maintained (or,
alternatively, delivered by the Inspected Party to the other party) until
the date, determined reasonably and in good faith, specified for
maintenance of such records in such notice. Prior to the destruction of
any books and records relating to the Contributed Assets, the party in
possession of such books and records shall offer them to the other party
hereto.
ARTICLE XI
MEDIATION AND ARBITRATION OF DISPUTES
11.01 MEDIATION AND ARBITRATION.
(a) In the event of any dispute, claim, question or disagreement
arising out of or relating to this Agreement, other than a matter for which
a party is entitled to seek specific performance or injunctive relief as
expressly provided herein, the parties shall use reasonable efforts to
settle such dispute, claim, question or disagreement. To this end, they
shall consult and negotiate with each other, in good faith, and,
-27-
<PAGE>
recognizing their mutual interests, attempt to reach a just and equitable
solution satisfactory to both parties. If settlement is not reached
within thirty (30) days after written notice of the dispute, claim,
question or disagreement is first given by one party to the other parties,
the Chief Executive Officers, Chief Financial Officers or other comparable
executive officers of KeyBank and NOVA shall consult with each other in an
effort to resolve the matter (provided that in no event shall the officers
designated by each party be Committee Members).
(b) If the parties do not reach such a solution within a period of
thirty (30) days after the matter is referred to the executive officers for
resolution, then the parties agree first to endeavor in good faith to
amicably settle their dispute by mediation in accordance with the CPR Model
Procedure for Mediation of Business Disputes, promulgated by the Center for
Public Resources, New York City.
(c) If mediation is unsuccessful within a reasonable time after
commencement of mediation, but not in any event more than sixty (60) days
thereafter, the mediator shall so certify, and the dispute shall be
submitted to binding arbitration conducted in accordance with the CPR Rules
for Non-Administered Arbitration of Business Disputes. Any controversy or
dispute shall be arbitrated by a single arbitrator either mutually agreed
upon by the parties or, absent agreement, appointed in accordance with the
aforesaid CPR rules. No mediator under subsection (b) above may serve as
an arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 USC (S)(S)1-16, and judgment upon the award may be
entered by any court having jurisdiction thereof. The arbitrator shall have
case management authority and shall resolve the controversy in a final
award within 180 days from commencement of the arbitration action. All
questions of arbitrability shall be resolved by the arbitrator appointed
pursuant to this clause. The prevailing parties shall be entitled to
receive an award of attorneys' fees incurred in connection with the
arbitration and judicial proceedings related thereto. There shall be no
appeal from the arbitral award, except for fraud committed by the
arbitrator(s) in carrying out his duties under the aforesaid rules;
otherwise the parties irrevocably waive their rights to judicial review of
the claim or controversy.
(d) Unless otherwise agreed by the parties, the situs for dispute
resolution shall be Washington, D.C.
(e) In the event that the Center for Public Resources no longer
promulgates rules as set forth above, then the mediation or binding
arbitration shall be administered under the rules of the American
Arbitration Association or such other recognized rules for resolution of
disputes as the parties may mutually agree.
-28-
<PAGE>
ARTICLE XII
TERM AND TERMINATION
12.01 TERM. This Agreement shall take effect on the date hereof and
remain in effect for so long as the Operating Agreement remains in effect or
until terminated pursuant to Section 12.02 hereof.
12.02 TERMINATION IF CLOSING DOES NOT OCCUR. This Agreement and the
transactions contemplated hereby may be terminated at any time prior to the
Closing, as follows:
(a) By written consent of both KeyBank and NOVA.
(b) By either party if the other party shall have failed to satisfy any
of the conditions set forth in Article VIII hereof that it is required to
satisfy, and such other party is unwilling or unable to satisfy such
conditions on or before June 30, 1998.
(c) By either KeyBank or NOVA if the Closing has not occurred by June
30, 1998.
12.03 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 12.02, this Agreement shall become void and have
no effect, except that the provisions of Articles IX, XI, and XIII, and Sections
10.01 and 10.02 shall survive any such termination.
ARTICLE XIII
MISCELLANEOUS
13.01 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
herein, this Agreement shall not be amended, modified or waived in any fashion
except by an instrument in writing signed by the parties hereto. Waiver by a
party of any breach of this Agreement by any other party shall not be effective
unless in writing, and no such waiver shall operate or be construed as the
waiver of the same or another breach on a subsequent occasion.
13.02 NONASSIGNABILITY. All terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement may not be assigned
by any party without the prior written consent of the other parties; provided
that such consent shall not be required (a) for the assignment by any party of
its rights and privileges hereunder to a person or entity controlling,
controlled by or 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
-29-
<PAGE>
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, provided that
the assignee formally agrees in writing to assume all the rights and obligations
of the assigning party under this Agreement and the other Operative Documents.
13.03 NO THIRD PARTY BENEFICIARIES. This Agreement is not for the
benefit of any other person, and no other person shall have any rights against
the parties hereunder.
13.04 RULES OF CONSTRUCTION. The headings in this Agreement are inserted
only as a matter of convenience and in no way affect the terms or intent of any
provision of this Agreement. All defined phrases, pronouns, and other
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the actual identity of the organization, person or persons
may require. No provision of this Agreement shall be construed against any
parties hereto by reason of the extent to which such parties or its counsel
participated in the drafting hereof.
13.05 CHOICE OF LAW. This Agreement is made and entered into under the
Laws of the State of Delaware, and the Laws of that State applicable to
agreements made and to be performed entirely thereunder (without giving effect
to the principles of conflicts of Laws thereof) shall govern the validity and
interpretation hereof and the performance by parties hereto of their respective
duties and obligations hereunder.
13.06 SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be contrary to the internal Laws of Delaware or any other applicable Law,
at the present time or in the future, such provision shall be deemed null and
void, but shall not affect the legality of the remaining provisions of this
Agreement. This Agreement shall be deemed to be modified and amended so as to
be in compliance with applicable Law, and this Agreement shall then be construed
in such a way as will best serve the intention of the parties at the time of the
execution of this Agreement.
13.07 COUNTERPARTS: DELIVERY. This Agreement may be executed in one or
more counterparts. Each such counterpart shall be considered an original and
all of such counterparts shall constitute a single agreement binding all the
parties as if all had signed a single document. The parties acknowledge that
delivery of executed counterparts of this Agreement may be effected by a
facsimile transmission or other comparable means, with an original document to
be delivered promptly thereafter.
13.08 ENTIRE AGREEMENT. This Agreement (including any exhibits or
attachments hereto), taken together with the other Operative Documents,
constitutes the entire agreement among the parties. This Agreement and the
other Operative Documents supersede all prior and contemporaneous agreements,
statements, understandings, and representations of the parties. There are no
representations, warranties, agreements, arrangements, or understandings, oral
or written, between the parties relating to the subject matter of this Agreement
which are not fully expressed herein. The parties agree that the traditional
formulation of the parol evidence rule (whereby extrinsic evidence may not be
used to vary or contradict the unambiguous terms of a document that represents a
-30-
<PAGE>
final and complete expression of the parties' agreement) shall govern in any
action or preceding that may ensue concerning this Agreement.
13.09 LAST DAY FOR PERFORMANCE OTHER THAN A BUSINESS DAY. In the event
that the last day for performance of an act or the exercise of a right hereunder
falls on a day other than a Business Day, then the last day for such performance
or exercise shall be the first Business Day immediately following the otherwise
last day for such performance or such exercise.
13.10 NOTICES. All notices, requests, consents, or other communications
required or permitted to be given under this Agreement shall be in writing, may
be delivered in person, by overnight air courier, by facsimile with confirmation
of receipt, or by certified or registered mail (return receipt requested with
all fees prepaid), and shall be deemed to have been duly given and to have
become effective upon the date actually delivered to the parties or their
assignees at the following addresses:
If to KeyBank: KeyBank National Association
127 Public Square, 3rd floor
Cleveland, Ohio 44114-1306
Attention: Mr. David R. Campbell
Facsimile No.: (216) 689-5706
with a copy to: KeyCorp
(which shall not 127 Public Square, 2nd floor
constitute notice) Cleveland, Ohio 44114-1306
Attention: Daniel R. Stolzer, Esq.
Facsimile No.: (216) 689-4121
with a copy to: KeyCorp
(which shall not 127 Public Square, 7th floor
constitute notice) Cleveland, Ohio 44114-1306
Attention: Mr. Matthew M. Nickels
Facsimile No.: (216) 689-3610
If to NOVA Corp: NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Vice Chairman & Chief Financial Officer
Facsimile No.: (770) 698-1013
-31-
<PAGE>
with a copy to: Long Aldridge & Norman LLP
(which shall not SunTrust Plaza, One Peachtree Center
constitute notice) 303 Peachtree Street, N.E., Suite 5300
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Facsimile No.: (404) 527-4198
If to NOVA: NOVA Information Systems, Inc.
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Vice Chairman & Chief Financial Officer
Facsimile No.: (770) 698-1013
with a copy to: Long Aldridge & Norman LLP
(which shall not SunTrust Plaza, One Peachtree Center
constitute notice) 303 Peachtree Street, N.E., Suite 5300
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Facsimile No.: (404) 527-4198
The persons or addresses to which mailings or deliveries shall be made may be
changed from time to time by notice given pursuant to the provisions of this
section.
13.11 WAIVER OF JURY TRIAL. The parties hereto hereby waive their
respective right to trial by jury of any cause of action, claim, counterclaim or
cross-complaint in any action, proceeding and/or hearing brought by any party
against another on any matter whatsoever relating to, resulting from, arising
out of, or in any way connected with this Agreement, or any amendment or breach
hereof, including, without limitation, any claim or injury or damage, or the
enforcement of any remedy under any Law.
13.12 EXPENSES. Except as otherwise specifically provided in this
Agreement, each party shall bear and pay all direct costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including filing, registration and applicable fees, printing fees,
and fees and expenses of its own financial or other consultants, investment
bankers, accountants, and counsel.
13.13 FURTHER ASSURANCES. The parties hereto from time to time after
execution of this Agreement, without further consideration, shall execute and
deliver, as appropriate, such documents and take such actions as may be
reasonably necessary or proper to carry out and consummate the transactions
contemplated by this Agreement.
13.14 FORCE MAJEURE. No party shall be liable for Defaults or delays
due to acts of God or the public enemy, acts or demands of government or any
government agency, strikes, fires, flood, accident, or other unforeseeable
causes beyond its control and not due to its fault or negligence. Each party
-32-
<PAGE>
shall notify the other of the cause of such delay within five (5) days after the
beginning thereof.
13.15 BROKERS AND FINDERS. Except for Smith Barney Inc., each of the
parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, brokerage fees,
commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by any party, such party agrees to indemnify and
hold the other parties harmless of and from any Liability in respect of such
claim.
13.16 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement
shall be construed as constituting a partnership or agency relationship between
the parties hereto. Prior to the Closing Date, the relationship of the parties
shall be that of prospective seller (KeyBank) and prospective purchaser (NOVA).
On and after the Closing Date, the relationship of the parties one to another
for all purposes shall be that of independent members of a limited liability
company.
13.17 PUBLICITY. Each party will consult with the other party prior to
issuing any press release or otherwise making any public statement with respect
to the transactions contemplated by this Agreement, and will not issue any such
release or make any such statement over the reasonable objection of the other
party, except as required by Law.
[signature page to follow]
-33-
<PAGE>
IN WITNESS WHEREOF the undersigned hereto execute this Agreement.
"KEYBANK":
KeyBank National Association
By: /s/ David R. Campbell
-------------------------------
Name: David R. Campbell
-----------------------------
Title: Executive Vice President
----------------------------
"NOVA":
NOVA Information Systems, Inc.
By: /s/ James M. Bahin
-------------------------------
Name: James M. Bahin
-----------------------------
Title: CFO
----------------------------
"NOVA CORP":
NOVA Corporation
By: /s/ James M. Bahin
-------------------------------
Name: James M. Bahin
-----------------------------
Title: CFO
----------------------------
-34-
<PAGE>
INDEX OF SCHEDULES
TO AGREEMENT RESPECTING A
LIMITED LIABILITY COMPANY
SCHEDULE DESCRIPTION
-------- -----------
1.06(a) NOVA Required Consents of Regulatory Authorities
1.06(b) NOVA Required Consents of Third Parties
1.07 NOVA Litigation
1.08 NOVA Permits
2.06 KeyBank Liens
2.08 KeyBank Credit Card and Debit Card Sales Volume
2.09 List of Agent Bank Agreements
2.11 List of Trade Associations
2.13 KeyBank Top Merchants
2.14 EFT Networks
2.15(a) KeyBank Required Consents of Regulatory Authorities
2.15(b) KeyBank Required Consents of Third Parties
2.16 KeyBank Litigation
2.17 KeyBank Permits
2.19 KeyBank Exceptions to Agreements in Full Force and Effect
2.20(a) Retained Third Party Agreements
2.20(b) Assigned Third Party Agreements
2.22(a) KeyBank Sales and Marketing Employees
-i-
<PAGE>
2.22(b) KeyBank Employment Agreements; Collective Bargaining
2.24 KeyBank Computer Software and Databases
4.02(a) Capital Accounts of KeyBank and KeyBank Sub
7.08 KeyBank Merchant Business Employees to Be Hired by the Company
7.09 Retained Third Party Agreements to Be Terminated
-ii-
<PAGE>
INDEX OF EXHIBITS
TO AGREEMENT RESPECTING A
LIMITED LIABILITY COMPANY
EXHIBIT DESCRIPTION
------- -----------
A Definitional Supplement
2.10 Form of Merchant Agreements
4.01 Certificate of Formation
4.01(d) Company Supplement
4.01(e) Guaranty and Agreement to Comply
4.02(a) Assignment and Assumption Agreements
4.02(b) Bill of Sale
4.02(c) Operating Agreement
5.02 Services Agreement
6.02 Processing Agreement
7.08(a)(i) KeyBank's 1998 Incentive Compensation Plan
7.08(a)(vi) 1998 KeyCorp Separation Pay Plan
8.02(a) NOVA and NOVA Corp Closing Certificates
8.02(b) KeyBank Closing Certificate
<PAGE>
MERCHANT ASSET PURCHASE AGREEMENT
THIS MERCHANT ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 30th day of December 1997 by and between MBNA AMERICA
BANK, N.A., a national banking association ("MBNA") and NOVA INFORMATION
SYSTEMS, INC., a Georgia corporation ("NOVA"). For purposes of this Agreement,
capitalized terms used herein, unless otherwise defined herein, shall have the
meaning ascribed to such terms in the Definitional Supplement attached hereto as
Exhibit A (the "Definitional Supplement").
BACKGROUND AND PURPOSE:
A. MBNA is a party to certain Merchant Agreements with various Merchants,
who consist principally of retail and other providers of goods and services, and
is party to certain Affinity Agreements with various Affinity Associations
according to which agreements MBNA has agreed to provide certain services which
constitute MBNA's Merchant Business.
B. MBNA wishes to sell and transfer to NOVA all of its rights under the
Assigned Merchant Agreements , and MBNA wishes to sell and transfer to NOVA
certain other assets utilized in connection with the Merchant Business, and NOVA
is willing to accept such rights and assets and to assume the duties,
responsibilities and liabilities relating to certain rights under the Affinity
Agreements and under the Merchant Agreements with respect to its purchase of
the Merchant Business. MBNA and NOVA are willing and able, additionally, to
undertake and perform certain other obligations pursuant to and in connection
with this Agreement, subject to the terms and conditions hereof.
C. MBNA and NOVA will enter into a Marketing Agreement pursuant to which
NOVA will make quarterly payments to MBNA based upon the volume of business
generated from the Merchant Business. MBNA will also be paid a referral fee
under the Marketing Agreement for each new Merchant directly or indirectly
introduced to NOVA by MBNA. Additionally, as an integral part of the
transactions contemplated hereunder MBNA and NOVA will enter into a Non-
Competition Agreement.
THE AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which hereby are acknowledged, MBNA and NOVA hereby agree, on the terms and
conditions herein set forth, as follows:
ARTICLE I
ASSETS SOLD; ASSUMPTION OF LIABILITIES
1.1 SALE AND PURCHASE. On the terms and subject to the conditions set
forth in this Agreement, and effective as of December 31, 1997 (the "Effective
Date"), MBNA hereby sells, transfers and assigns to NOVA and NOVA hereby
purchases, assumes and accepts from MBNA, all right, title and interest of MBNA
in and to the following tangible and intangible assets and interests
(collectively, the "Assets Sold"):
all rights and interests of MBNA under the Assigned Merchant
Agreements arising on or after the Effective Date, and all books,
records and documents relating solely thereto (as further specified in
Section 1.5 hereof); for greater clarity such list will include,
without limitation, all Merchant Agreements with Affinity Merchants;
<PAGE>
to the extent assignable by MBNA and/or as agreed by any Affinity
Association, the rights relating to the provision of and marketing of
Merchant Services under the Affinity Agreements arising on or after the
Effective Date subject to the terms and conditions set forth in the
Affinity Agreements (the "Assigned Affinity Rights", which are set
forth on Schedule 1.1(b)(i) attached hereto), and copies of the
------------------
Affinity Agreements (as further specified in Section 1.5 hereof);
to the extent such Affinity Rights are not assignable, MBNA will use
commercially reasonable best efforts (consistent with maintaining a
positive relationship between MBNA and the Affinity Association) to
make sure that NOVA will have the ability to exercise, through MBNA
or otherwise as may be agreed by the parties, the Affinity Rights
relating to the Affinity Agreements, subject to the conditions and
exceptions outlined in the Affinity Agreements (each Merchant, (x)
that is a party to an Assigned Merchant Agreement as set forth in
Section 1.1(a) above, or (y) that is related to an Affinity
Association whose Assigned Affinity Rights are being transferred to
NOVA as set forth in Section 1.1(b), or (z) that is related to an
Affinity Association and Affinity Agreement as set forth in this
Section 1.1(c), being referred to herein collectively as an
"Assigned Merchant". The Assigned Merchants who have aprocessed
application as of November 30, 1997 are identified on Schedule
--------
1.1(c)). Schedule 1.1(c) shall be updated during the Transition
-------
Period to show each Assigned Merchant as of the Effective Date.);
an unlimited, perpetual, non-exclusive (provided that MBNA, its
affiliates or subsidiaries, shall not use for the benefit of
others, or grant to others any right to use the Software, for
Merchant Services), freely transferable and royalty free license to
use the Software. MBNA will provide the ancillary written
materials, to the extent owned by MBNA, necessary for NOVA to
construct an operating system to run the software which are set
forth on Schedule 1.1(d)(i). On the date mutually agreed by the
-------------------
parties as part of the conversion process, MBNA will provide a
complete copy of the current source code version of the Software
(and all documentation in the possession of MBNA relating thereto)
in the form or forms reasonably agreed to by the parties, which is
compatible or can be made compatible with the computer system being
used by NOVA and which, when compiled, will produce, along with the
necessary third party licensed materials, the object code version of
the software for use with the Merchant Business (the specifications
of the Software are set forth on Schedule 1.1(d)(ii), "Software
-------------------
Specifications"), attached hereto);
the VeriFone Rights, and copies of all books, records and documents
relating solely thereto (as further specified in Section 1.5
hereof); and
the goodwill of the Merchant Business as a going concern, to the
extent any such value may exist.
The parties hereto acknowledge that any assets of MBNA not specifically
mentioned above are excluded from the Assets Sold, including, without
limitation, the following (collectively, the "Excluded Assets"): (i) any rights
or interests in or to the Endorsements or any other rights or interests under
the Affinity Agreements other than the Assigned Affinity Rights; (ii) any right
or interest in MBNA's relationship with any Affinity Association under the
Affinity Agreements; (iii) any intellectual property of MBNA, including, without
limitation, any trademarks, service marks, registrations, patents, trade names,
copyrights or trade secrets, and any intellectual property rights of third
parties, including without limitation any licensed software applications and
products currently used in conjunction with the Software for which NOVA will
have to obtain their own license to use such materials from those third parties;
(iv) any equipment or interest in equipment (except for the VeriFone Rights);
(v) any books and records of MBNA not specifically and solely relating to the
Merchant Business; (vi) any rights or interests in the Excluded Programs; and
(vii) any claims or causes of action against any employee or any MBNA Merchant
arising from events occurring prior to the Effective Date.
<PAGE>
1.2 TRANSFER AND ASSUMPTION OF ASSETS SOLD AND ASSUMED LIABILITIES. On
the Effective Date, NOVA shall assume all liability for the Assumed Liabilities
and agrees to pay, satisfy and discharge when due any obligation relating to
such Assumed Liabilities. Assumption of the Assumed Liabilities by NOVA, and
the assignment, transfer and conveyance of the Assets Sold by MBNA, shall be
effected by written instrument in the form of Exhibit 1.2(a) attached hereto
--------------
(the "Assignment and Assumption Agreement"). In addition to the Assignment and
Assumption Agreement, the sale, conveyance, transfer, assignment and delivery of
the Assets Sold by MBNA to NOVA shall be effected by written instrument or
instruments in the form or forms attached hereto as Exhibit 1.2(b) (the
--------------
"Transfer Documents").
1.3 LIABILITIES. Except as expressly assumed by NOVA in the Assignment and
Assumption Agreement, it is understood and agreed that NOVA shall not assume or
become liable for the payment of any debts, liabilities, losses, bank
indebtedness, mortgages, or other obligations of MBNA, any Assigned Merchant, or
any Affinity Association. In addition, NOVA shall not assume or become liable
for Credit Losses, charge backs, accounts payable, Affinity Association
compensation, interchange, or other merchant transaction charges, whether the
same are known or unknown, now existing or hereafter arising, of whatever nature
or character, whether absolute or contingent, liquidated or disputed, to the
extent any liability arises from merchant transactions or other acts or
omissions relating to the Merchant Business prior to the Effective Date;
provided, however, that in no event shall the wording of this Section 1.3 be
deemed to alter or modify in any way the definition of "Assumed Liabilities" or
the liabilities being assumed by NOVA pursuant to such definition.
1.4 CONSENT AND ASSIGNMENT.
(a) MBNA, to the extent necessary and in cooperation with NOVA, from
and after the Effective Date and during the Transition Period, shall use
commercially reasonable efforts to assist NOVA in obtaining, at NOVA's
expense, (i) the agreement of the Assigned Merchants and the Affinity
Associations to the continuation of the Merchant Business with NOVA under
the Assigned Merchant Agreements, the Affinity Agreements and/or the
Assigned Affinity Rights, as contemplated by this Agreement, (ii) the
consent of the Assigned Merchants, and the Affinity Associations, as
appropriate, to NOVA's conversion of the Assigned Merchants to such
clearing bank and merchant accounting system as NOVA may specify, and (iii)
the consent of the Assigned Merchants, and the Affinity Associations, as
appropriate, to NOVA's conversion of the Assigned Merchants to NOVA's
network. Any additional documentation, other than the Transfer Documents,
to be executed by MBNA, which NOVA currently deems to be required to
accomplish the goals set forth in this Section 1.4(a), has been provided by
NOVA as Exhibit 1.4(a).
--------------
(b) Without limiting the generality of the foregoing, promptly
following the Closing, NOVA shall deliver to each of the Assigned
Merchants a notice, in a form mutually agreed upon by NOVA and MBNA, of the
assignment by MBNA, as of the Effective Date, of all rights in and to said
Assigned Merchant Agreements and the Assigned Affinity Rights to NOVA. The
notice shall be on the letterhead of MBNA. Such notice may inform each
Assigned Merchant of NOVA's intention to convert the Assigned Merchant to
NOVA's network, as well as to a clearing bank and merchant accounting
system designated by NOVA.
<PAGE>
1.5 BOOKS AND RECORDS.
(a) As soon after the Closing Date as is practicable, and in no event
later than the conclusion of the Transition Period, MBNA shall cause to be
delivered to NOVA the "merchant file" for each of the Assigned Merchant
Agreements, which shall contain, at a minimum, (i) the original, executed
application or telemarketed faxed application for such Merchant, (ii) the
credit bureau report relating to such application and (iii) the credit
approval sign-off for such application and may contain other related
materials, including but not limited to the original, true, correct and
complete executed Merchant Agreement. Prior to the Closing Date, MBNA will
cause to be delivered to NOVA (I) either (i) the Affinity Agreement with
respect to any Assigned Affinity Rights or a copy of the Affinity Agreement
or a redacted version of the Affinity Agreement which contains all relevant
clauses relating to the rights and liabilities of the provider of Merchant
Services for the Affinity Merchants (such file will reference the exact
number of pages being delivered in such file, so that NOVA may check as to
completeness); and (II) the materials relating to the Merchant Business
attached hereto as Schedule 6.6(a) and the other schedules attached to this
---------------
Agreement. In each case, however, the books and records relating to the
Assets Sold for the period prior to the Closing Date, wherever located,
that are held by a party hereto or under the control of a party hereto (the
"Inspected Party") shall be open for inspection by the other party, and
such other party's authorized agents and representatives and regulators
may, at such other party's own expense, make such copies of any excerpts
from such books, records and documents as it shall reasonably deem
necessary; provided, however, that any such inspection: (a) shall be
conducted upon at least three business days prior written notice, during
normal business hours from time to time reasonably established by the
Inspected Party, subject to the safety, security and operating procedures
of the Inspected Party, including but not limited to the party conducting
the inspection or any third party agent executing such confidentiality
agreements as the Inspected Party may reasonably request; (b) shall, if the
Inspected Party so requests, be conducted in the presence of an officer or
designated representative of the Inspected Party; and (c) provided that
nothing herein shall be deemed to grant to either the party conducting the
inspection or any other third party the right to inspect or review any
books, records or documents regarding such Inspected Party's general
operations or results or books records or documents which do not
specifically relate to the Merchant Business, and the Inspected Party may
segregate or delete such information and other information deemed by it to
be immaterial or irrelevant from such books, records and documents. If the
Operative Documents are terminated in accordance with Section 8.4 hereof,
any copies or excerpts or work product shall be returned or destroyed at
the request of the Inspected Party.
(b) All books and records relating to the Assets Sold shall be
maintained by NOVA, or MBNA, as the case may be, pursuant to their current
document retention policies and procedures. To the extent that a party
has given notice of the fact that it would require documents to be kept for
a longer period by the other party, to the extent feasible, as specified or
allowed by such party's policies and procedures, such books and records
shall be maintained (or, alternatively, delivered by the Inspected Party to
the other party) until the date, determined reasonably and in good faith,
specified for maintenance of such records in such notice.
ARTICLE II
CONSIDERATION FOR ASSETS SOLD; CLOSING
2.1 PURCHASE PRICE. As consideration for the Assets Sold, at the Closing,
NOVA shall pay to MBNA [*] (the "Purchase Price") by wire transfer (in
accordance with written wire transfer instructions to be provided by MBNA) in
immediately available funds.
2.2 CLOSING. Subject to the satisfaction or waiver of the conditions set
forth herein, the consummation of the purchase and sale of the Assets Sold (the
[*] CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
"Closing") shall take place on December 30, 1997, or on such other date at such
other time and place as the parties shall agree in writing (the "Closing Date"),
to be effective as of the Effective Date, and shall take place through the
execution and exchange, via facsimile transmission, of this Agreement and the
Operative Documents. The parties acknowledge and agree that upon mutual
exchange and receipt of signature pages via facsimile, and upon receipt by MBNA
of the wire transfer hereby contemplated, this Agreement and the Operative
Documents delivered in connection herewith shall be deemed effective, and the
transactions hereby contemplated shall be deemed consummated, notwithstanding
any parties failure or refusal to deliver original (i.e. non-facsimile)
signature pages.
ARTICLE III
TRANSITION PERIOD
3.1 ORDERLY TRANSITION. MBNA and NOVA covenant and agree to cooperate
with each other using their commercially reasonable efforts, to effect an
orderly transition of the Merchant Business during the Transition Period in
respect of the Assets Sold and the Assumed Liabilities, including, but not
limited to, fulfilling their respective obligations under Section 1.4 hereof.
3.2 SERVICES DURING THE TRANSITION PERIOD.
(a) During the Transition Period, MBNA shall perform, on behalf of and
for the account of NOVA, at the same location(s) presently used to conduct
the Merchant Business, all of the services (the "Transition Services", as
are identified on Schedule 3.2 attached hereto). Upon prior notice to MBNA
------------
and with the prior consent of MBNA, which consent may not be unreasonably
withheld, NOVA may make reasonable adjustments to the Transition Services
which do not increase either MBNA's expenses or liabilities.
Notwithstanding anything to the contrary herein, MBNA shall be under no
obligation to increase the allocation or commitment levels of personnel or
resources used in performing the Transition Services beyond current
staffing and resource levels.
(b) MBNA shall perform the Transition Services substantially in the
same manner and with the same degree of care as performed in connection
with the Merchant Business prior to the Closing Date. Without limiting the
generality of the foregoing, during the Transition Period, MBNA shall
continue to provide credit to Assigned Merchants on the same business day
deposits are made by Assigned Merchants for Draft deposits (provided such
deposits are made prior to 2:00 p.m. closing; Draft deposits made after
2:00 p.m. closing shall be considered to be made on the following business
day) and on the day of receipt of ACH notice for Credit Card transactions
processed electronically. MBNA shall not be entitled to reimbursement for
its cost of funds in providing credit for Draft deposits.
(c) During the Transition Period, in performing services hereunder,
MBNA shall be in material compliance with the rules and regulations of the
Credit Card Associations and the EFT Networks, and MBNA shall not take, or
fail to take, any actions with respect to the Merchant Business which would
constitute a violation of such rules and regulations. The parties hereto
acknowledge that MBNA will not be updating or incurring any costs to modify
its existing electronic financial transaction processing equipment,
software or policies relating to the Merchant Business after the Effective
Date and, accordingly, MBNA will be responsible for, and shall pay, as
assessed by the Credit Card Associations and/or EFT Networks, any related
fines, penalties, adverse differences in interchange rates, or other
liabilities related to or arising from such omissions or other
noncompliance and its performance hereunder, arising prior to the
termination of the Transition Period.
<PAGE>
3.3 REVENUE DURING THE TRANSITION PERIOD.
(a) In performing services during the Transition Period (and during any
extensions thereto pursuant to Section 3.6 hereof) on behalf of and for the
account of NOVA, MBNA shall, beginning on the Effective Date and continuing
throughout the Transition Period, collect (and pay in accordance with
Section 3.3(b) below), with respect to original sales transactions
occurring on or after the Effective Date, (i) revenue generated by the
Merchant Business, (ii) minus (A) interchange fees, assessments, Affinity
Association compensation, payments, Credit Losses and rebates, and (B)
MBNA's expenses incurred in connection with providing such services
(provided, however, that in no event shall MBNA charge NOVA such expenses
in excess of [*] per transaction processed) (iii) plus a credit to such
expenses on behalf of NOVA of [*] per month during the Transition Period,
not to exceed an aggregate total credit of [*] (and to the extent
necessary, any amount remaining of the aggregate total of [*] shall be
credited in the last month of the Transition Period) (collections, net of
expenses, as modified by credits, is referred to collectively herein as
"Revenue"). With respect to clause 3.3(a)(ii)(B), to the extent MBNA's
actual expenses during the Transition Period are reduced to a level that
would be less than the [*] per transaction cap as provided therein, MBNA
shall give NOVA the benefit of any corresponding reduction.
(b) In connection with the Transition Period, MBNA shall pay to NOVA
monthly, by the last business day of each such month, the Revenue generated
during the immediately preceding month (each a "Payment Date"). Revenue
shall include all original sales transactions and all other revenue
generated by the Merchant Business occurring on or after the Effective Date
during the Transition Period. MBNA's obligation to make a payment to NOVA
on the Payment Dates shall continue until all Revenue generated during the
Transition Period is paid to NOVA.
(c) At the time of each payment by MBNA to NOVA pursuant to Section
3.3(b) above, or as soon thereafter as is practicable, MBNA shall furnish
to NOVA an invoice in the form attached as Schedule 3.3(c) identifying all
---------------
expenses that have been withdrawn from Revenue for MBNA's expenses, the
required credits and the amount due to NOVA, and a certificate of an
authorized financial officer of MBNA certifying the withdrawn expenses, the
credits and the amount due to NOVA and showing the calculation thereof.
3.4 EMPLOYEES. MBNA shall use commercially reasonable efforts to provide
adequate and appropriately skilled staffing in connection with the operation of
the Merchant Business during the Transition Period. It is acknowledged by the
parties that as NOVA is scheduled to assume servicing responsibilities for the
Merchant Services during the Transition Period, MBNA shall be entitled to
decrease its staffing commitments (provided that the failure by NOVA to assume
servicing responsibilities as scheduled is not attributable to MBNA). NOVA will
not make any offer of employment to, or actively solicit any employees of MBNA
or its affiliates to take positions at NOVA, until the Transition Period
terminates.
CLEARING BANK ARRANGEMENT.
(a) In order to permit an orderly transition of the processing of
Credit Card transactions during the Transition Period, MBNA shall continue
to act as a clearing bank for NOVA with respect to Credit Card transactions
processed under the Assigned Merchant Agreements, all in material
accordance with the rules and regulations of the Credit Card Associations
and the EFT Networks, such responsibility to terminate on or prior to the
Transition Date.
(b) NOVA shall at its own expense prepare, and after good-faith
consultation with MBNA, MBNA shall execute reasonably drafted documents
which are non recourse with respect to transactions occurring on or after
the assignment of the clearing responsibilities, to evidence the transfer
of the clearing bank responsibilities under the Assigned Merchant
[*] CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
Agreements to the person designated by NOVA to effect such transfer. In
addition, MBNA shall render such other necessary assistance as NOVA may
reasonably request, at NOVA's sole expense. NOVA shall choose a clearing
bank which in NOVA's reasonable judgment is not a competitor of MBNA's and
can perform any required functions (a "Permitted Clearing Bank"), provided,
however, that in any event, each of Bank of America, Firstar Bank, First
Union, KeyCorp and Regions Bank (and their respective affiliates and
subsidiaries) are and shall be deemed by the parties hereto to be Permitted
Clearing Banks. MBNA shall use commercially reasonable efforts to provide
to NOVA all information necessary for such transfer (for example, a
Merchant Master File Dump on disk in ASCII format).
3.6 EXTENSION OF TRANSITION PERIOD. If requested by NOVA in writing at
least fifteen (15) days prior to the Transition Date, MBNA shall continue to
provide any of the services described in this Article III as are requested by
NOVA beyond the Transition Date, on the same terms and conditions set forth
herein, for up to thirty days after the Transition Date, as specified in such
written notice.
3.7 TAXES. NOVA will be liable for any transfer (including sale and use)
taxes associated with the transfer of the Assets Sold. All other Taxes will be
borne by the party to whom the taxing authority imposes ultimate liability.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS OF MBNA
4.1 CONFIDENTIALITY OF INFORMATION. On and after the date hereof, MBNA
and its officers, employees, agents, assigns, affiliates and representatives
shall treat all information, books and records, originals or copies of books or
records which are retained or obtained by it pursuant to Section 1.5, and all
information learned or obtained about the Business or relating to the Merchant
Business, as confidential and will not disclose such information to third
parties except as required by law, as needed in connection with a lawsuit,
claim, litigation or other proceeding or in connection with tax or regulatory
matters and except to the extent that such information is already in the public
domain, or subsequently enters the public domain, other than as a result of the
breach of MBNA's obligations under this Section 4.1. MBNA and its officers,
employees, agents and representatives shall not use the information described in
this Section 4.1 in any manner that might reasonably be anticipated to adversely
affect the Merchant Business or NOVA's relations with the Assigned Merchants or
with other persons or entities (except that if a partial repurchase under
Section 8.4 occurs or if a repurchase and termination of this Agreement under
Section 8.5 occurs, MBNA may use such information and treat it as it would in
the ordinary course of its business, as currently conducted).
4.2 NOTICE OF BREACH OR POTENTIAL BREACH. MBNA shall promptly notify NOVA
of any change, circumstance or event which may prevent MBNA from complying with
any of its obligations hereunder.
4.3 FURTHER ASSURANCES. On and after the Closing Date, MBNA shall (i)
give such further assurances to NOVA and execute, acknowledge and deliver all
such acknowledgments and other instruments and take such further action as NOVA
may reasonably request to effectuate the transactions contemplated by this
Agreement, including the transfer of the Assets Sold and the assumption by NOVA
of the Assumed Liabilities, and (ii) use commercially reasonable efforts to
assist NOVA in the orderly transition referred to in Article III. All expenses
incurred by MBNA in complying with NOVA's requests pursuant to this Section 4.3
shall be reimbursed to MBNA by NOVA.
4.4 SCHEDULE UPDATES. MBNA agrees to update the Schedules identified on
Schedule 4.4 attached hereto within 90 days of the expiration of the Transition
- ------------
Period.
<PAGE>
4.5 COLLECTIONS. During the first 180 days following the Transition Date,
MBNA shall use commercially reasonable efforts to assist NOVA, at NOVA's
request, in processing amounts in respect of any charge-back or other Credit
Loss received or identified in connection with the Merchant Business and
relating to or arising out of any original sales transaction occurring on or
after the Effective Date. NOVA shall reimburse MBNA and be responsible for all
costs and expenses relating to such collection efforts, including costs and
expenses of collection letters, litigation, arbitration proceedings and similar
actions.
4.6 POST-TRANSITION PROCESSING. MBNA covenants and agrees that:
(a) MBNA shall, for the period beginning upon the expiration of the
Transition Period, and continuing until the effective date of the
expiration or termination of the Marketing Agreement (the "Post-Transition
Period"), and unless otherwise agreed upon in writing by NOVA and MBNA,
accept Drafts from all MBNA Merchants, and only such MBNA Merchants, whose
Merchant Agreements permit Draft deposits, as well as from any Merchants
(whose Merchant Agreements permit Draft deposits) which are referred by
MBNA to NOVA pursuant to the Marketing Agreement. Such Drafts shall be
handled in accordance with NOVA's reasonable instructions, including using
commercially reasonable efforts to ship each day's batches of Drafts at the
end of the business day (or such other periodic delivery as may be agreed
upon by the parties), via overnight courier delivery to the draft capture
vendor designated by NOVA, the expense of such shipment to be paid by NOVA
(collectively, the "Overnight Delivery Obligation"). Both parties
acknowledge that MBNA will not be deemed in breach of this Agreement with
respect to its Overnight Delivery Obligation to the extent that 90% or more
(as measured by total volume over time) of the Drafts are sent to the draft
capture vendor designated by NOVA within three business days of receipt by
MBNA; and
(b) MBNA, throughout the Post-Transition Period, shall use NOVA and a
principal member designated by NOVA as the exclusive processor of Cash
Advance Transactions made by MBNA; and
MBNA shall receive no additional remuneration from NOVA, beyond the
payments due MBNA under the Marketing Agreement, in connection with the
performance of the services set forth in this Section 4.6.
4.7 AFFINITY AGREEMENTS. MBNA covenants and agrees that it shall not
amend any Affinity Agreement in any way that may alter NOVA's rights and
obligations, performance, related or otherwise, under the Affinity Agreements,
or that may increase or alter NOVA's liability or expense, other than upon
NOVA's prior written consent (which consent shall not be unreasonably withheld
or delayed).
<PAGE>
ARTICLE V
CERTAIN COVENANTS AND AGREEMENTS OF NOVA
5.1 CONFIDENTIALITY OF INFORMATION. On and after the date hereof, NOVA
and its officers, employees, agents, assigns, affiliates and representatives
shall treat all information learned, or obtained prior to the date of this
Agreement or during the Transition Period pursuant to Section 1.5 about MBNA's
businesses, other than the Merchant Business (except that to the extent a
Portfolio Repurchase is consummated pursuant to Section 8.4, information about
the Merchant Business shall be kept confidential by NOVA and its officers,
employees, agents, assigns, affiliates and representatives), as confidential and
will not disclose such information to third parties except as required by law,
as needed in connection with a lawsuit, claim, litigation or other proceeding or
in connection with tax or regulatory matters and except to the extent that such
information is already in the public domain, or subsequently enters the public
domain, other than as a result of the breach of NOVA's obligations under this
Section 5.1. NOVA and its officers, employees, agents, and representatives
shall not use the information described in this Section 5.1 in any manner that
might reasonably be anticipated to materially adversely affect MBNA's financial
condition, business, prospects or agreements or arrangements with any other
person or entity, including, without limitation, any affinity relationship.
5.2 NOTICE OF BREACH OR POTENTIAL BREACH. NOVA shall promptly notify MBNA
of any change, circumstance or event which may prevent NOVA from complying with
any of its obligations hereunder.
5.3 FURTHER ASSURANCES. On and after the Closing Date, NOVA shall (i)
give such further assurances to MBNA and execute, acknowledge and deliver all
such acknowledgments and other instruments and take such further action as MBNA
may reasonably request to effectuate the transactions contemplated by this
Agreement, including the transfer of the Assets Sold and assumption of the
Assumed Liabilities and (ii) use commercially reasonable efforts to assist MBNA
in the orderly transition referred to in Article III. All expenses incurred by
NOVA in complying with MBNA's requests pursuant to this Section 5.3 shall be
reimbursed to NOVA by MBNA.
5.4 COLLECTIONS. During the first 180 days following the Transition Date,
NOVA shall use commercially reasonable efforts to assist MBNA, at MBNA's
request, in processing amounts in respect of any charge-back or other Credit
Loss received or identified in connection with the Merchant Business and
relating to or arising out of any original sales transaction occurring prior to
the Effective Date. MBNA shall reimburse NOVA and be responsible for all costs
and expenses relating to such collection efforts, including costs and expenses
of collection letters, litigation, arbitration proceedings and similar actions.
5.5 PRICING; NOTIFICATION. With respect to the activities set forth on
Schedule 5.6, NOVA agrees that until April1, 1999, it will not assess any
- ------------
additional fees or charges for such services (other than "pass-through" fees
imposed or increased by any Payment Network) and will provide them to customers
of the Merchant Business free of charge. NOVA further agrees that it will
comply with all required notifications of pricing changes as required pursuant
to the Affinity Agreements.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF MBNA
MBNA hereby makes the following representations and warranties to NOVA as
of the date hereof and as of the Effective Date:
<PAGE>
6.1 ORGANIZATION. MBNA is a national banking association duly chartered
under the laws of the United States of America and is authorized to conduct the
Merchant Business as presently conducted under applicable law.
6.2 AUTHORITY. MBNA has the right, power, capacity and authority to enter
into and deliver the Operative Documents, to perform its obligations under the
Operative Documents, and to effect the transactions contemplated by the
Operative Documents, and no other person or entity has any interest in the
Merchant Business, the Assigned Merchant Agreements (other than the Assigned
Merchants pursuant to the Assigned Merchant Agreements), the VeriFone Agreements
(other than VeriFone pursuant to the VeriFone Agreements), or the Affinity
Agreements (other than the Affinity Associations (or their members) pursuant to
the Affinity Agreements). The execution, delivery and performance of the
Operative Documents have been approved by all requisite corporate action on the
part of MBNA, and when executed and delivered pursuant hereto, the Operative
Documents will constitute valid and binding obligations of MBNA subject as to
enforceability to bankruptcy, insolvency, conservatorship, receivership and
other laws of general applicability relating to or affecting creditor's rights,
principles of good faith and fair dealing, and to general equity principles.
6.3 GOVERNMENT NOTICES. MBNA has not received notice from any federal,
state or other governmental agency or regulatory body indicating that such
agency or regulatory body would oppose or not grant or issue its consent or
approval, if required, with respect to the transactions contemplated by the
Operative Documents.
6.4 NO VIOLATIONS.
(a) The execution and delivery by MBNA of the Operative Documents, and
its performance thereunder, will not (i) violate, conflict with, result in
a breach of or constitute (with or without notice or lapse of time or both)
a default under any material agreement, indenture, mortgage or lease to
which MBNA is a party or by which MBNA or its properties, or the Merchant
Business, are bound; (ii) constitute a violation by MBNA of any law or
government regulation applicable to MBNA or the Merchant Business; (iii)
violate any provision of the Charter or Bylaws (or similar governing
documents) of MBNA; or (iv) to MBNA's knowledge, violate any order,
judgment, injunction or decree of any court, arbitrator or governmental
body against or binding upon MBNA or the Merchant Business.
(b) With respect to its Merchant Business, MBNA is not, has not been
and to MBNA's knowledge will not be (by virtue of any past or present
action, omission to act, contract to which they are a party or any
occurrence or state of facts whatsoever) in violation of any applicable
local, state or federal law, ordinance, regulation, order, injunction or
decree, or any other requirement of any governmental body, agency or
authority or court binding on it, or relating to its property or business
(including any antitrust laws and regulations).
6.5 ASSETS SOLD. MBNA is the owner of all rights, title and interest in
and to the Assets Sold, free and clear of all title defects, objections,
assignments, liens, encumbrances of any nature whatsoever, restrictions,
security interests, rights of third parties, or other liabilities, and has good
and valid title to the Assets Sold.
6.6 DUE DILIGENCE INFORMATION; DISCLOSURE.
(a) The financial and other information concerning the Merchant
Business (including the federal employer identification number of MBNA)
attached hereto as Schedule 6.6(a) (collectively, the "Due Diligence
---------------
Information") is true, accurate, and complete in all material respects as
of and for the periods indicated, and fairly presents the financial
<PAGE>
condition of MBNA's Merchant Business in respect of the Assets Sold;
provided, however, and without limiting the foregoing, with respect to the
agreements included in the Due Diligence Information (including but not
limited to the VeriFone Agreements), all such copies are true, accurate and
complete. Since September 30, 1997, there has been no material adverse
change in the Merchant Business.
(b) No employee or representative of MBNA, or any of its agents
intentionally misled or intentionally made an untrue assertion in any
statement or description provided by such persons, contained in any
documents delivered to NOVA by MBNA prior to the Effective Date, in
connection with the series of transactions contemplated hereby.
6.7 AGREEMENTS RELATING TO THE MERCHANT BUSINESS.
(a) MBNA is in compliance with (and would not be in default upon
notice, lapse of time or both) (i) the provisions of the Assigned Merchant
Agreements, a complete list of which is set forth on Schedule 1.1(b)(ii),
-------------------
and (ii) the Affinity Agreements delivered in accordance with Section 1.5.
Schedule 6.7(a)(ii) sets forth a listing of the Affinity Agreements,
-------------------
including the Affinity Association address, city, state, the expiration
date of the Affinity Agreements, the compensation owed to groups by NOVA
with respect to processing of merchant transactions, price-change
notification requirements, and the minimum discount with respect to which
NOVA must comply. True, correct and complete copies of each of the
Affinity Agreements have been delivered by MBNA to NOVA pursuant to Section
1.5. MBNA does not have knowledge, and has not received any notice of,
fraud by, or bankruptcy or contemplated bankruptcy of, any party to any of
the Assigned Merchant Agreements or Affinity Agreements and has not
received any notice of default or adverse comment from any regulatory
authority in respect of any of the Assigned Merchant Agreements or Affinity
Agreements. Except as set forth on Schedule 6.7(a)(iii), MBNA has not
--------------------
given or received notice of election to terminate any of the Assigned
Merchant Agreements or Affinity Agreements. Except as set forth on
Schedule 6.7(a)(iv), all Assigned Merchants which are parties to the
-------------------
Assigned Merchant Agreements currently process Credit Card transactions
pursuant to the Assigned Merchant Agreements.
(b) All agreements between MBNA and the Assigned Merchants are in the
form of one of the Standard Merchant Contracts (with attached buck slip
amendment, if applicable), attached hereto as Exhibit 6.7(b), and are
--------------
freely assignable by MBNA without the consent of the applicable Assigned
Merchant or any other party.
(c) Except as set forth on Schedule 6.7(a)(ii), which sets forth each
-------------------
Affinity Agreement, MBNA has no agreements, written or oral, with any agent
bank, other association, institution, independent sales organization, or
any other third party which provides for any one or more of the following:
(i) the deposit of Credit Card transaction records; (ii) the settlement of
Credit Card transactions; (iii) the processing of Credit Card transactions;
or (iv) the referral of merchants to MBNA by such groups.
(d) Except for disputes that have arisen in the ordinary course of
business and as disclosed on Schedule 6.7(d), MBNA is not engaged in any
---------------
dispute with any Assigned Merchant or Affinity Association. MBNA does not
have any reason to believe, and has not received any notice, written or
oral, that the consummation of the transactions contemplated hereunder will
have any adverse effect on the business relationship of MBNA with any
Assigned Merchant or Affinity Association, except as disclosed on Schedule
--------
6.7(d).
------
(f) MBNA is a member in good standing of the Credit Card Associations.
MBNA (and the Merchant Business as conducted by MBNA) are in material
compliance with all applicable rules and regulations and certification
<PAGE>
requirements of the Credit Card Associations, including but not limited to
applicable "Year 2000" certification requirements.
6.8 ASSIGNED MERCHANTS' CREDIT. The Assigned Merchants listed on Schedule
--------
6.8 are the one hundred twenty five (125) Assigned Merchants with the highest
- ---
dollar value of Credit Card transactions processed during the eleven (11) month
period ending November 30, 1997.
6.9 OTHER CONSENTS AND APPROVALS.
(a) Except for approval under the Hart Scott Rodino Antitrust
Improvements Act and as set forth on Schedule 6.9, no action of, or filing
------------
with, any governmental or public body is required by MBNA to authorize, or
is otherwise required in connection with, the execution and delivery by
MBNA of this Agreement or the other Operative Documents or, if required,
the requisite filing has been accomplished and all necessary approvals
obtained.
(b) Except for approval under the Hart Scott Rodino Antitrust
Improvements Act and as set forth on Schedule 6.9, no filing, consent or
------------
approval is required by virtue of the execution hereof or any other
Operative Document by MBNA or the consummation of any of the transactions
contemplated herein by MBNA to avoid the violation or breach of, or the
default under, or the creation of a lien on any of the Assets Sold pursuant
to the terms of, any law, regulation, order, decree or award of any court
or governmental agency or any lease, agreement, contract, mortgage, note,
license, or any other instrument to which MBNA is a party or to which it or
any of the Assets Sold is subject.
6.10 INTELLECTUAL PROPERTY. Except with respect to the Software (and as
set forth in Section 6.18 hereof) there are no trademarks, service mark
registrations, patents, trade names, copyrights, trade secrets or other
intellectual property belonging to MBNA which will be transferred with the
Merchant Business.
6.11 LITIGATION AND CLAIMS. Schedule 6.11 attached hereto: (i) sets
-------------
forth all material litigation, claims, suits, actions, investigations,
indictments, proceedings or arbitrations, grievances or other procedures
(including grand jury investigations, actions or proceedings, and product
liability and workers' compensation suits, actions or proceedings, and
investigations conducted by any Credit Card Association) that are pending, or to
the knowledge of MBNA, threatened, in or before any court, commission,
arbitration tribunal, or judicial, governmental or administrative department,
body, agency, administrator or official, grand jury, Card Association, or any
other entity or forum for the resolution of grievances, against MBNA and
relating in any way to the Merchant Business (collectively "Claims"), and (ii)
indicates which of such Claims are being defended by an insurance carrier, and
which of such Claims being so defended are being defended under a reservation of
rights. MBNA has made available to NOVA true, correct and complete copies of
all pleadings, briefs and other documents filed in each pending litigation,
claim, suit, action, investigation, indictment or information, proceeding,
arbitration, grievance or other procedure listed in Schedule 6.11, and the
-------------
judgments, orders, writs, injunctions, decrees, indictments and information,
grand jury subpoenas and civil investigative demands, plea agreements,
stipulations and awards listed in Schedule 6.11.
-------------
6.12 EFT NETWORKS. MBNA is a member in good standing of the electronic
funds transfer networks identified on Schedule 6.12 attached hereto (the "EFT
-------------
Networks").
6.13 REQUIRED LICENSES AND PERMITS. Except as set forth on Schedule 6.13,
-------------
no material licenses, permits or other authorizations of governmental
authorities are necessary for the conduct of the Merchant Business by MBNA.
6.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except for the agreements
included in the Due Diligence Information or specifically identified in Sections
6.7 and 6.16 (or the corresponding Schedules):
<PAGE>
(a) MBNA does not have any agreement, contract, commitment or
relationship, whether written or oral, related to the Merchant Business;
(b) MBNA does not have any material outstanding contract related to the
Merchant Business, written or oral, with any officer, employee, agent,
consultant, advisor, salesman, manufacturer's representative, distributor,
dealer, subcontractor, or broker that is not cancelable by MBNA, on notice
of not longer than thirty (30) days and without material liability, penalty
or premium of any kind, except liabilities which arise as a matter of law
upon termination of employment, or any agreement or arrangement related to
the Merchant Business providing for the payment of any bonus or commission
based on sales or earnings;
(c) Except for the Non-Competition Agreement to be executed
contemporaneously with this Agreement, MBNA is not subject to any contract
or agreement related to the Merchant Business containing covenants limiting
the freedom of MBNA to compete in any line of business in the United States
of America; and
(d) With respect to the Merchant Business, there is no contract,
agreement or other arrangement entitling any person or other entity to any
profits, revenues or cash flows of MBNA or requiring any payments or other
distributions based on such profits, revenues or cash flows.
6.15 AGREEMENTS IN FULL FORCE AND EFFECT. Except as expressly set forth
in Schedule 6.15, all contracts and agreements referred to, or required to be
-------------
referred to, herein or in any Schedule delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance with
their terms, except as enforcement may be limited by (i) bankruptcy, insolvency,
moratorium or other laws or regulations, in effect now or in the future, that
affect enforcement of creditors rights generally, (ii) an implied covenant of
good faith and fair dealing, and (iii) principles of equity. MBNA has not
received notice of any pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any party to such agreements, and no event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default thereunder by MBNA,
or to the knowledge of MBNA, any other party thereto.
6.16 VENDORS AND SUPPLIERS. Schedule 6.16 sets forth a complete and
-------------
accurate list of each supplier to MBNA of goods and services directly related
to the Merchant Business that charged, billed or invoiced MBNA in excess of
$25,000 during the 1997 calendar year to date. MBNA has provided to NOVA true
and correct copies of all agreements and contracts between MBNA and any of the
persons and entities listed on Schedule 6.16.
-------------
6.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Schedule 6.17, since September 30, 1997, MBNA has not altered or modified its
- -------------
policies and procedures as used in the Merchant Business in a manner which would
likely result in an adverse effect to the Merchant Business, taken as a whole,
and has otherwise conducted its Merchant Business only in the ordinary course.
6.18 MERCHANT ACCOUNT SYSTEM SOFTWARE LICENSE. Except as set forth on
Schedule 6.18, MBNA owns all copyrights and all other necessary proprietary
- -----------
rights in the Software and has the right to grant the License to NOVA set forth
in Section 1.1(d). MBNA has not received any notice that the Software conflicts
with any rights of any third party and has no knowledge of any basis for such
conflict. The software conforms in all material respects to the performance and
other specifications set forth on Schedule 1.1(d). Except as set forth in
----------------
Schedule 6.18, the Software nor any of its elements or the license granted to
- -------------
NOVA does not or will not violate or infringe upon any patent copyright or other
proprietary right of any other person or entity.
<PAGE>
6.19 FINDER'S FEES. MBNA represents and warrants that it has not made
any commitment or done any act that would create any liability to any person
other than itself for any brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
6.20 NEGATIVE REPRESENTATIONS. MBNA's Merchant Business does not involve
or include (i) the acceptance of "debit card" transaction records, (ii)
guaranties from principals or third parties of or related to any Assigned
Merchant, or (iii) the maintenance by any Assigned Merchant with MBNA, or on
MBNA's behalf, of reserve accounts.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF NOVA
NOVA makes the following representations and warranties to MBNA as of the
date hereof and as of the Effective Date:
7.1 ORGANIZATION. NOVA is a corporation duly organized and validly
existing under the laws of the State of Georgia and is authorized to conduct its
business under applicable laws.
7.2 AUTHORITY. NOVA has the right, power, capacity and authority to enter
into and deliver the Operative Documents, to perform its obligations under the
Operative Documents, and to effect the transactions contemplated by the
Operative Documents. The execution, delivery and performance of the Operative
Documents have been approved by all requisite corporate action on the part of
NOVA, and when executed and delivered pursuant hereto, the Operative Documents
will constitute valid and binding obligations of NOVA subject as to
enforceability to bankruptcy, insolvency, conservatorship, receivership and
other laws of general applicability relating to or affecting creditor's rights,
principles of good faith and fair dealing, and to general equity principles.
7.3 GOVERNMENTAL NOTICES. NOVA has not received notice from any federal,
state or other governmental agency or regulatory body indicating that such
agency or regulatory body would oppose or not grant or issue its consent or
approval, if required, with respect to the transactions contemplated by the
Operative Documents.
7.4 NO VIOLATIONS.
(a) The execution and delivery by NOVA of the Operative Documents and
its performance thereunder will not: (i) violate, conflict with, result in
a breach of or constitute (with or without notice or lapse of time or both)
a default under, any material agreement, indenture, mortgage or lease to
which NOVA is a party or by which it or its properties are bound; (ii)
constitute a violation by NOVA of any law or governmental regulation
applicable to NOVA; (iii) violate any provision of the Articles of
Incorporation or Bylaws of NOVA; or (iv) to NOVA's knowledge, violate any
order, judgment, injunction or decree of any court, arbitrator or
governmental body against or binding upon NOVA.
(b) With respect to its Business, NOVA is not, has not been and to
NOVA's knowledge will not be (by virtue of any past or present action,
omission to act, contract to which they are a party or any occurrence or
state of facts whatsoever) in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency or authority or court
binding on it, or relating to its property or business (including any
antitrust laws and regulations).
<PAGE>
7.5 OTHER CONSENTS AND APPROVALS.
(a) Except for approval under the Hart Scott Rodino Antitrust
Improvements Act and as set forth on Schedule 7.5, no action of, or filing
------------
with, any governmental or public body is required by NOVA to authorize, or
is otherwise required in connection with, the execution and delivery by
NOVA of this Agreement or the other Operative Documents or, if required,
the requisite filing has been accomplished and all necessary approvals
obtained.
(b) Except for approval under the Hart Scott Rodino Antitrust
Improvements Act and as set forth on Schedule 7.5, no filing, consent or
------------
approval is required by virtue of the execution hereof or any other
Operative Document by NOVA or the consummation of any of the transactions
contemplated herein by NOVA to avoid the violation or breach of under any
law, regulation, order, decree or award of any court or governmental
agency, or any lease, agreement, contract, mortgage, note, license, or any
other instrument to which NOVA is a party or is subject.
7.6 LITIGATION AND CLAIMS. Schedule 7.6 attached hereto: (i) sets forth
------------
all material litigation, claims, suits, actions, investigations, indictments,
proceedings or arbitrations, grievances or other procedures (including grand
jury investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings, and investigations conducted by any
Credit Card Association) that are pending, or to the knowledge of NOVA,
threatened, in or before any court, commission, arbitration tribunal, or
judicial, governmental or administrative department, body, agency, administrator
or official, grand jury, Card Association, or any other entity or forum for the
resolution of grievances, against NOVA and relating in any way to the Business
(collectively "Claims"), and (ii) indicates which of such Claims are being
defended by an insurance carrier, and which of such Claims being so defended are
being defended under a reservation of rights. NOVA has made available to MBNA
true, correct and complete copies of all pleadings, briefs and other documents
filed in each pending litigation, claim, suit, action, investigation, indictment
or information, proceeding, arbitration, grievance or other procedure listed in
Schedule 7.6, and the judgments, orders, writs, injunctions, decrees,
- ------------
indictments and information, grand jury subpoenas and civil investigative
demands, plea agreements, stipulations and awards listed in Schedule 7.6.
------------
7.7 EFT NETWORKS. NOVA is a member in good standing of the electronic
funds transfer networks identified on Schedule 7.7 attached hereto (the "EFT
------------
Networks").
7.8 REQUIRED LICENSES AND PERMITS. Except as set forth on Schedule 7.8
------------
attached, hereto, no material licenses, permits or other authorizations of
governmental authorities are necessary for the conduct of the Business by NOVA.
7.9 DISCLOSURE. No employee or representative of NOVA, or any of its
agents intentionally misled or intentionally made an untrue assertion in any
statement or description provided by such persons, contained in any documents
delivered by NOVA to MBNA prior to the Effective Date in connection with the
series of transactions contemplated hereby.
7.10 FINDER'S FEES. NOVA represents and warrants that it has not made any
commitment or done any act that would create any liability to any person other
than itself for any brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
<PAGE>
ARTICLE VIII
COVENANTS OF THE PARTIES
MBNA and NOVA hereby covenant and agree as follows:
8.1 CREDIT CARD ASSOCIATION FILINGS. NOVA shall file with the Credit Card
Associations and the EFT Networks any document or information that each such
Credit Card Association or EFT Network deems to be required or desirable to be
filed in order for the acquisition contemplated by this Agreement to be
completed, and MBNA shall cooperate with NOVA in that regard, at NOVA's sole
expense.
8.2 EMPLOYEE BENEFITS PLANS. To the extent that NOVA is in compliance
with Section 3.4 hereof, NOVA shall not adopt, assume or otherwise become
responsible for, either primarily or as a successor employer or otherwise, and
shall have no liability whatsoever with respect to, any "Controlled Group
Employee Benefit Plan" (i.e., any employee benefit plan (within the meaning of
ERISA (S)3(3)) or any other plan, policy, agreement or arrangement contributed
to or sponsored or maintained by, an MBNA Entity or any affiliate of an MBNA
Entity (an "MBNA Entity Affiliate"), or any such plan, policy, agreement or
arrangement for which an MBNA Entity or any MBNA Entity Affiliate could incur
liability. The preceding sentence applies to any liability with respect to a
Controlled Group Employee Benefit plan, regardless of whether such liability
involves Merchant Business Employees, and regardless of when or how such
liability arose. To the extent that NOVA, any successors or assigns thereto, and
any employees, officers, directors, agents, independent contractors and other
persons affiliated with the NOVA (the "Indemnitees") incur any liability
whatsoever with respect to any Controlled Group Employee Benefit Plan (whether
such liability be liability imposed under ERISA, the Code, or otherwise), the
MBNA Entities shall indemnify each such Indemnitee for all such liabilities
which result, and shall take any action reasonably requested by NOVA to prevent
the imposition of such liability. Notwithstanding any provision of this
Agreement to the contrary, the indemnification of the preceding sentence shall
survive the Closing and shall remain effective concurrent with the legal
limitations period applicable to such liability. Additionally, the MBNA Entities
agree not to assert that NOVA is a successor employer of any MBNA Entity or any
MBNA Entity Affiliate. In particular, NOVA shall not assume liability for any
group health continuation coverage or coverage rights under Section 4980B of the
Code or Part 6 of Title I of ERISA applicable to or arising with respect to any
group health plan sponsored and/or maintained by an MBNA Entity or any MBNA
Entity Affiliate at any time prior to or after the Closing Date. This provision
shall apply to any continuation coverage or coverage rights which arise due to
qualifying events which occur before, concurrently with or after Closing under
an MBNA Entity's group health plan or plans, and any continuation coverage or
coverage rights which result from an MBNA Entity's dissolution and/or trmination
of its group health plan or plans.
8.3 APPLICATIONS; ANTITRUST NOTIFICATIONS. MBNA and NOVA have filed with
the United States Federal Trade Commission ("FTC") and the United States
Department of Justice the notification and report form required for the
transactions contemplated hereby and any supplemental or additional information
which may reasonably be requested in connection therewith pursuant to the HSR
Act. The filing fee incurred in connection with the HSR Act was paid fifty
percent (50%) by MBNA and fifty percent (50%) by NOVA, with NOVA paying the
$45,000 HSR Act filing fee (the "HSR Fee") on behalf of NOVA and MBNA, and MBNA
having reimbursed NOVA in the amount of $22,500.
8.4 PORTFOLIO REPURCHASE. During the term of the Non-Competition
Agreement or during the five year period following the Closing Date, whichever
is longer, in the event that (a) there occurs a Voluntary Bankruptcy Proceeding
or Involuntary Bankruptcy Proceeding with respect to NOVA (which is not
dismissed and continues unstayed or is in effect for a period of 60 consecutive
days), or (b) NOVA has merged with, or consolidated with (in circumstances where
NOVA is not the surviving entity, or NOVA's shareholders immediately prior to
such transaction hold less than 50% of the voting stock of the surviving entity
upon consummation of such transaction), or transferred all or substantially all
of its assets to an entity which at the time of consummation of such transaction
is both (i) among the top ten issuers of credit cards in the United States of
America, as measured by managed credit card assets (or subsidiaries or
<PAGE>
affiliates of such entities, or successors or assigns of such entities to the
extent such successors or assigns of such entities would as a result of such
succession or assignment, be among the top ten issuers of credit cards in the
United States of America, using as a benchmark for inclusion the managed credit
card assets for the tenth largest such entity, determined as set forth below),
as determined in the most current issue of The Nilson Report which sets forth
such information, or to the extent such report is no longer published, any other
similar publication, as reasonably agreed between the parties hereto; and (ii)
reasonably believed by MBNA to be national competitors in the affinity business,
MBNA shall have the option, exercisable at any time prior to the expiration of
thirty (30) days following receipt by MBNA of notice from NOVA of such event, of
terminating the Marketing Agreement and the Non-Competition Agreement and
repurchasing from NOVA all of the then existing Assets Sold, MBNA Merchants and
the rights and interests relating thereto (a "Portfolio Repurchase", with the
portfolio being repurchased referred to herein as the "Repurchased Portfolio").
The purchase price in connection with such Portfolio Repurchase shall be
determined by aggregating the Net Revenue attributable to the Assets Sold and
the MBNA Merchants for the twelve month period preceding the Portfolio
Repurchase, and multiplying such amount by [*], if such option is exercised
prior to December 31, 1998 and thereafter for the fair market value of the
assets to be repurchased. The Portfolio Repurchase shall be consummated
pursuant to a purchase agreement, and such other transfer, assignment,
conveyance, documents, as well as pursuant to a reasonable and appropriate
transition and conversion plan, as the parties may mutually agree upon and as
are customary for transactions similar to the Portfolio Repurchase. To
determine fair market value of the assets to be repurchased (with respect to
options exercised after December 31, 1998), MBNA and NOVA shall for a period of
fifteen days, negotiate in good faith in an effort to mutually agree on the fair
market value of the Repurchased Portfolio. If such efforts fail to produce
agreement on a determination of the fair market value of the Repurchased
Portfolio, then the fair market value shall be determined by two appraisers, one
chosen by MBNA and one chosen by NOVA, both of whom must have reasonable
expertise in valuing merchant credit card portfolios. If the two appraisal
values (each an "Appraisal") differ by ten per cent or less (such percentage
difference to be computed by subtracting the lesser of the Appraisal values from
the greater of the Appraisal values and dividing the difference by the greater
of the Appraisal values), the fair market value shall be equal to the average
of the two Appraisal values. In the event that the two Appraisal Values vary by
more than ten percent, a third appraiser, who must have reasonable expertise in
valuing merchant credit card portfolios, shall be mutually agreed upon by the
first two appraisers, to conduct an independent appraisal and on the basis of
that independent appraisal, the third appraiser shall, in the exercise of his or
her professional judgment, determine which of the two Appraisals is the most
commercially reasonable, and that Appraisal shall be the fair market value of
the Repurchased Portfolio.
8.5 SPECIFIED AFFINITY MERCHANT REPURCHASE. To the extent that an
Affinity Association notifies MBNA or NOVA in writing (or otherwise, where both
parties have been notified by the Affinity Association in an unequivocal manner)
during the Transition Period that such Affinity Association will oppose the
orderly transition of the Merchant Business conducted by its Affinity Merchants
to NOVA and/or will attempt to hinder future marketing initiatives to its
members by NOVA (a "Dissenting Affinity Association") then no later than thirty
(30) days following the termination of the Transition Period, NOVA has the
option of terminating the Operative Documents with respect to such Affinity
Associations and Affinity Merchants and requiring MBNA to repurchase such
Affinity Merchants and all of NOVA's right, title and interest in any related
Affinity Rights (a "Partial Portfolio Repurchase"). The purchase price to be
paid by MBNA to NOVA in connection with such Partial Portfolio Repurchase shall
be determined by aggregating the Net Revenue for the twelve months immediately
preceding the Closing Date attributable to all such Affinity Merchants as
identified in the notification, and multiplying such amount by [*]. The
Partial Portfolio Repurchase shall be consummated pursuant to a purchase
agreement, and such other transfer, assignment, conveyance, documents, as well
as pursuant to a reasonable and appropriate transition and conversion plan, as
the parties may mutually agree upon and as are customary for transactions
similar to the Partial Portfolio Repurchase. The provisions of this Section 8.5
will not apply to any Dissenting Affinity Association as to which NOVA has
implemented an adverse price change with respect to its Affinity Merchants
during the Transition Period
[*] CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
(other than "pass through" fees imposed or increased by any Payment Network).
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY MBNA. MBNA shall indemnify NOVA and hold NOVA
harmless from any liability, loss, diminution in value, cost, claim, or expense,
including reasonable attorney's and accountant's fees and expenses
(collectively, "NOVA Loss"), incurred by NOVA, its successors or assigns, and
their respective officers, employees, consultants and agents (collectively,
"NOVA Protected Parties"), that result from or arise out of (i) any material
breach or inaccuracy of any representation or warranty of MBNA set forth in this
Agreement, whether such breach or inaccuracy exists or is made as of the Closing
Date or Effective Date which has not been cured within thirty days of receipt of
written notice from NOVA; (ii) the material breach by MBNA of any of its
covenants or agreements contained in this Agreement which has not been cured
within thirty days of receipt of written notice from NOVA; (iii) any liability
or obligation, contingent or otherwise, of MBNA, other than the Assumed
Liabilities; and (iv) violations of law or governmental rules or regulations or
wrongdoing or negligence by MBNA in performing obligations under this Agreement.
A NOVA Protected Party should use commercially reasonable efforts to mitigate
any NOVA Loss hereunder.
9.2 INDEMNIFICATION BY NOVA. NOVA shall indemnify MBNA and hold MBNA
harmless from any liability, loss, diminution in value, cost, claim, or expense,
including reasonable attorney's and accountant's fees and expenses
(collectively, "MBNA Loss"), incurred by MBNA, its successors or assigns, and
their respective officers, employees, consultants and agents (collectively,
"MBNA Protected Parties"), that results from or arises out of (i) any material
breach or inaccuracy of any representation or warranty of NOVA set forth in this
Agreement, whether such breach or inaccuracy exists or is made as of the Closing
Date or Effective Date which has not been cured within thirty days of receipt of
written notice from MBNA; (ii) the material breach by NOVA of any of its
covenants or agreements contained in this Agreement which has not been cured
within thirty days of receipt of written notice from MBNA; (iii) any Assumed
Liability; or (iv) material violations of law or governmental rules or
regulations or wrongdoing or negligence by NOVA in performing obligations under
this Agreement. An MBNA Protected Party should use commercially reasonable
efforts to mitigate any MBNA Loss hereunder.
9.3 LOSS OR ASSERTED LIABILITY. Promptly, but in no event later than
thirty (30) days after (a) becoming aware of circumstances that have resulted in
a NOVA Loss or MBNA Loss or potential NOVA Loss or MBNA Loss, whichever is
applicable ("Loss" or "Losses"), for which any party hereto (the "Indemnitee")
intends to seek indemnification under Section 9.1 or Section 9.2, or (b) receipt
by the Indemnitee of written notice of any demand, claim or circumstances which,
with or without the lapse of time, the giving of notice or both, would give rise
to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that may result in a Loss,
the Indemnitee shall give written notice thereof (the "Claims Notice") to the
other party obligated to provide indemnification pursuant to Section 9.1 or 9.2
(the "Indemnifying Party"). The Claims Notice shall describe the Loss or the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary) of the Loss that has been or may be suffered by the
Indemnitee. The Claims Notice may be amended on one or more occasions with
respect to the amount of the Asserted Liability or the Loss at any time prior to
final resolution of the obligation relating to the Asserted Liability or the
Loss. Failure of the Indemnitee to give notice pursuant to this Section 9.3
shall not relieve the Indemnifying Party of its obligations to indemnify under
this Article IX.
<PAGE>
9.4 LIMITATIONS.
(a) With respect to any particular Loss for which an Indemnifying Party
indemnifies an Indemnitee hereunder, the liability of the Indemnifying
Party shall be reduced by the amount of any insurance proceeds actually
received by the Indemnitee as a result of such Loss; provided, however,
that in no event shall this Section 9.4(a) be construed to require any
Indemnitee to seek or maintain insurance of any kind.
(b) Notwithstanding the terms of Section 9.3 hereof, the liability of
the Indemnifying Party shall be reduced by the incremental amount of the
Loss, if any, which was caused by the failure of the Indemnitee to give
notice in the manner set forth in Section 9.3 above.
(c) No party will be required to indemnify any other party for any Loss
hereunder attributable to breaches of representations and warranties unless
the aggregate amount of such Losses with respect to which such party is
obligated to indemnify exceeds Two Hundred and Fifty Thousand Dollars
($250,000) (the "Threshold Amount"). Once the aggregate amount of Losses
exceeds the Threshold Amount, the party shall be obligated to indemnify for
all Losses in excess of the Threshold Amount, provided, however, that
neither party hereto shall not be required to indemnify the other party,
pursuant to Sections 9.1 or 9.2, as applicable, for amounts in excess of
[*].
9.5 OPPORTUNITY TO CONTEST. The Indemnifying Party may elect to
compromise or contest, at its own expense and by its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise or contest such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) of the date of the Indemnifying Party's
receipt of the Claims Notice notify the Indemnitee or Indemnitees of its intent
to do so by giving written notice thereof to the Indemnitee (the "Contest
Notice"), and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise or contest of such Asserted Liability. If the
Indemnifying Party elects not to compromise or contest the Asserted Liability
and fails to notify the Indemnitee of its election as herein provided or
contests its obligation to indemnify under this Agreement, the Indemnitee (upon
further notice to the Indemnifying Party) shall have the right to pay,
compromise or contest such Asserted Liability on behalf of and for the account
and risk of the Indemnifying Party, subject to the right of the Indemnifying
Party to assume the compromise or contest of such Asserted Liability at any time
before final settlement or determination thereof. Anything in this Article IX
to the contrary notwithstanding, (i) the Indemnitee shall have the right, at its
own cost and expense and for its own account, to compromise or contest any
Asserted Liability, and (ii) the Indemnifying Party shall not, without the
Indemnitees' written consent, settle or compromise any Asserted Liability or
consent to entry of any judgment which does not include an unconditional release
of the Indemnitee from all liability in respect of such Asserted Liability. In
any event, the Indemnitee and the Indemnifying Party may participate, at their
own expense, in the contest of such Asserted Liability. If the Indemnifying
Party chooses to contest any Asserted Liability, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for, shall make its officers and
employees available, on a basis reasonably consistent with their other duties,
in connection with, and shall otherwise cooperate with, such defense.
9.6 INDEMNITY CLAIMS.
(a) The representations, warranties, covenants and agreements contained
herein shall not be extinguished by the Closing but shall survive the
Closing, subject to the limitations set forth in Section 9.6(b) hereof with
respect to the time periods within which claims for indemnity must be
asserted.
(b) All claims for indemnification pursuant to this Agreement shall be
asserted no later than eighteen months after the Transition Date.
[*] CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
9.7 SUBROGATION. The Indemnifying Party shall be subrogated to any claims
or rights of the Indemnitee as against other persons with respect to amounts
paid by the Indemnifying Party under this Article IX. The Indemnitee shall
cooperate with the Indemnifying Party, at the Indemnifying Party's expense, in
the Indemnifying Party's assertion of such claims.
ARTICLE X
MEDIATION AND ARBITRATION OF DISPUTES
10.1 DISPUTE RESOLUTION.
(a) In the event of any dispute, claim, question or disagreement
arising out of or relating to this Agreement or a matter for which a
dispute resolution mechanism is specifically provided in this Agreement the
parties shall use reasonable efforts to settle such dispute, claim,
question or disagreement. To this effect, they shall consult and negotiate
with each other, in good faith, and, recognizing their mutual interests,
and attempt to reach a just and equitable solution satisfactory to both
parties.
(b) If the parties do not reach such a solution within a period of
thirty (30) days, then the parties agree first to endeavor in good faith to
amicably settle their dispute by mediation in accordance with the CPR Model
Procedure for Mediation of Business Disputes, promulgated by the Center for
Public Resources, New York City.
(c) If mediation is unsuccessful within a reasonable time after
commencement of proceedings as set forth above, but not less than thirty
(30) days thereafter, the mediator shall so certify and the dispute shall
be submitted to binding arbitration conducted in accordance with the CPR
Rules for Non-Administered Arbitration of Business Disputes. Any
controversy or dispute shall be arbitrated by a single arbitrator either
mutually agreed upon by the parties or, absent agreement, appointed in
accordance with the aforesaid CPR rules. No mediator under subsection (b),
above, may serve as an arbitrator. The arbitration shall be governed by
the United States Arbitration Act, 9 USC 1-16, and judgment upon the award
may be entered by any court having jurisdiction thereof. The arbitrator
shall have case management authority and shall resolve the controversy in a
final award within 180 days from commencement of the arbitration action.
All questions of arbitrability shall be resolved by the arbitrator
appointed pursuant to this clause. The prevailing party shall be entitled
to receive an award of attorney's fees incurred in connection with the
arbitration and judicial proceedings related thereto. There shall be no
appeal from the arbitral award, except for fraud committed by the
arbitrator(s) in carrying out his duties under the aforesaid rules;
otherwise the parties irrevocably waive their rights to judicial review of
any claim or controversy arising out of or related to this Agreement.
Unless otherwise agreed by MBNA and NOVA, the situs for dispute
resolution shall be Washington, D.C.
(e) In the event that the Center for Public Resources no longer
promulgates rules as set forth above, then the mediation or binding
arbitration shall be administered under the rules of the American
Arbitration Association or such other recognized rules for resolution of
disputes as MBNA and NOVA may mutually agree.
<PAGE>
ARTICLE XI
RULES OF INTERPRETATION
11.1 RULES OF INTERPRETATION.
(a) All terms defined herein shall have the defined meanings when used
in any Operative Document, certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. Singular terms shall
include the plural, and vice versa, unless the context otherwise requires.
(b) Exhibits and Schedules referenced in this Agreement are deemed to
be incorporated herein by reference. The term "including" shall mean
"including, without limitation."
ARTICLE XII
MISCELLANEOUS
12.1 EXPENSES. Except as otherwise specifically provided in this
Agreement, each party shall pay its own costs and expenses in connection with
this Agreement and the transactions contemplated hereby, including all
attorneys' fees, accounting fees and other expenses.
12.2 NOTICES AND PAYMENTS. All notices, demands and other communications
hereunder shall be in writing and shall be delivered (i) in person, (ii) by
United States mail, certified or registered, with return receipt requested, or
(iii) by national overnight courier (e.g., FedEx) as follows:
If to MBNA: MBNA America Bank, N.A.
1100 North King Street
Wilmington, Delaware 19884-0973
Attention: Leonard H. Kidwell
with a copy to: MBNA America Bank, N.A.
(which shall not 1100 North King Street
constitute notice) Wilmington, Delaware 19884-0124
Attention: Timothy Naughton
If to NOVA: NOVA Information Systems, Inc.
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: Chief Financial Officer
with copies to: NOVA Information Systems, Inc.
(which shall not One Concourse Parkway, Suite 300
constitute notice) Atlanta, Georgia 30328
Attention: Corporate Counsel
and
Long Aldridge & Norman LLP
SunTrust Plaza, One Peachtree Center
303 Peachtree Street, N.E., Suite 5300
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
<PAGE>
The persons or addresses to which mailings or deliveries shall be made may be
changed from time to time by notice given pursuant to the provisions of this
Section 12.2. Any notice, demand or other communication given pursuant to the
provisions of this Section 12.2 shall be deemed to have been given on the
earlier of the date actually delivered or five (5) days following the date
deposited in the United States mail, properly addressed, postage prepaid, as the
case may be.
12.3 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 MBNA and NOVA.
12.4 INDEPENDENT CONTRACTORS. Nothing contained in this Agreement or any
other Operative Document shall be construed as creating or constituting a
partnership, joint venture or agency among the parties to this Agreement.
Rather, the parties shall be deemed independent contractors with respect to each
other for all purposes.
12.5 SUCCESSORS AND ASSIGNS. All terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. This Agreement and the
rights, privileges, duties and obligations of the parties hereto may not be
assigned or delegated by any party without the prior written consent of the
other party; provided, however, that such consent shall not be required (a) for
the assignment by any party of its rights and privileges hereunder to a person
or entity controlling, controlled by or under common control with such party (it
being understood that no such assignment shall relieve the assigning party of
its duties or obligations hereunder and provided that the rights under the
Operative Documents shall not be held by more than one such entity), 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, provided that the assignee formally agrees in
writing to assume all the rights and obligations of the assigning party created
hereby and in the other Operative Documents.
12.6 AMENDMENTS AND WAIVERS. This Agreement, any of the instruments
referred to herein and any of the provisions hereof or thereof shall not be
amended, modified or waived in any fashion except by an instrument in writing
signed by the parties hereto. The waiver by a party of any breach of this
Agreement by the other party shall not be effective unless in writing, and no
such waiver shall operate or be construed as the waiver of the same or another
breach on a subsequent occasion.
12.7 SEVERABILITY OF PROVISIONS. If any provision of this Agreement, or
the application of any such provision to any person or circumstance, is invalid
or unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected by such invalidity or unenforceability.
12.8 COUNTERPARTS: DELIVERY. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one instrument.
The parties acknowledge that delivery of executed counterparts of this Agreement
may be effected by a facsimile transmission or other comparable means, with an
original document to be delivered promptly thereafter via overnight courier.
12.9 GOVERNING LAW. This Agreement is made and entered into under the
laws of the State of Delaware, and the laws of that State (without giving effect
to the principles of conflicts of laws thereof) shall govern the validity and
interpretation hereof and the performance by the parties hereto of their
respective duties and obligations hereunder.
<PAGE>
12.10 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
12.11 ENTIRE AGREEMENT. The making, execution and delivery of this
Agreement by the parties hereto have been induced by no representations,
statements, warranties or agreements other than those herein expressed. The
Operative Documents embody the entire understanding of the parties and supersede
in their entirety all prior communication, correspondence, and instruments,
including without limitation, the terms of that certain letter dated October 29,
1997 from Edward Grzedzinski to David Nelms, and there are no further or other
agreements or understandings, written or oral, in effect between the parties
relating to the subject matter hereof.
12.12 PUBLICITY. The timing and content of any and all public statements,
announcements or other publicity concerning the transactions contemplated herein
shall be mutually agreed upon by MBNA and NOVA, which agreement shall not be
unreasonably withheld by either party hereto.
12.13 SURVIVAL. The provisions of Sections 1.1(c), 1.2, 1.3, 1.5 4.1, 5.1,
and 5.6 and Articles III, VIII, IX, X and XII shall survive the termination of
this Agreement.
12.14 SPECIFIC PERFORMANCE. Notwithstanding the provisions of Article IX
hereof, the parties hereto acknowledge and agree that a remedy at law for
certain breaches of this Agreement would be inadequate and, therefore, agree
that the affected party shall be entitled to injunctive relief in addition to
any other rights and remedies available to in case of any breach or threatened
breach of Section 1.5, 4.1 or 5.1 of this Agreement, provided, however, that
nothing contained herein shall be construed as prohibiting any party from
pursuing any other rights and remedies available to it for any such breach or
threatened breach.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Merchant Asset Purchase Agreement as of the date written above.
"MBNA:"
MBNA AMERICA BANK, N.A.
Attest:
By: /s/ John W. Scheflen By: /s/ David W. Nelms
------------------------------ ------------------------------
Name: John W. Scheflen Name: David W. Nelms
---------------------------- ---------------------------
Title: Secretary Title: Vice Chairman
--------------------------- ---------------------------
[SEAL]
"NOVA:"
Attest: NOVA INFORMATION SYSTEMS, INC.
By: /s/ Carole A. Loftin By: /s/ James M. Bahin
------------------------------ ------------------------------
Name: Carole A. Loftin Name: James M. Bahin
---------------------------- ---------------------------
Title: Vice President & Title: Vice Chairman & CEO
--------------------------- ---------------------------
Corporate Counsel
---------------------------
[SEAL]
<PAGE>
EXHIBIT 11.1
NOVA CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
10-MONTH
PERIOD ENDED
DECEMBER 31,
1995
-----------
<S> <C>
Weighted average Common Stock outstanding during the period.......... $26,932,029
Dilutive effect of common stock equivalents.......................... 1,671,743
-----------
Total........................................................... 28,603,772
Net income........................................................... $ 7,267,000
Less: Preferred Stock dividends...................................... 229,677
-----------
Net income available for Common Stock and common stock equivalents... $ 7,037,323
===========
Per share amount..................................................... $ 0.25
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended Year ended 10-month period ended
December 31, December 31, December 31,(a)
---------------------------------------------------
(In thousands) 1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Revenues $ 335,625 $ 265,829 $129,035
Operating income $ 28,362 $ 11,905 $ 2,789
Net income $ 17,385 $ 7,267 $ 4,887(b)
Net income per share -
assuming dilution $ 0.58 $ 0.25 $0.24(b)
Total assets $ 170,528 $ 107,705 $ 61,001
Total long-term debt $ 33,646 $ 1,366 $ 22,922
Total shareholders' equity $ 102,937 $ 84,882 $ 26,017
</TABLE>
FINANCIAL HIGHLIGHTS
[GRAPH] [GRAPH] [GRAPH] [GRAPH]
Total Revenues Net Income Net Income per Share Operating Income
(In thousands) (In thousands) (In thousands)
95 $ 129,035 95 $ 4,887 95 $0.24 95 $ 2,789
96 $ 265,829 96 $ 7,267 96 $0.25 96 $11,905
97 $ 335,625 97 $17,385 97 $0.58 97 $28,362
---------------------------------------------------------------------------
(a) The Company changed its fiscal year from the last day of February to
December 31, effective December 31, 1995.
(b) Includes a one-time tax benefit of $5 million or $0.28 per share.
<PAGE>
INDEX TO FINANCIALS
Selected Consolidated Financial Data 16
Management's Discussion and Analysis of Financial Condition &
Results of Operations 17
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Shareholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Report of Independent Auditors 45
<PAGE>
Selected Consolidated Financial and Other Data
The following table sets forth selected consolidated financial and other data
for the Company as of and for the years ended December 31, 1997 and 1996, the
10-month period ended December 31, 1995 and the years ended February 28, 1995
and 1994. The selected consolidated financial data have been derived from the
Company's Consolidated Financial Statements and notes thereto, which have been
audited by Ernst & Young LLP, independent auditors. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto appearing elsewhere in this Annual Report. The Company changed
its fiscal year-end from the last day of February to December 31, effective
December 31, 1995. For financial reporting purposes, the 10-month period ended
December 31, 1995, is considered an annual period.
<TABLE>
<CAPTION>
10-month
Years ended period ended Year ended
December 31, December 31, February 28,
----------------------------- ------------- -----------------------------------
(in thousands, except per share and
merchant location data) 1997 1996 1995(1) 1995 1994
----------------------------- ------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 335,625 $ 265,829 $ 129,035 $ 93,592 $ 68,213
Cost of service 260,058 207,595 100,375 74,032 54,984
Conversion costs 2,595 6,395 3,441 1,827 2,080
Selling, general and administrative 33,952 32,952 17,795 14,091 12,419
Depreciation and amortization 10,658 6,982 4,635 3,887 2,661
----------------------------- ------------- -----------------------------------
Operating income (loss) 28,362 11,905 2,789 (245) (3,931)
Interest expense (income), net (721) (126) 1,959 968 211
Minority interest in income of subsidiary 776 -- -- -- --
----------------------------- ------------- -----------------------------------
Income (loss) before provision for
income taxes 28,307 12,031 830 (1,213) (4,142)
Provision (benefit) for income taxes 10,922 4,764 (4,057) -- --
----------------------------- ------------- -----------------------------------
Net income (loss)(2) $ 17,385 $ 7,267 $ 4,887 $ (1,213) $ (4,142)
Net income (loss) per common share(3) $ 0.60 $ 0.25 $ 0.24 $ (0.13) --
Net income (loss) per common share -
assuming dilution(3) $ 0.58 $ 0.25 $ 0.24 $ (0.13) --
Other Data:
Merchant sales volume processed $ 14,980,287 $ 11,925,126 $ 5,975,013 $ 4,131,071 $ 2,871,793
Merchant locations at period end 152,456 82,906 77,884 43,980 24,838
Balance Sheet Data (at period end):
Total assets $ 170,528 $ 107,705 $ 61,001 $ 47,823 $ 26,437
Long-term debt and capital lease
obligations, less current portion 33,296 859 17,738 16,694 1,950
Total shareholders' equity 102,937 84,882 26,017 18,719 18,783
</TABLE>
(1) Revenues and net income for the 12 months ended December 31, 1995, were
$147.8 million and $3.6 million, respectively.
(2) Net income for the 10-month period ended December 31, 1995, reflects the
reduction of valuation allowance against deferred taxes of $5.0 million, the
benefits of which have been recognized in the provision for income taxes.
See Note 4 to the Company's Consolidated Financial Statements.
(3) Pro forma prior to May 8, 1996. See Note 11 to the Company's Consolidated
Financial Statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS
OVERVIEW
The Company's predecessor, NOVA Information Systems, Inc., was formed in
February 1991 to provide sophisticated and cost-effective transaction
processing and related services to predominantly small- to medium-sized
merchants by effectively employing the latest advances in transaction
processing and telecommunications technology.
Since inception, the Company has invested significant capital to develop an
integrated operating platform consisting of hardware, software and network
architecture to process large volumes of card transactions. In addition, the
Company continues to develop the marketing, customer support and managerial
expertise necessary to execute its business strategy. Through the fiscal year
ended February 28, 1995, the Company incurred losses, as the expenditures for
the development of this infrastructure and the cost to convert purchased
portfolios, combined with the cost of providing service, exceeded revenues from
its merchant portfolio. The Company's ongoing expansion of its customer base
resulted in the Company achieving profitability for the first time in the
10-month period ended December 31, 1995.
The Company has increased its customer base through a combination of its own
marketing programs and through a series of merchant portfolio purchases, joint
ventures and alliances that have produced significant additional revenue in
each year since formation. Since its inception in 1991, the Company has
consummated 90 transactions consisting of 84 merchant portfolio purchases,
three operating business acquisitions, two joint ventures and the First Union
Alliance.
On January 21, 1998, the Company consummated a transaction (the "KeyBank
Joint Venture") with KeyBank National Association ("KeyBank") pursuant to which
the Company will provide transaction processing services to, and jointly own
and operate with KeyBank, a newly created limited liability company called Key
Merchant Services, LLC ("KMS"). The KeyBank Joint Venture, on the basis of
anticipated processed volume, is the largest transaction in the Company's
history as it is expected to add approximately $5.1 billion in annualized
credit and debit card volume to the Company's operating platform. KMS will
market transaction processing services with its own employees throughout the
U.S.A. Further, KeyBank will market and promote, on an exclusive basis,
transaction processing services on behalf of KMS through KeyBank's bank branch
locations. The Company owns a 51% interest in KMS.
On December 30, 1997, the Company consummated a transaction (the "MBNA
Alliance") with MBNA America Bank, N.A. ("MBNA") pursuant to which the Company
purchased substantially all of MBNA's merchant portfolio. MBNA also agreed to
cooperate with the Company in marketing the Company's merchant transaction
processing services and referring exclusively to the Company all merchants,
trade associations, financial institutions, independent sales organizations
("ISOs") and other organizations that request or evidence an interest in
merchant transaction processing services. The Company estimates that the MBNA
portfolio will add approximately $1.0 billion in annualized credit and debit
card transaction processing volume.
Effective October 31, 1997, the Company consummated a transaction (the
"Firstar Joint Venture") with Firstar Bank, U.S.A., N.A. ("Firstar") and
Firstar Bank Milwaukee, N.A., pursuant to which the Company will provide
payment processing services to, and jointly own and operate with Firstar, a
newly created limited liability company called Elan Merchant Services, LLC. In
connection with the Firstar Joint Venture, Firstar and each of the other
banking affiliates of Firstar contributed substantially all of their then
existing bankcard payment processing contracts (representing approximately $3.0
billion in annualized
<PAGE>
credit and debit card volume) to Elan Merchant Services. Further, Firstar will
market and promote, on an exclusive basis, transaction processing services on
behalf of Elan Merchant Services directly and through a network of over 850
correspondent financial institutions. The Company owns a 51% interest in Elan
Merchant Services.
On May 29, 1997, the Company consummated the purchase of the Crestar Bank
merchant portfolio. The Company estimates that the Crestar portfolio will add
approximately $1.8 billion in annualized credit and debit card transaction
processing volume to the Company's network. In addition, NOVA and Crestar Bank
will market and promote, on an exclusive basis, the Company's transaction
processing services through Crestar Bank's approximately 500 branch bank
locations.
The Company expects each of these transactions to provide significant
strategic and financial benefits, including: (i) enhanced distribution channels
to facilitate growth of the Company's processed transaction volume and the
number of merchant locations served; (ii) further geographic diversification of
the Company's portfolio into additional regions of the United States; and (iii)
economies of scale from substantial increases in transaction processing volume
once merchant accounts and other services are fully integrated into the
Company's operating platform.
Historically, the Company has achieved savings through economies of scale
and operating efficiencies derived from the conversion and integration of its
purchased portfolios. The costs of these conversion activities are expensed as
incurred. As a result of the recent acquisition activity undertaken by the
Company, the magnitude, scope, timing, duration and expense of the conversion
of the KeyBank Joint Venture, the Firstar Joint Venture and the MBNA portfolio
purchase will, in the aggregate, be greater than any conversion previously
undertaken by the Company. Failure to complete these conversions in accordance
with management plans could have a material adverse effect on the Company's
financial condition and results of operations.
The Company changed its fiscal year end from the last day of February to
December 31, effective December 31, 1995. Accordingly, the following discussion
of results of operations includes a comparison of the year ended December 31,
1997, with the year ended December 31, 1996, and the year ended December 31,
1996, with the 10-month period ended December 31, 1995.
COMPONENTS OF REVENUES AND EXPENSES
Revenues
The Company derives revenues principally from processing credit, charge and
debit card transactions that are authorized and captured through the Company's
proprietary telecommunications network (the "NOVA Network") and through
third-party networks prior to conversion. The Company typically charges
merchants for these card processing services at a bundled rate that is a
percentage of the dollar amount of each transaction and, in some instances,
additional fees per transaction. These charges, referred to as "discount
fees,'' are individually negotiated with each merchant and, in the aggregate,
represented approximately 92.4%, 94.6% and 93.7% of the Company's revenues for
the years ended December 31, 1997 and 1996 and the 10-month period ended
December 31, 1995, respectively. Certain of the Company's merchant customers
are charged a flat fee per transaction, while others are also charged
miscellaneous fees, including fees assessed by the Company for handling
chargebacks, monthly minimums, equipment leases, rentals and sales, and other
miscellaneous services. The Company's revenues are reported net of amounts paid
to ISOs and agent banks under revenue sharing agreements pursuant to which such
parties receive payments based primarily on processing volume for particular
groups of merchants.
<PAGE>
Expenses
Cost of service includes all costs directly attributable to the Company's
provision of services to its merchant customers. The most significant component
of cost of service includes interchange and assessment fees, which are amounts
charged by the credit card associations for clearing services, advertising and
other expenses. Interchange and assessment fees are billed primarily as a
percent of dollar volume processed and, to a lesser extent, as a
per-transaction fee. Cost of service also includes charges paid to third
parties for point-of-sale ("POS") network service (for merchant customers
acquired but not yet converted to the NOVA Network), merchant accounting and
settlement fees paid to third-party vendors, cost of equipment leased, rented
or sold, NOVA Network costs and other operating expenses.
Conversion costs include costs incurred to convert the acquired portfolios
to the NOVA Network and operating systems. These costs include expenses related
to reprogramming POS terminals at merchant locations, duplicate costs to
process transactions prior to conversion, unfavorable contract payments for
transaction authorizations and independent contractor fees.
Selling, general and administrative expenses include salaries, commissions and
benefits, travel and entertainment, telephone, and other operating costs of the
Company's operations and marketing centers and its corporate office.
Depreciation and amortization are related to the Company's capital
expenditures, merchant portfolio purchases and business acquisitions.
Depreciation of property and equipment is recognized on a straight-line basis
over periods of three to seven years for equipment and 30 years for buildings.
Merchant portfolio purchases result in the capitalization of merchant and
customer contract values, which are amortized over 10 years based upon the
Company's merchant attrition experience and projected revenue streams. Excess
cost of businesses acquired is amortized over 30 years.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items on the Company's consolidated statements
of operations:
Percentage of Total Revenues
<TABLE>
<CAPTION>
Years ended 10-month period
December 31, ended December 31,
---------------- ------------------
1997 1996 1995
---------------- ------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of service 77.5 78.1 77.8
Conversion costs 0.8 2.4 2.7
Selling, general and administrative 10.1 12.4 13.8
Depreciation and amortization 3.2 2.6 3.6
Operating income 8.4 4.5 2.1
Interest (income) expense, net (0.2) - 1.5
Minority interest in income of subsidiary 0.2 - -
Income before provision for income taxes 8.4 4.5 0.6
Provision (benefit) for income taxes 3.2 1.8 (3.1)
Net income 5.2% 2.7% 3.7%
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH
YEAR ENDED DECEMBER 31, 1996
Revenues
Revenues increased 26.3% to $335.6 million for the year ended December 31,
1997, compared with $265.8 million for the same period in 1996. The increase
resulted from a 25.6% increase in merchant sales volume processed to $15.0
billion for 1997, compared to $11.9 billion in 1996. Of these increases, $34.0
million in revenues and $1.5 billion in sales volume processed are attributable
to the Firstar Joint Venture and the Crestar portfolio purchase, with the
remainder resulting primarily from internal sales efforts and other bank
marketing relationships.
Cost of Service
Cost of service increased 25.3% to $260.1 million for the year ended
December 31, 1997, compared with $207.6 million for the same period in 1996.
The increase resulted from additional interchange and assessment fees and other
operating costs associated with the higher volume of merchant sales. Cost of
service as a percentage of revenues declined from 78.1% to 77.5%, reflecting
continuing cost efficiencies. These cost efficiencies result from
proportionately lower payments to third-party networks as fewer company
merchants utilize third-party networks and merchant accounting processors, as
well as increased economies of scale.
Conversion Costs
Conversion costs decreased 59.4% to $2.6 million for the year ended December
31, 1997, compared with $6.4 million for the same period in 1996. The decrease
resulted primarily from the substantial completion of the conversion of the
First Union Corporation portfolio in 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 3.0% to $34.0 million
for the year ended December 31, 1997, compared with $33.0 million for the same
period in 1996. Higher expenses in 1997 resulted from the addition of personnel
in the Company's operations center to support the increased merchant sales
volume processed. Additionally, sales and marketing expenses increased to
support the Company's growing number of merchants and bank marketing
relationships. Selling, general and administrative expenses declined to 10.1%
of revenues for the year ended December 31, 1997, compared with 12.4% for the
same period in 1996, reflecting operational efficiencies.
<PAGE>
Depreciation and Amortization
Depreciation and amortization increased 52.6% to $10.7 million for the year
ended December 31, 1997, compared with $7.0 million for the same period in
1996. This increase is attributable to increased depreciation from significant
investments in the Company's transaction processing network to expand capacity
and additional amortization from merchant portfolio purchases.
Operating Income
For the foregoing reasons, operating income for the year ended December 31,
1997, increased 138.3% to $28.4 million compared with $11.9 million for the
same period in 1996.
Interest Expense (Income) - Net
Net interest income increased to $721,000 for the year ended December 31, 1997,
compared with $126,000 for the same period in 1996. This increase relates to
lower average bank debt during 1997 than existed during 1996. The Company used
the net proceeds received from the initial public offering in May 1996 to reduce
the bank debt. Further, interest income was generated from the investment of the
remaining net proceeds of the offering and cash flow from operations.
Income Taxes
Income tax expense was recorded at an effective tax rate of 38.6% in fiscal
1997. Income tax expense increased to $10.9 million for the year ended December
31, 1997, compared to $4.8 million for the same period in 1996. This increase
resulted from increased pre-tax income.
Net Income
Net income increased $10.1 million to $17.4 million for the year ended
December 31, 1997, compared with net income of $7.3 million for the same period
in 1996, due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
10-MONTH PERIOD ENDED DECEMBER 31, 1995
Revenues
Revenues for the year ended December 31, 1996, increased 106.0% to $265.8
million compared with $129.0 million for the 10-month period ended December 31,
1995. The increase resulted primarily from a 99.6 %, or $5.9 billion, increase
in sales volume processed for the year to $11.9 billion from $6.0 billion in
1995. First Union's merchant processing portfolio, which was acquired effective
December 1, 1995, accounts for increases of $106.7 million in revenues and $4.6
billion in sales volume processed. Due to the Company's change in fiscal year
end, effective as of December 31, 1995, the Company's revenues in 1996 included
a full 12 months, as compared to the prior year's 10- month fiscal year.
Additionally, the Company entered into 17 exclusive bank marketing agreements
in 1996.
Cost of Service
NOVA's cost of service increased 106.8% to $207.6 million for the year ended
December 31, 1996, from $100.4 million for the 10-month period ended December
31, 1995. As a percentage of revenues, cost of service increased to 78.1% for
the year ended December 31, 1996, from 77.8% for the 10-month period ended
December 31, 1995. These increases resulted from additional interchange and
assessment fees associated with the higher volume of merchant sales and from
authorization fees paid to third- party networks and merchant accounting
processors for merchants not yet converted to the NOVA Network.
<PAGE>
Conversion Costs
Conversion costs increased 85.8% to $6.4 million for the year ended December
31, 1996, as compared with $3.4 million for the 10-month period ended December
31, 1995. The increase resulted primarily from the ongoing conversion of the
First Union portfolio, acquired in December 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 85.2% to $33.0
million in the year ended December 31, 1996 from $17.8 million for the 10-month
period ended December 31, 1995. Higher expenses in 1996 resulted from
additional staffing levels in the Company's operations center to support the
increased merchant sales volume processed, as well as a one-time cost involved
in consolidating three operational offices around the country to NOVA's
corporate headquarters and the Knoxville, Tennessee center. In addition, sales
and marketing expenses increased to support the Company's growing merchant and
bank alliance relationships. Selling, general and administrative expenses
decreased as a percent of revenues to 12.4% in 1996 from 13.8% in the prior
year, reflecting operating efficiencies.
Depreciation and Amortization
Depreciation and amortization increased 50.6% to $7.0 million for the year ended
December 31, 1996, from $4.6 million for the 10-month period ended December 31,
1995. The increase was principally due to greater depreciation for POS
terminals, additional systems hardware and software purchases to enhance the
Company's transaction processing system, as well as operational equipment needed
to support NOVA's growth. To a lesser extent, this expense increased due to
additional amortization of certain intangible assets related to the merchant
portfolios purchases.
Operating Income
For the foregoing reasons, operating income increased 326.9%, or $9.1
million, to $11.9 million for the year ended December 31, 1996, compared to
$2.8 million for the 10-month period ended December 31, 1995.
Interest Expense (Income) - Net
Net interest expense decreased $2.1 million for the year ended December 31,
1996, resulting in net interest income of $126,000, compared to net interest
expense of $2.0 million for the prior year. The decrease in interest expense
was due to reduced levels of bank debt and purchase note obligations resulting
from the use of net proceeds received from the Company's initial public
offering. The increase in interest income was generated from the investment of
the net proceeds received from the Company's initial public offering, as well
as cash generated from operating activities in 1996.
Income Taxes
Income tax expense was recorded at an effective tax rate of 40% in 1996.
During the 10-month period ended December 31, 1995, a one-time tax benefit of
$5.0 million was included in the provision for income tax reflecting the
reversal of a deferred tax valuation allowance as a result of the Company's
improved profitability in 1995.
Net Income
For the year ended December 31, 1996, net income increased $2.4 million, or
48.7%, to $7.3 million compared to $4.9 million for the 10-month period ended
December 31, 1995, due to the factors discussed above. Net income for 1995
included a one-time tax benefit of $5.0 million.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of its capital resources include purchases of
merchant portfolios, capital expenditures and working capital.
In October 1997, the Company obtained from a third party bank an $80 million
credit facility, the proceeds of which may be used for acquisitions (subject to
certain restrictions) and other corporate purposes. The Company, at its option
and subject to the satisfaction of certain conditions, may increase the
aggregate amount available on the credit facility to $100 million. As of
December 31, 1997, $32.8 million in borrowings were outstanding under this
facility.
Net cash provided by operating activities was $18.0 million for the year
ended December 31, 1997, as compared to $20.7 million for the year ended
December 31, 1996 and $4.9 million for the 10-month period ended December 31,
1995.
Net cash used in investing activities was $90.6 million for the year ended
December 31, 1997, as compared to $10.0 million for the year ended December 31,
1996 and $5.1 million for the 10-month period ended December 31, 1995. The
Company's investment expenditures primarily consist of merchant portfolio
purchases and investments in computer hardware and software necessary to
support the NOVA Network and the systems at the Company's operations center.
Other significant investment activities include facility expansions necessary
to accommodate the Company's growth. For the years ended December 31, 1997 and
1996, and the 10-month period ended December 31, 1995, the Company's capital
expenditures totaled approximately $15.2 million, $6.1 million and $1.6
million, respectively. For these same periods, merchant processing portfolio
purchases and joint venture investments totaled $75.4 million, $4.0 million and
$3.3 million, respectively.
Net cash provided by financing activities was $33.0 million and $28.9
million for the years ended December 31, 1997 and 1996, respectively. Net cash
provided in 1997 resulted from borrowings under the above credit agreement
which were used for investing activities. Net cash provided in 1996 resulted
primarily from the Company's initial public offering. The proceeds received
from this offering were used to reduce most of its then existing bank debt, to
redeem the 5,000 shares of Series D Preferred Stock for $5.0 million and to pay
all cumulative dividends of $11.7 million to holders of Preferred Stock
concurrent upon the liquidation of all series of Preferred Stock.
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 or longer. 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. Such
variations are particularly evident at December 31, 1997, in their effect on
trade receivables, which increased 119.1% over 1996, and accounts payable,
including accounts payable to affiliates, which, on a combined basis, increased
80.1% over 1996. Typically, the changes in these working capital accounts would
more closely follow changes in the level of processed volume, which from
December 1996 to December 1997 increased 69.9%. Because of the seasonality of
the Company's business, capital requirements may be greater in certain months.
The Company anticipates that it will incur approximately $20.0 million in
capital expenditures during 1998 for additional operations facilities and for
expansion of the Company's information systems. Such investments relate
directly to the recent portfolio purchases and joint venture investments
described above. The Company anticipates that it will incur substantially lower
capital expenditures in 1999. However, no assurances can be given that the
Company will not incur additional capital expenditures during 1998 and 1999.
The Company must address Year 2000 compliance for POS merchant activity,
internal operating systems and suppliers and vendors. In June of 1997, the
Company was certified by VISA U.S.A. and
<PAGE>
Mastercard International as capable of processing transactions for cards issued
with expiration dates of 2000 and beyond. This means all of the Company's
customers have been upgraded with compliant software, and the Company's network
and switch can accommodate the Year 2000.
The Company has developed a plan to ensure all internal systems are
compliant with the Year 2000. These efforts are well under way and are
scheduled to be completed by year end 1998. Significant outside vendors and
suppliers are also scheduled to be Year 2000 compliant by year end 1998.
However, while the Company 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 should any vendor not be compliant by January 1, 1999,
the Company will have sufficient time to switch their business to an entity
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.
In February 1998, the Company filed a Registration Statement with the
Securities and Exchange Commission with respect to a proposed public offering
of 7,100,000 shares of Common Stock. Of the shares to be offered, 5,300,000
shares will be sold by the Company and 1,800,000 shares will be sold by certain
selling shareholders. The Company intends to use the proceeds from the offering
to retire indebtedness, to finance potential future acquisitions, to fund
capital expenditures and for general corporate purposes.
The Company believes its existing cash and cash equivalents, cash generated
from operations, proceeds from the proposed public offering and available
credit facilities are sufficient to fund future merchant portfolio purchases,
capital investment needs and working capital requirements for the foreseeable
future.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
---------------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 739,000 $ 40,326,000
Trade receivables, less allowance for doubtful accounts
of $2,822,000 and $2,707,000 at December 31, 1997 and
December 31, 1996, respectively 35,377,000 16,147,000
Inventory 1,156,000 857,000
Deferred tax asset and
other current assets 5,373,000 3,160,000
------------ ------------
Total current assets 42,645,000 60,490,000
Merchant and customer contracts 92,197,000 21,868,000
Property and equipment, net 21,017,000 10,212,000
Excess cost of businesses acquired 12,805,000 13,301,000
Deferred tax asset and other non-current assets 1,864,000 1,834,000
------------ ------------
$ 170,528,000 $ 107,705,000
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 8,015,000 $ 4,810,000
Accounts payable to affiliate 3,410,000 1,534,000
Accrued compensation and related costs 726,000 1,416,000
Settlement obligations 10,896,000 7,691,000
Other accrued liabilities 7,010,000 5,157,000
Long-term debt obligations due within one year 350,000 507,000
------------ ------------
Total current liabilities 30,407,000 21,115,000
Deferred tax liability 3,112,000 849,000
Long-term debt obligations 33,296,000 859,000
Minority interest in subsidiary 776,000 --
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 29,031,000 and 28,721,000 shares issued at
December 31, 1997 and 1996, respectively 290,000 288,000
Additional paid in capital 99,967,000 99,299,000
Retained earnings (accumulated deficit) 2,680,000 (14,705,000)
------------ ------------
Total shareholders' equity 102,937,000 84,882,000
------------ ------------
$170,528,000 $107,705,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION> 10-month
Years ended period ended
December 31, December 31,
------------------------------ -------------
1997 1996 1995
------------------------------ -------------
<S> <C> <C> <C>
Revenues $ 335,625,000 $ 265,829,000 $ 129,035,000
Operating Expenses:
Cost of service 260,058,000 207,595,000 100,375,000
Conversion costs 2,595,000 6,395,000 3,441,000
Selling, general and administrative 33,952,000 32,952,000 17,795,000
Depreciation and amortization 10,658,000 6,982,000 4,635,000
-----------------------------------------------
Operating Income 28,362,000 11,905,000 2,789,000
Interest (income) expense, net (721,000) (126,000) 1,959,000
Minority interest in income of subsidiary 776,000 -- --
-----------------------------------------------
Income before provision for income taxes 28,307,000 12,031,000 830,000
Provision (benefit) for income taxes 10,922,000 4,764,000 (4,057,000)
------------------------------ -------------
Net Income $ 17,385,000 $ 7,267,000 $ 4,887,000
------------------------------ -------------
Net income per common share
(pro forma prior to May 8, 1996) $ 0.60 $ 0.25 $ 0.24
------------------------------ -------------
Net income per common share -
assuming dilution (pro forma
prior to May 8, 1996) $ 0.58 $ 0.25 $ 0.24
------------------------------ -------------
</TABLE>
See accompanying notes
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Retained Earnings
Additional (Accumulated Treasury
Preferred Stock Common Stock Paid-in Capital Deficit) Stock
---------------------- ----------------------- ------------- ------------- ----------
Shares Amount Shares Amount
---------------------- ----------------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1995 33,571 $ 33,571,000 1,792,000 $ 18,000 $ 301,000 $ (15,028,000) $ (143,000)
Retirement of
treasury stock -- -- (121,000) (1,000) -- (142,000) 143,000
Issuance of Common Stock in
a non-monetary transaction
with First Union -- -- 9,149,000 91,000 2,320,000 -- --
Issuance of Common Stock in
exchange for outstanding
warrants -- -- 558,000 6,000 (6,000) -- --
Net Income -- -- -- -- -- 4,887,000 --
---------------------------------------------------------------------------------------------
Balance at December 31, 1995 33,571 33,571,000 11,378,000 114,000 2,615,000 (10,283,000) --
Exchange of
Preferred Stock for
Common Stock (28,571) (28,571,000) 11,876,000 119,000 28,452,000 -- --
Redemption of Series D
Preferred Stock (5,000) (5,000,000) -- -- -- -- --
Payment of accrued dividends
on Preferred Stock -- -- -- -- -- (11,689,000) --
Exercise of stock options -- -- 1,674,000 17,000 1,965,000 -- --
Income tax benefit from
stock option exercises -- -- -- -- 977,000 -- --
Issuance of Common Stock
related to initial
public offering -- -- 3,793,000 38,000 72,038,000 -- --
Initial public offering expenses -- -- -- -- (6,748,000) -- --
Net Income -- -- -- -- -- 7,267,000 --
---------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- -- 28,721,000 288,000 99,299,000 (14,705,000) --
Exercise of stock options -- -- 310,000 2,000 668,000 -- --
Net Income -- -- -- -- -- 17,385,000 --
---------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- $ -- 29,031,000 $ 290,000 $ 99,967,000 $ 2,680,000 $ --
=============================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended 10-month period ended
December 31, December 31,
----------------------------- -------------
1997 1996 1995
----------------------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 17,385,000 $ 7,267,000 $ 4,887,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 10,658,000 6,982,000 4,635,000
Deferred income taxes 2,331,000 3,045,000 (4,057,000)
Loss on disposal of equipment 12,000 -- --
Minority interest 776,000 -- --
Gain on disposition of non-compete agreement -- (150,000) --
Changes in assets and liabilities, net of the effects of business
acquisitions:
Trade receivables (19,230,000) (6,079,000) (4,606,000)
Inventory (299,000) 223,000 (303,000)
Other assets (3,057,000) (84,000) (348,000)
Accounts payable 5,081,000 (719,000) 3,451,000
Accrued liabilities 4,368,000 10,242,000 1,260,000
------------------------------------------
Net cash provided by operating activities 18,025,000 20,727,000 4,919,000
Cash Flows from Investing Activities:
Purchases of merchant contracts (75,410,000) (3,967,000) (3,302,000)
Additions to property and equipment (15,152,000) (6,065,000) (1,624,000)
Other -- 64,000 (130,000)
------------------------------------------
Net cash used in investing activities (90,562,000) (9,968,000) (5,056,000)
Cash Flows from Financing Activities:
Proceeds from line of credit and notes payable, net 32,800,000 4,008,000 4,900,000
Payment of long-term debt and capital leases (520,000) (25,692,000) (5,129,000)
Payment of Preferred Stock dividends -- (11,689,000) --
Proceeds from stock options exercised 670,000 1,982,000 --
Proceeds from initial public offering, net -- 65,328,000 --
Redemption of Preferred Stock -- (5,000,000) --
Net cash provided by (used in) financing activities ------------------------------------------
32,950,000 28,937,000 (229,000)
------------------------------------------
(Decrease) Increase in Cash and Cash Equivalent (39,587,000) 39,696,000 (366,000)
Cash and Cash Equivalents, Beginning of Year 40,326,000 630,000 996,000
------------------------------------------
Cash and Cash Equivalents,
End of Year $ 739,000 $ 40,326,000 $ 630,000
==========================================
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
Summary of Significant Accounting Policies
Description of Business and Organization . 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, including VISA, MasterCard, American Express,
Discover, Diners Club and JCB, and also provides access to debit card processing
and check verification services. The Company provides merchants with a broad
range of transaction processing services, including authorizing card
transactions at the point-of-sale ("POS"), capturing and transmitting
transaction data, effecting the settlement of payments and assisting merchants
in resolving billing disputes with their customers.
NOVA Corporation was incorporated in December 1995. NOVA Information Systems,
Inc., a wholly owned subsidiary and predecessor to the Company ("NOVA
Information Systems''), was incorporated in Georgia in February 1991. Effective
December 1, 1995, the then current shareholders of NOVA Information Systems
contributed to NOVA Corporation all of the shares of capital stock of NOVA
Information Systems owned by them, thereby causing NOVA Information Systems to
become a wholly owned subsidiary of NOVA Corporation .
On October 30, 1995, NOVA entered into an agreement with First Union
Corporation ("First Union") whereby First Union agreed to contribute its
transaction processing assets, including those acquired by First Union through
its acquisition of First Fidelity Bancorporation, to NOVA in exchange for
9,149,209 shares of NOVA's Common Stock. The transaction, which was consummated
on January 31, 1996, is reflected in the accompanying financial statements
since December 1, 1995, because, pursuant to the terms of the agreement,
revenues since December 1, 1995, derived from the First Union assets have
irrevocably accrued to the benefit of NOVA. The transfer of these nonmonetary
assets, primarily terminals at merchant locations, by First Union has been
accounted for at their historical cost of $2,411,000, because First Union is
deemed under the rules and regulations of the Securities and Exchange
Commission to be a promoter of NOVA.
Principles of Consolidation . The consolidated financial statements include the
accounts of NOVA Corporation and its wholly owned subsidiaries as if NOVA
Corporation existed for all periods presented. Also included in the consolidated
financial statements are the accounts of Elan Merchant Services, LLC, a joint
venture owned 51% by the Company. The operating results from the joint venture
are included from the date the Company purchased its membership interest,
October 31, 1997. All significant intercompany accounts and transactions have
been eliminated in consolidation. The Company has made business and customer
base purchases and has accounted for them as purchase transactions, and,
accordingly, the results of the acquired businesses or customer bases are
included since the dates of purchase.
Use of Estimates in the Preparation of Financial Statements . In preparing
financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Revenue and Cost Recognition . Revenues derived from the electronic processing
of transactions (principally merchant discount) are recognized at the time the
merchants' transactions are processed. Related commissions and processing
charges are also recognized at that time.
When the Company purchases merchant portfolios, it generally enters into
revenue sharing agreements with sellers. The revenue sharing amounts are
determined primarily based on sales volume processed for a particular group of
merchants. The revenue sharing agreements generally have an initial term of at
least three years with renewal provisions. Revenue is shown in the accompanying
statements of operations, net of revenue sharing amounts of $8,153,000,
$6,455,000 and $5,446,000, for the years ended December 31, 1997 and 1996 and
the 10-month period ended December 31, 1995, respectively.
Cost of service includes interchange fees paid to the credit card issuing-
bank, communications costs, VISA and MasterCard assessments, and merchant
accounting processing fees. These costs are recognized at the time the
merchants' transactions are processed and the related revenue is recorded.
Rental Equipment . The Company rents POS equipment to merchants under month-to-
month agreements. The rented equipment is capitalized and depreciated over three
years. The cost of such equipment and accumulated depreciation at December 31,
1997, and December 31, 1996, included in property and equipment were as follows:
December 31,
---------------------------
1997 1996
---------------------------
Cost of equipment $ 6,715,000 $ 5,796,000
Less accumulated depreciation 4,490,000 2,939,000
----------- -----------
$ 2,225,000 $ 2,857,000
=========== ===========
Accounts Receivable . Accounts receivable are primarily comprised of amounts due
from the Company's clearing and settlement banks and represent the discount
earned, after related interchange fees on transactions processed during the
month ending on the balance sheet date. Such balances are received from the
Company's clearing and settlement banks approximately 15 days following the end
of each month.
The Company's merchant customers have liability for charges disputed by
cardholders. However, in the case of merchant insolvency, bankruptcy or other
nonpayment, the Company may be liable for any of such charges disputed by
cardholders. The Company believes that the diversification of its merchant
portfolio among industries and geographic regions minimizes its risk of loss.
Based on its historical loss experience, the Company has established reserves
for estimated credit losses on transactions processed.
Stock Compensation . The Company accounts for its stock option plans in
accordance with Accounting Principles Board Opinion Number 25, "Accounting for
Stock Issued to Employees'' ("APB 25''). In accordance with APB 25, no
compensation expense has been recognized because the options had an exercise
price equal to the market value of Common Stock on the day of grant. Refer to
Note 10 regarding pro forma information provided pursuant to Financial
Accounting Standards Board (FASB) Statement No. 123, "Accounting for Stock-Based
Compensation."
<PAGE>
Inventory . Inventory, which consists of electronic POS equipment, held for sale
or rental to merchants, is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Conversion Costs . The cost of converting purchased merchant portfolios from the
seller's processing platform and telecommunications network to the Company's
network is expensed as incurred.
Property and Equipment . Property and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method for financial reporting purposes and primarily accelerated methods for
tax purposes. For financial reporting purposes, equipment is depreciated over
three to seven years and buildings are depreciated over 30 years. Leasehold
improvements and property acquired under capital leases are amortized over the
useful life of the asset or the lease term, whichever is shorter. The Company
capitalizes costs associated with the development of software for the Company's
internal use. Such costs are depreciated over the useful life of the software of
up to seven years.
Intangibles . The excess cost of businesses acquired is amortized on the
straight-line basis over 30 years. Accumulated amortization at December 31, 1997
and 1996 was $2,048,000 and $1,552,000, respectively.
Amortization of merchant and customer contracts (portfolios) is provided on
a straight-line basis over a 10-year life, based on the Company's estimates of
future merchant sales volumes. Accumulated amortization of portfolios was
$13,255,000 and $8,174,000 at December 31, 1997 and 1996, respectively. The
Company evaluates the reasonableness of the amortization period for its
portfolios by monitoring the merchant sales volume processed for those
merchants included in the portfolio at the purchase date. The Company will
adjust the amortization period of the portfolios if actual merchant sales
volumes indicate a different amortization period is more appropriate.
Management periodically evaluates intangibles for indications of impairment
based on the operating results of the related business or merchant portfolio
purchased. If this evaluation indicates that the intangible asset will not be
recoverable, as determined based on the undiscounted cash flows related to the
intangible asset over the remaining life of the asset, the carrying value of
the related intangible asset will be reduced to fair value.
The Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets
to be Disposed Of'' ("SFAS 121") on January 1, 1996. The adoption of SFAS 121
did not have any effect on the financial statements.
Income Taxes . The Company accounts for income taxes under the liability method.
Under the liability method, deferred income taxes are recorded to reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting and the amounts used for income tax
purposes.
Settlement Obligations . Settlement obligations result from timing differences
in the Company's settlement processes with merchants.
Cash and Cash Equivalents . For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
<PAGE>
Net Income per Share . In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced 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.
NOTE 2
Merchant Portfolio Purchases and Business Acquisitions
During the years ended December 31, 1997 and 1996, and the 10-month period
ended December 31, 1995, the Company made purchases from various banks and
third parties, including investments in a joint venture, for an aggregate
purchase price of $75,660,000, $4,095,000 and $3,476,000, respectively.
Significant 1997 transactions include purchases of the Crestar Bank
("Crestar") merchant portfolio effective May 29, 1997 and the MBNA America
Bank, N.A. ("MBNA") merchant portfolio effective December 31, 1997. The Company
also entered into a joint venture with Firstar Bank, U.S.A., N.A. ("Firstar")
effective October 31, 1997, whereby Firstar and each of the other banking
affiliates of Firstar contributed substantially all merchant portfolio
contracts to the joint venture. The Company owns 51% of the joint venture and
will perform the transaction processing services for the joint venture's
merchant contracts. Estimated annual processing volume for the Crestar, MBNA
and Firstar merchant contracts are $1.8 billion, $1.0 billion and $3.0 billion,
respectively. The Company's operating results reflect each of these purchases
from the effective dates of the transactions.
The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed resulting from the
acquisitions:
December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Current assets $ - $ - $ 157,000
Property and equipment - - 15,000
Non-compete agreement 250,000 128,000 330,000
Excess cost of businesses acquired - - 354,000
Merchant contracts 75,410,000 3,967,000 2,620,000
75,660,000 4,095,000 3,476,000
Liabilities assumed - - -
Notes payable to seller - 128,000 174,000
Net cash paid $75,660,000 $ 3,967,000 $ 3,302,000
<PAGE>
(Note 3)
Property and Equipment
Property and equipment at December 31, 1997 and 1996 consist of:
December 31,
----------------------------
1997 1996
----------------------------
Land and building $ 744,000 $ 614,000
Equipment 20,641,000 13,179,000
Software, internally developed 4,125,000 68,000
Furniture and fixtures 1,934,000 1,394,000
Leasehold improvements 1,375,000 1,129,000
Work-in-progress 2,701,000 --
31,520,000 16,384,000
Less accumulated depreciation and amortization (10,503,000) (6,172,000)
$ 21,017,000 $ 10,212,000
Note 4
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
December 31,
----------------------------
1997 1996
----------------------------
Deferred Tax Liabilities:
Property and equipment $ 2,576,000 $ 426,000
Tax over book amortization -- 22,000
Other 540,000 411,000
Total deferred tax liabilities 3,116,000 859,000
Deferred Tax Assets:
Start-up expenses 4,000 10,000
Allowance for doubtful accounts 1,590,000 1,348,000
Accrued liabilities 761,000 305,000
Book over tax amortization 121,000 --
Credit carryforwards -- 39,000
Net operating loss carryforwards -- 848,000
Total deferred tax assets 2,476,000 2,550,000
Net deferred taxes $ (640,000) $ 1,691,000
<PAGE>
In the 10-month period ended December 31, 1995, there was a $5,206,000
change in the valuation allowance which resulted in a reduction of the excess
cost of business acquired of $228,000 as a result of deductible temporary
differences acquired in businesses combinations. The remainder of $4,978,000
was included in the provision for income taxes. In assessing the likelihood of
utilization of existing net deferred tax assets, management considered (a) its
current operating environment, (b) results of future operations to generate
sufficient taxable income and (c) the excess of its appreciated asset values
over the related tax basis and, accordingly, has determined that it is more
likely than not that the deferred tax assets will be realized.
The components of the provision (benefit) for income taxes are as follows:
Years ended 10-month period ended
December 31, December 31
------------------------- ---------------------
1997 1996 1995
------------------------- ---------------------
Current:
Federal $ 7,922,000 $ 1,541,000 $ -
State 669,000 178,000 -
Deferred:
Federal 2,149,000 2,638,000 871,000
State 182,000 407,000 50,000
Change in valuation allowance - - (4,978,000)
----------- ----------- ------------
$10,922,000 $ 4,764,000 $(4,057,000)
=========== =========== ============
The provision (benefit) for income taxes differs from the amount computed by
applying the federal statutory rate to income before provision for income taxes
for the following reasons:
Years ended 10-month period ended
December 31, December 31
------------------------- ---------------------
1997 1996 1995
------------------------- ---------------------
Provision for income taxes at
statutory rate $ 9,907,000 $ 4,211,000 $ 282,000
Amortization of excess cost of
businesses acquired 57,000 57,000 48,000
Change in valuation allowance - - (4,978,000)
State income taxes, net of
federal tax benefit 494,000 381,000 33,000
Other 464,000 115,000 558,000
----------- ----------- ------------
$10,922,000 $ 4,764,000 $ (4,057,000)
=========== =========== ============
<PAGE>
NOTE 5
Capitalization
Preferred Stock . The Company is authorized to issue 5,000,000 shares of
Preferred Stock in one or more series with such designations, powers,
preferences, rights, qualifications, limitations and restrictions as may be
fixed by the Board of Directors.
On May 8, 1996, upon consummation of the Company's initial public offering,
the Series A, B and C Preferred Stock totaling 28,571 shares were converted
into 11,876,218 shares of Common Stock. In addition, the Company redeemed the
5,000 shares of Series D Preferred Stock for $5,000,000 on May 8, 1996.
Cumulative dividends of $11,689,000 were paid to holders of Preferred Stock
concurrent upon the liquidation of all series of Preferred Stock.
Effective December 1, 1995, all outstanding warrants held by two principal
investors to purchase 1,177,600 shares of Common Stock at prices from $2.34 -
$8.20 per share were exchanged for 557,616 shares of the Company's Common Stock.
The fair value of the shares issued in exchange for the warrants was based upon
the value of the shares inherent in the First Union transaction, which
approximated market value. No compensation or distributions were recorded with
respect to the exchange.
NOTE 6
Long-Term Debt Obligations
Long-term debt obligations at December 31, 1997 and 1996 consist of:
December 31,
--------------------------
1997 1996
--------------------------
Revolving loans due September 30, 2002 $ 32,800,000 $ -
Non-compete payable to The Bank of
Boulder, discounted at an effective rate
of 9% and due in equal annual
installments of $180,000 through 1999 320,000 459,000
Other 94,000 182,000
Capital lease obligations (Note 7) 432,000 725,000
Total long-term debt obligations 33,646,000 1,366,000
Less amounts due within one year 350,000 507,000
Long-term debt obligations $ 33,296,000 $ 859,000
The annual aggregate maturities of long-term obligations, excluding capital
lease obligations, at December 31, 1997, are as follows:
1998 $ 247,000
1999 167,000
2000 -
2001 -
2002 32,800,000
$ 33,214,000
<PAGE>
In October 1997, the Company entered into an agreement with a bank for
aggregate loans of up to $80 million. The Company, at its option and subject to
the satisfaction of certain conditions, may increase the aggregate amount
available on the credit facility to $100 million. On September 30, 2000, all
outstanding borrowings in excess of $50 million convert to term loans due in
eight equal quarterly installments commencing December 31, 2000 and ending
September 30, 2002. All outstanding borrowings under the then remaining $50
million revolving loan commitment are due September 30, 2002.
The Company pays a quarterly commitment fee in arrears on the average daily
unused portion of the funds available for revolving loans and letters of
credit. This commitment fee ranges from .125% to .200% depending on certain
financial ratios. The Company also pays commitment fees for outstanding letters
of credit. Such fees range from .35% to .65% depending on certain financial
ratios. Interest on outstanding borrowings is charged using, at the Company's
option, either the bank's base rate, as defined, or the prevailing Eurodollar
rate plus a margin determined from certain financial ratios. At December 31,
1997, outstanding borrowings included $22.8 million at the bank's base rate of
8.5% and $10.0 million in Eurodollar-based loans at a weighted-average rate of
6.2%. Concurrent with entering the above credit agreement, the Company
cancelled its previous credit facility, which had available borrowings of $10.0
million. There were no borrowings outstanding under the previous facility at
the date of cancellation.
Borrowings under the loan agreement are collateralized by substantially all
the assets of the Company. The loan agreement contains restrictive covenants
which include, among other items, maintenance of specified ratios of EBITDA
(earnings before interest, taxes, depreciation and amortization) to fixed
charges and funded debt and restrictions on the payment of dividends.
NOTE 7
Lease Obligations
The Company leases office facilities and equipment under non-cancelable
capital lease agreements.
The Company also has entered into non-cancelable operating leases covering
certain other equipment and office facilities. Rental expense for the years
ended December 31, 1997 and 1996 and the 10-month period ended December 31,
1995, was approximately $1,454,000, $912,000 and $509,000, respectively.
Asset balances for property acquired under capital leases included in
property and equipment consist of:
December 31,
----------------------------
1997 1996
----------------------------
Building $ 273,000 $ 273,000
Equipment 1,658,000 1,658,000
1,931,000 1,931,000
Less accumulated depreciation 1,468,000 1,409,000
$ 463,000 $ 522,000
<PAGE>
Future minimum lease payments for all non-cancelable leases at December 31,
1997, are summarized below:
Operating Leases Capital Leases
---------------- --------------
Year ending December 31,
1998 $ 1,434,000 $ 159,000
1999 1,163,000 151,000
2000 1,081,000 95,000
2001 926,000 70,000
2002 157,000 70,000
Thereafter - 45,000
Total future minimum lease payments $ 4,761,000 $ 590,000
Less amount representing interest 158,000
Present value of minimum lease payments 432,000
Less amounts due within one year 103,000
Long-term obligations under capital leases $ 329,000
NOTE 8
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 pending matters will not have a material effect on the
Company's financial position and results of operations.
NOTE 9
Supplemental Cash Flow Information
Supplemental cash flow disclosures, including non-cash investing and
financing activities, are:
<TABLE>
<CAPTION>
Years ended 10-month period ended
December 31, December 31,
------------------------ ---------------------
1997 1996 1995
------------------------ ---------------------
<S> <C> <C> <C>
Interest paid $ 300,000 $ 1,178,000 $ 2,251,000
Income taxes paid 10,350,000 230,000 -
Acquisition of equipment in exchange for
debt or capital leases - - 383,000
Note payable issued in conjunction with
business acquisition - 128,000 174,000
Transfer of transaction processing assets,
primarily terminals at merchant locations,
in exchange for Common Stock - - 2,411,000
</TABLE>
<PAGE>
NOTE 10
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model, with the following weighted-average
assumptions for 1997: risk-free interest rate of 5.70%; a dividend yield of 0%;
volatility factors of the expected market price of the Company's Common Stock
of 0.544 and a weighted-average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1997 1996
---------------------------
Pro forma net income $ 16,245,000 $ 6,824,000
Pro forma net income per share 0.56 0.23
Pro forma net income per share - assuming dilution 0.54 0.23
The effect of applying Statement 123's fair value method to the Company's
stock-based awards granted in 1995 results in net income and earnings per share
that are not materially different from amounts reported because the Company
elected to use the minimum value method allowed under Statement 123 for
non-public companies. Because Statement 123 is applicable only to options
granted subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
<PAGE>
A description and summary of the Company's stock option plans and activity
follows:
The Company has reserved 3,100,000 common shares related to options and
550,000 shares related to stock appreciation rights, pursuant to its 1991 stock
option and stock appreciation rights plan. The Plan is administered by a
committee of the Board of Directors, which determines the number of shares to
be granted and the option price per share. Each option expires 10 years from
the grant date. The options may be exercised in 20% increments annually,
beginning on March 1 following the date of grant. No options or rights shall be
granted under the Plan after November 2, 2001. No appreciation rights have been
granted.
A summary of the Company's stock option activity under the 1991 Plan, and
related information, follows:
Weighted-Average
Number of Options Exercise Price
----------------- ----------------
Balance at February 28, 1995 2,872,189 1.18
Granted 64,000 2.34
Terminated (24,320) 1.18
Balance at December 31, 1995 2,911,869 1.21
Terminated (31,029) 1.18
Exercised (1,673,432) 1.18
Balance at December 31, 1996 1,207,408 1.24
Terminated (20,736) 1.47
Exercised (289,673) 1.25
Balance at December 31, 1997 896,999 1.18
Exercisable at December 31, 1997 710,139 1.18
Exercise prices for options outstanding as of December 31, 1997, ranged from
$1.18 to $2.34. The weighted-average remaining contractual life of those
options is 6.4 years.
The Company has reserved 2,000,000 shares of Common Stock for issuance under
the 1996 Employees Stock Incentive Plan related to Incentive Stock Options,
Non-qualified Stock Options, stock appreciation rights and restricted stock
awards. The shares subject to options can be purchased, and rights exercised,
in 25% increments at the end of each of the four years subsequent to the date
of grant. The option price per share for Incentive Stock Options cannot be less
than the fair market value of the Common Stock on the date the option is
granted. Each option expires 10 years after the date of grant.
<PAGE>
A summary of the Company's stock option activity under the 1996 Employees
Plan, and related information, follows:
Weighted-Average
Number of Options Exercise Price
----------------- ----------------
Balance at December 31, 1995 -
Granted 666,890 $ 19.51
Terminated (57,420) 25.57
Balance at December 31, 1996 609,470 18.94
Granted 504,090 13.74
Terminated (118,202) 17.53
Exercised (33,054) 18.99
Balance at December 31, 1997 962,304 16.37
Exercisable at December 31, 1997 111,475 18.93
Weighted-average fair value of options
granted during 1996 13.46
Weighted-average fair value of options
granted during 1997 8.49
Exercise prices for options outstanding as of December 31, 1997, ranged from
$13.63 to $19.00. The weighted-average remaining contractual life of those
options is 8.8 years.
On October 17, 1996, the Company adopted the NOVA Corporation 1996 Directors
Stock Option Plan, and reserved 150,000 shares of Common Stock for issuance
pursuant to this plan. Stock options granted under this plan are exercisable in
25% increments at the end of each of the four years subsequent to the date of
grant. Options are granted at a purchase price per share no less than the
market value per share on the grant date. The weighted-average remaining
contractual life of those options is 9.3 years.
A summary of the Company's stock option activity under the 1996 Directors Plan,
and related information, follows:
Weighted-Average
Number of Options Exercise Price
----------------- ----------------
Balance at December 31, 1995 -
Granted 3,000 $ 30.50
Terminated - -
Balance at December 31, 1996 3,000 30.50
Granted 5,000 23.49
Terminated - -
Balance at December 31, 1997 8,000 26.12
Exercisable at December 31, 1997 750 30.50
<PAGE>
NOTE 11
Pro Forma Information
Pro forma net income per common share is based on net income attributable to
holders of the Company's Common Stock (net income less dividends on Series D
Preferred Stock of $230,000 and $489,000 for the year ended December 31, 1996
and the 10-month period ended December 31, 1995, respectively) and the
weighted-average number of common and common equivalent shares outstanding
during the respective periods, assuming the conversion of Series A, B and C
Convertible Preferred Stock into Common Stock. Dilutive common equivalents
consist of stock options (calculated using the treasury-stock method). Pursuant
to the requirements of the Securities and Exchange Commission, common shares
and common equivalent shares issued at prices below the public offering price
of $19.00 per share during the 10 months immediately preceding the date of the
initial filing of the Registration Statement have been included in the
calculation of common shares and common shares equivalents, using the
treasury-stock method, as if they were outstanding for all periods presented.
Weighted-average shares outstanding do not include Common Stock equivalents
which are anti-dilutive. All common share and per share data, except par value
per share, have been retroactively adjusted to reflect the 2.56-for-one stock
split effected in the form of a stock dividend of the Company's Common Stock,
effective February 1996.
<PAGE>
(Note 12)
Net Income Per Share
The following table sets forth the computation of basic and diluted net income
per share in accordance with SFAS 128:
<TABLE>
<CAPTION>
Years ended 10-month period ended
(In thousands, except per share data) December 31, December 31,
------------------- ---------
1997 1996 1995
------------------- ---------
<S> <C> <C> <C>
Numerator:
Net income $ 17,385 $ 7,267 $ 4,887
Preferred stock dividends -- (1,486) (3,178)
Numerator for basic net income per share - income
available to common shareholders 17,385 5,781 1,709
Effect of dilutive securities:
Preferred stock dividends for Series A,
B and C preferred stock -- 1,256 2,689
Numerator for diluted net income per share -
income available to common shareholders
after assumed conversions 17,385 7,037 4,398
Denominator:
Denominator for basic net income per share -
weighted-average shares 28,863 22,811 2,646
Effect of dilutive securities:
Employee stock options 1,253 1,672 1,756
Cheap stock -- -- 52
Convertible preferred stock -- -- 11,876
Effect of conversion of preferred stock -- 4,121 --
1,253 5,793 13,684
Dilutive potential common shares
Denominator for diluted net income per share -
adjusted weighted-average shares and
assumed conversions 30,116 28,604 16,330
Basic net income per share $ 0.60 $ 0.25 $ 0.65
Diluted net income per share $ 0.58 $ 0.25 $ 0.27
</TABLE>
<PAGE>
NOTE 13
Related Party Support
The Company paid one of its shareholders $2,730,000, $1,817,000 and
$1,220,000 in the years ended December 31, 1997 and 1996 and the 10- month
period ended December 31, 1995, respectively, relating to the Company's
utilization of the shareholder's telecommunications network.
The Company paid another of its shareholders $2,595,000, $9,532,000 and $943,000
in the years ended December 31, 1997 and 1996 and the 10- month period ended
December 31, 1995, respectively, relating to the Company's utilization of the
shareholder's labor force during conversion, as well as fees paid for certain
transaction processing expenses.
The Company received $850,000 and $1,154,000 of interest income from one of
its shareholders in the years ended December 31, 1997 and 1996, respectively.
NOTE 14
Retirement Plan
The Company maintains the NOVA Information Systems, Inc. 401(k) and Profit
Sharing Plan (the "Plan''), which covers substantially all eligible employees
of the Company. Under the Plan, the Company may match a percentage of employee
contributions. The Company may also make a profit-sharing contribution to the
Plan on behalf of eligible employees. During the years ended December 31, 1997
and 1996 and the 10-month period ended December 31, 1995, contribution expenses
related to the Plan were not significant.
NOTE 15
Financial Instruments
The Company's financial instruments at December 31, 1997 and 1996 consist
primarily of cash and cash equivalents and loans payable to a bank. Due to the
short maturities of the cash and cash equivalents, carrying amounts approximate
the respective fair values. The loans payable are variable rate instruments at
terms the Company believes would be available if similar financing were
obtained from another third party. As such, their carrying amounts also
approximate their fair value.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable
and cash investments. Concentrations of credit risk with respect to trade
accounts receivable are limited, due to the large number of entities comprising
the Company's customer base. In addition, the Company performs ongoing credit
evaluations of their customers' financial condition. The Company's cash and
cash equivalents at December 31, 1997, are primarily held at one financial
institution; however, the Company believes the credit risk is limited, due to
the credit standing of the financial institution. In addition, since the
amounts are invested in cash equivalents, there is limited market risk (such as
a reduction in the fair value of investment securities due to rising interest
rates).
<PAGE>
NOTE 16
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1997 calendar quarter ended 1996 calendar quarter ended
--------------------------------------- --------------------------------------
(in thousands except per share data) Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 66,525 $ 78,044 $ 87,489 $ 103,567 $ 60,199 $ 67,568 $ 70,459 $ 67,603
Cost of service 52,071 59,595 67,499 80,893 46,634 52,624 55,223 53,114
Net income 3,145 4,416 4,757 5,067 1,115 1,439 2,369 2,344
Net income per share 0.11 0.15 0.16 0.17 0.01 0.04 0.08 0.08
Net income per share -
assuming dilution 0.11 0.15 0.16 0.17 0.04 0.05 0.08 0.08
</TABLE>
The Company has experienced, and expects to continue to experience,
significant seasonality in its business. The Company typically realizes higher
revenues in the third calendar quarter and lower revenues in the first calendar
quarter, reflecting increased transaction volumes during the summer months and
a significant decrease in transaction volume during the period immediately
following the holiday season. Quarterly results are also affected by the timing
of merchant portfolio purchases and the timing and magnitude of expenses for
merchant portfolio conversions. Therefore, the results reported in the table
above do not necessarily indicate the Company's normal seasonal trends.
NOTE 17
Subsequent Event
On January 21, 1998, the Company consummated a transaction (the "KeyBank
Joint Venture") with KeyBank National Association ("KeyBank") pursuant to which
the Company will provide transaction processing services to, and jointly own
and operate with KeyBank, a newly created limited liability company called Key
Merchant Services, LLC ("KMS"). The purchase price of the Company's membership
interest is payable over a three year period and is contingent upon achieving
certain levels of credit and debit card transaction processing volume. The
maximum consideration payable is $74 million. The Company owns a 51% interest
in KMS.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of NOVA Corporation:
We have audited the accompanying consolidated balance sheets of NOVA
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1997 and 1996, and the 10-month period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NOVA
Corporation at December 31, 1997 and 1996 and the consolidated results of its
operations and its cash flows for the years ended December 31, 1997 and 1996
and the 10-month period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 17, 1998
<PAGE>
BOARD OF DIRECTORS
Edward Grzedzinski Chairman of the Board, President and
Chief Executive Officer
NOVA Corporation
James M. Bahin Vice Chairman of the Board,
Chief Financial Officer and Secretary
NOVA Corporation
Charles T. Cannada Senior Vice President
WorldCom, Inc.
Dr. James E. Carnes President and Chief Executive Officer
Sarnoff Corporation
U. Bertram Ellis, Jr. Chairman and Chief Executive Officer
IXL Holdings, Inc.
Dr. Henry Kressel Managing Director
E.M. Warburg, Pincus & Co., Inc.
Joseph P. Landy Managing Director
E.M. Warburg, Pincus & Co., Inc.
Maurice F. Terbrueggen, Jr. Senior Vice President and Division Manager -
Merchant Acquiring Business
First Union National Bank of Florida
REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning existing and new products and services, technologies and
opportunities, return on investments in products, transaction volume, and the
impact of acquisitions, joint ventures and alliances. When used in the report,
the words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan" 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. The Company cautions that various factors, including the factors
described in the Company's filings with the Securities and Exchange Commission,
as well as general economic conditions and industry trends could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company. Any forward-looking statement speaks
only as of the date of this Annual Report, and the Company undertakes no
obligation to update any forward-looking statement or statements to reflect the
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 factor results to differ materially from those contained in any
forward-looking statements.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NOVA Information Systems, Inc., a Georgia corporation
Boulder Bankcard Processing, Inc., a Colorado corporation
NOVA Asset Management Company, a Delaware corporation
NOVA Licensing Company, a Delaware corporation
NOVA Leadership Company, a Delaware corporation
NOVA Services Limited Partnership, a Delaware limited partnership
NOVA Information Services Company, a Georgia corporation
Elan Merchant Services, LLC, a Wisconsin Limited Liability Company
Key Merchant Services, LLC, a Delaware Limited Liability Company
LinkNet, Inc., a Georgia corporation (dissolved in February 1998)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of NOVA Corporation of our report dated February 17, 1998, included in the 1997
Annual Report to Shareholders of NOVA Corporation.
Our audits also included the financial statement schedule of NOVA Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-04351) pertaining to the NOVA Corporation 1991 Employees'
Stock Option and Stock Appreciation Rights Plan and the NOVA Corporation 1996
Employees Stock Incentive Plan of our report dated February 17, 1998 with
respect to the consolidated financial statements incorporated by reference and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report on Form 10-K of NOVA
Corporation.
/s/ Ernst & Young LLP
Ernst & Young LLP
Atlanta, Georgia
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 739,000
<SECURITIES> 0
<RECEIVABLES> 35,377,000
<ALLOWANCES> (2,822,000)
<INVENTORY> 1,156,000
<CURRENT-ASSETS> 42,645,000
<PP&E> 31,520,000
<DEPRECIATION> (10,503,000)
<TOTAL-ASSETS> 170,528,000
<CURRENT-LIABILITIES> 30,407,000
<BONDS> 0
0
0
<COMMON> 290,000
<OTHER-SE> 102,647,000
<TOTAL-LIABILITY-AND-EQUITY> 170,528,000
<SALES> 335,625,000
<TOTAL-REVENUES> 335,625,000
<CGS> 260,058,000
<TOTAL-COSTS> 260,058,000
<OTHER-EXPENSES> 47,205,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (721,000)
<INCOME-PRETAX> 28,307,000
<INCOME-TAX> 10,922,000
<INCOME-CONTINUING> 17,385,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,385,000
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.58
</TABLE>
