<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
NATIONAL PROCESSING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
7374
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
61-1303983
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
------------------
1231 DURRETT LANE
LOUISVILLE, KENTUCKY 40285-0001
(502) 364-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
TONY G. HOLCOMBE
CHIEF EXECUTIVE OFFICER
NATIONAL PROCESSING, INC.
1231 DURRETT LANE
LOUISVILLE, KENTUCKY 40285-0001
(502) 364-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
COPIES TO:
<TABLE>
<S> <C> <C>
DENNIS W. LABARRE, ESQ. DAVID L. ZOELLER, ESQ. PETER H. DARROW, ESQ.
CHRISTOPHER M. KELLY, ESQ. National City Corporation Cleary, Gottlieb, Steen & Hamilton
Jones, Day, Reavis & Pogue 1900 E. Ninth Street One Liberty Plaza
901 Lakeside Avenue Cleveland, Ohio 44114-3484 New York, New York 10006
Cleveland, Ohio 44114 (216) 575-2000 (212) 225-2000
(216) 586-3939
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock............ 6,900,000 $16.00 $110,400,000 $38,069
</TABLE>
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(1) Includes 900,000 shares to cover an over-allotment option granted by the
Registrant to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
NATIONAL PROCESSING, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. FORM S-1 HEADING CAPTION OR LOCATION IN PROSPECTUS
- ----- ---------------------------------------------- ----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page Page of
Prospectus.................................. Front Cover Page of the Registration
Statement; Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................... Use of Proceeds
5. Determination of Offering Price............... Underwriting
6. Dilution...................................... Dilution
7. Selling Security Holders...................... Not Applicable
8. Plan of Distribution.......................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered.... Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel........ Not Applicable
11. Information with Respect to the Registrant.... Outside Front Cover Page of Prospectus;
Available Information; Prospectus
Summary; Risk Factors; Use of
Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Description of Capital Stock; Shares
Available for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
JUNE 7, 1996
PROSPECTUS
6,000,000 SHARES
NATIONAL PROCESSING, INC. [LOGO]
COMMON STOCK
(WITHOUT PAR VALUE)
All of the shares of common stock, without par value (the "Common Stock"), of
National Processing, Inc. (the "Company") being offered hereby (the "Offering")
are being sold by the Company. The Company is an Ohio corporation organized to
hold all of the capital stock of National Processing Company.
The Company is currently a wholly owned subsidiary of National City Corporation
("National City"), a bank holding company registered under the Bank Holding
Company Act of 1956, as amended. Upon consummation of the Offering, National
City will continue to own directly approximately 87.8% of the outstanding Common
Stock or, if the Underwriters exercise their over-allotment option in full,
approximately 86.2% of the outstanding Common Stock.
Prior to the Offering, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Up to 200,000 shares of Common Stock included in the Offering are being reserved
for sale at the initial public offering price to officers, directors,
prospective directors and employees of the Company and its subsidiaries, and to
certain executive officers of National City and one of its subsidiaries.
The Company has applied to have the Common Stock approved for listing on the New
York Stock Exchange under the symbol NAP.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
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(1) Before deducting offering expenses payable by the Company estimated to be
$ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 900,000 additional shares of Common Stock at the Price to
the Public, less the Underwriting Discount, solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total Price to
the Public, Underwriting Discount and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock being offered hereby
will be made at the office of Salomon Brothers Inc, Seven World Trade Center,
New York, New York or through the facilities of The Depository Trust Company, on
or about , 1996.
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
NATCITY INVESTMENTS, INC.
SMITH BARNEY INC.
The date of this Prospectus is , 1996.
<PAGE> 4
[INSIDE FRONT COVER PAGE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[PHOTOS]
[FLOW CHART]
[TO COME]
2
<PAGE> 5
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass any amendment
thereto) on Form S-1 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are omitted from the Prospectus as permitted by the rules and
regulations promulgated by the Commission. For further information with respect
to the Company and the Common Stock offered in the Offering, reference is hereby
made to the Registration Statement and the exhibits thereto. Statements made in
this Prospectus as to the provisions of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
statement as to a contract, agreement or other document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
After consummation of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the Commission. The Registration Statement and the exhibits
thereto, as well as any such reports and other information to be filed by the
Company with the Commission, may be inspected and copied at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and quarterly reports
containing unaudited condensed consolidated financial information for the first
three quarters of its fiscal year.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Investors should carefully
consider the information set forth under the caption "Risk Factors." National
Processing, Inc. is an Ohio corporation organized to hold all of the capital
stock of National Processing Company ("NPC"). Unless the context otherwise
requires, references herein to the Company mean National Processing, Inc., NPC
and the subsidiaries of NPC.
THE COMPANY
The Company is a leading provider of low-cost, high-volume transaction
processing services and customized processing solutions. Deploying technology
and applications software, the Company currently provides products and services
which include (i) processing of card and check transactions for merchants and
other commercial businesses ("Merchant Services"), (ii) outsourcing of
administrative and financial functions for corporations seeking to reduce
overhead costs ("Corporate Services"), and (iii) ticket processing and
settlement for providers of travel-related services ("Travel Services"). The
Company focuses in particular on the high-growth markets for Merchant Services
and Corporate Services by sustaining and enhancing its long-term customer
relationships, expanding its offerings of products and services, and
aggressively pursuing acquisitions.
In the Merchant Services market, the Company is the second largest
processor of merchant credit and debit card transactions and the third largest
provider of check acceptance and collection services in the United States,
according to published industry sources. Merchant Services represented
approximately 60.8% of the Company's revenues in 1995 and were provided to over
125,000 merchant locations. In the Corporate Services market, the Company
believes that it is one of the largest providers of outsourcing services in the
United States, processing more than 600 million transactions annually. The
Company's Corporate Services include accounts payable processing, remittance
processing, audit and funds settlement for freight-related charges and
electronic imaging solutions. Corporate Services represented approximately 23.8%
of the Company's revenues in 1995. In its Travel Services market, the Company is
the exclusive processor and clearinghouse for all airline tickets issued by
travel agents in the United States and for the U.S. government. Travel Services,
which accounted for approximately 15.4% of the Company's revenues in 1995, also
includes processing services for air cargo sales, direct airline ticket sales
and passenger flight data. As a leading provider of Merchant Services, Corporate
Services and Travel Services, the Company's current customer base includes seven
of the top ten and 22 overall of the Fortune 100 companies.
The Company has experienced steady growth in both revenue and net income in
recent years, with revenue increasing from $272.5 million in 1993 to $339.3
million in 1995, representing a compounded annual growth rate of 11.6%. Over the
same period, net income has grown from $17.4 million to $25.8 million,
representing a compounded annual growth rate of 21.8%. A significant portion of
the Company's revenue results from long-term customer relationships. The Company
estimates that the tenure of its relationships with its 50 largest customers is
approximately ten years. The Company's net income has grown faster than revenues
through improvement in its margins as a result of continuous cost reduction
efforts and a greater mix of higher margin products. An important contributor to
the Company's cost reductions has been the use of low-cost international labor
markets. The Company established its initial presence internationally with the
opening of a processing facility in Juarez, Mexico in 1988. Over time, the
Company's Juarez operations have become increasingly significant, representing
43.8% and 31.5% of the Company's full-time employees during 1995 and 1994,
respectively.
The transaction processing industry has experienced strong growth in recent
years, as acceptance and use of credit and debit cards have grown. According to
industry publications, consumer usage of VISA(R) and MasterCard(R) credit and
debit cards for purchases and cash advances in the United States
4
<PAGE> 7
was approximately $574.5 billion in 1995 compared to approximately $463.1
billion in 1994, representing an increase of approximately 24.1%. Transaction
volume increased 23.2% during this same period, from 5.6 billion transactions
processed in 1994 to 6.9 billion transactions processed in 1995. The market for
corporate outsourcing has also grown as corporations have increasingly
outsourced non-core functions to reduce costs, capitalize upon advances in
technology, and enhance the quality and availability of management information.
According to industry sources, more than 67% of the 500 largest companies in the
United States outsourced one or more administrative functions in 1993, compared
to approximately 25% in 1985. This growth is creating additional market
opportunities for transaction processing providers like the Company, who possess
the scale of operations, breadth of products and services, and expertise to
provide low-cost processing and full-featured information services.
The rapid growth of the transaction processing industry has also resulted
in considerable competition in the marketplace, while the costs of advancing
technology, the efficiencies derived from economies of scale and customer
demands for a broad product line have caused consolidation among industry
participants. The Company believes that its Merchant Services and Corporate
Services markets will continue to grow and consolidate.
The Company's objective is to continue its growth and enhance its position
as a market leader in the transaction processing industry by (i) penetrating new
markets which offer higher margin growth opportunities by broadening the range
of products and services it offers, such as Virtual PAY (TM) (which allows the
payment of bills over the Internet), expanding its sales team and entering into
relationships with independent sales organizations; (ii) expanding the customer
base for its existing products and services by offering such products and
services to middle-market companies that it has not historically targeted and
through aggressive cross-selling to its large and diverse base of long-term
customers; (iii) leveraging its status as a low-cost transaction processor by
continuously investing in systems, operations and new technology and by opening
additional international facilities; and (iv) actively pursuing acquisitions
that enhance its technology base, expand its products and services or offer
increased efficiencies or economies of scale.
The Company is an Ohio corporation organized to hold all of the capital
stock of NPC. NPC began its business in 1977 and maintains its corporate
headquarters at 1231 Durrett Lane, Louisville, Kentucky 40285-0001, telephone
(502) 364-2000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered........................ 6,000,000 shares(1)
Common Stock Outstanding after
the Offering.............................. 49,100,000 shares(1)(2)
Use of Proceeds............................. To fund future acquisitions and strategic
technology investments and for general
corporate purposes, including research and
product development and expansion of
international processing facilities. See
"Use of Proceeds."
Proposed NYSE Symbol........................ NAP
</TABLE>
- ---------------
(1) Does not include 900,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option.
(2) Excludes 2,150,000 shares of Common Stock issuable upon the exercise of
outstanding options granted by the Company in connection with the Offering.
See "Executive Compensation -- Compensation Pursuant to Employee Benefit
Plans."
5
<PAGE> 8
RELATIONSHIP WITH NATIONAL CITY CORPORATION
The Company is a wholly owned subsidiary of National City Corporation
("National City"), a multi-bank holding company headquartered in Cleveland, Ohio
and registered under the Bank Holding Company Act of 1956, as amended. See
"Business -- Regulation." Following completion of the Offering and assuming no
exercise of the Underwriters' over-allotment option, National City will continue
to own approximately 87.8% of the outstanding shares of Common Stock and will
have the ability to elect all of the members of the Board of Directors of the
Company. See "Risk Factors -- Control by National City and Potential Conflicts
of Interest." The Company maintains operations, employees and contracts
substantially independent of National City's other operating subsidiaries. In
connection with the Offering, the Company and National City have entered into
certain agreements pursuant to which National City and its subsidiaries will
provide the Company, and the Company will provide National City and its
subsidiaries, certain administrative support, operational, and processing
services. The Company is also a party to a tax allocation agreement and
registration rights agreement with National City. See "Certain Transactions."
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated income statement data for each of the
three years in the period ended December 31, 1995 are derived from the
consolidated financial statements of the Company, which have been audited by
Ernst & Young LLP, independent auditors. The following summary consolidated
income statement data for the years ended December 31, 1991 and 1992 and for the
three months ended March 31, 1995 and 1996 and balance sheet data as of March
31, 1996 are derived from the unaudited consolidated financial statements of the
Company. The data should be read in conjunction with the consolidated financial
statements and notes thereto and other financial information, as well as the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere herein. The results of operations for the three
month period ended March 31, 1996 are not necessarily indicative of results to
be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Revenues.................................. $ 173.2 $ 199.3 $ 272.5 $ 319.5 $ 339.3 $ 78.4 $ 83.9
Operating Expenses........................ 83.0 100.0 148.9 178.6 189.5 43.1 46.4
Wages and Benefits........................ 38.6 44.1 49.6 56.9 53.8 13.6 14.2
General and Administrative Expenses....... 18.9 22.5 36.0 40.2 41.8 10.4 10.6
Depreciation and Amortization(2).......... 4.1 4.7 7.4 9.6 10.4 2.5 2.8
------- ------- ------- ------- ------- ------- -------
Income from Operations.................... 28.6 28.0 30.6 34.2 43.8 8.8 9.9
Net Interest Income (Expense)............. (.7) (.5) (.4) (.6) .6 .1 .3
------- ------- ------- ------- ------- ------- -------
Income Before Taxes....................... 27.9 27.5 30.2 33.6 44.4 8.9 10.2
Provision for Income Taxes................ 11.2 10.4 12.8 14.3 18.6 3.7 4.3
------- ------- ------- ------- ------- ------- -------
Net Income................................ $ 16.7 $ 17.1 $ 17.4 $ 19.3 $ 25.8 $ 5.2 $ 5.9
====== ====== ====== ====== ====== ====== ======
Net Income per Share(3)................... $ 0.39 $ 0.40 $ 0.40 $ 0.45 $ 0.60 $ 0.12 $ 0.14
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(4)
------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Working Capital........................... $ 69.6 $157.4
Goodwill(2)............................... 72.1 72.1
Total Assets.............................. 273.0 360.9
Total Liabilities......................... 93.2 93.2
Shareholder's Equity...................... 179.8 267.7
OTHER DATA:(1)
Merchant Services
Number of merchant transactions
processed............................. 717.7 892.4 1,128.0 1,266.6 1,467.8 311.3 337.6
Corporate Services
Number of transactions processed........ 326.4 270.1 266.7 389.1 434.5 104.6 136.9
Travel Services
Number of transactions processed........ 242.6 285.1 296.3 364.4 374.1 94.1 96.9
</TABLE>
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(1) The Company made the following acquisitions during the periods presented: on
July 1, 1991, the Company acquired Consolidated Data Technology, an accounts
payable processor; on February 1, 1992, the Company acquired B&L
Consultants, Inc., a freight payable processor; on July 1, 1992, the Company
acquired Check Security Services, a check acceptance and collection company;
on February 1, 1993, the Company acquired JBS Associates, a check acceptance
and collection company; and on February 1, 1994, the Company acquired CTI
Logistics Inc., a freight payable processor. These transactions were
accounted for as purchases; accordingly, the results of operations are
included in the statements of income from the respective acquisition dates.
(2) Goodwill related to acquisitions is amortized over 40 years.
(3) Net income per share for all periods has been calculated based on 43,100,000
shares outstanding, which reflect the retroactive effect of the
57,465 2/3-to-one stock split effective June 6, 1996.
(4) As adjusted to give effect to the sale of 6.0 million shares of Common Stock
pursuant to the Offering and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
7
<PAGE> 10
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors evaluating an
investment in the shares of Common Stock offered by this Prospectus.
COMPETITION AND CONSOLIDATION
The markets for credit and debit card processing for merchants ("Merchant
Card Services") and for check acceptance and collection services ("Merchant
Check Services") are highly competitive. Together, these markets represented
approximately 60.8% of the Company's revenues for the year ended December 31,
1995. As a provider of Merchant Services, the Company faces intense competition
from numerous firms who may employ various competitive strategies. The majority
of the Company's contracts with its Merchant Services customers provide for
frequent renewal after the initial term and, accordingly, the Company and its
competitors continuously rebid such contracts. This competition may influence
the prices the Company can charge and requires the Company to control costs
aggressively in order to maintain acceptable profit margins.
Further tightening of margins may result in banks and other card and check
processors abandoning the transaction processing business, thus accelerating the
current industry consolidation. Due to market demands that require transaction
processors to provide advanced and efficient technology, certain card and check
processors have recently left the business or merged with other providers. This
consolidation has enabled certain of the Company's competitors to have access to
significant capital, management, marketing and technological resources that are
equal to or greater than those of the Company, and there can be no assurance
that the Company will continue to be able to compete successfully with such
processors.
In addition, the Company believes that recently enacted changes in
telecommunications and other laws, as well as developments regarding the
Internet and other new technologies related to electronic commerce, may result
in competition from entities with access to significant capital and
technological resources not currently serving the markets for Merchant Services.
The Company also faces competition in the market for Corporate Services,
where the Company competes against various smaller logistics management firms.
The Company believes that some of these companies provide essentially the same
services as the Company. The Company also faces competition from current and
prospective customers who evaluate the Company's capabilities against the merits
of performing such services internally. See "Business -- Competition."
CHARGEBACKS; RISK OF NONPAYMENT
Under the rules of VISA(R) and MasterCard(R), when a merchant card services
processor such as the Company (an "acquiror") acquires card transactions, it has
certain contingent liabilities for the transactions it processes. This
contingent liability arises in the event of a billing dispute between the
merchant and a cardholder that is not ultimately resolved in favor of the
merchant. In such a case, the transaction is "charged back" to the merchant and
the disputed amount is credited or otherwise refunded to the cardholder. If the
acquiror or its clearing banks are unable to collect this amount from the
merchant's account, and if the merchant refuses or is unable due to bankruptcy
or other reasons to reimburse the acquiror for the chargeback, the acquiror
bears the loss for the amount of the refund paid to the cardholder. In most
cases, this contingent liability is unlikely to arise because most products or
services are delivered when purchased, and credits are issued on returned items.
For certain industries, where the product or service is not typically provided
until some later time following the purchase, the acquiror's contingent
liability is greater. See "Business -- Products and Services -- Merchant
Services."
In certain cases, the Company bears the risk of merchant nonpayment of
applicable interchange, assessment and other fees. The Company receives payments
for merchant transactions from a card association clearing bank net of the fees
payable to the card issuer ("interchange fees"). For those
8
<PAGE> 11
merchants which the Company bills on a weekly or monthly basis, the Company then
advances payment to the merchant for the gross amount of the merchant's
transactions. The Company then bills on a weekly or monthly basis for
interchange fees as well as its processing fees. To the extent the merchant
lacks sufficient funds to pay such fees, the Company's revenues will be
adversely affected. See "Business -- Products and Services -- Merchant
Services."
Credit losses incurred by the Company relating to chargebacks and
nonpayment of fees were $282,000 and $88,000 for the three months ended March
31, 1995 and 1996, respectively, and $627,000, $1,145,000 and $531,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
MERCHANT AND EMPLOYEE FRAUD
The Company is susceptible to fraudulent credit card transactions initiated
by its merchant customers. Examples of merchant fraud include inputting false
sales transactions and altering transaction amounts. The Company conducts a
background review of its customers and monitors merchant transactions against
standards it has developed to help prevent merchant fraud. The Company also has
the ability to hold a merchant's daily settlement if fraudulent activity is
suspected. 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.
In certain of its markets, the Company is responsible for handling customer
payroll check printing and distribution as well as the processing of credit card
and check payments. In processing these transactions, there is a risk of
employee fraud due to employee access to sensitive documents or account
information. While the Company historically has experienced very little employee
fraud and attempts to mitigate the risk of employee fraud through process
controls, separation of duties, employee background checks, and contractual
limitations of liability in its contracts with customers, there can be no
assurance that the Company will continue to be successful in preventing the
fraudulent acts of employees. See "Business -- Risk Management."
POTENTIAL LOSSES FROM CHECK GUARANTEE SERVICES
The Company is obligated to fund amounts for returned checks covered under
its check guarantee program. If a merchant subscribes to the Company's check
guarantee services, the Company is ultimately responsible for the full face
value of checks that are accepted by merchants but dishonored by the check
writer's bank. At the time the Company pays merchants amounts due for guaranteed
checks that are returned, the Company makes an estimate of the uncollectible
amounts of such checks and recognizes this amount as a current period expense.
The remaining balance is presumed collectible and is recorded by the Company as
check inventory. In certain cases, the Company's estimate for uncollectible
amounts may be less than actual uncollectible amounts. In these cases, the
Company is required to recognize an additional expense associated with the
writedown of check inventory to reflect amounts actually collectible. While the
Company tracks collection rates to validate the accuracy of its estimates, there
can be no assurance that the Company will be able to match its collection rates
with its estimates in the future.
The Company sets fees for check guarantee services based on the credit
profile of the merchant's customer base, the merchant's industry classification,
its products sold and its prior experience with the Company. While the Company's
fees from check guarantee services and recoveries from collections currently
exceed aggregate amounts paid to merchants on guaranteed checks, there can be no
assurance that this performance will continue. See "Business -- Products and
Services -- Merchant Services."
9
<PAGE> 12
VISA(R) AND MASTERCARD(R) REGISTRATION
The Company, along with all other nonbank transaction processors, must
be sponsored by a financial institution that is a principal member of the
VISA(R) and MasterCard(R) credit card associations in order to process bankcard
transactions. Through National City Bank of Kentucky ("NCBK"), a wholly owned
banking subsidiary of National City that serves as a member clearing bank for
the Company, the Company is registered with VISA(R) and MasterCard(R) as a
certified processor and member service provider. See "Certain Transactions --
Sponsorship Agreement." The Company's designation 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(R) and MasterCard(R) credit
card associations. If the Company fails to comply with these standards, the
Company's designation as a certified processor or its status as a member
service provider could be suspended or terminated. While the Company attempts
to adhere to the standards of the VISA(R) and MasterCard(R) associations, as
they may be amended from time to time, there can be no assurance that VISA(R)
and MasterCard(R) will maintain the Company's registrations or that the current
VISA(R) and MasterCard(R) rules allowing the Company and other nonbank
transaction processors to market and provide transaction processing services
will remain in effect. Moreover, VISA(R) and MasterCard(R) rules are set by the
respective member financial institutions of VISA(R) and MasterCard(R), some of
which are competitors of the Company. 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(R) or MasterCard(R) rules that prevent
the Company's registration or otherwise limit the Company's ability to provide
transaction processing and marketing services for VISA(R) or MasterCard(R),
would have a material adverse effect on the Company's financial condition and
results of operations.
POTENTIAL CONSEQUENCES OF CERTAIN CONTRACTS
The Company derived approximately 15.4% of its revenues in 1995 from its
Travel Services business, where the Company functions as the exclusive processor
and clearinghouse of airline ticket transactions generated by travel agents in
the United States through its contract with the Airlines Reporting Corporation
("ARC"), a corporation operated by the airline industry. The Company is
compensated on a "cost plus" basis under its contract with the ARC. The ARC is
currently developing a "paper free" reporting system ("IAR") which is scheduled
to be implemented in the years 1997 through 2000 and which is expected to reduce
significantly the amount of labor required to process and clear airline ticket
transactions generated by travel agents. Pursuant to this contract, the Company
has also completed certain projects for which it earned revenue and profit
bonuses in the past three years that will not be available after 1996. The
Company expects that the effect of the loss of these bonuses and the reduction
in labor costs will be to reduce net income associated with the ARC contract by
approximately $2.0 million in 1997 and that additional cost reductions will
reduce net income associated with the ARC contract by an additional $500,000 in
each subsequent year through the end of the current contract term. While the
Company is aggressively seeking to replace this expected lost income, there can
be no assurance that the Company's efforts will be successful.
The Company's contract with the ARC expires in December 2001. Although the
Company has been the exclusive transaction processor for the ARC since 1987, the
Company anticipates that other transaction processors will compete against the
Company for the ARC's business. See "Business -- Competition." There can be no
assurance that the Company will continue to be the exclusive transaction
processor for the ARC following the expiration of the current contract.
HOLDING COMPANY STRUCTURE
As a holding company, the Company is dependent on the cash flow from NPC
and its subsidiaries, received through dividends and other intercompany
transfers of funds, in order to meet its obligations. Dividends and other
intercompany transfers of funds from NPC, together with any net proceeds from
the Offerings retained by the Company for general corporate purposes, are
expected for the foreseeable future to be a significant source of the Company's
liquidity. See "Use of Proceeds" and "Dividend
10
<PAGE> 13
Policy." Limitations on the availability to the Company of dividends and other
intercompany transfers of funds from NPC could adversely impact the Company's
liquidity.
CONTROL BY NATIONAL CITY AND POTENTIAL CONFLICTS OF INTEREST
All of the capital stock of the Company is currently owned by National
City. Upon completion of the Offering, National City will own approximately
87.8% of the outstanding Common Stock (or approximately 86.2% of the outstanding
Common Stock if the Underwriters' overallotment options are exercised in full).
As a result, upon completion of the Offering, National City will continue to be
able to elect all of the members of the Company's Board of Directors and to
exercise a controlling influence over the business and affairs of the Company,
including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets by
the Company, the incurrence of indebtedness by the Company, the issuance by the
Company of any additional Common Stock or other equity securities, and the
payment of any dividends with respect to the Common Stock. Upon completion of
the Offering, a majority of the members of the Company's Board of Directors will
be directors or employees of National City or its affiliates other than the
Company.
In addition, National City will have the power to approve matters submitted
to a vote of the Company's shareholders without the consent of the Company's
minority shareholders and to cause or prevent a change in control of the
Company. Certain conflicts of interest and disagreements between National City
and the Company could arise in connection with the interpretation of the various
intercompany agreements entered into between National City or its subsidiaries
and the Company in connection with the Offering. See "Certain Transactions."
National City, through its wholly owned subsidiaries, will continue to have an
interest in the business of issuing credit cards. Although National City has
advised the Company that it does not intend to engage directly in offering
Merchant Services or Corporate Services products in competition with the
Company, National City is not contractually prohibited from offering such
products. As a result, conflicts of interest may arise between National City and
the Company in connection with future card processing or corporate services
opportunities. Such conflicts of interest will be more difficult to resolve than
would be the case if the Company did not have directors who are connected to
National City and may be resolved in a manner that may appear to be more
favorable to one of the parties. NatCity Investments, Inc., one of the
underwriters of this Offering, is a wholly owned subsidiary of National City and
is an affiliate of the Company.
BENEFITS OF THE OFFERING TO NATIONAL CITY
Although National City is not selling shares in the Offering, it will
receive substantial benefits as a result of the Offering. National City will
benefit from the fact that after the Offering there will be a public market for
shares of Common Stock and therefore greater liquidity for shares of Common
Stock than existed prior to the Offering. In addition, up to 200,000 shares
included in the Offering are being reserved for sale at the offering price to
officers, directors, prospective directors and employees of the Company and its
subsidiaries and to certain executive officers of National City and its
subsidiary Stored Value Systems, Inc., a Delaware corporation ("SVS").
FACTORS RELATING TO ACQUISITIONS
An important part of the Company's growth strategy is the acquisition of
other processing companies and assets. See "Business -- Business Strategy." The
success of the Company's acquisition strategy will depend upon the Company's
ability to integrate and manage acquired businesses, realize economies of scale
and control costs. Acquisitions involve risks, including difficulties in
integrating acquired operations, diversion of management resources and
unanticipated problems and liabilities. As a result, there can be no assurance
that the Company will be able to implement its acquisition strategy
successfully. The Company has experienced certain integration and other
unanticipated difficulties as a result of past acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
11
<PAGE> 14
Depending upon the circumstances of a particular acquisition, the Company
may fund an acquisition through the issuance of Common Stock, with cash flow
from operations, with a portion of the proceeds of the Offering or with borrowed
funds. Acquisitions may result in potentially dilutive issuances of equity
securities, increased depreciation and amortization expense, increased interest
expense, increased financial leverage, or decreased operating income, any of
which could have a material adverse effect on the Company's operating results.
There can be no assurance that the Company will be able to complete acquisitions
on terms favorable to it or that the Company's existing financial resources,
including cash flow from operations, will be sufficient to fund such
acquisitions. If the Company does not have sufficient cash resources available
to fund acquisitions, its growth could be limited unless it is able to obtain
additional capital through subsequent debt or equity financings. There can be no
assurance that the Company will be able to obtain such financings or that, if
available, such financings will be on terms acceptable to the Company.
Acquisitions by the Company and issuances of Common Stock in connection
therewith may be subject to the approval of National City. There can be no
assurance that the Company will be able to obtain the approval of National City
in connection with any such acquisitions or that National City will permit its
ownership of Common Stock to be diluted by the issuance of additional shares in
connection with such acquisitions.
EFFECT OF TECHNOLOGICAL CHANGE
Some of the markets served by the Company require the use of advanced
computer hardware and software technology, and the development of new products
and services to meet increasingly complex and rapidly changing client and
regulatory requirements. The Company's future success depends in part on its
ability to continue to adapt its technology, on a timely and cost effective
basis, to meet these requirements. There can be no assurance that the Company
will be able to respond adequately to these technological demands or that its
competitors will not develop more advanced technology that will place the
Company's products and services at a competitive disadvantage. See
"Business -- Industry Overview." The Company has recently introduced several new
products. See "Business -- Products and Services." There can be no assurance
that these new products and services will perform satisfactorily or be widely
accepted in the marketplace.
RELIANCE ON PROCESSING FACILITIES
The Company's processing business is dependent on its main processing
facilities located in Louisville, Kentucky; Juarez, Mexico and Phoenix, Arizona.
The Company is also dependent upon long-distance and local telecommunications
access in order to transmit and process information among these facilities.
Although the Company maintains disaster response plans which it considers
adequate, a natural disaster or other calamity that causes long-term damage to
one of these facilities or that interrupts its telecommunications networks could
have an adverse effect on the Company.
IMPORTANCE OF INTERNATIONAL OPERATIONS
The Company's business strategy emphasizes the increased utilization of its
processing facilities in Juarez, Mexico and the development of other non-U.S.
operations facilities. See "Business -- Business Strategy." This strategy could
be affected by many factors beyond its control, such as political and labor
unrest in Mexico, governmental changes and United States and Mexican government
laws and policies affecting investment. Expenses associated with the Company's
Mexican operations as well as the Company's expense base under its contract with
the ARC are also subject to currency fluctuations. Although the Company has not
experienced any material adverse effects arising from its operations in Mexico,
there can be no assurance that such problems will not arise in the future. To
the extent that the Company expands into other international locations, the
Company's operations may be subject to similar risks.
12
<PAGE> 15
FLUCTUATION IN QUARTERLY OPERATING RESULTS
The Company generally experiences seasonality in its business. The Company
typically realizes higher revenues in the third and fourth calendar quarters and
lower revenues in the first calendar quarter, reflecting increased transaction
volumes during the summer and holiday months and a decrease in transaction
volume during the quarter immediately following the holiday season. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DISCRETION OVER USE OF PROCEEDS
While the Company has identified certain objectives for use of a
substantial portion of the proceeds it receives from the Offering, including
general corporate purposes, the Company has not identified any specific projects
or commitments that will necessarily be funded. Accordingly, the Company's Board
of Directors and management will have broad discretion, without any direct
action or approval on the part of the Company's shareholders, over the use of
proceeds received by the Company in connection with the Offering. See "Use of
Proceeds."
DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company's operations during the foreseeable future will
depend largely upon the continued services of its senior executives. These
executives have entered into agreements with the Company that contain
noncompetition covenants that may extend for a period of up to three years
following termination of employment. See "Executive Compensation -- Certain
Agreements with Employees."
The Company's success also depends in part on its ability to attract,
manage and retain qualified management and clerical personnel. Competition for
qualified management personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining the management personnel
it requires to manage the growth of its business successfully. The Company
realizes substantial turnover on a regular basis among a large portion of its
workforce, primarily among those workers in entry-level positions who perform
tasks integral to the Company's operations such as data entry. There can be no
assurance that the Company will continue to be able to attract a sufficient
number of workers for its entry-level positions in the future. The Company's
results of operations could be adversely affected if the Company were unable to
attract, manage and retain management and clerical personnel, or if revenue were
to fail to increase at a rate sufficient to absorb any resulting increase in
associated expenses.
ANTI-TAKEOVER PROVISIONS
The Company's Amended Articles of Incorporation and Code of Regulations
contain certain provisions that may have the effect, either alone or in
combination with each other, of making more difficult or discouraging a business
combination involving the Company that is deemed undesirable by the Company's
Board of Directors, or of delaying or preventing changes in control or
management of the Company. Although such provisions do not have substantial
practical significance to investors while National City controls the Company,
such provisions could become significant should National City reduce its
ownership interest in the Company such that National City no longer controls the
Company. See "Description of Capital Stock -- Ohio Law and Certain Charter
Provisions."
REGULATION OF THE COMPANY
As a corporation that will for the foreseeable future continue to be
controlled by National City, the Company is subject to federal banking
regulations, as well as other federal and state regulations. To facilitate
National City's compliance with applicable banking laws, regulations and orders
(collectively, the "Banking Laws"), and to allow National City to obtain any
required consents or approvals, the Company's Amended Articles of Incorporation
prohibit the Company from entering into any business
13
<PAGE> 16
activities prior to the receipt of any consents and approvals required pursuant
to the Banking Laws and, if such consents are not received, prohibit the Company
from engaging in such business activities.
The restrictions imposed by the Banking Laws limit the Company's discretion
in operating its businesses. No assurance can be given that the Banking Laws
will not be amended or construed differently, or that new laws and regulations
will not be adopted, the effect of which could be to affect adversely the
operations of the Company. See "Business -- Regulation."
The Company's business is also subject to numerous federal and state
consumer protection laws and regulations, which, among other things: (i) require
the Company to obtain and maintain certain licenses and qualifications; (ii)
limit the fees and other charges the Company is allowed to charge; and (iii)
require specified disclosures. Changes in existing laws or regulations, or in
the interpretation thereof, or the promulgation of any additional laws or
regulations could have an adverse effect on the Company's business. See
"Business -- Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, whether
by purchasers in the Offering or other shareholders of the Company, or the
perception that such sales could occur, may adversely affect the market price of
the Common Stock. See "Shares Eligible for Future Sale" and "Underwriting."
Following the Offering, National City will beneficially own 87.8% of the
outstanding Common Stock (or approximately 86.2% of the outstanding Common Stock
if the Underwriters' over-allotment option is exercised in full), and a decision
by National City to sell shares could adversely affect the market price of the
Common Stock. The Company and National City have entered into a registration
rights agreement which requires the Company to effect a registration statement,
covering some or all of National City's shares, subject to certain terms and
conditions. See "Certain Transactions -- Registration Rights Agreement."
Upon completion of the Offering, the shares of Common Stock offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act by persons other than executive officers and directors of
National City or the Company (the "Restricted Persons"). The 43,100,000 shares
of Common Stock which are held by National City are subject to a "lock-up"
agreement under which National City has agreed, subject to certain exceptions,
not to offer, sell, pledge, or otherwise dispose of any shares of Common Stock
without the prior written consent of Salomon Brothers Inc, on behalf of the
Underwriters, for a period of 360 days after the date of this Prospectus. Shares
of Common Stock held by Restricted Persons are subject to a similar "lock-up"
agreement for a period of 90 days after the date of this Prospectus. Following
such times, National City and any such Restricted Person who is an affiliate of
the Company may sell such shares only pursuant to the requirements of Rule 144
under the Securities Act or pursuant to an effective registration statement
under the Securities Act. See "Underwriting."
In connection with the Offering, the Company has granted options to key
employees and directors to purchase 2,150,000 shares of Common Stock under the
Company's stock option plans. Such plans authorize up to 4,200,000 shares of
Common Stock to be issuable upon the grant of stock options under such plans.
See "Executive Compensation -- Compensation Pursuant to Employee Benefit Plans."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market for the Common Stock
will develop or continue after the Offering. The initial public offering price
per share of Common Stock being offered in the Offering has been determined by
negotiations among the Company and representatives of the Underwriters and may
not be indicative of the price at which the Common Stock will trade after
completion of the Offering.
14
<PAGE> 17
DILUTION OF PURCHASERS OF COMMON STOCK
Purchasers of the Common Stock will experience immediate and substantial
dilution in the net tangible book value per share of Common Stock. The net
tangible book value of the Company's Common Stock as of March 31, 1996 was
approximately $103.0 million or $2.39 per share. After giving effect to the
receipt by the Company of the estimated net proceeds from the Offering (without
giving effect to any exercise of the Underwriters' over-allotment option), and
after deducting the underwriting discounts and estimated expenses payable by the
Company, the pro forma net tangible book value of the Common Stock as of March
31, 1996 would have been approximately $3.89 per share. This represents an
immediate increase in net tangible book value of $1.50 per share to existing
shareholders and an immediate dilution of $12.11 per share to purchasers of the
Common Stock in the Offering. See "Dilution."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds from the sale of shares of Common Stock offered pursuant
to the Offering, based on an assumed initial public offering price of $16.00 per
share, are expected to be $87,840,000 (approximately $101,200,000 if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the proceeds as follows: (i) approximately 60% to fund future
acquisitions; (ii) approximately 15% to fund strategic technology investments;
and (iii) the remaining balance for general corporate purposes, including the
funding of research, product development and the expansion of international
processing facilities. There are currently no negotiations, understandings or
agreements with respect to any acquisitions or material technology investments
or any specific projects or commitments relating to any material research,
product development or expansion of international processing facilities.
Pending application for the foregoing uses, the net proceeds will be
invested in short-term U.S. Treasury securities, certificates of deposit,
commercial paper and/or investment grade, interest-bearing securities. Such
investments may be made with or through affiliates of National City at market
rates.
DIVIDEND POLICY
The Company currently intends to retain all future earnings for use in the
operations of its business and does not anticipate paying any cash dividends in
the foreseeable future. The declaration and payment in the future of any cash
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the earnings, capital requirements and
financial position of the Company, existing and/or future loan covenants and
general economic conditions.
The Company is a holding company whose principal asset is the capital stock
of NPC. The Company's cash flow, therefore, will consist primarily of dividends
and other intercompany transfers of funds received from NPC. The payment of any
cash dividends to holders of Common Stock will depend on the receipt of dividend
payments and other intercompany transfers of funds from NPC.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996, as adjusted to give effect to the issuance and sale
of 6,000,000 shares of Common Stock in the Offering at the assumed initial
offering price of $16.00 per share and the application of the estimated net
proceeds therefrom as set forth under "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligation, less current portion...................... $ 2,635 $ 2,635
Shareholders' equity
Preferred Stock, without par value, 5,000,000 shares authorized;
no shares issued and outstanding............................... -- --
Common Stock, without par value; 95,000,000 shares authorized;
43,100,000 shares issued and outstanding; 49,100,000 shares
issued and outstanding as adjusted(1).......................... 1 1
Additional paid-in capital........................................ 64,825 152,665
Retained earnings................................................. 114,989 114,989
--------- ---------
Total shareholders' equity..................................... 179,815 267,655
--------- ---------
Total capitalization......................................... $ 182,450 $ 270,290
========= =========
</TABLE>
- ---------------
(1) Excludes a total of 4,200,000 shares of Common Stock which are reserved for
issuance pursuant to stock option plans. Options with respect to 2,150,000
shares of Common Stock have been awarded with an effective grant date
immediately prior to the Offering at an exercise price per share equal to
the initial public offering price. See "Executive Compensation --
Compensation Pursuant to Employee Benefit Plans."
17
<PAGE> 20
DILUTION
The net tangible book value of the Company as of March 31, 1996 was
approximately $103.0 million, or $2.39 per share of Common Stock. Net tangible
book value per share is determined by dividing the amount of the Company's total
tangible assets less total liabilities by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of the 6,000,000
shares of Common Stock offered hereby (at an assumed initial public offering
price of $16.00 per share), the pro forma net tangible book value of the Company
as of March 31, 1996 would have been approximately $190.8 million, or $3.89 per
share. This represents an immediate dilution of $12.11 per share to new
investors purchasing shares of Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................... $ 16.00
-------
Net tangible book value per share as of March 31, 1996.................. $ 2.39
Increase per share attributable to new investors........................ 1.50
------
Pro forma net tangible book value per share after the Offering............ 3.89
-------
Dilution per share to new investors....................................... $ 12.11
======
</TABLE>
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated income statement data for each of the
three years in the period ended December 31, 1995 and the consolidated balance
sheet data as of December 31, 1993, 1994 and 1995 are derived from the
consolidated financial statements of the Company, which have been audited by
Ernst & Young LLP, independent auditors. The following selected consolidated
income statement data for the years ended December 31, 1991 and 1992 and for the
three months ended March 31, 1995 and March 31, 1996, and the balance sheet data
as of December 31, 1991 and 1992 and March 31, 1995 and 1996 are derived from
the unaudited consolidated financial statements of the Company. The data should
be read in conjunction with the consolidated financial statements and notes
thereto and other financial information, as well as the Management's Discussion
and Analysis of Financial Condition and Results of Operations, included
elsewhere herein. The results of operations for the three month period ended
March 31, 1996 are not necessarily indicative of results to be expected for the
full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Revenues................................. $ 173.2 $ 199.3 $ 272.5 $ 319.5 $ 339.3 $ 78.4 $ 83.9
Operating Expenses....................... 83.0 100.0 148.9 178.6 189.5 43.1 46.4
Wages and Benefits....................... 38.6 44.1 49.6 56.9 53.8 13.6 14.2
General and Administrative Expenses...... 18.9 22.5 36.0 40.2 41.8 10.4 10.6
Depreciation and Amortization(2)......... 4.1 4.7 7.4 9.6 10.4 2.5 2.8
------- ------- -------- -------- -------- ------- -------
Income from Operations................... 28.6 28.0 30.6 34.2 43.8 8.8 9.9
Net Interest Income (Expense)............ (.7) ( .5) (.4) (.6) .6 .1 .3
------- ------- -------- -------- -------- ------- -------
Income Before Taxes...................... 27.9 27.5 30.2 33.6 44.4 8.9 10.2
Provision for Income Taxes............... 11.2 10.4 12.8 14.3 18.6 3.7 4.3
------- ------- -------- -------- -------- ------- -------
Net Income............................... $ 16.7 $ 17.1 $ 17.4 $ 19.3 $ 25.8 $ 5.2 $ 5.9
====== ====== ======= ======= ======= ====== ======
Net Income per Share(3).................. $ 0.39 $ 0.40 $ 0.40 $ 0.45 $ 0.60 $ 0.12 $ 0.14
====== ====== ======= ======= ======= ====== ======
BALANCE SHEET DATA:(1)
Working Capital.......................... $ 14.7 $ 18.9 $ 32.9 $ 45.6 $ 64.1 $ 51.6 $ 69.6
Goodwill(2).............................. 3.8 21.4 70.0 73.5 72.6 73.2 72.1
Total Assets............................. 77.3 133.6 209.9 288.4 281.3 257.7 273.0
Total Liabilities........................ 41.6 75.8 81.0 140.2 107.3 104.4 93.2
Shareholder's Equity..................... 35.7 57.8 128.9 148.2 174.0 153.3 179.8
OTHER DATA:(1)
Merchant Services
Number of merchant transactions
processed............................ 717.7 892.4 1,128.0 1,266.6 1,467.8 311.3 337.6
Corporate Services
Number of transactions processed....... 326.4 270.1 266.7 389.1 434.5 104.6 136.9
Travel Services
Number of transactions processed....... 242.6 285.1 296.3 364.4 374.1 94.1 96.9
</TABLE>
- ---------------
(1) The Company made the following acquisitions during the periods presented: on
July 1, 1991, the Company acquired Consolidated Data Technology, an accounts
payable processor; on February 1, 1992, the Company acquired B&L
Consultants, Inc., a freight payable processor; on July 1, 1992, the Company
acquired Check Security Services, a check acceptance and collection company;
on February 1, 1993, the Company acquired JBS Associates, a check acceptance
and collection company; and on February 1, 1994, the Company acquired CTI
Logistics Inc., a freight payable processor. These transactions were
accounted for as purchases; accordingly, the results of operations are
included in the statements of income from the respective acquisition dates.
(2) Goodwill related to acquisitions is amortized over 40 years.
(3) Net income per share for all periods has been calculated based on 43,100,000
shares outstanding, which reflects the retroactive effect of the 57,465 2/3
to one stock split effective June 6, 1996.
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of low-cost, high-volume transaction
processing services and customized processing solutions. The Company deploys
technology and applications software primarily to merchants and other commercial
businesses, corporations and providers of travel-related services.
The Company's annual revenues have grown from $272.5 million in 1993 to
$339.3 million in 1995, representing an 11.6% compound annual growth rate.
During the same period, the Company's net income grew from $17.4 million to
$25.8 million, representing a compound annual growth rate of 21.8%. The
Company's revenue growth is attributable to increased debit and credit card
usage and strategic acquisitions. Net income has grown as a result of increased
revenue and economies of scale, aggressive cost containment and the introduction
of higher margin products and services.
Recent strategic acquisitions by the Company include the purchase of Check
Security Services in 1992 and JBS Associates in 1993 through which the Company
entered the check services business; the purchase of B&L Consultants, Inc. in
1992 and CTI Logistics Inc. ("CTI") in 1994 through which the Company entered
the freight services business; and the purchase of the remittance processing
assets of First Data Resources ("FDR") in December 1995 (the "FDR Remittance
Acquisition"). The Company plans to continue to supplement its growth by
entering into relationships with independent sales organizations ("ISOs") and by
acquiring processing companies, processor portfolios, ISOs, transaction
processors serving corporations seeking to outsource administrative and
financial functions, and software development operations. In evaluating
acquisitions, the Company analyzes the merchant or account base, opportunities
for cost reductions, operating efficiencies and economies of scale, and revenue
enhancements.
The Company's Travel Services business, which accounted for 15.4% of the
Company's revenues for the year ended December 31, 1995, derives a substantial
portion of its revenues from an exclusive long-term contract with the ARC. The
Company is compensated on a "cost plus" basis under its contract with the ARC,
which expires in December 2001. The Company expects that, due to cost
reductions, revenues received under this contract will decline as the ARC moves
to a paper-free reporting system, which implements a program designed to reduce
the labor costs required to process paper transactions. Pursuant to this
contract, the Company has also completed certain projects for which it has
earned revenue and profit bonuses in the past three years that will not be
available after 1996. The Company expects that the effect of the loss of these
bonuses and the reduction in labor costs will be to reduce net income associated
with the ARC contract by approximately $2.0 million in 1997 and that additional
cost reductions will reduce net income associated with the ARC contract by an
additional $500,000 in each subsequent year through the end of the current
contract term.
COMPONENTS OF REVENUE AND EXPENSES
Revenues. The Company's revenues are generated from a variety of sources.
The Company's Merchant Services revenues are primarily derived from fees paid by
merchants for the authorization and processing of credit and debit card
transactions, exclusive of interchange fees, and for the acceptance of checks.
Merchant fees paid to the Company include assessment fees, which are amounts
charged by credit card associations for clearing services, advertising and other
expenses. Revenues from Corporate Services are derived from transaction fees for
the processing of remittances, accounts payable and freight bills, and for
providing integrated document solutions involving electronic imaging, archival,
processing and payment settlement. Revenues from Travel Services are dependent
on the volume of ticket sales by travel agents on behalf of airlines. A small
portion of revenues are derived from earnings on cash balances which are
maintained by customers pursuant to contract terms. Revenues derived from
services provided to affiliates are immaterial.
20
<PAGE> 23
Expenses. Operating expenses include all costs directly attributable to
the Company's provision of services to customers. The most significant
components of operating expenses are assessment fees, authorization fees and
data processing expenses. Wages and benefits include wages and benefits for
hourly employees. General and administrative expenses include management
salaries and benefits, facilities maintenance and software applications
programming. Depreciation of property and equipment and software amortization
are recognized on a straight-line basis over the estimated useful life of the
related asset. Amortization of goodwill associated with acquisitions is
recognized over 40 years. Amortization of other costs associated with the
purchase of contracts or other business assets is recognized over 15 years based
upon the Company's attrition experience and projected revenue stream.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results and sets
forth such results as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ---------------
1993 1994 1995 1995 1996
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
(IN MILLIONS)
Revenues...................................... $272.5 $319.5 $339.3 $78.4 $83.9
Operating Expenses............................ 148.9 178.6 189.5 43.1 46.4
Wages and Benefits............................ 49.6 56.9 53.8 13.6 14.2
General and Administrative Expenses........... 36.0 40.2 41.8 10.4 10.6
Depreciation and Amortization................. 7.4 9.6 10.4 2.5 2.8
------ ------ ------ ----- -----
Income from Operations........................ 30.6 34.2 43.8 8.8 9.9
Net Interest Income (Expense)................. (.4) (.6) .6 .1 .3
------ ------ ------ ----- -----
Income Before Taxes........................... 30.2 33.6 44.4 8.9 10.2
Provision for Income Taxes.................... 12.8 14.3 18.6 3.7 4.3
------ ------ ------ ----- -----
Net Income.................................... $ 17.4 $ 19.3 $ 25.8 $ 5.2 $ 5.9
====== ====== ====== ===== =====
AS A PERCENTAGE OF REVENUES:
Revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses............................ 54.7 55.9 55.9 55.0 55.4
Wages and Benefits............................ 18.2 17.8 15.9 17.3 16.9
General and Administrative Expenses........... 13.2 12.6 12.3 13.3 12.6
Depreciation and Amortization................. 2.7 3.0 3.0 3.2 3.3
------ ------ ------ ----- -----
Income from Operations........................ 11.2 10.7 12.9 11.2 11.8
Net Interest Income (Expense)................. (.1) (.2) .2 .1 .3
------ ------ ------ ----- -----
Income Before Taxes........................... 11.1 10.5 13.1 11.3 12.1
Provision for Income Taxes.................... 4.7 4.5 5.5 4.7 5.1
------ ------ ------ ----- -----
Net Income.................................... 6.4% 6.0% 7.6% 6.6% 7.0%
====== ====== ====== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Consolidated revenue increased $5.5 million, or 7.0%, to $83.9
million for the three months ended March 31, 1996 from $78.4 million for the
comparable 1995 period. The increase was primarily due to (i) increases in
Merchant Card Services revenues, which rose 13.3% over the prior year's quarter
despite weather conditions that negatively impacted volume, and (ii) growth in
the remittance processing business, which experienced a 44.5% revenue increase
during the first quarter of 1996 compared to the comparable 1995 period,
primarily as a result of the FDR Remittance Acquisition in December 1995. These
increases more than offset an 8.6% revenue decline in the Company's Merchant
Check Services business, which was down primarily as a result of management's
effort to eliminate
21
<PAGE> 24
unprofitable contracts in its portfolio. The Company began limiting its
marketing efforts relating to its Merchant Check Services business in 1994 as a
result of poor collection performance and unfavorable contracts related to its
acquisitions in 1992 and in 1993. Revenue also declined in the Company's freight
services business as a result of a strike in the automobile industry and adverse
weather conditions. The Company processed 571.4 million transactions for the
three months ended March 31, 1996, representing a 12.1% increase over the
comparable period in 1995.
The composition of the Company's revenue for these periods is as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31,
-------------------
1995 1996
---- ----
<S> <C> <C>
Merchant Services............................................... 58.0% 56.9%
Corporate Services.............................................. 24.1 26.6
Travel Services................................................. 17.9 16.5
</TABLE>
Costs and Expenses. Consolidated costs and expenses increased $4.4
million, or 6.3%, to $74.0 million for the three months ended March 31, 1996
from $69.6 million during the comparable 1995 period. The expense increases
during the three months ended March 31, 1996 were comprised of several major
items, including a $2.9 million, or 28.0%, rise in merchant processing
assessment fees resulting from increased volume and an increase in fees charged
by VISA(R), and a $1.2 million, or 35.0%, rise in wages and benefits for hourly
employees in the remittance processing business as a result of the FDR
Remittance Acquisition. Other cost increases during the quarter were offset by
reductions in the uncollectible check expense and in certain administrative
expenses and wages for businesses other than remittance.
Uncollectible check expense declined $1.4 million, or 18.9%, to $6.0
million during the three months ended March 31, 1996 from $7.4 million during
the comparable 1995 period. The smaller uncollectible check expense reflected a
4.0% improvement in the collection rate on returned checks as well as a 9.0%
decline in dollar volume of guaranteed checks compared to the prior year period.
The increase in the collection rate was the result of customer mix changes,
improved check acceptance methodology and better collection practices while the
smaller dollar volume was due primarily to limiting check services marketing
efforts as described above.
Depreciation and amortization for the three months ended March 31, 1996 was
$2.8 million compared to $2.5 million for the comparable 1995 period, reflecting
an increase in the amortization of intangibles related to the FDR Remittance
Acquisition and depreciation related to purchases of property and equipment for
the Company's automated chargeback and retrieval systems.
Tax Provision. Income taxes for the first three months of 1996 were $4.3
million compared to $3.7 million for the comparable period in 1995. The Company
is included in the consolidated federal income tax return of National City. It
is National City's policy to allocate taxes to its subsidiaries on a separate
return basis. See "Certain Transactions -- Tax Allocation Agreement." The
Company has commenced a tax planning program designed to manage its tax
liability.
Net Income. Net income for the three months ended March 31, 1996 increased
13.5% to $5.9 million from $5.2 million for the three months ended March 31,
1995. The increase resulted from revenue growth and improved margins due to the
factors described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Consolidated revenue increased $19.8 million, or 6.2% to $339.3
million for the year ended December 31, 1995 from $319.5 million for the
comparable 1994 period. The increase was primarily due to revenue gains in
Merchant Services and Corporate Services which offset a small revenue decline in
Travel Services as a result of the devaluation of the Mexican Peso, which
reduced the Company's expense base under its cost-plus contract with the ARC.
Merchant Card Services revenue increased 16.7% in 1995 compared to 1994 due to
increased transaction volume. Corporate Services
22
<PAGE> 25
revenue growth of 7.6% was attributable to strong performances by electronic
imaging solutions ("Imaging Solutions"), freight services and remittance
operations, which realized revenue increases of 27.0%, 13.0% and 8.9%,
respectively, for the year ended December 31, 1995 over the comparable 1994
period. This growth more than offset a decline of 4.0% in Merchant Check
Services revenue during this period, resulting from management's limitation of
marketing efforts as described above. The Company processed 2.3 billion
transactions during the year, representing a 12.7% transaction volume increase
over the prior year.
The composition of the Company's revenues for these periods is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
-----------------
1994 1995
---- ----
<S> <C> <C>
Merchant Services................................................. 59.3% 60.8%
Corporate Services................................................ 23.5 23.8
Travel Services................................................... 17.2 15.4
</TABLE>
Costs and Expenses. Consolidated costs and expenses increased $10.2
million, or 3.6%, to $295.5 million for the year ended December 31, 1995 from
$285.3 million during the comparable 1994 period. The increase was primarily due
to higher levels of purchased services including merchant processing assessment
fees, which increased $14.3 million, or 19.8%, to $86.6 million during the year
ended December 31, 1995 from $72.3 million during the prior year. Partially
offsetting these increases, wages for hourly employees declined $3.1 million, or
5.4%, to $53.8 million for the year ended December 31, 1995 from $56.9 million
during the prior year, primarily due to transfer of work to Mexico and
devaluation of the peso.
Uncollectible check expense decreased $1.0 million, or 3.2% to $30.5
million for the year ended December 31, 1995 from $31.5 million during 1994.
This decrease resulted from a revision in collection rates which were estimated
at the time contracts were acquired by the Company, based upon actual collection
rates on returned checks.
Depreciation and amortization for the year ended December 31, 1995 was
$10.4 million compared to $9.6 million during 1994. This increase was primarily
due to additions to property and equipment related to the Company's data center
and the implementation of its merchant processing automated chargeback and
retrieval system.
Tax Provision. Income taxes for 1995 were $18.6 million, compared to $14.3
million for 1994. The Company is included in the consolidated federal income tax
return of National City. It is National City's policy to allocate taxes to its
subsidiaries on a separate return basis. See "Certain Transactions--Tax
Allocation Agreement."
Net Income. Net income for the year ended December 31, 1995 increased
33.7% to $25.8 million from $19.3 million for the year ended December 31, 1994.
The increase resulted from revenue growth and improved margins due to the
factors described above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Consolidated revenue increased $47.0 million, or 17.2%, to
$319.5 million for the year ended December 31, 1994 from $272.5 million for the
comparable 1993 period. The increase was primarily attributable to greater
transaction volume, which increased 19.5% over the prior year. The primary
sources of transaction volume increases were (i) Merchant Card Services, which
grew 18.9% in 1994 primarily as a result of industry growth; and (ii) the
acquisition of CTI, which more than doubled freight services volume.
23
<PAGE> 26
The composition of the Company's revenues for these periods is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
-----------------
1993 1994
---- ----
<S> <C> <C>
Merchant Services................................................. 60.9% 59.3%
Corporate Services................................................ 20.0 23.5
Travel Services................................................... 19.1 17.2
</TABLE>
Costs and Expenses. Consolidated costs and expenses increased $43.4
million, or 17.9%, to $285.3 million for the year ended December 31, 1994 from
$241.9 million during 1993. The increase was primarily due to higher operating
volumes. Purchased services, including merchant processing assessment fees,
increased $7.9 million, or 12.3%, to $72.3 million during the year ended
December 31, 1994 from $64.4 million during 1993. Wages for hourly employees
increased $7.3 million (including a $5.4 million increase in freight services as
a result of the acquisition of CTI), or 14.7%, to $56.9 million for the year
ended December 31, 1994 from $49.6 million during 1993.
Uncollectible check expense increased $3.6 million, or 12.9%, to $31.5
million during the year ended December 31, 1994 from $27.9 million during 1993.
This increase resulted from a revision in collection rates which were estimated
at the time contracts were acquired by the Company, based upon actual collection
rates on returned checks.
Depreciation and amortization for the year ended December 31, 1994 was $9.6
million compared to $7.4 million during 1993. The increase was primarily
attributable to increased amortization expense resulting from the acquisition of
CTI.
Tax Provision. Income taxes were $14.3 million for 1994 and $12.8 million
for 1993. The Company is included in the consolidated federal income tax return
of National City. It is National City's policy to allocate taxes to its
subsidiaries on a separate return basis. See "Certain Transactions--Tax
Allocation Agreement."
Net Income. Net income for the year ended December 31, 1994 increased
10.9% to $19.3 million from $17.4 million for the year ended December 31, 1993.
The increase resulted primarily from revenue growth.
SEASONALITY
The Company experiences seasonality in its businesses, particularly in its
Merchant Services and Travel Services business. The Company typically realizes
higher revenues in the third and fourth calendar quarters and lower revenues in
the first calendar quarter, reflecting increased transaction volumes and travel
in the summer and holiday months and a decrease in transaction volume during the
quarter immediately following the holiday season.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of capital resources include acquisitions,
capital expenditures and working capital.
The Company had no outstanding obligations associated with bank
indebtedness as of December 31, 1995 or March 31, 1996. The Company maintains a
$20.0 million borrowing facility with NCBK. This borrowing facility, typically
used to finance working capital requirements, bears interest based on NCBK's
internal cost of funds. In accordance with Section 23A of the Bank Holding
Company Act of 1956, as amended, this facility is fully secured by certain
assets of the Company. The Company intends to enter into a credit facility with
an unaffiliated lender or lenders prior to the Offering, which will replace its
existing borrowing facility.
Expenses associated with the Company's Mexican operations as well as the
Company's expense base under its cost-plus contract with the ARC are subject to
currency fluctuations. The Company
24
<PAGE> 27
regularly monitors its exposure to risk resulting from such currency
fluctuations and may take steps to minimize such risks as it deems appropriate
from time to time.
The Company's capital expenditures include amounts for computer systems
hardware as well as scanning and other document processing equipment. During the
year ended December 31, 1995, the Company's capital expenditures totaled
approximately $10.0 million. Such expenditures were financed from operating cash
flow, which totaled approximately $38.9 million before capital expenditures for
the twelve months ended December 31, 1995. Operating cash flow during the three
months ended March 31, 1996 totaled $17.0 million. Capital expenditures for 1996
(including expenditures totaling $3.5 million made in the first quarter of 1996)
are expected to be $10.8 million.
As the Company does not carry significant amounts of inventory and
historically has experienced short collection periods for its accounts
receivable, it does not require substantial working capital to support its
revenue growth. Working capital requirements will vary depending upon future
acquisition activity. Increases in working capital needs are expected to be
financed through operating cash flow and proceeds from the Offering. The Company
maintains cash balances held on behalf of clients pending distribution to
vendors which are shown on the balance sheet as assets and equivalent,
offsetting liabilities. These cash balances totaled approximately $55.8 million
and $51.5 million as of December 31, 1995 and March 31, 1996, respectively. From
time to time, the Company also maintains cash deposits from certain Merchant
Card Services customers as collateral for potential contingent liabilities that
are the responsibility of such customers. See "Business -- Risk Management." At
December 31, 1995, and March 31, 1996, the amount of such cash deposits was
immaterial.
It is expected that the Company's anticipated acquisitions will be funded
from the proceeds of the Offering, through the issuance of Common Stock, with
operating cash flow or with borrowed funds.
25
<PAGE> 28
BUSINESS
The Company is a leading provider of low-cost, high-volume transaction
processing services and customized processing solutions. Deploying technology
and applications software, the Company currently provides products and services
which include (i) processing of card and check transactions for merchants and
other commercial businesses ("Merchant Services"), (ii) outsourcing of
administrative and financial functions for corporations seeking to reduce
overhead costs ("Corporate Services"), and (iii) ticket processing and
settlement for providers of travel-related services ("Travel Services"). The
Company focuses in particular on the high-growth markets for Merchant Services
and Corporate Services by sustaining and enhancing its long-term customer
relationships, expanding its offerings of products and services, and
aggressively pursuing acquisitions.
In the Merchant Services market, the Company is the second largest
processor of merchant credit and debit card transactions and the third largest
provider of check acceptance and collection services in the United States,
according to published industry sources. Merchant Services represented
approximately 60.8% of the Company's revenues in 1995 and were provided to over
125,000 merchant locations. In the Corporate Services market, the Company
believes that it is one of the largest providers of outsourcing services in the
United States, processing more than 600 million transactions annually. The
Company's Corporate Services include accounts payable processing, remittance
processing, audit and funds settlement for freight-related charges and Imaging
Solutions. Corporate Services represented approximately 23.8% of the Company's
revenues in 1995. In its Travel Services market, the Company is the exclusive
processor and clearinghouse for all airline tickets issued by travel agents in
the United States and for the U.S. government. Travel Services, which accounted
for approximately 15.4% of the Company's revenues in 1995, also includes
processing services for air cargo sales, direct airline ticket sales and
passenger flight data. As a leading provider of Merchant Services, Corporate
Services and Travel Services, the Company's current customer base includes seven
of the top ten and 22 overall of the Fortune 100 companies.
The Company has experienced steady growth in both revenue and net income in
recent years, with revenue increasing from $272.5 million in 1993 to $339.3
million in 1995, representing a compounded annual growth rate of 11.6%. Over the
same period, net income has grown from $17.4 million to $25.8 million,
representing a compounded annual growth rate of 21.8%. A significant portion of
the Company's revenue results from long-term customer relationships. The Company
estimates that the tenure of its relationships with its 50 largest customers is
approximately ten years. The Company's net income has grown faster than revenues
through improvement in its margins as a result of continuous cost reduction
efforts and a greater mix of higher margin products. An important contributor to
the Company's cost reductions has been the use of low-cost international labor
markets. The Company established its initial presence internationally with the
opening of a processing facility in Juarez, Mexico in 1988. Over time, the
Company's Juarez operations have become increasingly significant, representing
43.8% and 31.5% of the Company's full-time employees during 1995 and 1994,
respectively.
INDUSTRY OVERVIEW
The transaction processing industry has experienced strong growth in recent
years, as acceptance and use of credit cards, debit cards and checks have grown,
and corporations have increasingly outsourced non-core administrative and
financial functions in order to reduce costs, capitalize upon advances in
technology, and enhance the quality and availability of management information.
This continuing growth has resulted in considerable competition in the
marketplace, while the costs of advancing technology, the efficiencies derived
from economies of scale, and customer demands for a broad product line have
caused rapid consolidation among transaction processing providers. The industry
is expected to continue to grow and consolidate.
26
<PAGE> 29
MERCHANT SERVICES MARKET
Payment processing for commercial businesses has grown rapidly in recent
years as a result of a proliferation in the uses and types of credit and debit
cards, wider acceptance of such cards among merchants and increased consumer use
of such cards. Advances in payment processing and telecommunications technology
have been a key factor contributing to such growth. The transition from
paper-based to electronic processing, for example, provides greater convenience
to merchants and consumers, reduces fees charged to merchants, and facilitates
faster, more accurate settlement of payments. According to industry
publications, consumer usage of VISA(R) and MasterCard(R) credit and debit cards
for purchases and cash advances in the United States was $574.5 billion in 1995
compared to $463.1 billion in 1994, representing an increase of 24.1%.
Transaction volume increased 22.3% during this same period, from 5.6 billion
transactions processed in 1994 to 6.9 billion transactions processed in 1995.
Despite this rapid growth, current estimates indicate that in 1994 only 17.3% of
all payment transactions were made using a credit or debit card, compared to
14.3% in 1990.
The market for check verification services has also demonstrated rapid
growth while the market for guarantee services has been relatively flat,
according to industry publications. The dollar volume of checks verified in 1995
increased 18.1% to $177.8 billion from $150.6 billion in 1994. In contrast, the
dollar volume of checks guaranteed in 1995 increased 4.5% to $48.7 billion from
$46.6 billion in 1994. However, it is estimated that only 33% of all checks
accepted in merchant locations throughout the United States are authorized
through a check authorization system.
The transaction processing market is generally characterized by three tiers
of merchants consisting of national, regional, and numerous local merchants. The
Company and one other transaction processor have primarily focused on servicing
national merchants, while many smaller transaction processors, such as ISOs and
regional banks, have offered a more limited range of services to regional and
local businesses. ISOs are independent agents that typically market and sell a
range of transaction processing services to merchants, generally outsourcing
such services. National merchants with multiple locations and high volumes of
card and check transactions typically demand and receive a broad range of
transaction processing services as well as customized information services at
low per-transaction costs. By contrast, regional and local merchants
historically have received more standardized products and have incurred
relatively higher per-transaction costs. However, the growth in check and card
transactions and the transition from paper-based to electronic transaction
processing have caused regional and local merchants increasingly to demand
sophisticated transaction processing and information services similar to those
provided by the Company to national merchants.
The transaction processing industry is extremely competitive, which results
in pricing pressure and creates the need for continuous investment in technology
both to satisfy customer demands and to reduce operating costs. The costs to
convert from paper-based to electronic processing, meet merchant requirements
for improved service, and satisfy the demands for additional technology-driven
applications have made it difficult for small scale transaction processors to
remain competitive. Many of these providers are unwilling or unable to invest
the capital required to meet these evolving demands and are increasingly leaving
the transaction processing business or seeking partners to provide the necessary
processing for their customers. As a result, the transaction processing industry
has undergone rapid consolidation over the last several years. According to
published industry sources, the three largest credit and debit card transaction
processors handled 49.5% of total credit and debit card sales volume for
calendar year 1995. In addition, according to published sources, the three
largest check acceptance processors handled 53.5% of the total check sales
volume authorized by third-party check acceptance providers for calendar year
1995. The remainder of these markets are highly fragmented among numerous
smaller transaction processors.
CORPORATE SERVICES MARKET
The market for the outsourcing of corporate administrative and financial
functions has also experienced strong growth in recent years. According to
industry sources, more than 67% of the 500
27
<PAGE> 30
largest companies in the United States outsourced one or more administrative
functions in 1993, compared to 25% of such companies in 1985. Outsourcing is a
relatively new phenomenon that before 1980 had been limited primarily to payroll
and remittance processing (the collection of bill payments) functions. Service
organizations, such as the Company, specializing in cost-effective, high-volume
transaction processing have emerged to assist businesses in their outsourcing
efforts as they seek ways to reduce overhead costs, improve the accuracy of
payments and collections, and utilize data more effectively. Advances in
technology and increased transaction complexity have made even large scale in-
house performance of administrative and financial functions comparatively less
efficient and outsourcing more attractive. In addition to payroll and remittance
processing, administrative functions currently outsourced include accounts
payable processing, freight cost audit and settlement, and database and document
management (through electronic imaging). The trend toward outsourcing is
creating additional market opportunities for providers like the Company, who
possess the scale of operations, broad product line and expertise to provide
low-cost processing services while simultaneously capturing management
information for use by the customer.
The corporate outsourcing marketplace is highly competitive with a few
relatively large, well capitalized providers and numerous smaller providers. The
cost advantages associated with large-scale processing, and the ability to
invest in new technology that delivers value-added services at lower per unit
costs have enabled large-scale providers to capture most of the transaction
processing and outsourcing requirements of large corporations.
BUSINESS STRATEGY
The Company's objective is to continue its growth and enhance its position
as a market leader in the transaction processing industry by serving markets for
Merchant Services, Corporate Services and Travel Services. The Company's
business strategy is comprised of the following principal components: (i)
penetration of new markets; (ii) expansion of customer relationships; (iii)
leveraging low-cost operations; and (iv) pursuing strategic acquisitions which
complement the Company's existing business lines. The Company's strategy for
each of the markets it presently serves is more fully described below.
<TABLE>
<CAPTION>
PENETRATE EXPAND LEVERAGE
NEW CUSTOMER LOW-COST PURSUE
MARKETS BASE OPERATIONS ACQUISITIONS
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
MERCHANT Hospitality Market card services Expand offshore Merchant portfolios
SERVICES to middle market operations
Grocery ISOs
Market check services Upgrade systems
Gaming to national market Technology providers
Deploy imaging
Cross-selling technology
CORPORATE Utilities Target regional Upgrade systems Competitors
SERVICES businesses
Financial services Expand off-shore Complementary
Cross-selling operation product lines
Healthcare
Deploy imaging Technology providers
technology
TRAVEL SERVICES Car rental Develop new Automate processing Technology
products for enhancements
Cruise lines hospitality industry
Hotels
</TABLE>
28
<PAGE> 31
MERCHANT CARD SERVICES
Penetrate New Markets. The Company's Merchant Card Services staff will
aggressively pursue industries such as the hospitality and grocery markets that
it has not previously served. To penetrate these new markets, Merchant Card
Services is expanding its sales team and entering into relationships with ISOs.
Expand Customer Base. Merchant Card Services will expand its customer base
by offering to regional and local merchants its products, which have been
targeted historically to national merchants. The Company intends to use its cost
advantages to compete for new middle-market merchant contracts with aggressive
pricing strategies. These contracts typically have higher per transaction
pricing than national customer contracts.
Leverage Low-Cost Operations. Already one of the low-cost providers in the
transaction processing industry, the Company's Merchant Card Services operation
is initiating new projects to further automate its operations. By continuously
investing in systems, operations and new technology, the Company will be able to
compete effectively in price sensitive markets. In 1995, the Company invested in
capital equipment and software to automate its chargeback and retrieval system,
which both reduced costs and improved customer service. In 1996 and 1997, the
Company will replace or upgrade substantial parts of its existing processing
systems in order to enhance customer service and further reduce costs.
Pursue Acquisitions. Merchant Card Services will seek acquisitions of
merchant processing portfolios and ISOs as well as strategic investments in
providers of technology to expand its offering of products and services. As the
second largest and one of the lowest-cost providers of payment processing
services, the Company believes that it is well positioned to participate in the
consolidation occurring within the card processing industry.
MERCHANT CHECK SERVICES
Penetrate New Markets. Merchant Check Services will pursue opportunities
in new markets such as the gaming industry where the Company perceives
high-margin growth opportunities. To support this effort, the Company will seek
to introduce database development and management tools that provide a
competitive advantage in the assessment of industry-specific risk factors. The
Company will also seek to establish partnerships with businesses that give it a
competitive advantage in the distribution of its products and services.
Expand Customer Base. The Company will attempt to expand the base of
customers served by Merchant Check Services by cross-selling to large, national
accounts currently served by Merchant Card Services. The Company will dedicate
part of its sales staff to pursuing opportunities that leverage existing
relationships.
Leverage Low-Cost Operations. Merchant Check Services will continue to
move its labor intensive operations to low-cost labor markets such as Juarez,
Mexico. The Company believes that this will continue to improve margins and
enhance the Company's ability to offer cost-effective solutions to its
customers. Merchant Check Services is also upgrading its systems and utilizing
imaging technology to improve customer service and reduce costs.
Pursue Acquisitions. Merchant Check Services will pursue acquisitions that
will provide technology and product enhancements, improve negative file and risk
management functions, and make point-of-sale processing easier for merchants.
CORPORATE SERVICES
Penetrate New Markets. Corporate Services will pursue outsourcing
opportunities in new industries such as utilities, financial services, and
health care which, due to deregulation or competitive pressures, are seeking
third-party providers for non-core administrative and financial functions. The
Company has added new products, such as Virtual PAY(TM) (which allows the
payment of bills over the Internet), to meet the needs of such markets on a
cost-effective basis. Corporate Services' use of imaging technology to
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access the Company's low-cost offshore processing provides a competitive
advantage in penetrating new markets.
Expand Customer Base. In addition to its national account base, Corporate
Services will offer integrated solutions to a growing number of regional
businesses that are seeking cost savings and improved access to management
information. Corporate Services has increased its sales force to address these
opportunities.
Leverage Low-Cost Operations. Using imaging technology, Corporate Services
will shift much of its labor-intensive operations to the Company's facilities in
Juarez, Mexico. This project requires software programming and capital
investments which are now underway with a technology partner. The margin
improvement from this shift will further improve the Company's strong
competitive position in these product lines.
Pursue Acquisitions. The Company will continue actively to pursue
acquisitions of existing operations that compete with the Corporate Services
businesses or complement existing product lines. The Company's acquisition
strategy will be based on enhancing its product offerings and the potential for
economies of scale and improved processing efficiency. Corporate Services will
also seek investments in technology firms to advance its imaging and database
management skills.
TRAVEL SERVICES
Penetrate New Markets. Travel Services is leveraging its knowledge of the
travel industry to provide settlement services to new industries such as
hospitality providers, cruise lines and auto rental businesses. The Company's
current work with travel agents and the airline industry uniquely positions it
to provide value-added services. For example, the Company is currently
developing a product for rental car companies and hotels that will allow them to
consolidate travel agent commission payments rather than distributing many
small-dollar-value payments individually.
Leverage Low-Cost Operations. The Company will substantially reduce labor
costs by offering automated solutions, such as its travel agent commission
payment plan.
Pursue Acquisitions. Travel Services will seek acquisitions and strategic
investments to enhance its technology base and assist in delivering electronic
solutions in new travel industry-related markets.
PRODUCTS AND SERVICES
The Company currently provides transaction processing products and services
in three principal markets: Merchant Services, Corporate Services and Travel
Services. For the year ended December 31, 1995, no Merchant Services or
Corporate Services customer accounted for more than 4.0% of the Company's
revenues. The Company believes that its customer relationships provide a
significant competitive advantage due to the high quality and low cost of its
operations.
MERCHANT SERVICES
The Company provides a variety of products and services to merchants to
facilitate the processing of transactions at the point of sale ("POS"), focusing
primarily on markets for credit card and debit card processing ("Merchant Card
Services") and for check acceptance and collection ("Merchant Check Services").
The Company processed 1,467.8 million Merchant Services transactions in 1995
compared to 1,128.0 million transactions in 1993, representing a compounded
annual growth rate of 14.1%. Merchant Services collectively accounted for
approximately 60.8% of the Company's revenues in 1995.
Merchant Card Services
The Company provides merchants with credit card, debit card and other
transaction processing services, as well as related information services and
product support. The market for Merchant Card Services has grown rapidly in
recent years as a result of wider merchant acceptance of cards, increased
consumer use of such cards and advances in transaction processing and
telecommunications technol-
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ogy. In 1995, the Company was the second largest transaction processor of
merchant debit and credit card purchases, with a 15.3% market share based on
sales volume. The Company's leading customers for Merchant Card Services include
several of the largest major national retailers and the largest oil company in
the United States, as measured by transaction volume. Additionally, Merchant
Card Services processes payments for six of the ten largest airlines in the
United States. The Company believes it is the lowest cost provider of credit and
debit payment processing services in the United States.
In the market for Merchant Card Services, information and services are
transmitted electronically among the Company, the merchant-customer, and certain
other parties involved in the payment processing system. The transaction cycle
includes authorizing card transactions at the POS, capturing data related to
transactions, settling transactions through the card associations on behalf of
the merchant and providing transaction reporting to the merchant. In the course
of processing an electronic transaction, numerous functions are performed
simultaneously over various proprietary and third-party national networks. This
transaction cycle is illustrated by the following diagram (numbers indicate the
order of steps in the transaction cycle):
CARD TRANSACTION CYCLE CHART
---------------
GRAPHIC CHART
---------------
The Company provides all of the services in the transaction cycle or
specific components of them on behalf of its customers and receives a fee,
typically on a per transaction basis, from merchants, whether national, regional
or local. With respect to regional and local merchants, the Company's pricing
differs from that of its competitors, who generally offer services priced as a
percentage of the transaction processed ("discount"). The Company's
transaction-based pricing insulates it from fluctuations in retail sales volume
per transaction, as the cost to process large and small transactions is the
same. As competition results in reduced fees being charged to regional and local
merchants, the Company believes its low-cost operations will become increasingly
beneficial. The Company is also increasing its use of marketing alliances with
ISOs to assist the Company in reaching regional and local merchants.
Electronic Authorization. The authorization and capture processes are
completed simultaneously, usually within 3-15 seconds. The authorization process
begins when the merchant "swipes" the card through its POS terminal and includes
obtaining approval from the card issuing bank for the cardholder's purchase at
the merchant location. Through third-party national networks available on a
subscription basis, the Company confirms that the cardholder has the available
credit to cover the purchase and
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verifies that the card has not been reported lost or stolen. As a large customer
of these networks, the Company is able to obtain such authorization information
on a favorable cost basis. In the event that the merchant is not able to connect
with the electronic network, the Company provides access to voice authorization
and automated voice response that is available 24 hours a day, seven days a week
through its new call center in El Paso, Texas.
Data Capture and Reporting. While the transaction is being processed, the
transaction data, including purchase price and card number, are captured both at
the merchant's POS terminal and at the Company. This redundancy maximizes
accurate transaction reconciliation with each merchant and protects against
potential loss of data. Periodically throughout the day, the Company aggregates
and organizes data from the merchant's POS terminal for use in settling
transactions and preparing reports for merchants. For certain national
merchants, the Company captures data via a "host-to-host" linkage with the
merchant's own mainframe computer which, in turn, allows the merchant enhanced
access to the Company's reporting capabilities on its proprietary systems. As a
result of the Company's high transaction volume and its efficient customized
reporting systems, the Company is able to provide data capture and reporting
services at a low cost per transaction.
Settlement and Clearing. Settlement involves managing a record of each
merchant's transactions and transferring funds for payment from the card issuer
to the merchant. The Company transmits transaction information to the
card-issuing bank through the card association, such as VISA(R) or
MasterCard(R), and arranges for funds to be transferred to the merchant's bank
account via Automated Clearing House ("ACH") or Fedwire transfer. The cardholder
is billed by the card issuer. Settlement payments, which are received by the
Company from a card association clearing bank and forwarded to the merchant, are
paid net of interchange fees payable to card issuers. For merchants who are
billed by the Company for processing fees on a daily basis, settlement payments
are also net of such fees. For merchants who are billed by the Company for
processing fees on a weekly or monthly basis, settlement payments are for the
gross amount of the merchant's transactions. In these cases, the Company then
bills the merchant on a weekly or monthly basis for its processing fees and for
fees payable to card issuers. For its customers who are billed weekly or
monthly, the Company bears the risk of merchant nonpayment of applicable fees
and assessments. See "Risk Factors -- Chargebacks; Risk of Nonpayment." The
Company attempts to convert merchants currently billed on a weekly or monthly
basis, usually due to their long-term relationships with the Company, to a daily
billing cycle upon the renewal of its contracts with such merchants. Each step
in the settlement process involves a number of procedures that must be completed
in accordance with VISA(R), MasterCard(R) and various card issuers'
requirements. See "-- Regulation." From the time of closing a batch of
transactions, the Company is generally able to credit the merchant's account
within 24 to 72 hours.
The Company, along with all other nonbank transaction processors that
process VISA(R) and MasterCard(R) transactions, must be sponsored by a financial
institution that is a principal member of the VISA(R)and MasterCard(R) credit
card associations in order to process bankcard transactions. Through NCBK, the
Company's clearing bank, the Company is registered with VISA(R) and
MasterCard(R) as a certified processor and member service provider under a
clearing bank arrangement. Following the Offering, NCBK will continue its
sponsorship of the Company through a sponsorship arrangement so that the Company
will remain registered with VISA(R) and MasterCard(R). See "Risk
Factors -- Visa(R) and Mastercard(R) Registration" and "Certain
Transactions -- Sponsorship Agreement."
Chargeback. In the event of a billing dispute between a cardholder and a
merchant, the Company as the "acquiror" of the transaction, assists the merchant
in investigating and resolving the dispute. If 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. See "Risk Factors -- Chargebacks; Risk of Nonpayment." The
Company provides a sophisticated chargeback control system for its merchants
that includes actively prescreening disputes and the
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use of proprietary software programs to automate chargeback controls. These
chargeback control systems are designed to reduce the total number of
chargebacks, as well as the time and expense that the Company and its merchant
customers spend on resolving them. The Company has received awards from VISA(R)
in 1993, 1994 and 1995, and from MasterCard(R) in 1995, as the most efficient
chargeback processor in its processing category, an award based on the ratio of
chargebacks to total transactions processed. In addition, the Company uses
various risk management and fraud avoidance practices to minimize its exposure
to potential losses in this area. See "-- Risk Management."
New Products. The Company devotes significant time and resources to the
development of new products for its Merchant Card Services business. The Company
is currently developing integrated processing technology called NPC Advantage,
which is a host-based, front-end processing platform providing for a single
point of interaction for a merchant to facilitate authorization, data capture
and settlement of all non-cash payments. In addition, the Company is developing
a PC-based merchant work station that provides on-line access to all processing
data in a flexible format for customized merchant reporting. In addition, as a
result of certain partnerships with other technology providers, the Company
offers POS products targeted to the retail food industry that permit data
capture relating to customer frequency, traits and other factors. The Company
has also developed a signature capture product which electronically captures a
customer's signature at the POS and stores it for future verification. This
digitized procedure eliminates paper storage and improves response time on
disputes, providing cost savings for the merchant. The Company has also recently
introduced the Compra(TM) terminal, a proprietary product which enables the
merchant to obtain credit, debit and check authorizations through one unit,
thereby achieving cost savings on counter space, telephone line installation and
hardware.
Customer Service and Support. The Company provides its merchant customers
with a variety of customer services and support. As part of the customer's
initial account applications process, business and technical representatives
explore opportunities to customize the Company's Merchant Card Services based on
the customer's business requirements. On-going 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. To ensure customer satisfaction, the Company maintains a
24-hour-a-day, seven-days-a-week helpline staffed by full-time customer service
representatives.
Merchant Check Services
The Company provides a variety of services to merchants that accept checks
as a form of payment. These merchants include large retail and specialty stores,
restaurants and home delivery services, mail order and hospitality businesses,
automobile dealerships and gaming establishments. Under the Company's Merchant
Check Services, the merchant may choose a check verification service, whereby
the merchant retains the risk associated with returned checks and is charged a
per transaction fee, or the merchant may choose a fully bundled check guarantee
service. The Company entered this business through the acquisition of Check
Security Services in June 1992 and JBS Associates in February 1993. The Company
has since consolidated these businesses into NPC Check Services, Inc., with its
principal office in Riverdale, New Jersey.
Check Authorization. Through its check authorization services, the Company
facilitates merchant acceptance of checks as a form of payment, thereby
increasing consumer payment options and merchant sales. When a check is
presented to the merchant, the merchant electronically transmits to the Company,
over various proprietary and third-party networks, all relevant transaction data
for check authorization. All data elements are captured by the merchant, either
by manually entering the pertinent information into the merchant's POS terminals
and cash registers or through the use of more sophisticated technology, such as
magnetic ink character recognition ("MICR") check readers, which electronically
capture relevant data elements. This technology facilitates the speed of POS
check-out and significantly improves the accuracy of merchant data capture.
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Depending on the level of service provided to the merchant, the transaction
data is cross-checked in the Company's negative database, which compiles
information concerning returned checks, uncollectible items and closed accounts,
as well as in its positive database, which compiles transaction data for
individuals who have presented checks without overdraft throughout the Company's
merchant base. These proprietary databases are updated daily from merchants,
financial institutions and other industry sources, as well as from the Company's
own experience in processing check transactions for over 75,000 customer
locations. The Company's closed account files, which cross-reference bank
account closings nationwide, are updated daily over a shared network provided by
a third-party vendor, as well as directly from financial institutions. On a
periodic basis, or if circumstances merit based on check velocity and the
merchant's customized parameters, the Company will obtain consumer credit
information from national credit reporting bureaus to augment its review
process. Before a transaction is approved, it may also be verified against
customized acceptance protocols established by the merchant and/or the Company.
These protocols vary but assist in diminishing the risk associated with
accepting checks from "unknown" checkwriters, who are not identified in the
Company's positive or negative databases.
Typically, the authorization process is completed in less than 15 seconds.
In addition, the Company maintains a fully staffed voice authorization center
and an automated voice response unit, both available 24 hours a day, seven days
a week. The authorization cycle is illustrated by the following diagram (numbers
indicate the order of steps in the authorization cycle):
CHECK AUTHORIZATION CYCLE CHART
-----------------
GRAPHIC CHART
-----------------
Check Verification. If a merchant subscribes to the Company's check
verification services, the merchant may choose to utilize all or part of the
Company's check authorization service. With the verification service, the
merchant retains the risk associated with returned checks and is charged a per
transaction fee dependent upon the level of authorization service that is
utilized.
Check Guarantee. If a merchant subscribes to the Company's check guarantee
services and complies with the Company's other standard procedures, the Company
charges the merchant a fee for all checks approved and, in exchange, the Company
will bear the risk of returned checks that are accepted by the merchant but
dishonored by the consumer's bank. The Company attempts to minimize its losses
from check guarantee services by requiring merchant customers to subscribe to
the Company's check authorization service. See "Risk Factors -- Potential Losses
from Check Guarantee Services." The
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Company sets fees for check guarantee services based on the credit profile of
the merchant's consumer base, the merchant's industry classification, products
sold, volume and average face value of checks accepted, and the merchant's prior
experience with check losses. If a merchant accepts a check that is ultimately
dishonored, whether for lack of funds or otherwise, the merchant collects the
full face value of the check from the Company, and the Company pursues
collection of the dishonored check and retains all proceeds from any recovery.
Through its check collection efforts, the Company recaptures a portion of the
amounts it pays to merchants pursuant to check guarantee services.
Check Collection. The Company assists merchants in reducing check losses
by providing collection services for dishonored checks. Check collection
services are often customized for the specific merchant's individual
requirements. In general, such services are provided under either a contingency
collection arrangement or a guarantee reimbursement arrangement. Under a
contingency arrangement, the Company will pursue collection on behalf of its
merchant in exchange for a service fee and/or a portion of the face value of the
checks that are collected. Under a guarantee arrangement, the Company purchases
returned checks from merchants at a discounted percentage of the face value. The
Company's rates for collection services vary depending upon characteristics of
the checks under collection, including the age of the returned checks,
characteristics of the relevant industry, reasons why the checks were returned,
and average face values. The Company's collection efforts are tailored to the
circumstances but generally include the use of customized letters, outbound
calling programs, bank letters and/or redeposit efforts, and, if necessary,
legal action. In a guaranteed reimbursement arrangement, the Company may itself
outsource the collection effort to regional collection agencies. See
"-- Regulation." Other returned check processing services are provided to
merchants on a customized basis.
New Products. The Company makes regular investments in product development
for Merchant Check Services. The Company has recently completed development of a
returned check concentration product, in which returned checks are
systematically routed to a centralized bank account. This product facilitates
negative file updates, merchant reimbursement and control over returned checks
and significantly reduces the banking fees that merchants pay for returned
items. Additionally, the Company has recently introduced customized negative and
positive files that focus on gaming industry patrons. The Company is also
investing in the development and implementation of an E-Check product, which
will convert checks into electronic ACH transactions at the POS, eliminating the
need to process a check through the banking system. The Company further plans to
implement image-based technology in the data capture of return items.
CORPORATE SERVICES
The Company currently provides outsourcing services for four major
corporate functions: remittance processing, freight bill processing, corporate
accounts payable and printing services, and Imaging Solutions. In providing
these services, the Company positions itself as an integrated outsourcing
solutions provider, and differentiates itself and adds value by capturing
operating and financial data to create databases that provide management
information that is typically not available when such functions are performed
internally. The Company's transaction volume in Corporate Services increased
from 266.7 million transactions in 1993 to 434.5 million transactions in 1995,
representing a compounded annual growth rate of 27.6%. Services are provided to
more than 500 customers in industries such as oil, passenger and cargo
transportation, financial services, manufacturing, health care, utilities,
retail and telecommunications. Corporate Services collectively accounted for
approximately 23.8% of the Company's revenues in 1995.
Remittance Processing Services
Remittance processing involves the acceptance of payments, typically
checks, received on behalf of a customer of the Company, as well as the related
clearing and settlement of the customer's accounts receivable. The Company
provides customers with remittance processing for payment transactions relating
to credit card purchases, utility bills or other kinds of invoice payments.
Because outsourced
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remittance processing services are generally cost effective and reduce the
customer's handling and overall collection time, the Company believes that the
market for such services will continue to expand.
Remittance payments are generally mailed directly to the Company at one of
four sites in the United States. Once received, the Company records and
processes the check and accompanying payment invoice, simultaneously capturing
the transaction documents on microfiche for archival purposes using high speed
scanners. Checks are power-encoded with MICR ink, facilitating deposit of the
item into a customer's bank account through automated procedures. These deposits
are then disbursed, customer accounts receivable files are updated and
customized electronic reports are generated for the customer. The Company also
provides a wide range of exception processing services for non-standard
payments, address change and various other customer service functions. According
to industry sources, the Company maintains the lowest error rate per hundred
thousand transactions in the industry. For providing remittance processing
services, the Company is paid a transaction-based fee that varies by complexity
of the documents handled during the processing function.
In December 1995, the Company purchased the existing remittance processing
assets of FDR and, concurrently, entered into a marketing alliance with FDR
whereby the Company will provide future FDR customers with remittance processing
services typically offered as part of a package of bundled services.
In January 1996, the Company began offering access to electronic payment
processing over the Internet through Virtual PAY(TM). This product is accessible
through the Internet Web site home pages of the Company or corporate customers
who subscribe to it and is customized for their needs. Virtual PAY(TM) uses
advanced encryption techniques to offer secure and convenient consumer access
to on-line bill paying capabilities. Because the Company markets Virtual
PAY(TM) to its corporate customers, the service is made available at no charge
to the consumer. The consumer may use Virtual PAY(TM) to pay by credit card or
by an electronically-generated check. Consumers can decide to use Virtual
PAY(TM) regularly or only as an occasional form of payment. This service may
be accessed from any location connected to the Internet and does not require
any additional software to be installed on the consumer's PC.
Freight Services
The Company provides a specialized form of accounts payable processing for
payments relating to freight bills. The Company maintains a comprehensive
proprietary database of tariff and negotiated rate structures in place
throughout the United States and internationally that vary by distance, weight,
freight class and other factors. This database allows the Company to provide a
range of value-added services and software products that permit customers to
reduce freight costs, enhance freight logistics and improve planning and rate
negotiations. The Company's freight payment processing activities generate more
than 40 million transactions annually, making the Company the market share
leader in freight payment processing as measured by volume of transactions. The
Company entered this market through the acquisitions of B&L Consultants, Inc. in
February 1992, and CTI Logistics, Inc. in January 1994. The Company expects
continued growth in demand for its freight services as the trend of outsourcing
corporate administrative services continues.
Approximately 45% of freight payment processing transactions are
electronic, using electronic data interchange protocols, while the remainder are
paper-based. Customers' freight bills are sent directly to the Company by both
domestic and international freight carriers. The Company audits these bills
prior to payment by reviewing the invoice, accompanying bills of lading, and
other supporting documents for content and accuracy and entering selected data
from these documents into the Company's proprietary rate verification system.
The Company's audit staff uses proprietary software to identify billing errors.
The software is designed to compare the actual rates charged for shipping with
the established freight rates housed in the system database in order to identify
billing errors and reject them for further processing and correction. The
Company's automated systems are able to perform a high volume of such tasks
quickly and accurately, reducing processing costs by focusing resources
efficiently and taking advantage of economies of scale. In this manner, the
Company generates savings for its customers that could not otherwise be realized
if processed by customers internally. The Company is paid a service fee,
typically on a per transaction basis, for each transaction processed on behalf
of its customers. The reductions in freight costs achieved by the Company
typically exceed the transaction fees charged, making this
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outsourcing service self-funding to the customer. Once freight bills are
verified for accuracy and approved, and upon receipt of the necessary customer
funds, the Company makes payment on behalf of its customers, further
streamlining the processing function.
In addition to processing services, the Company offers customers a variety
of proprietary, PC-based software applications such as PC Pro and Shipmaster
that are sold independently or can be used in conjunction with the Company's
services. These products allow customers to access real-time information
relating to the status of shipments and freight bill payments, permitting
customers to enhance the quality of their in-house freight management systems.
This also permits the Company to tailor its outsourcing services to meet the
customer's requirements. The Company continues to develop new software products
to meet the needs of its customers.
Corporate Payables and Printing Services
The Company offers accounts payable payment processing services that
consist of accepting, reviewing and making payments on invoices issued to the
Company's customers. The Company offers a wide range of value-added outsourced
services based on capturing customers' accounts payable data, and matching and
verifying the accuracy of customers' purchase orders against vendors' invoices,
receiver documents and other supporting paperwork. The Company is the largest
provider of accounts payable outsourcing in the United States, processing more
than 30 million accounts payable transactions annually. The Company entered this
market in 1989 through internal efforts and in July 1991 through the acquisition
of Consolidated Data Technology.
Following guidelines established by the Company's customers, skilled
payment processors review documents for accuracy, verify discounts earned and
other arrangements established between customers and their vendors, enter
appropriate data and prepare accounts for payment. Once payment is approved
based on terms established by the customer, checks are printed and payments are
distributed. Because of the nature of the accounts payable process, many of the
Company's customers request payment processing activities to be conducted
through customer-owned systems accessed by the Company through data lines and
terminal emulation. The Company's advanced capabilities in this area permit
real-time updates to customers' general ledgers and open accounts payable files,
enhancing the timeliness and quality of information available to the customer.
Additionally, the Company provides vendor call center support to answer payment
status queries and to research questions about invoice processing. The Company's
expertise in processing accounts payable transactions permits customers to
re-engineer their procurement process and materials flow, avoid late payments
and associated penalties, verify the accurate crediting of vendor discounts,
eliminate duplicate payments and reduce internal overhead and printing costs.
The implementation of image processing by the Company provides customers access
to CD-ROM retrieval of documents in electronic form.
In addition to payables processing, the Company offers high-speed,
high-resolution printing services for payroll checks, account statements,
invoices, purchase orders, coupons and other customized paper-based output. The
Company prints more than 13 million payroll checks and over one million
customized reports per year.
Imaging Solutions
The Company offers electronic imaging services that provide customers with
the ability to convert paper-based transactions into a more efficient electronic
format, thereby reducing overhead costs. In providing such Imaging Solutions,
the Company processes data from 600,000 images daily and handles 500 million
transactions annually. The Company provides customized Imaging Solutions to
improve customers' cost controls and management systems by reducing transaction
cycle time, improving financial and business information and enhancing employee
productivity.
The Company offers, via Imaging Solutions, various data capture services
including: data warehousing for archival purposes; customer service support for
claims processing and order fulfillment; application and enrollment processing;
and credit database management. These services are offered to airlines
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and financial institutions, among others. For example, using software developed
by Andersen Consulting, the Company currently provides services to airlines
seeking to verify airfare accuracy. Additionally, the Company has developed
software internally to service its airline industry customers. Tickets are
scanned to create an electronic image, data elements are captured at the
Company's facilities in Juarez, Mexico, and rates are then compared to
established airline fares maintained in the Company's database. Using the
Company's account settlement and reporting skills, the Company's Imaging
Solutions specialists then generate customized revenue reports for accounting
purposes. As the Company develops advanced technology applications for image
processing, it expects opportunities for such applications to become
increasingly significant, both as products to offer its customers and as a
technology that can be exploited internally to the benefit of the Company's
overall operations. By accessing low-cost labor markets that permit efficient
use of imaging technology, the Company expects to capitalize on future demand
for Imaging Solutions. See "-- Business Strategy."
The Company is currently developing image-based products that will permit
customers' documents to be scanned and transmitted for data entry at an offshore
processing site. These products will enable the Company to provide customers
with low-cost processing solutions as well as image-based archival and retrieval
services, creating customer opportunities for dramatic efficiency improvements.
TRAVEL SERVICES
Through an exclusive long-term contract with the Airlines Reporting
Corporation ("ARC"), a corporation formed and owned by the airline industry, the
Company acts as processor and clearing house of all airline ticket payment
transactions generated by travel agents in the United States. The Company has
been the exclusive ticket processor for the ARC since 1987. The Company is also
the exclusive provider of similar processing services for airline tickets issued
to U.S. government agencies and the armed forces, as well as air cargo sales
made by independent cargo agents. In addition, the Company processes audit
coupons for tickets sold directly by several commercial airlines. The Company
processed 374.1 million Travel Services transactions in 1995 compared to 296.3
million transactions in 1993, representing a compounded annual growth rate of
12.4%. These Travel Services are provided through two facilities in the United
States and the Company's facilities in Juarez, Mexico. Travel Services
represented 15.4% of the Company's revenues in 1995.
In fulfilling its obligations pursuant to the ARC contract, the Company
captures travel agent transaction information electronically through the various
computerized reservation systems ("CRS") for the airline industry. Captured data
is stored and compared to sales reports (which must include copies of tickets
issued) received weekly from all U.S. travel agents to verify sales reporting
accuracy. In processing the transaction, the Company ensures that travel agent
commissions are calculated accurately and that proper remittance is made to the
airlines. The accuracy rate for all significant processing categories is 99.5%
or better. The Company's accuracy rate permits it to meet its responsibility for
ensuring accurate settlement of over $60 billion annually, representing
approximately 85% of each airline's cash flow.
The Company processes the payments distributed to the respective airlines
and, in some cases, to travel agents. In the settlement process for non-credit
card transactions, the Company debits each agent's account in an amount equal to
the purchase price of the tickets sold by such travel agent in non-credit card
transactions during the relevant period, less commissions owed to the travel
agent for both credit card and non-credit card transactions during the period.
Amounts debited are then credited to the accounts of the relevant airlines. For
credit card transactions, the card issuer is billed on behalf of the airline and
the card issuer is thereby notified to post the transaction to the cardholder's
account. Credit card transactions are then settled in accordance with the
procedures of the card sponsor. Through this process, the Company serves the
needs of the approximately 47,000 authorized travel agency locations throughout
the United States. The Company also provides similar payment processing services
for tickets sold directly by the airlines. In those cases, the movement of funds
for non-credit card transactions is not required since the funds already reside
with the airline. For credit card transactions, and other processing services
such as itinerary capture, the Company offers customized services based on the
requirements of
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<PAGE> 41
each airline. Further, the Company's vast database of information allows it to
offer additional value added services, including form processing, usage tracking
and database management.
The Company is compensated on a "cost plus" basis under its contract with
the ARC, which expires in December 2001. The Company expects that, due to cost
reductions, revenues received under this contract will decline as the ARC moves
to a paper-free reporting system, which implements a program designed to reduce
the labor cost required to process paper transactions. Pursuant to this
contract, the Company has also completed certain projects for which it has
earned revenue and profit bonuses in the past three years that will not be
available after 1996. The Company expects that the effect of the loss of these
bonuses and the reduction in labor costs will reduce net income associated with
the ARC contract by approximately $2.0 million in 1997 and that additional cost
reductions will reduce net income associated with the ARC contract by an
additional $500,000 in each subsequent year through the end of the current
contract term. See "Risk Factors -- Potential Consequences of Certain Contracts"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company also has exclusive contracts to provide similar services and
settlement procedures for the processing of airline tickets issued for U.S.
government agencies and the armed forces, as well as air cargo sales made by
independent air cargo agents. As with passenger sales, the airlines provide a
"settlement plan" system to obtain data and funds from agency locations that
sell government and cargo transportation. The processing for government sales is
similar to the passenger ticket processing described above. In the case of cargo
sales, these transactions involve the processing of air waybills rather than
passenger tickets. Over time, the Company expects this product to transition
from paper reporting to electronic reporting but anticipates participating fully
in this transition with its customers.
Processing and settlement services in connection with government ticket and
air cargo sales are generally priced on the basis of accounts or transactions
processed. These services are provided pursuant to written contracts that will
expire by their terms over the next one to two years but which also contain
provisions that either permit the customer to renew the contract or that
automatically extend the term unless either party takes affirmative action to
terminate such contract.
An additional product the Company provides directly to leading airlines is
the processing of passenger flight data needed to reconcile the airlines'
financial accounting. As passengers present tickets for air travel, the airlines
must record the flight coupons as proof of their earned revenues. From its
facilities in Juarez, Mexico, the Company offers processing services that
capture the required data from flight coupons, which are collected by airlines
at the gate and forwarded in bulk to the Company. The Company also has contracts
with certain airlines for processing direct ticket sales. The revenues resulting
from these two products are also expected to decline in value over the next
several years as the result of "ticketless" air travel. The Company hopes to
offset this reduction with new customer volume by consolidating all residual
paper ticket processing for airlines.
New Products. In an attempt to minimize the impact of expected reductions
in the revenues generated by Travel Services, the Company intends to launch new
products. For example, the Company is currently developing a product for auto
rental companies and hotels which will allow them to consolidate travel agent
commission payments rather than distributing many small-dollar-value payments
individually. The Company believes that, as a leader in providing transaction
processing and related services, it can develop other services which will be
attractive to travel industry participants.
INTERNATIONAL OPERATIONS
In international markets, the Company's strategy is to follow major
customers overseas, providing them with transaction processing and customized
processing solutions. The Company currently provides services on a selective
basis to customers in Mexico and Canada. The Company will investigate strategic
partnerships in other international markets as appropriate opportunities arise.
As part of its strategy to enhance growth by reducing labor costs, in 1988
the Company established operations in Juarez, Mexico, located approximately ten
miles from the Company's office in El Paso,
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<PAGE> 42
Texas. By utilizing advancements in high-speed imaging technology to transmit
manually-intensive paper-based transactions, the Juarez facilities permit the
Company to reduce operating costs by accessing low-cost labor markets. All of
the Company's Imaging Solutions processing is currently performed at Juarez, as
well as a significant portion of its Travel Services and Merchant Check Services
processing.
To support these operations, the Company maintains redundant data and voice
transmission networks, including multiple private, direct-access microwave
links. The Company trains clerical workers in the use of its technologies and
systems and in other aspects of its operations. As part of its strategy to
continue to emphasize its low-cost operation, the Company intends to increase
the use of its operations in Juarez and also intends to seek other opportunities
to expand its presence in low-cost international labor markets. See "-- Business
Strategy."
SALES AND MARKETING
The Company markets its products and services through traditional marketing
techniques, sales personnel located throughout the United States and newly
evolving communications methods on the Internet. The Company's sales
representatives specialize in particular services offered by the Company,
relevant product technology and the requirements of customer markets. Each sales
representative is responsible for staying abreast of developments in these
areas. In order to enhance its sales and marketing efforts, the Company hires
sales representatives who have significant experience in the industries served
by the Company.
The Company's sales force is made up of 170 sales, marketing and customer
service professionals for Merchant Services, Corporate Services and Travel
Services. Sales representatives are informed about all the Company's services
and products in order to facilitate cross-selling of products and services. To
facilitate communications across its geographically dispersed organization, the
Company uses Goldmine(R), an online customer contact system providing access to
real-time information about customers and prospects.
Through its network of sales professionals, the Company identifies
potential users of its products and services and tailors its marketing programs
to those potential users. The Company participates in industry and trade
associations and pursues strategic alliances with niche participants in various
industries.
Merchant Services is increasing its use of ISOs as an alternative marketing
channel. ISOs are independent sales organizations that target regional and local
merchants which historically have not been served by the larger Merchant
Services providers. ISOs typically resell a third party's transaction processing
services on a non-exclusive basis. ISOs set fees independently, retaining the
residual fee after paying the third-party processor. The Company expects that
ISO partnering will be an increasingly significant component of its Merchant
Services marketing efforts. In this regard, the Company recently established an
ISO relationship that will facilitate offering services to the hospitality
industry.
The Company's future marketing strategy is to develop a differentiated
brand identity for appropriate products. Through this strategy, the Company
intends to launch new products effectively and promote its services
aggressively.
With respect to its provision of products and services, the Company enters
into written contracts with most of its clients, generally having an initial
multi-year term and providing for frequent renewal thereafter. The notice
requirements for termination of these contracts vary.
RISK MANAGEMENT
As a result of the Company's exposure to potential liability for merchant
fraud, employee fraud, chargebacks, guaranteed checks and other losses created
by its Merchant Services business, the Company views its risk management and
fraud avoidance practices as integral to its operations and overall success.
Risk management and fraud avoidance occur initially at the account application
stage,
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<PAGE> 43
when the merchant's account application is reviewed by the Company against
certain proprietary criteria to determine acceptance or denial. These criteria
include the credit history of the applicant, the industry in which the applicant
conducts business, the Company's experience with the applicant and various other
factors. In certain instances, guarantees or contractual covenants may be
required before an application is approved. From time to time, the Company
maintains cash deposits from certain customers as collateral for potential
contingent liabilities and payment obligations that are the responsibility of
such customers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
In its risk management and fraud avoidance practices, the Company leverages
its more than twenty-five years of experience in processing merchant and
corporate administrative transactions. Compiling data from public records,
industry sources and the more than three billion transactions it processes
annually, the Company captures database information about approved and declined
transactions, closed accounts, credit use history and other proprietary and
publicly available information. This database allows the Company to examine
proposed transactions for fraudulent practices before funds are transferred to
or on behalf of customers. If potentially fraudulent activity is identified, the
Company analyzes and reviews the suspect transactions to resolve potential
problems. Often, problems can be resolved before funds are ultimately
transferred.
If the Company believes an extensive review of a transaction or series of
transactions is required, 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.
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.
The Company also employs fraud avoidance specialists with substantive
expertise in the Company's business. Based on information from industry sources,
the Company believes that its fraud unit has been highly successful in detecting
and preventing internal and external potential misconduct. In the past, to the
best of the Company's knowledge, there have been no material instances of
fraudulent misconduct by employees. Despite the Company's risk management and
fraud avoidance capabilities, the Company is unable to identify all fraudulent
activity which may result in financial exposure to the Company.
COMPETITION
The Company faces significant competition in most of its markets. The
following summarizes certain competitive factors in each of the markets served
by the Company.
Merchant Services. The Company's merchant card processing business
competes against several other national service providers and banks that provide
these services to their merchant customers. The transaction processing market is
generally characterized by three tiers of merchants consisting of national,
regional, and numerous local merchants. The Company and one other transaction
processor have primarily focused on servicing national merchants, while many
smaller transaction processors, such as ISOs and regional banks, have offered a
more limited range of services to regional and local businesses.
Uniform interchange requirements and VISA(R) and MasterCard(R) compliance
rules limit significant pricing variances among processors. Price remains,
however, a significant competitive factor among providers, creating the need for
continuous investments in technology to satisfy customer demands and reduce
operating costs. Many small scale providers cannot reduce costs sufficiently and
are leaving the transaction processing business. As a result, the transaction
processing industry has undergone rapid consolidation over the last several
years. According to published industry sources, the three largest credit and
debit card transaction processors handled 49.5% of total credit and debit card
sales volume for calendar year 1995 (when two of the three largest payment
processors merged). The Company is ranked as the second largest payment
processor and believes it processed 15.3% of total sales volume in calendar year
1995. Additional competitive factors include customer service, product offerings
and
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<PAGE> 44
features, processing speed and systems reliability, which the Company believes
are critical considerations for merchants when selecting a transaction
processor. The Company also faces competition from VISA(R) and MasterCard(R),
who have recently entered into joint ventures to provide card transaction
processing services.
The market for the Company's check services business is also highly
competitive. According to published industry sources, the three largest check
acceptance processors handled 53.5% of the total check sales volume authorized
by third-party check acceptance providers for calendar year 1995. During this
period, approximately one-half of those merchants who used an acceptance system
subscribed to the services of a third-party provider, while the other half
generally used an internal system. The Company is ranked as the third largest
provider and believes it processed 11.3% of the total check sales authorized by
third-party processors in 1995. The two largest competitors of the Company
processed 30.4% and 11.8% of the total check sales authorized by third-party
processors, respectively. The Company competes principally with these two other
national services providers primarily on the basis of price, product offerings
and customer service.
Corporate Services. The market for the outsourcing of corporate
administrative functions is highly competitive and consists of a few relatively
large, well capitalized providers and numerous smaller providers. The Company
also faces competition from current and prospective customers, who evaluate the
Company's capabilities against the merits of performing services internally. The
cost advantages associated with large-scale processing, and the ability of
high-volume processors to invest in new technology that delivers value-added
services at lower per unit costs, have enabled large-scale providers to capture
most of the transaction processing and outsourcing requirements of large
corporations.
Among the several markets of outsourced administrative functions, the
market for the Company's remittance processing services is highly competitive.
The principal basis of competition in this market is reliability, quality of
services provided and price. The Company believes that its quality controls,
which have resulted in the Company's error rates being significantly lower than
the industry average, constitute a competitive advantage in this market.
In the market for payables processing and freight payments processing, the
Company competes with other specialized payables and freight service processors.
Competition is based primarily on price, quality of processing, data capture
features for accessing management information, and other product features. With
respect to freight payment processing, the Company competes against numerous
independent, mid-sized payment processors who generally lack the Company's scale
of resources. Competitive factors include price, database quality, and customer
service. The Company believes that it is an industry leader in each of these
areas and that it is the largest provider of payables processing and freight
payment services in the United States.
In the market for Imaging Solutions, the Company competes against large
system integration companies that develop image processing products. Many of
these competitors possess technical and financial resources that are equivalent
or superior to those of the Company.
Travel Services. The Company is currently the exclusive processor of
airline tickets sold by travel agents throughout the United States, for the
federal government and military agencies, and air cargo sales made by U.S. air
cargo agents. These services are provided pursuant to contracts which have terms
of varying durations. See "-- Products and Services -- Travel Services." The
Company has been successful in maintaining its exclusive provider relationships
for over ten years, and the Company believes there are only a few other
companies that can compete for this high-volume processing business.
REGULATION
As a result of National City's ownership interest in the Company and until
National City no longer has a controlling interest in the Company, the Company
is subject to certain Banking Laws. For example, the Company is subject to the
supervision and examination of the Board of Governors of the Federal Reserve
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<PAGE> 45
System ("FRB"), one of the principal regulatory bodies having jurisdiction over
National City. The FRB reviews acquisitions and new businesses to be engaged in
by the Company, and the FRB's written approval is required in order for the
Company to consummate a material acquisition. Pursuant to the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Act"), the Company shall not
engage in any activity, or own, control, or have the power to vote more than 5%
of any class of voting security of any company engaged in any activity (i) for
which the Bank Holding Act requires a bank holding company to receive prior
approval from the FRB without such approval having been obtained, or (ii) that
would cause the Company or any affiliate of the Company to violate any
regulation, administrative order, or court order made pursuant to the Bank
Holding Act. If at any time it is determined that an activity conducted by the
Company or any subsidiary does not comply with the requirements of the Bank
Holding Act, the Company is required to take all reasonable steps to cease such
activity, or to divest any ownership or control position. If National City is
unable to obtain the necessary consent or approval necessary for any business
activity substantially different from those business activities the Company
currently conducts, then the Company may not engage in any of those new business
activities or proceed with the contemplated acquisition of a business that would
engage in such new activities. The Company does not believe, however, that
either the Banking Laws or the Bank Holding Act will impede significantly the
manner in which the Company intends to conduct its business or its product and
service offerings, although there can be no assurance that the Banking Laws or
Bank Holding Act will not have such an effect.
The Company is engaged in check guarantee and collection services. As such,
the Company is subject to certain consumer collection laws, orders and
regulations (collectively, "Consumer Laws") and the laws of the various states
in which such activities are conducted, which, among other things: (i) require
the Company to obtain and maintain certain licenses and qualifications; (ii)
limit the fees and other charges the Company is allowed to charge; and (iii)
require specified disclosures. The Company is also subject to various other
federal, state, local and foreign laws, orders and regulations applicable to the
Company's operations in the jurisdictions where it conducts business. Where
applicable, regulators and other persons are authorized to seek remedies against
entities such as the Company for violations of such laws, including the Consumer
Laws.
Through NCBK, which serves as a member bank for the Company, the Company is
registered with VISA(R) and MasterCard(R) as a certified processor and member
service provider. As a result, the Company must adhere to the standards of the
VISA(R) and MasterCard(R) credit card associations or else risk suspension or
termination of its designation and/or status. There can be no assurance that (i)
VISA(R) and MasterCard(R) will maintain the Company's registrations; (ii) the
current VISA(R) and MasterCard(R) rules allowing the Company and other nonbank
transaction processors to market and provide transaction processing services
will remain in effect; or (iii) VISA(R) and MasterCard(R) will continue to
interpret their rules as they have done in the past, which may have an impact on
the Company's business operations.
EMPLOYEES
As of March 31, 1996, the Company had 5,564 full-time employees. Of these,
170 employees were engaged in marketing, sales and customer service, 5,006 were
engaged in operations and systems development and 388 were corporate and general
administrative employees. There were 1,419 employees based in Louisville,
Kentucky, the location of the Company's principal executive offices and one of
its main operations centers. The Company has two other principal operations
centers, located in Phoenix, Arizona, and Juarez, Mexico, at which 441 employees
and 2,438 employees were based, respectively. Remaining employees, which include
marketing and sales personnel, were based at various offices and processing
centers throughout the United States. The Company's employees are not
represented by a collective bargaining agreement, and the Company has not
experienced any work stoppages. The Company views current employee relations as
satisfactory.
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PROPERTIES
The Company leases its principal executive offices and processing facility
in Louisville, Kentucky, consisting of approximately 178,000 square feet, from
NCBK. See "Certain Transactions." The Company's lease for the Louisville
facility is scheduled to expire on August 31, 2019. The Company also leases its
operations center in Phoenix, Arizona and certain of its facilities in Juarez,
Mexico. The Phoenix facility consists of approximately 50,000 square feet, the
lease on which expires on July 31, 1998. The Company's Juarez operations
utilized 163,000 square feet in the aggregate, divided among three separate
parcels as follows: 50,000 square feet is owned by the Company; 68,000 square
feet is subject to a lease that will expire on February 28, 1998; and 45,000
square feet is subject to a lease that will expire on March 31, 2001. The
Company's other processing facilities have varying lease expiration terms and
range in size from 3,944 square feet to 41,300 square feet and are located
throughout the United States and Canada. The Company's 26 marketing and sales
offices have varying lease expiration terms and range in size from 100 square
feet to 9,000 square feet and are located throughout the United States. All
properties leased by the Company are in good repair and suitable condition for
the purposes for which they are used.
LEGAL MATTERS
Various legal actions arising in the ordinary course of business are
pending against the Company. None of the litigation pending against the Company,
individually or collectively, is expected to have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ---- ------------------------------------------------------------
<S> <C> <C>
Tony G. Holcombe............ 40 President, Chief Executive Officer and Director
Richard A. Alston........... 40 Executive Vice President, Finance and Corporate Development
Robert E. Johnson........... 50 Executive Vice President, Travel Services
Kurt S. Knipp............... 39 Executive Vice President, Merchant Card Services
Thomas A. Wimsett........... 32 Executive Vice President, Merchant Check Services
David R. Zook............... 45 Executive Vice President, Corporate Services
William R. Robertson........ 54 Chairman of the Board of Directors
James R. Bell III........... 39 Director
Robert G. Siefers........... 50 Director
Delroy R. Hayunga........... 52 Director
</TABLE>
Mr. Holcombe has served NPC as Chief Executive Officer and a Director since
1995, as President since 1994 and as Executive Vice President, Corporate
Services from 1991 through 1994. Mr. Holcombe also serves as a director of NCBK.
Prior to joining the Company, Mr. Holcombe served for two years as a management
consultant with Ernst & Young LLP, a national accounting firm, and for six years
as a Vice President with C&S Banks.
Mr. Alston has served NPC as Executive Vice President, Finance and
Corporate Development since 1994. Prior to joining NPC, Mr. Alston served for
over three years as President of Alston Associates, a strategic consulting firm,
and for over five years as Senior Vice President of Sealy Inc., a mattress
manufacturer. Mr. Alston also serves as a director of Opcode Systems, Inc.
Mr. Johnson has served NPC as Executive Vice President, Travel Services
since 1987. Prior to joining NPC, Mr. Johnson served in various capacities for
19 years with Eastern Airlines. Mr. Johnson was also a member of the Board of
Directors for the Agent Reporting Plan in Puerto Rico.
Mr. Knipp has served NPC as Executive Vice President, Merchant Card
Services since 1995. Prior to joining NPC, Mr. Knipp served with National
Bankcard Corporation, a credit card processor, as Senior Vice President, Finance
from 1994 through 1995 and as Vice President, Finance from 1990 through 1994.
Mr. Wimsett has served NPC as Executive Vice President, Merchant Check
Services since 1995. Mr. Wimsett has served in various management positions with
NPC since 1985 including Senior Vice President, Merchant Check Services; Vice
President, Remittance Processing and as Operations Manager for the Juarez and
Louisville facilities.
Mr. Zook has served NPC as Executive Vice President, Corporate Services
since 1995 and in various other management positions since 1988. His most recent
roles include Executive Vice President, Merchant Check Services and Executive
Vice President, Administration. Prior to joining NPC, Mr. Zook was a senior
manager with First Bank Systems.
Mr. Robertson has served NPC as a Director since 1988 and Chairman of the
Board since 1996. Mr. Robertson has served National City as President and a
director since 1995 and as Deputy Chairman and director from 1987 through 1995.
Mr. Robertson also serves as a director of Capitol American Financial
Corporation.
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Mr. Bell has served NPC as a Director since 1996. Mr. Bell has served NCBK
as a director and Vice Chairman since 1995, President and Chief Executive
Officer since 1996 and Executive Vice President from 1994 through 1995. Mr. Bell
also served as Senior Vice President for National City Bank, an affiliate of
National City, from 1989 through 1994.
Mr. Siefers has served as a Director of NPC since 1996. Mr. Siefers has
served as Executive Vice President and Chief Financial Officer of National City
since 1991. Mr. Siefers currently serves as a director of Health Care &
Retirement Corporation, an integrated long-term health care provider.
Mr. Hayunga has been a Director of NPC since 1985. Mr. Hayunga served as
Chief Executive Officer of NPC from 1985 to 1995. Mr. Hayunga currently serves
as President of SVS, a wholly owned subsidiary of National City.
The Board of Directors intends to appoint two independent directors as soon
as practicable following the Offering. The size of the Board of Directors is
fixed at not less than five nor more than nine members, divided into two or
three classes serving for staggered terms depending on the number of classes,
with each class of directors holding office until the annual meeting of
shareholders in the year their respective term ends, at which time their
successors are elected. The Board of Directors will establish a standing Audit
Committee and Compensation Committee. The functions of the Audit Committee will
include recommending to the Board of Directors the retention of independent
auditors, reviewing the scope of the annual audit undertaken by the Company's
independent auditors and the progress and results of their work, and reviewing
the financial statements of the Company, its internal accounting and auditing
procedures, as well as its corporate program to ensure compliance with all
applicable laws. The functions of the Compensation Committee will include
reviewing and approving executive compensation policies and practices, reviewing
salaries and bonuses for certain officers of the Company, administering the
Company's 1996 Stock Option Plan and considering such other matters as may from
time to time be referred to the Compensation Committee by the Board.
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<PAGE> 49
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning
compensation earned by the Company's Chief Executive Officer and the five other
most highly compensated executive officers for the year ended December 31, 1995
as well as its former Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------
------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING ALL
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ OTHER
POSITION YEAR SALARY BONUS COMP AWARD(S) SARS COMP
- ------------------------------- ---- --------- -------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tony G. Holcombe 1995 $ 225,000 $138,600 10,000 23,277(1)(2)
President and
Chief Executive Officer
Richard A. Alston 1995 142,034 72,800 5,000 64,852(3)
Executive Vice President,
Finance and Corporate
Development
Robert E. Johnson 1995 157,500 70,200 4,000 30,938(1)(2)
Executive Vice President,
Travel Services
Kurt S. Knipp 1995 149,452 90,800 5,000 131,587(3)
Executive Vice President,
Merchant Card Services
Thomas A. Wimsett 1995 103,833 58,000 3,500 17,413(1)(4)
Executive Vice President,
Merchant Check Services
David R. Zook 1995 157,500 190,000(2)(5) 7,000 69,665(1)(2)(6)
Executive Vice President,
Corporate Services
Delroy R. Hayunga 1995 245,417 220,000 $4,800 (7) 10,500 49,216(1)(2)(8)
Former Chief Executive Officer
</TABLE>
- ---------------
(1) All Other Compensation includes the Savings and Investment Plan and
Executive Savings Plan matching and profit sharing components. For the year
1995 each of the named executive officers were credited with the following
matching and profit sharing amounts: Tony G. Holcombe, $16,873; Robert E.
Johnson, $12,740; Thomas A. Wimsett, $7,413; David R. Zook, $12,749; and
Delroy R. Hayunga, $20,438.
(2) Includes premium for participation in the Split Dollar Life Program paid by
the Company on behalf of the following individuals: Tony G. Holcombe,
$6,404; Robert E. Johnson, $18,198; David R. Zook, $6,915; and Delroy R.
Hayunga, $21,023.
(3) As an inducement for certain individuals to commence employment, the Company
paid amounts associated with one-time relocation expenses and signing
bonuses as follows: Richard A. Alston, $64,852; and Kurt S. Knipp, $131,587.
(4) Includes $10,000 signing bonus paid by the Company pursuant to an employment
agreement.
(5) Includes retention bonus payment by the Company of $130,000 pursuant to a
prior agreement.
(6) Includes $50,000 payment by the Company as a signing bonus.
(7) Represents amount allocated for auto allowance.
(8) Includes $2,203 for a deferred compensation tax distribution and $5,552 as
payment with respect to financial services fees.
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OTHER AGREEMENTS WITH EMPLOYEES
Each of Tony G. Holcombe, Richard A. Alston, Robert E. Johnson, Kurt S.
Knipp, Thomas A. Wimsett and David R. Zook (the "Executive Officers") have
employment agreements (the "Employment Agreements") with NPC. The agreements
with Messrs. Holcombe, Alston, Johnson and Knipp provide generally that if such
Executive Officer is terminated for any reason other than his violation of the
contract, his salary will be continued for two years after his termination. The
agreements with Mr. Wimsett and Mr. Zook contain similar provisions which
provide, in the case of Mr. Wimsett, for his salary to be continued for one
year, and in the case of Mr. Zook, for his salary to be continued through the
end of his non-compete period referred to below.
Each of the Executive Officers has agreed pursuant to the Employment
Agreements not to compete with the Company in the United States (and, with
respect to Mr. Holcombe, in Mexico) by engaging in any capacity in any business
that is competitive with, in the case of Messrs. Holcombe and Alston, any
business of NPC, and in the case of the other Executive Officers, the business
of the Company for which such officer bears primary managerial responsibility.
These non-competition restrictions remain in effect for the period in which such
Executive Officer is entitled to salary following termination as described
above, except in the case of Mr. Zook, where the restriction continues until the
earlier of March 1, 1998 and any date on which compensation is not paid when due
or described in Mr. Zook's employment agreement.
The Company has also entered into separate severance agreements (the
"Severance Agreements") with each of the Executive Officers and certain other
key employees, which are designed to ensure continuity of management in the
event of a change in control ("Change in Control"). The Severance Agreements
provide that following a Change in Control such executives will be entitled to
severance compensation upon termination of employment during the period
commencing with the occurrence of the Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change in
Control, (ii) death, or (iii) attainment of age sixty-five and upon the
occurrence of one or more certain additional events. The Severance Agreements
also provide fifteen executives the right to terminate their employment with the
Company for any reason during the thirty-day period immediately following the
first anniversary of the first occurrence of a Change in Control with the right
to receive severance compensation.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum (for Executive Officers) and two times the sum (for other
executives) of (i) base pay at the highest rate in effect for any period prior
to the termination date plus (ii) incentive pay in an amount equal to not less
than the highest aggregate annual bonus, incentive or other payments of cash
compensation made or to be made in regard to services rendered in any calendar
year during the three calendar years immediately preceding the year in which the
Change in Control occurs. For three years following termination, the Company
will arrange to provide the executives with welfare benefits substantially
similar to those they were receiving or were entitled to receive immediately
prior to the termination date, with such three-year period qualifying as service
with the Company for the purpose of determining service credits and benefits
under the Company's various retirement benefit plans. Each executive may waive
one year of severance pay in exchange for being released from the
non-competition restrictions contained in their respective Employment
Agreements.
The Company has agreed to pay any and all legal fees incurred by the
executives in connection with the interpretation, enforcement, or defense of his
rights under the Severance Agreements. The terms of the Severance Agreements run
until the later of (i) the close of business on May 24, 1999 or (ii) the
expiration of the three-year period of severance benefit coverage. Beginning
next year, the Severance Agreements will automatically be renewed for successive
one year terms unless the Company or the executive gives notice of intent to
terminate before such renewal.
Under the Severance Agreements, a Change in Control occurs upon either of
the following events: (i) the Company is merged, consolidated or reorganized
into or with another person other than National City, a successor of National
City or an affiliate of National City, and as a result of such merger,
consolidation or reorganization, less than fifty percent of the combined voting
power of the then
48
<PAGE> 51
outstanding securities of such resulting corporation is held by National City or
(ii) the Company sells or otherwise transfers all or substantially all of its
assets to another person, and as a result of such sale or transfer less than
fifty percent of the combined voting power of the then outstanding securities of
such corporation is held by National City. The benefits payable upon a Change in
Control include a lump sum payment equal to three times the sum of (a) annual
base salary (at the highest rate in effect for any period prior to termination)
plus (b) bonus compensation (equal to not less than the highest aggregate annual
bonus rendered in the three calendar years immediately preceding the year in
which the Change in Control occurs) less the sum of (c) any and all payments
received from the Company, National City, a successor or their affiliates
following a Change in Control plus (d) any future payments to be made in
accordance with any employment agreements or other contracts between the Company
and such other entities.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS
Described below are certain employee benefit plans of the Company pursuant
to which cash or non-cash compensation was paid or distributed to its executive
officers during fiscal year 1995, or is proposed to be paid or distributed to
its executive officers in the future.
The following table provides information on option grants of National City
common stock ("National City Common Stock") during fiscal year 1995 to the named
executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(2) FISCAL YEAR(3) ($/SH) DATE 5% 10%
- ------------------------- ------------ -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tony G. Holcombe......... 10,000 .50% $29.875 6/14/05 $187,882 $476,131
Richard A. Alston........ 5,000 .25 29.875 6/14/05 93,941 238,065
Robert E. Johnson........ 4,000 .20 29.875 6/14/05 75,153 190,452
Kurt S. Knipp............ 5,000 .25 29.875 6/14/05 93,941 238,065
Thomas A. Wimsett........ 3,500 .18 29.875 6/14/05 65,759 166,646
David R. Zook............ 7,000 .35 29.875 6/14/05 131,518 333,291
Delroy R. Hayunga........ 10,500 .53 29.875 6/14/05 197,276 499,938
</TABLE>
- ---------------
(1) The amounts under these columns are the result of calculations at the 5% and
10% rates dictated by the Commission when the "Potential Realizable Value"
alternative is used and are not intended to be a forecast of the price of
National City Common Stock.
(2) One half of each option grant becomes exercisable one year after the date of
the grant and the remainder becomes exercisable on the second anniversary of
the grant. For incentive stock options, a further restriction is placed on
the exercise of options such that the maximum number of shares of National
City Common Stock which become initially available for purchase under all
post-1986 incentive stock option grants from National City in any calendar
year shall be limited to that number of shares the aggregate exercise price
of which does not exceed $100,000.
(3) National City granted options representing 1,993,050 shares to employees
during 1995.
The following table sets forth the National City stock options exercised by
each of the Executive Officers during fiscal year 1995 and the December 31, 1995
value of all unexercised options for National City Common Stock held by the
Executive Officers.
49
<PAGE> 52
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 12/31/95 AT 12/31/95
SHARES ------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(1) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Tony G. Holcombe............ -- -- 15,299/12,501 $163,407/49,070
Richard A. Alston........... -- -- 0/5,000 0/16,250
Robert E. Johnson........... 13,430 $ 177,647 20,949/6,151 270,309/27,251
Kurt S. Knipp............... -- -- 0/5,000 0/16,250
Thomas A. Wimsett........... -- -- 1,450/4,950 9,606/20,981
David R. Zook............... -- -- 7,899/9,501 65,686/39,319
Delroy R. Hayunga........... 45,312 482,874 21,573/16,501 204,462/73,882
</TABLE>
- ---------------
(1) The ultimate realization of profit on the sale of such options on National
City Common Stock is dependent upon the market price of such stock at the
time of the sale. National City Common Stock had a closing price on December
31, 1995 (the end of the fiscal year) on the NYSE of $33.125. The numbers
shown reflect the value of unexercised options accumulated over a ten-year
period based on the 1995 year-end closing price.
The following table provides information on the awards of long term
incentive plan ("LTP") participants during fiscal year 1995.
LONG TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS UNTIL NON-STOCK PRICE PLANS(3)
OR OTHER MATURATION OR -----------------------------------------
NAME RIGHTS(1) PAYOUT(2) THRESHOLD TARGET MAXIMUM
- ------------------------------ -------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Tony G. Holcombe.............. -- 12/31/97 -- $67,500 $ 135,000
Richard A. Alston............. -- 12/31/97 -- 28,407 56,814
Robert E. Johnson............. -- 12/31/97 -- 31,500 63,000
Kurt S. Knipp................. -- 12/31/97 -- 29,890 59,781
Thomas A. Wimsett............. -- 12/31/97 -- 20,767 41,533
David R. Zook................. -- 12/31/97 -- 31,500 63,000
</TABLE>
- ---------------
(1) The Company's LTP covers Executive Officers only. The LTP provides for cash
awards based on a percentage of the individual's base pay. No shares or
other rights are granted.
(2) Payouts under the LTP are based upon the Company's three year compound net
income growth. Rolling three year performance cycles begin on January 1,
1995. Payouts occur at the end of the cycle.
(3) Payouts of "Target" and "Maximum" awards are made in the event the Company
attains 10% and 15% compound annual growth rates, respectively. Executive
Officers other than the President receive 20% and 40% of base salary for
Target and Maximum awards, respectively. The President receives 30% and 60%
of base salary for Target and Maximum awards, respectively.
50
<PAGE> 53
INCENTIVE COMPENSATION PLAN
Under the Company's 1995 Short Term Incentive Plan ("STP"), all NPC
officers are eligible to receive incentive cash bonus awards based on a
combination of individual, department and Company performance standards. The
goals of the plan are to (i) reward and encourage individual accomplishment,
(ii) encourage eligible employees to achieve broad corporate goals, and (iii)
focus senior management on objectives that improve the intrinsic value of the
Company.
In order to determine the amount of bonus payments, a formula has been
developed under the STP that establishes performance standards required to earn
"minimum", "target", and "maximum" bonus payments. Net income must equal the
amount established in the Company's annual budget in order to achieve a
"minimum" bonus. Net income must exceed the annual budget by 15% during a year
in order to achieve a "target" bonus. Net income must exceed the annual budget
by 20% during a year in order to achieve a "maximum" bonus.
The maximum bonus level attainable under the STP varies by salary grade.
The Chief Executive Officer, Executive Vice Presidents, Senior Vice Presidents,
and Vice Presidents may attain "maximum" bonus levels of 80%, 55%, 40% and 20%
of base salary, respectively. Bonus payments are made annually each March for
performance by the individual during the preceding year.
1996 STOCK OPTION PLAN
General. The Board of Directors adopted the 1996 Stock Option Plan (the
"Option Plan") on , 1996, and National City as sole shareholder approved
the Option Plan on , 1996. The purpose of the Option Plan is to enable
the Company to attract, compensate and retain officers and other key employees
and provide them with appropriate employment incentives and rewards for superior
performance by encouraging capital accumulation and stock ownership.
The Option Plan authorizes the granting of options to purchase shares of
Common Stock (the "Option Rights") and provides the Compensation Committee of
the Board of Directors (the "Committee"), which has been authorized by the Board
of Directors to administer the Option Plan, with flexibility to respond to
changes in the competitive and legal environment, thereby protecting and
enhancing the Company's current and future ability to attract and retain
officers and other key executives.
In furtherance of the purpose of the Option Plan, it is intended that
concurrently with the Offering the Committee will grant Option Rights with
respect to an aggregate of 2,050,000 shares of Common Stock to a group of key
employees including Executive Officers (the "Initial Awards").
The Option Plan is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. A general description of the Option Plan and
the Initial Awards is set forth below. The following description of the Option
Plan is qualified in its entirety by reference to the full text of the Option
Plan.
Shares Available. Subject to adjustment as described below under
"Adjustments," the aggregate number of shares of Common Stock that may be issued
or transferred and covered by outstanding awards granted under the Option Plan
will not exceed 4,000,000 shares, which may be shares of original issuance or
treasury shares or a combination thereof. In addition, the Option Plan provides
that the number of shares of Common Stock that may be sold under the Option Plan
will be increased by the number of shares of Common Stock that are delivered to
the Company in connection with the exercise of a stock option and shares
delivered or relinquished in a payment of federal, state and local income tax
withholding liabilities upon exercise of a stock option.
Eligibility. Upon adoption of the Option Plan, grants of Option Rights may
be made to officers (including officers who are members of the Board of
Directors) and other key employees of the Company or of any of its subsidiaries.
Appreciation Rights (as defined below) may be granted to any present or future
holder of outstanding Option Rights.
51
<PAGE> 54
Terms of Option Grants. The Option Plan contemplates that Option Rights
may be granted by the Committee with respect to unrestricted shares of Common
Stock, in accordance with the provisions of the Option Plan, which include:
(a) Each grant must specify the number of shares of Common Stock to
which it pertains or a method for determining such number.
(b) Each grant shall be at an option price which is not less than the
market value of Common Stock on the date of grant.
(c) Successive grants may be made to the same executive whether or not
any Option Rights previously granted to such participant remain
unexercised. Pursuant to the Option Plan no participant may be granted more
than 400,000 Option Rights, subject to adjustment during the life of the
Option Plan. Nothing in the Option Plan would require that earlier options
be exercised or expire before later options are exercised.
(d) Option Rights granted under the Option Plan may be stock options
intended to qualify under particular provisions of the Internal Revenue
Code of 1986, as amended (the "Code") or stock options not intended to be
so qualified or a combination of the foregoing.
(e) No Option Rights may be exercised later than 10 years from the
date of grant.
Agreements evidencing Option Rights may contain such other terms and
provisions, consistent with the Option Plan, as the Committee may approve. The
Company anticipates that grants of Option Rights normally will specify a period
of service before they will become exercisable. Shares covered by Option Rights
which are terminated for any reason or expire unexercised may be made the
subject of new Option Rights.
Upon exercise of an Option Right, the option price will be payable (i) in
cash, (ii) by the transfer to the Company of previously owned shares of Common
Stock with a value equal to the total option price, or (iii) by a combination of
such methods.
No Option Rights intended to be "incentive stock options" under the Code
will be granted which would allow the aggregate fair market value (at date of
grant) of all incentive stock options that may be exercised for the first time
during any calendar year to exceed $100,000.
Appreciation Rights. The Committee is authorized to issue appreciation
rights ("Appreciation Rights") in respect of up to 4,000,000 shares in order to
provide optionees an alternative means of realizing Option Rights benefits. The
holder of an Appreciation Right may, in lieu of exercising all or any part of
his Option Rights, receive from the Company an amount equal to 100%, or such
lesser percentage as the Committee may determine, of the spread between the
option price and the current market value of the shares subject to the Option
Rights. Exercise of an Appreciation Right will result in cancellation of the
related Option Right, and the exercise of the Option Right will result in the
cancellation of the related Appreciation Right. The Plan does not provide for
the granting of Additional Options (as defined below) on Appreciation Rights.
Additional Options. The Committee may, at or after the date of grant with
respect to any outstanding option, grant additional options ("Additional
Options") and may establish the terms and conditions of such Additional Options.
Pursuant to an Additional Option, the option holder would be granted a new
option at the then prevailing market price when the payment of the exercise
price of the option to which such Additional Option relates is made by using
shares of Common Stock owned by the option holder and/or when shares of Common
Stock are tendered or relinquished as payment of the amount to be withheld under
federal, state and local income tax laws in connection with the exercise of the
option to which such Additional Option relates. The new option granted upon such
exercise would be an option to purchase the number of shares not exceeding the
sum of (i) the number of shares of Common Stock tendered as payment upon the
exercise of the option to which such "Additional Option" is related and (ii) the
number of shares of Common Stock tendered or relinquished as payment of the
52
<PAGE> 55
amount to be withheld under income tax laws (at a rate not to exceed the
participant's marginal tax rate) in connection with the exercise of the option
to which such Additional Option relates. Additional Options may be granted with
respect to options previously granted under the Option Plan or any other stock
option plan of the Company or any of its subsidiaries now or hereafter in
effect, or pursuant to any stock option plan of any corporation which is merged
into the Company and where the Company has assumed the obligations of such
corporation under such option plan. The Option Plan provides that the Committee
has the discretion as to setting terms and conditions of the Additional Options
subject to the following provisions: (1) the Additional Option exercise price
shall be the closing price, per share, of the shares of Common Stock, on the
NYSE on the date the employee delivers shares of Common Stock to exercise the
Option that has the Additional Option feature and/or delivers or relinquishes
shares of Common Stock in payment of income tax withholding on the exercise of
an Option that has the Additional Option feature; (2) the Additional Option
shall not be exercised within six months after it is granted and (3) the
Additional Option shall have the same termination provisions as the underlying
option to which such Additional Option relates.
Initial Awards. The Initial Awards will be granted at price equal to the
price set forth on the cover page of the Prospectus (the "IPO Price"). The
Initial Awards will be nonqualified Option Rights and will become exercisable to
the extent of one-third of the shares covered thereby on each of the first
through the third anniversaries of the date of grant, in each case for so long
as the optionee remains in the continuous employ of the Company or one of its
subsidiaries, provided that the Option Rights will immediately become fully
exercisable (i) if the option holder dies or becomes permanently disabled while
in the employ of the Company, (ii) if the option holder voluntarily terminates
his employment (a) at or after age 62 with at least 20 years of continuous
service with the Company or any of its affiliates or (b) at or after age 65 with
at least 5 years of continuous service with the Company or any of its affiliates
("Retirement") or (iii) upon the occurrence of a change in control of the
Company.
The Initial Awards will terminate automatically and without further notice
on the earliest of the following dates: (i) the date the option holder ceases to
be employed by the Company or one of its subsidiaries for any reason other than
death or permanent disability, (ii) 90 days after the option holder ceases to be
employed by the Company or one of its subsidiaries by reason of either
Retirement or under circumstances determined by the Board of Directors to be for
the convenience of the Company, (iii) one year after the option holder dies or
becomes permanently disabled either while he is employed by the Company or
within such 90 day period, or (iv) 10 years from the date of grant. In the event
that the option holder commits an act that the Committee determines to have been
intentionally committed and materially inimical to the interests of the Company,
his or her Initial Award, as the case may be, will terminate immediately at the
time of that determination notwithstanding any other provision of the agreement
evidencing such Option Rights.
Transferability. No Option Right or Appreciation Right within the meaning
of Rule 16b-3 under the Exchange Act is transferable by a participant except by
will or the laws of descent and distribution. Option Rights may not be exercised
during a participant's lifetime except by the participant or, in the event of
his incapacity, by his guardian or legal representative acting in a fiduciary
capacity on behalf of the participant under state law and court supervision.
Adjustments. The Board of Directors may make or provide for such
adjustments in the maximum number of shares of Common Stock covered by Option
Rights and Appreciation Rights granted, and in the prices per share applicable
under such Option Rights and Appreciation Rights, as the Board of Directors in
its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of Option Rights that would
otherwise result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.
The Committee may also make or provide for such adjustments in the aggregate
number of shares that may be issued or transferred and covered by outstanding
awards granted under the Option
53
<PAGE> 56
Plan and the maximum number of shares with respect to which Option Rights may be
granted to any one participant as it may in good faith determine to be
appropriate in order to reflect any transaction or event described in the
immediately preceding sentence.
Amendment or Termination of the Option Plan. The Board of Directors may,
at any time, suspend or discontinue the Option Plan or revise or amend it in any
respect whatsoever; provided, however, that if and to the extent required by
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act or by any
comparable or successor exemption under which the Board of Directors believes it
is appropriate for the Option Plan to qualify, if and to the extent required
under Section 422 of the Code (if and to the extent that the Board of Directors
deems it appropriate to comply with Section 422) and if and to the extent
required to treat some or all of the Option Rights, Appreciation Rights or
Additional Options (collectively "Incentive Awards") as "performance-based
compensation" within the meaning of Section 162(m) of the Code (if and to the
extent that the Board of Directors deems it appropriate to meet such
requirements), no amendment shall be effective without the approval of the
shareholders of the Company, that (i) except for the adjustments described
above, increases the aggregate number of shares of Common Stock that may be
issued under or the number of Option Rights that may be awarded to any one
participant under the Option Plan, (ii) materially increase the benefits
accruing to participants under the Option Plan or (iii) materially modifies the
requirements as to eligibility for participation in the Option Plan. No
amendment may, without the consent of an Option Rights holder, reduce such
holder's rights under any previously granted and outstanding award.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
General. The Board of Directors adopted the Nonemployee Directors Plan (the
"Director Plan") on , 1996 and National City as sole shareholder
approved the Director Plan on , 1996. The purpose of the Director
Plan is to attract, retain and compensate highly qualified individuals who are
not current employees of the Company as members of the Board of Directors and to
enable them to increase their ownership of shares of Common Stock. The Director
Plan will be beneficial to the Company and its shareholders since it will allow
these directors to have a greater personal financial stake in the Company
through stock ownership, in addition to underscoring their common interest and
identification with shareholders in increasing the value of Company Stock.
In furtherance of the purpose of the Director Plan, it is intended that
concurrently with the Offering, each participant will be granted options with
respect to an aggregate of 100,000 shares of Common Stock to all current
directors eligible to participate in the Director Plan (the "Initial Director
Options").
The full text of the Director Plan has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
Set forth below is a general description of the Director Plan and the
Initial Director Options. The following description of the Plan is qualified in
its entirety by reference to the full text of the Director Plan.
Shares Available. Subject to adjustment as described below under
"Adjustments", the aggregate number of shares of Common Stock that may be issued
or transferred and covered by outstanding awards granted under the Director Plan
will not exceed 200,000 shares, which may be authorized and unissued shares or
treasury shares or a combination thereof.
Eligibility. All members of the Company's Board of Directors who are not
current employees of the Company or any of its subsidiaries or National City at
the time of option award ("Nonemployee Director") are eligible to participate in
the Plan.
Terms of Option Grants. All Option Rights granted under the Director Plan
will be evidenced by stock option agreements in writing ("Option Agreements") in
such form as the Director Plan Committee (as hereinafter defined) may approve
and which will in substantial form provide the following:
54
<PAGE> 57
(a) Each grant shall be at an option price which is equal to the
market value of Company Common Stock on the date of grant; Initial Director
Options will be granted at the IPO Price.
(b) Each Option granted under the Director Plan will be exercisable to
the extent of one-third of the shares covered thereby on each of the first
through the third anniversaries of the date of grant. No Option Right may
be exercised more than 10 years from the date of grant.
(c) No option will be exercisable after the date of cessation of an
option holder's services as a Director of the Company. Upon the death of an
option holder at any time, all of the then outstanding Formula Award
options (as described below) of such option holders will become immediately
exercisable. If an option holder's service ceases for any reason, any
exercisable Formula Award options may be exercised by the option holder
within three months after such cessation of service. If an option holder
dies within such three-month period, or if cessation of his service is due
to such option holder's death, such Formula Award options may be exercised
at any time within one year after such death by the option holder's estate
in accordance with applicable law. The effects of cessation of an option
holder's service as a Director of the Company will be determined by the
Committee in its sole discretion and set forth in an Option Agreement;
provided the cessation of service terms for Discretionary Awards (as
described below) will be no more favorable than those set forth above for
Formula Awards.
(d) Upon exercise of an Option Right, the option price will be payable
(i) in cash, (ii) by the transfer to the Company of previously owned shares
of Common Stock with a value equal to the total option price, or (iii) from
the proceeds of a sale through a broker on the date of exercise of some or
all of the shares of Common Stock to which the exercise relates.
(e) Each option granted is not transferable by the option holder other
than by will or by the laws of descent and distribution.
Options granted under the Director Plan are not intended to qualify under
Section 422 of the Code.
Formula Awards. Options to purchase 25,000 shares of Common Stock will be
granted to each Nonemployee Director who is not an employee of National City or
any of its affiliates ("Nonaffiliated Director") serving on the Company's Board
of Directors at the time of the Company's IPO ("Automatic Initial Awards").
Options to purchase 2,500 shares of Common Stock will be granted automatically
to each Nonaffiliated Director on the first Friday following each of the
Company's Annual Meetings of Shareholders. ("Automatic Annual Awards")
Discretionary Awards. The Director Plan Committee may grant options to
Nonemployee Directors who have previously been employed by the Company. The
recipients, dates of grant, and number of shares covered by each option will be
determined in the sole discretion of the Director Plan Committee. No
Nonaffiliated Director may receive Discretionary Awards, and no Nonemployee
Director who is eligible to receive Discretionary Awards may receive Formula
Awards.
Administration. The Director Plan is administered by a committee
consisting of Nonaffiliated Directors (the "Director Plan Committee"). Subject
to the provisions of the Director Plan, the Director Plan Committee is
authorized to interpret the Director Plan, to establish, amend and rescind any
rules and regulations relating to the Director Plan, and to make all other
determinations necessary or advisable for the administration of the Director
Plan.
Adjustments. The Board of Directors is required to make or provide for
adjustments in (i) the option price; (ii) the number or kind of shares or other
securities covered by outstanding options; (iii) the number or kind of shares of
the Company's capital stock or other securities which may be acquired pursuant
to options granted under the Director Plan; and (iv) the number of such
securities to be awarded to each option holder as the Board of Directors in its
sole discretion, exercised in good faith, determines is equitably required to
prevent dilution or enlargement of rights of option holder that would otherwise
result from (a) any stock dividend, stock split, combination of shares, issuance
of rights or
55
<PAGE> 58
warrants to purchase stock, spin-off, recapitalization or other changes in the
capital structure of the Company, (b) any merger, consolidation, reorganization
or partial or complete liquidations, or (c) any other corporate transaction or
event having an effect similar to any of the foregoing. The determination of the
Board of Directors as to what adjustments will be made, and the extent thereof,
will be final, binding and conclusive.
Amendment, Suspension or Termination of the Director Plan. The Board of
Directors may, at any time, suspend or discontinue the Director Plan or revise
or amend it in any respect whatsoever; provided, however, that if and to the
extent required by Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act or by any comparable or successor exemption under which the Board of
Directors believes it is appropriate for the Director Plan to qualify, no
amendment shall be effective without the approval of the shareholders of the
Company, that (i) except as described above under "adjustments" materially
increases the number of shares of Common Stock that may be issued under the
Plan, (ii) materially increases the benefits accruing to individuals pursuant to
the Director Plan or (iii) materially modifies the requirements as to
eligibility for participation in the Director Plan; and provided further,
however, if and to the extent required by Rule 16b-3 promulgated under Section
16(b) of the Exchange Act or by any comparable or successor exemption under
which the Board of Directors believes it is appropriate for the Director Plan to
qualify the provisions of the Director Plan may not be amended more than once
every six months, other than to comply with changes in the Code, the Employment
Retirement Income Security Act of 1974, as amended or the rules thereunder. No
action may, without the consent of a participant, reduce the participant's
rights under any previously granted and outstanding Option Right.
PLAN BENEFITS
Set forth in the table below are the numbers of shares of Common Stock
covered by the Initial Awards that are intended to be granted concurrently with
the Offering under the Option Plan and the Director Plan.
<TABLE>
<CAPTION>
OPTION DIRECTOR DOLLAR
NAME AND POSITION PLAN PLAN VALUE(1)
--------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Tony G. Holcombe............................. 200,000 -- --
President and Chief
Executive Officer
Richard A. Alston............................ 100,000 -- --
Executive Vice President
Robert E. Johnson............................ 100,000 -- --
Executive Vice President
Kurt S. Knipp................................ 100,000 -- --
Executive Vice President
Thomas A. Wimsett............................ 100,000 -- --
Executive Vice President
David R. Zook................................ 100,000 -- --
Executive Vice President
Executive Group (6 persons).................. 700,000 -- --
Non-Executive Director Group................. -- 100,000 --
Non-Executive Officer........................ 1,350,000 -- --
Employee Group
</TABLE>
- ---------------
(1) The Option Rights granted to date are priced at the IPO Price. Therefore
there is no value assignable as of the IPO date.
56
<PAGE> 59
FEDERAL INCOME TAX CONSEQUENCES
The Company presently anticipates that Option Rights granted pursuant to
the Option Plan will be either "non-qualified" or "incentive stock" options.
Non-qualified Option Rights and Additional Options will not result in any
taxable income to the optionee or deduction to the Company at the time they are
granted. In general, the holder of non-qualified Option Rights will recognize
taxable ordinary compensation income at the time of the exercise of the Option
Rights or related Additional Options in an amount measured by the excess of the
fair market value of the shares at that time over the option price. The tax
basis to the option holder for non-qualified option shares acquired will be the
option price plus such taxable ordinary compensation income and when the option
holder disposes of the shares capital gain or loss will be recognized, either
long or short term, depending on the holding period of the shares.
The amount included in the income of the option holder of non-qualified
Option Rights or related Additional Options as ordinary taxable income generally
determines the amount of the deduction to which the Company will be entitled.
Option Rights or Additional Options which are incentive stock options will
not result in taxable income to the option holder or a deduction to the Company
at the time granted nor at the time exercised if certain holding period
requirements are observed. The option holder must hold the stock more than two
years from date of grant and one year from date of exercise. If these holding
requirements are met, the option holder will be entitled to capital gain
treatment and the Company will not be entitled to any deduction. If these
holding requirements are not met, in general, the option holder will recognize
taxable ordinary income and the corporation will be entitled to a deduction
measured by the excess of the fair market value of the shares of Common Stock at
the time of exercise or disqualifying sale over the option price, whichever
produces a lesser gain.
The tax basis to the option holder for Common Stock acquired on exercise of
an Option Right or Additional Option that is an incentive stock option will be
the option price. The difference between the fair market value at the date of
exercise and the option price of the incentive stock option, however, will be an
item of tax preference. Thus, it will have to be included when making the
alternative minimum tax calculation for the year in which the incentive stock
option was exercised.
The granting of an Appreciation Right will not produce taxable income to
the option holder or a deduction to the Company. Upon exercise of Appreciation
Rights, the amount of any cash received and the fair market value of any Common
Stock received will be taxable to the option holder as ordinary income and in
general, determines the amount of the deduction to which the Company is
entitled.
In the case of officers and directors, the tax consequences may differ from
those described above in limited circumstances where the sale of stock that is
received as a result of an award could subject the officer or director to suit
under Section 16(b) of the Exchange Act.
The Company believes that it is in the best interests of shareholders to
retain as much flexibility as possible with respect to the design and payment of
compensation to key employees. The Company does, however, recognize the
constraints imposed on this flexibility by Section 162(m) of the Code, which
disallows a tax deduction for non-exempted compensation paid by the Company in
excess of $1,000,000 to key employees. The Company's compensation plans are
currently structured in such a manner that it is unlikely that non-exempted
compensation paid to any executive officer in any year will exceed the
limitation on deductions established by Section 162(m).
LONG TERM INCENTIVE PLAN
The Company's Long Term Incentive Plan ("LTP") focuses upon providing
superior returns for the Company. Payments under the LTP are based upon the
Company's attainment of established performance standards for annual compound
growth rates over three years. Payments under the LTP are made at the end of
each three year period, the first of which began on January 1, 1995.
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Executive Officers of the Company are eligible to participate in the LTP.
Directors of the Company who are not also employees are not eligible to
participate.
The amount of an award under the LTP varies based upon the actual compound
growth rate achieved. The performance standard set under the LTP requires a 10%
net income growth rate in order to achieve a bonus payout of 20%-30% of base
salary and a 15% growth rate in order to achieve a bonus payout of 40%-60% of
base salary, depending upon grade.
Awards under LTP are in cash, in unfunded future benefits, or in a
combination of both. In the event of a change in control of the Company, the LTP
permits officers to participate to the end of all current plan cycles, a right
which becomes vested in each such participant as of the date of the change in
control.
EMPLOYER MATCHING PLANS
Savings Plan. The Executive Officers participate in the National City
Savings and Investment Plan (the "Savings Plan"), a qualified salary reduction
profit-sharing plan within the meaning of Section 401(k) of the Code. Under the
Savings Plan, all eligible employees (generally, an eligible employee is one who
has completed one year of continuous service, is 21 years of age or older and
has completed 1,000 hours of service) of National City and its adopting
subsidiaries may participate in the Savings Plan by directing their employers to
make Salary Reduction Contributions (as defined in the Savings Plan) to the
Savings Plan Trust (the "Trust") for their accounts and to reduce their
compensation by an equal amount. Contributions may be directed in any whole
percentage between 1% and 10% of the employee's base compensation. The Company
makes contributions to the Trust ("Employer Matching Contributions") in an
amount equal to the Employer Matching Contribution Percentage then in effect.
(The Employer Matching Contribution Percentage is currently an amount equal to
100% of the first 3% of the employee's pay contributed as a Salary Reduction
Contribution, plus 50% of the next 4% of the employee's pay similarly
contributed as a Salary Reduction Contribution.)
The Savings Plan has a profit-sharing feature based upon National City's
profitability, as measured by the percentage return on common equity ("ROE")
from year to year. The profit-sharing contribution is in addition to the regular
Employer Matching Contributions. The additional amount of this profit-sharing
contribution in any year depends on National City's ROE for that year and
ranges, in five cent increments from no additional contributions if a minimum
ROE of 12% is not attained to a maximum of 50 cents for each $1.00 of an
individual's Salary Reduction Contributions for the year if National City's ROE
is equal to or greater than 18.5%. In 1995, the profit-sharing contribution was
40 cents for each $1.00 of an individual's Salary Reduction Contribution.
Executive Plan. The National City Executive Savings Plan (the "Executive
Plan") is a non-qualified salary reduction profit-sharing plan, similar to the
Savings Plan. The Executive Plan is to supplement the Savings Plan with respect
to employee Salary Reduction Contributions and the attendant Employer Matching
Contributions which by reason of an individual's annual compensation would not
be otherwise allowed because of the annual maximum limit of the Code or because
of the application, under the Code, of actual deferral percentage testing
against prohibited excessive deferrals by highly compensated employees. The
Executive Plan is substantially similar to the Savings Plan as to amounts of
employee Salary Reduction Contributions and Employer Matching Contributions.
The benefits of the Executive Plan are without regard to any limitation
imposed by the Code, or any other applicable law limiting the amount payable
under a qualified plan (such as the Savings Plan), and represent unfunded
general obligations of National City. Portions of such benefits are subject to
certain provisions for forfeiture as set forth in the Executive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Chief Executive Officer ("CEO") of the Company (Tony G.
Holcombe serving from August 1 and Delroy R. Hayunga serving from January 1
to August 1) participated in deliberations of the Company's Board of Directors
concerning Executive Officer Compensation. In addition, the CEO serves
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on the committee that administers the Long Term Incentive Plan for Senior
Officers, which includes payouts awarded to the Chief Executive Officer and the
Incentive Compensation Plan, which includes bonus payments to the Chief
Executive Officer. See "Compensation Pursuant to Employee Benefit Plans -- Long
Term Incentive Plan."
COMPENSATION OF DIRECTORS
The two appointed outside directors will receive an annual retainer of
$12,000 to be paid in four quarterly installments of $3,000 each. In addition,
the outside directors will receive $1,000 for each board meeting attended and
$1,000 for each committee meeting attended (committee chairmen receive an
additional $500 per committee meeting) whether or not held on the same day as a
board meeting. No other director will receive cash compensation for his services
as a director.
The two appointed outside directors and Mr. Hayunga are currently eligible
to receive non-qualified stock options to purchase shares of Common Stock at a
price equal to the IPO Price pursuant to the Company's Nonemployee Directors
Stock Option Plan. See "-- Compensation Pursuant to Employee Benefit
Plans -- Nonemployee Directors Stock Option Plan."
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CERTAIN TRANSACTIONS
In connection with the Offering, the Company intends to enter into the
following agreements with National City or its affiliates.
SPONSORSHIP AGREEMENT
In connection with the Offering, the Company and NCBK will enter into a
sponsorship agreement (the "Sponsorship Agreement") whereby the Company will act
as NCBK's sole agent for the purposes of providing electronic data authorization
and capture, reporting, settlement and clearing services for merchants who
participate in the VISA(R) and MasterCard(R) programs. The Company, along with
other nonbank transaction processors, must be sponsored by a financial
institution that is a member of the VISA(R) and MasterCard(R) associations.
NCBK, being a member of such associations, will act as the Company's sole
sponsor under the terms of the Sponsorship Agreement.
The Company will retain full responsibility for performance of Merchant
Card Services, except for certain obligations or responsibilities that NCBK will
assume pursuant to the Sponsorship Agreement. The Sponsorship Agreement provides
that the Company will comply with (i) all VISA(R) and MasterCard(R) bylaws,
manuals, operating regulations and other written materials as they may from time
to time be amended which bind or apply to NCBK as a member of VISA(R) and
MasterCard(R) with respect to Merchant Card Services or to the Company as a
third party processor, (ii) all agreements between merchants and NCBK with
respect to Merchant Card Services, and (iii) all applicable federal or state
laws and regulations. Under the Sponsorship Agreement, the Company will receive
all fees, discounts and other amounts payable by merchants for Merchant Card
Services and will bear the expenses of maintaining facilities necessary to
provide such services. The term of the Sponsorship Agreement will be for a
period of five years, subject to automatic renewals for successive one-year
terms. Either party may, however, decline to renew the Sponsorship Agreement
upon six months notice to the other party prior to the automatic renewal date.
Certain indemnification provisions are also contained in the Sponsorship
Agreement, under which the Company will indemnify NCBK against losses, claims
and other amounts arising out of the Company's failure to perform in accordance
with the terms of the Sponsorship Agreement or due to the negligence of the
Company.
LEASE AGREEMENT
The Company is party to a lease agreement with NCBK for its facility in
Louisville, Kentucky, which serves as the Company's principal executive offices
and one of its main processing facilities and comprises approximately 178,000
square feet. The term of this lease ends on August 31, 2019, and the Company has
the option to renew the lease in ten-year increments for up to 40 years. NCBK
leases the property on which the Company's facilities are located from a third
party. NCBK's lease is scheduled to expire on February 28, 2019, and NCBK has
the option to renew this lease in ten-year increments for up to 40 years.
ADMINISTRATIVE SERVICES AGREEMENT
The Company and National City will enter into an Administrative Services
Agreement (the "Services Agreement") whereby National City will provide certain
support and administrative services to the Company. Such services will include
human resources, internal audit, legal and tax services. National City will
charge the Company for such services based on a mutually agreeable competitive
market price. National City will also have the option to increase its prices any
time the contract is renewed. The Company will reimburse National City for
reasonable out-of-pocket expenses incurred in connection with the rendering of
services to the Company. These expenses may include items such as travel
expenses, lodging and meals, clerical expenses and miscellaneous expenses. Those
expenses, however, may not exceed $2,000 per month without prior approval from
the Company. The Administrative Services Agreement will have a term of one year,
subject to renewal for successive one-year terms unless
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terminated by either party. Certain indemnification provisions are also set
forth in the Services Agreement under which the Company will indemnify National
City against claims which may arise in connection with rendering of such
services, subject to certain exceptions.
CARD SERVICES AGREEMENTS
The Company will enter into Card Services Agreements (the "Card Services
Agreements") with various banking subsidiaries of National City (the "Banks")
pursuant to which the Company will provide, on the Bank's behalf, a broad range
of services for merchants with whom the Banks have contracted to provide
Merchant Services. Under the terms of the Card Services Agreements, the Company
will provide various Merchant Services and shall be compensated based on
market-competitive pricing to be agreed upon by the Company and such Banks,
which may be adjusted from time to time based on market considerations. Each
Card Services Agreement will have a term of five years, subject to renewal for
successive one-year terms unless terminated by either party. Under the Card
Services Agreements, the Company will agree to indemnify the Banks against
certain claims.
REMITTANCE PROCESSING SERVICES AGREEMENT
The Company will enter into a Remittance Processing Services Agreement (the
"Lockbox Agreement") with the Banks for the purpose of processing day-to-day
remittances for collection. The Company will perform these remittance processing
services for the Banks' existing and future remittance processing services
customers. Such services include processing, equipment, facilities, staffing and
customer service. The Banks will be responsible for all mailroom and facilities
costs related to such services for the calendar year 1996. Thereafter, the
Company will assume such costs. The Company will not be responsible for any
other kind of service not specifically identified in the Lockbox Agreement,
including research and photocopying.
For the Banks' existing customers as of the date of the Lockbox Agreement,
the Company will charge the Banks the fees set forth in the Banks' contracts
with such customers until June 30, 1996. For basic remittance processing for all
customers acquired by the Banks subsequent to the date of the Lockbox Agreement
and after June 30, 1996, as well as existing customers, the Company will charge
a cost-plus markup necessary to yield a negotiated percentage after-tax return
on revenue. Basic remittance processing services shall include opening
envelopes, extracting payments, encoding and endorsing checks, preparing and
delivering deposits to the Banks, fulfilling any other specific processing
requirements for a customer as negotiated, and electronically transmitting
accounts receivable information to the customer on a daily basis.
For all new customers acquired by the Banks subsequent to the date of the
Lockbox Agreement and after June 30, 1996 and for all existing customers as
well, the Banks will pay the Company fees set forth in the negotiated pricing
schedule for services in addition to basic remittance processing fees. During
the third year of the initial term of the Lockbox Agreement, and on the
anniversary date of the agreement every year thereafter, the Company will be
able to review and adjust the pricing schedule. The initial term of the Lockbox
Agreement will expire December 31, 1999, and shall be automatically renewed for
successive three-year terms unless terminated by either party.
REGISTRATION RIGHTS AGREEMENT
In connection with the Offering, National City and the Company will enter
into a Registration Rights Agreement (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, in the event the Offering is
consummated, National City would have the right to require the Company to use
its best efforts to register under the Securities Act and the securities or blue
sky laws of any jurisdiction designated by National City all or a portion of the
issued and outstanding Common Stock held by National City (the "Registrable
Shares") for sale in accordance with National City's intended method of
disposition thereof. Such demand rights would be subject to the condition that
the Company would not be required to effect more than two demand registrations.
National City will also have the right to
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participate, or "piggy-back," in equity offerings initiated by the Company,
subject to reduction of the size of the Offering on the advice of the managing
underwriter. National City will pay all expenses relating to the performance of,
or compliance with, demand registration requests under the Registration Rights
Agreement and the Company will pay all expenses relating to the performance of,
or compliance with, "piggy-back" registrations under the Registration Rights
Agreement. In either case, however, National City will be responsible for
underwriters' discounts and selling commissions with respect to the Registrable
Shares being sold and the fees and expenses of its counsel in connection with
such registration. National City's rights under the Registration Rights
Agreement shall be fully assignable.
TAX ALLOCATION AGREEMENT
In connection with the Offering, the Company will enter into a Tax
Allocation Agreement (the "Tax Allocation Agreement"), which will govern tax
related matters affecting taxable periods ending prior to and subsequent to the
Offering, including preparation and filing of tax returns, payment of taxes and
indemnification for tax liabilities. In general, under the Tax Allocation
Agreement, the Company will be responsible for filing tax returns and paying
taxes of the Company, other than returns that are filed on a consolidated,
combined or unitary basis with National City, in which case the Company will be
responsible for its proportionate share of such taxes, determined as if the
Company and its subsidiaries were a separate consolidated group. The Tax
Allocation Agreement provides that National City will retain control of audits
affecting its consolidated, combined or unitary returns, which include the
Company and its subsidiaries. The Company will be allowed to participate in, but
not control, any such audits with respect to matters for which it may be
required to indemnify National City under the Tax Allocation Agreement.
SVS AGREEMENT
The Company and SVS, a wholly owned subsidiary of National City, will enter
into an Administrative Services Agreement (the "SVS Agreement") for certain
support services to be provided by NPC to SVS, including, without limitation,
data center operations, human resources, purchasing facilities and accounting.
The Company will be compensated based on mutually agreeable market based pricing
which may be adjusted from time to time based on market considerations. SVS will
also reimburse the Company for its reasonable out-of-pocket expenses incurred in
connection with the services provided pursuant to the SVS Agreement. The
Agreement will have a term of not less than one year, subject to renewal for
successive one-year terms unless terminated by either party. Under the SVS
Agreement, SVS will indemnify the Company against certain claims.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 95,000,000 shares
of Common Stock, without par value, and 5,000,000 shares of Preferred Stock,
without par value, issuable in series. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
form of Amended Articles of Incorporation of the Company and the Code of
Regulations of the Company, a copy of each of which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
As of June 7, 1996 there were 43,100,000 shares of Common Stock outstanding
and held of record by National City. There will be 49,100,000 shares of Common
Stock outstanding after giving effect to the sale of shares of Common Stock
offered hereby and assuming no exercise of the Underwriters' over-allotment
option. All outstanding shares are, and all shares to be outstanding after
completion of the offering will be duly authorized, validly issued, fully paid
and nonassessable.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. The holders of Common Stock are
not entitled to cumulative voting rights. Holders of Common Stock are entitled
to receive dividends and other distributions when, as and if declared from time
to time by the Board of Directors out of funds legally available for such
purposes subject to any preferential rights of, and sinking fund or redemption
or purchase rights with respect to, outstanding shares of Preferred Stock, if
any. In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Common Stock would be
entitled to share ratably in all assets remaining after payment of liabilities
subject to prior distribution rights and payment of any distributions owing to
holders of shares of Preferred Stock then outstanding, if any. Holders of the
shares of Common Stock have no preemptive or conversion rights, and the shares
of Common Stock are not subject to further calls or assessment by the Company.
There are no redemption or sinking fund provisions applicable to the shares of
Common Stock.
PREFERRED STOCK
There are no shares of Preferred Stock outstanding. The Board of Directors
has the authority, without further action by the shareholders, to issue
Preferred Stock in one or more series and to fix the rights, designations,
preferences, privileges, qualifications, and restrictions thereof, including
dividend rights, conversion rights, terms and rights of redemption, liquidation
preferences, and sinking fund terms (any or all of which may be greater than the
rights of the Common Stock). The Board of Directors also has the authority,
without further action by the shareholders and to the extent now or hereafter
permitted by law, to amend the Articles of Incorporation to fix the voting
rights of the entire class of Preferred Stock. The Board of Directors, without
shareholder approval, can issue shares of Preferred Stock with conversion,
voting and other rights which could adversely affect the rights of the holders
of shares of Common Stock.
OHIO LAW AND CERTAIN CHARTER PROVISIONS
Control of the Company by National City, as well as certain statutory
provisions of Ohio law and the Company's Amended Articles of Incorporation and
Code of Regulations, may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or changes in management of the
Company, including transactions in which shareholders of the Company might
otherwise receive a premium over the then current market price for their shares.
The Company has a classified Board of Directors so that only one-half of the
directors are subject to election at any one annual meeting of the shareholders.
In addition to having a potential anti-takeover effect, classification reduces
the ability to alter the composition of the Board of Directors.
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The Company's Amended Articles of Incorporation and Code of Regulations
contain various provisions that may have the effect, either alone or in
combination with each other, of making more difficult or discouraging a business
combination or an attempt to obtain control of the Company that is not approved
by the Board of Directors. These provisions include (i) the right of the Board
of Directors to issue unissued and unreserved shares of Common Stock without
shareholder approval, (ii) the right of the Board of Directors to issue shares
of Preferred Stock in one or more series and to designate the number of shares
of each such series and the relative rights and preferences of such series,
including voting rights (to the extent now or hereafter permitted by law), terms
of redemption, redemption prices and conversion rights, without further
shareholder approval, (iii) a Board of Directors divided into two classes such
that directors are elected to serve for two-year, staggered terms, (iv)
provisions prohibiting the removal of directors except upon the vote of 65% of
the outstanding shares, (v) restricting the ability of shareholders to call a
special meeting except upon the consent of shareholders representing 50% of the
outstanding shares entitled to vote at such meeting; and (vi) restricting the
ability of shareholders to fill vacancies in the Board of Directors except after
a vote to increase the number of directors at a meeting called for that purpose.
The Company's Code of Regulations also contains provisions requiring
advance notice to the Company of (i) nominations of candidates for election to
the Board of Directors who are not nominated by the Company and (ii) proposals
to be brought before the Company's annual meeting of shareholders (other than
proposals made by the Company). Without compliance with these provisions, any
such nominations or shareholder proposals may not be considered by the Company.
Further, Ohio law prohibits any person who owns 10% or more of a company's
stock from engaging in mergers, consolidations, majority share acquisitions,
asset sales, loans and certain other transactions with the corporation for a
three-year period after acquiring the 10% ownership, unless approval is first
obtained from the corporation's board of directors. After the three-year waiting
period, the 10% shareholder can complete the transaction only if, among other
things: (i) approval is received from two-thirds of all voting shares and from a
majority of shares not held by the 10% shareholder or certain affiliated
persons; or (ii) the transaction meets certain criteria designed to ensure
fairness to all remaining shareholders.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner he
reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
proved by clear and convincing evidence that such act or omission was undertaken
either with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
officers, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that he believes to be in or not opposed to the best
interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his conduct was
unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that he is not entitled to be indemnified.
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In general, Ohio law requires that all expenses, including attorneys fees,
incurred by a director in defending any action, suit or proceeding be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The Company's Code of Regulations provides for indemnification which is
coextensive with that permitted under Ohio law. The Company's Code of
Regulations authorize the Company to enter into indemnification agreements with
each present and future director and such officers, employees or agents as
specified in the Code of Regulations. The Code of Regulations also authorizes
the Company to enter into agreements to indemnify such persons to the maximum
extent permitted by applicable law. The indemnification so granted is not
limited to the indemnification specifically authorized by the Ohio General
Corporation Law. Each agreement represents a contractual obligation of the
Company which cannot be altered unilaterally.
NEW YORK STOCK EXCHANGE LISTING
Prior to the date of this Prospectus, there has been no established public
trading market for the Common Stock. The Company has applied to have the Common
Stock approved for trading on the New York Stock Exchange under the symbol NAP.
TRANSFER AGENT AND REGISTRAR
The Company presently intends to use National City Bank, Cleveland as the
Transfer Agent and Registrar for the Common Stock.
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SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 49,100,000 shares of
Common Stock outstanding. The 6,000,000 shares sold in the Offering (6,900,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act, except for any such shares acquired by a Restricted Person. The
43,100,000 shares of Common Stock which are held by National City are subject to
a "lock-up" agreement under which National City has agreed, subject to certain
exceptions, not to offer, sell, pledge, or otherwise dispose of any shares of
Common Stock without the prior written consent of a representative of the
Underwriters for a period of 360 days after the date of this Prospectus. Shares
of Common Stock held by Restricted Persons are subject to a similar "lock-up"
agreement for a period of 90 days after the date of this Prospectus. Following
such times, National City and any such Restricted Person who is an "affiliate,"
of the Company as such term is defined in Rule 144 under the Securities Act
("Rule 144"), may sell such shares only pursuant to the requirements of Rule 144
under the Securities Act or pursuant to an effective registration statement
under the Securities Act. Furthermore, the shares held by National City are
"restricted securities" within the meaning of Rule 144.
In general, under Rule 144, a person (or group of persons whose shares are
aggregated) who has beneficially owned for at least two years shares of Common
Stock which are treated as "restricted securities," including persons who may be
deemed affiliates of the Company, would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
company. A person who is not deemed to be an affiliate and who has beneficially
owned restricted shares for at least three years is entitled to sell such shares
to the public without regard to such limitations of Rule 144. Under Rule 144, a
Restricted Person who is deemed an affiliate is entitled to sell shares
purchased in the Offering subject to the volume, manner of sale and other
requirements described above. of the currently outstanding shares
of Common Stock will have been held for two years as of , 1996.
In connection with the Offering, the Company has granted options to key
employees and directors to purchase 2,150,000 shares of Common Stock under the
Company's stock option plans. Such plans authorize up to 4,200,000 shares of
Common Stock to be issuable upon the grant of stock options under such plans.
See "Executive Compensation -- Compensation Pursuant to Employee Benefit Plans."
Prior to the offering, there has been no active public market for the
Company's Common Stock, and no prediction can be made as to the effect, if any,
that sales of shares under Rule 144 or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
this offering. The Company is unable to estimate the number of shares that may
be sold in the public market under Rule 144, because such amount will depend on
the trading volume in and market price for the Common Stock and other factors.
Nevertheless, sales of substantial amounts of shares in the public market, or
the perception that such sales may occur, could adversely affect prevailing
market prices for the Common Stock or the Company's ability to raise equity in
the future.
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UNDERWRITING
Upon the terms and subject to the conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement"), the Company has agreed to sell to each
of the Underwriters named below, (the "Underwriters"), for whom Salomon Brothers
Inc, Montgomery Securities, NatCity Investments, Inc. and Smith Barney Inc. are
acting as representatives (the "Representatives"), and each of the Underwriters
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite of its name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------ ----------------
<S> <C>
Salomon Brothers Inc..................................
Montgomery Securities.................................
NatCity Investments, Inc..............................
Smith Barney Inc......................................
----------------
Total................................................. 6,000,000
================
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Shares offered hereby (other than those subject to the over-allotment option
described below) if any such Shares are purchased. In the event of a default by
an Underwriter, the Underwriting Agreement provides that, in certain
circumstances the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Representatives have advised the Company that the several Underwriters
propose initially to offer the Shares to the public at the price to public set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to other dealers. After the initial public offering, the price to public
and such concessions may be changed.
The Company has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 900,000 additional shares
of Common Stock from the Company at the same price per share as the initial
6,000,000 shares of Common Stock to be purchased by the Underwriters. The
Underwriters may exercise such option only to cover over-allotments, if any,
incurred in connection with the Offering. To the extent the Underwriters
exercise such option, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the same proportion of such additional shares of
Common Stock as the number of shares of Common Stock to be purchased and offered
by such Underwriter in the table above bears to the total number of shares of
Common Stock initially offered by the Underwriters hereby.
At the request of the Company, up to 200,000 shares of Common Stock in the
Offering have been reserved for sale at the public offering price to officers,
directors, prospective directors and employees of the Company and to certain
executive officers of National City. The number of shares of Common Stock
available for sale in the Offering will be reduced to the extent such persons
purchase such shares. Purchases will be prohibited to the extent that they are
requested in lots of less than 150 shares. Any reserved shares not so purchased
will be offered by the Underwriters on the same basis as the other shares
available through the Offering.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
67
<PAGE> 70
The Company, National City and their respective directors and officers have
each agreed with the Underwriters not to offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce the offering of, or
file or cause to be filed a registration statement (other than a registration
statement on Form S-8) under the Securities Act with respect to any shares of
Common Stock or any securities or options convertible into or exchangeable or
exercisable for shares of Common Stock for a period of 90 days, or, in the case
of National City, 360 days, from the date of the Underwriting Agreement without
the prior written consent of Salomon Brothers Inc; provided, that the Company
may grant options pursuant to the Option Plan and the Director Plan as in effect
on the date of the Underwriting Agreement, as long as any option so granted
shall not become exercisable within the 90-day period immediately following the
date of the Underwriting Agreement.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock will
be determined by negotiation among the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the Company's record of operations, its current financial condition, its
future prospects, the market for its services, the experience of management, the
economic conditions of the Company's industry in general, the general condition
of the equity securities market and the demand for similar securities of
companies considered comparable to the Company and other relevant factors. There
can be no assurance, however, that the prices at which the Common Stock will
sell in the public market after this Offering will not be lower than the price
at which the Shares are sold by the Underwriters.
The rules of the National Association of Securities Dealers, Inc. ("NASD")
provide that no NASD member shall participate in a public offering of an
issuer's securities where the issuer is an affiliate of such NASD member, unless
a "qualified independent underwriter" shall have been engaged on the terms
provided in such rules. NatCity Investments, Inc., one of the Underwriters of
this Offering, is a wholly-owned subsidiary of National City and an affiliate of
the Company.
In view of such affiliation, the offering made hereby is being conducted in
accordance with the rules of the NASD, and Salomon Brothers Inc, one of the
Representatives of the Underwriters, is acting as "qualified independent
underwriter" within the meaning of such rules. In connection therewith, Salomon
Brothers Inc has exercised its usual standards of "due diligence" with respect
to the Registration Statement of which this Prospectus forms a part and has
recommended the maximum price at which the shares of Common Stock may be offered
hereby. Salomon Brothers Inc will receive no separate fee for its services as
qualified independent underwriter.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain legal matters
will be passed upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton,
New York, New York.
EXPERTS
The consolidated financial statements of National Processing, Inc. at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
68
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONAL PROCESSING, INC.
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited)......................................................... F-3
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1995, and for the three-month periods ended
March 31, 1995 and 1996 (unaudited)................................................ F-5
Consolidated Statements of Changes in Shareholder's Equity for each of
the three years in the period ended December 31, 1995, and for the
three-month period ended March 31, 1996 (unaudited)................................ F-6
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1995, and for the three-month periods
ended March 31, 1995 and 1996 (unaudited).......................................... F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
Board of Directors
National Processing, Inc.
We have audited the accompanying consolidated balance sheets of National
Processing, Inc. and subsidiaries (a wholly owned subsidiary of National City
Corporation) as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the 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 National
Processing, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Cleveland, Ohio
June 6, 1996
F-2
<PAGE> 73
NATIONAL PROCESSING, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
---------------------- 31,
1994 1995 --------
-------- -------- 1996
--------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 16,779 $ 22,618 $ 36,062
Accounts receivable.................................. 70,624 82,409 61,814
Check inventory...................................... 7,846 6,376 6,272
Restricted deposits--client funds.................... 85,506 55,773 51,535
Other current assets................................. 671 1,603 4,448
Income tax receivable from NCC....................... 1,662 -- --
-------- -------- --------
Total current assets................................... 183,088 168,779 160,131
Property and equipment:
Furniture and equipment.............................. 49,115 62,456 65,007
Building and leasehold improvements.................. 8,383 9,199 9,218
Property leased from affiliate....................... 6,955 4,173 4,173
Land and improvements................................ 636 616 616
-------- -------- --------
65,089 76,444 79,014
Accumulated depreciation and amortization............ 37,132 44,948 46,577
-------- -------- --------
27,957 31,496 32,437
Other assets:
Goodwill, net of accumulated amortization
of $4,049 in 1994, $5,982 in 1995 and
$6,474 in 1996.................................... 73,456 72,604 72,112
Deferred contract costs, net......................... -- 4,816 4,736
Other assets......................................... 3,907 3,601 3,609
-------- -------- --------
Total other assets..................................... 77,363 81,021 80,457
-------- -------- --------
Total assets........................................... $288,408 $281,296 $273,025
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 74
NATIONAL PROCESSING, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
---------------------- 31,
1994 1995 --------
-------- -------- 1996
--------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Restricted deposits--client funds.................... $ 85,506 $ 55,773 $ 51,535
Accounts payable--trade.............................. 4,462 9,625 6,157
Merchant payable--check services..................... 9,147 7,307 8,783
Accrued bankcard assessments......................... 12,789 17,297 12,893
Income tax payable to NCC............................ -- 1,045 4,000
Other accrued liabilities............................ 11,119 13,623 7,207
Borrowings from affiliates........................... 14,421 -- --
-------- -------- --------
Total current liabilities.............................. 137,444 104,670 90,575
Obligation under property leased from affiliate........ 2,815 2,671 2,635
-------- -------- --------
Total liabilities...................................... 140,259 107,341 93,210
Shareholder's equity:
Preferred stock; without par value;
5,000,000 shares authorized;
no shares issued or outstanding................... -- -- --
Common stock, without par value;
95,000,000 shares authorized; 43,100,000
shares issued and outstanding..................... 1 1 1
Contributed capital.................................. 64,825 64,825 64,825
Retained earnings.................................... 83,323 109,129 114,989
-------- -------- --------
Total shareholder's equity............................. 148,149 173,955 179,815
-------- -------- --------
Total liabilities and shareholder's equity............. $288,408 $281,296 $273,025
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 75
NATIONAL PROCESSING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $272,511 $319,532 $339,295 $ 78,350 $ 83,947
Operating expenses...................... 148,927 178,633 189,505 43,027 46,396
Wages and benefits...................... 49,541 56,966 53,801 13,618 14,204
General and administrative expenses..... 36,048 40,214 41,807 10,413 10,650
Depreciation and amortization........... 7,402 9,554 10,423 2,503 2,786
-------- -------- -------- -------- --------
Operating profit........................ 30,593 34,165 43,759 8,789 9,911
Net interest (expense) income........... (363) (582) 620 87 294
-------- -------- -------- -------- --------
Income before income taxes.............. 30,230 33,583 44,379 8,876 10,205
Provision for income taxes.............. 12,846 14,327 18,573 3,709 4,345
-------- -------- -------- -------- --------
Net income.............................. $ 17,384 $ 19,256 $ 25,806 $ 5,167 $ 5,860
========= ========= ========= ========= =========
Net income per share.................... $0.40 $0.45 $0.60 $0.12 $0.14
========= ========= ========= ========= =========
Shares used in computation.............. 43,100 43,100 43,100 43,100 43,100
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 76
NATIONAL PROCESSING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CONTRIBUTED RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ----------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............... $1 $11,214 $ 46,683 $ 57,898
Capital contribution from NCC............ 53,611 53,611
Net income............................... 17,384 17,384
-- ----------- -------- --------
Balance at December 31, 1993............. 1 64,825 64,067 128,893
Net income............................... 19,256 19,256
-- ----------- -------- --------
Balance at December 31, 1994............. 1 64,825 83,323 148,149
Net income............................... 25,806 25,806
-- ----------- -------- --------
Balance at December 31, 1995............. 1 64,825 109,129 173,955
Net income (unaudited)................... 5,860 5,860
-- ----------- -------- --------
Balance at March 31, 1996 (unaudited).... $1 $64,825 $114,989 $179,815
======== =========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 77
NATIONAL PROCESSING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................ $ 17,384 $ 19,256 $ 25,806 $ 5,167 $ 5,860
Items not requiring cash
currently:
Uncollectible check expense..... 27,931 31,542 30,538 7,406 5,951
Depreciation and amortization... 7,402 9,554 10,423 2,503 2,786
Changes in current assets and
liabilities:
Accounts receivable.......... (7,819) (8,383) (11,785) 13,546 20,595
Check inventory.............. (34,515) (27,256) (29,068) (6,292) (5,847)
Accounts payable--trade...... 1,201 1,528 5,163 351 (3,468)
Merchant payable--check
services................... (618) (2,121) (940) (1,846) 1,476
Accrued bankcard
assessments................ 2,374 1,804 4,508 (2,848) (4,404)
Income taxes
payable/receivable......... (4,414) (2,343) 2,107 3,067 2,955
Other current
assets/liabilities......... 77 6,571 1,411 1,535 (9,261)
Other, net................... (1,687) (537) 773 (525) 350
-------- -------- -------- -------- --------
Net cash provided by operating
activities...................... 7,316 29,615 38,936 22,064 16,993
INVESTING ACTIVITIES
Capital expenditures.............. (10,035) (10,825) (10,066) (1,678) (3,513)
Acquisitions, net of cash
acquired........................ 4,221 (6,179) (8,466) -- --
-------- -------- -------- -------- --------
Net cash used for investing
activities...................... (5,814) (17,004) (18,532) (1,678) (3,513)
FINANCING ACTIVITIES
Principal payments under property
leased from affiliate........... (182) (144) (144) (35) (36)
Due to affiliates................. (4,833) (2,885) (14,421) (14,421) --
-------- -------- -------- -------- --------
Net cash used for financing
activities...................... (5,015) (3,029) (14,565) (14,456) (36)
-------- -------- -------- -------- --------
Net (decrease) increase in cash
and
cash equivalents................ (3,513) 9,582 5,839 5,930 13,444
Cash and cash equivalents,
beginning of period............. 10,710 7,197 16,779 16,779 22,618
-------- -------- -------- -------- --------
Cash and cash equivalents, end of
period.......................... $ 7,197 $ 16,779 $ 22,618 $ 22,709 $ 36,062
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 78
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION PERTAINING TO MARCH 31, 1996
AND FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1995 AND MARCH 31, 1996
IS UNAUDITED
A. ORGANIZATION AND BUSINESS
ORGANIZATION
National Processing, Inc. (the Company) (a wholly owned subsidiary of
National City Corporation (NCC), a bank holding company headquartered in
Cleveland, Ohio) became the owner of all of the outstanding shares of National
Processing Company (NPC) on June 5, 1996. In connection with its organization,
the Company issued 750 shares of common stock to NCC, and NCC contributed the
common stock of NPC (also a wholly owned subsidiary of NCC) to the Company.
Since both the Company and NPC are wholly owned subsidiaries of NCC, this
transfer of assets has been accounted for on the basis of historical cost. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions are
eliminated in consolidation.
BUSINESS
The Company is a leading provider of transaction processing services and
customized processing solutions. The Company currently provides these services
in three principal areas: Merchant Services, Corporate Services and Travel
Services. Within Merchant Services, the Company focuses primarily on markets for
credit and debit card processing and for check acceptance and collection. The
Company's Corporate Services business provides integrated outsourcing solutions
for customers' remittance processing, freight bill processing, corporate
accounts payable and imaging functions. Customers of the Company's Merchant
Services and Corporate Services are diverse in terms of both industries and size
with no significant concentration in any particular industry or customer type.
Through an exclusive long-term contract with the Airlines Reporting Corporation
("ARC"), which contract accounts for approximately $50 million in annual
revenues for the Company, Travel Services acts as a processor and clearing house
of all airline ticket payment transactions generated by travel agents in the
United States.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Financial statements prepared in accordance with generally accepted
accounting principles necessitate the use of estimates and assumptions, by
management, that influence the reported amounts of revenues and expenses, assets
and liabilities and the disclosure requirement for contingent assets and
liabilities during and at the date of the financial statements. As a
consequence, actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes as fee income the amounts charged by its various
businesses for the related processing activities. All revenues are recognized at
the time services are rendered.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid bank certificates of deposit
which are readily convertible to cash.
F-8
<PAGE> 79
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable,
restricted deposits, accounts payable, merchants payable, and payables to
affiliates. The carrying values of these financial instruments approximate their
fair values.
CHECK INVENTORY
The amount paid for checks submitted to the Company by merchants
participating in its various check guarantee programs are recorded in an
inventory account at the amount the Company deems ultimately collectible,
subject to revision based on a continuous review of collection statistics. The
check inventory is classified as current in accordance with trade practice.
RESTRICTED DEPOSITS--CLIENTS FUNDS
The Company's travel and freight processing businesses regularly receive
funds, as part of the settlement process, in advance of the related
disbursement. Such monies are set aside in restricted accounts and a liability
is recorded for an equal and offsetting amount.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful life or term of the lease, whichever is shorter.
Maintenance and repairs are expensed as incurred, while improvements that extend
the useful life of the related assets are capitalized and depreciated over the
remaining life of the related assets. The ranges of estimated useful lives are
as follows:
<TABLE>
<S> <C>
Furniture and equipment 3 to 10 years
Building and leasehold improvements 5 to 20 years
Property leased from affiliates 35 years
Land improvements 15 years
</TABLE>
Upon the sale or disposal of property or equipment, the cost and accumulated
depreciation accounts are adjusted accordingly and any gain or loss is
recognized in income. Depreciation expense was $5.3 million, $7.3 million, and
$8.1 million in 1993, 1994, and 1995, respectively, and $1.9 million and $2.2
million in the first three months of 1995 (unaudited) and 1996 (unaudited),
respectively.
ACQUISITIONS
Operations of companies acquired in purchase transactions are included in
the statements of income from the respective acquisition dates. The excess of
the purchase price over the net assets acquired (goodwill) is amortized on a
straight-line basis over 40 years.
MERCHANT PAYABLE--CHECK SERVICES
As part of its check services operations, the Company reimburses merchants
for checks that are dishonored. The liability to merchants for returned checks
guaranteed by the Company is established in part based upon an estimate of the
volume of checks accepted by the various merchants which are expected to be
dishonored. Differences between the estimated and actual merchant guaranteed
check liability are recorded at the time the checks are acquired from the
merchants.
F-9
<PAGE> 80
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ACCRUED BANKCARD ASSESSMENTS
The liability to the VISA(R) and MasterCard(R) organizations originating
from the Company's agreements with these agencies, as an authorized processor,
is accrued and settled on a monthly and quarterly basis, respectively. The
Company recovers these assessment charges through various contractual
arrangements with its customers.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
NCC. NCC's policy is to allocate income taxes to its subsidiaries on a separate
return basis, which includes any net operating income or losses or alternative
minimum taxes, subject to recognition of such items on a consolidated basis.
NET INCOME PER SHARE
Net income per share is based upon the number of common shares outstanding
during each period. The number of common shares used in the determination of per
share amounts has been adjusted in all periods presented to give retroactive
effect to the 57,465 2/3 for 1 stock split which was effective on June 6, 1996.
C. ACQUISITIONS
In February 1993, NCC acquired JBS Associates, Inc. (JBS), a check
guarantee and authorization business, for total consideration of $53.6 million,
consisting of cash of $24.3 million and approximately 1.5 million shares of NCC
common stock, and contributed the net assets of JBS to NPC. In January 1994, the
Company acquired certain assets of CTI Logistics, Inc., a freight payment
processor. These transactions were accounted for as purchases and, accordingly,
the purchase prices were allocated to the assets acquired based on their
estimated fair values.
In December 1995, the Company acquired certain of the assets of the
remittance processing business of First Data Resources Inc. (FDR) under an
agreement wherein NPC will provide remittance processing for current and future
customers of FDR. $4.8 million was allocated to the cost of the contract and is
being amortized over 15 years beginning in 1996.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This standard requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The impairment is measured based on the present value of
expected future cash flows from the use of the asset and its eventual
disposition. If the expected future cash flows are less than the carrying amount
of the asset, an impairment loss is recognized. The adoption of this statement
did not have a material impact on financial position or results of operations.
D. TRANSACTIONS WITH AFFILIATES
The Company maintains a line of credit with National City Bank of Kentucky
(NCBK), a wholly-owned subsidiary of NCC, for its short-term borrowing needs.
The Company also leases certain facilities from NCBK under long-term agreements
classified as "Property Leased From Affiliate" in the accompanying financial
statements. Future minimum payments under these leases, which expire between
1999 and 2019, are $5.1 million, including interest of $2.4 million.
F-10
<PAGE> 81
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
C. TRANSACTIONS WITH AFFILIATES -- (CONTINUED)
Borrowings made are pursuant to formalized arrangements with NCBK. The
borrowings outstanding totaled $14.4 million at December 31, 1994. No
obligations were outstanding at December 31, 1995 or March 31, 1996 (unaudited).
The interest rate on borrowings was 5.94%, 5.91%, and 5.38% at December 31, 1994
and 1995 and March 31, 1996 (unaudited), respectively. The Company paid $0.4
million, net, in 1993, and $0.6 million, net, in 1994, received $0.6 million,
net, in 1995 for interest and received $0.1 million and $0.3 million, net, for
the three month period ended March 31, 1995 (unaudited) and 1996 (unaudited),
respectively.
The Company uses the proof and transit department of NCBK to provide
processing for remittances. The charges for these services, which are included
in operating expenses, were $3.7 million each year in 1993, 1994, and 1995 and
$1.0 million and $0.9 million for the three month period ended March 31, 1995
(unaudited) and 1996 (unaudited), respectively.
The Company receives certain administrative services, such as internal
audit and legal, from NCC and its affiliates. Charges for these services are
included in general and administrative expenses and totalled $1.1 million, $1.8
million, and $2.1 million in 1993, 1994, and 1995, respectively, and $0.5
million and $0.5 million for the three month period ended March 31, 1995
(unaudited) and 1996 (unaudited), respectively.
E. OPERATING LEASES
The Company leases various offices, facilities and equipment under
noncancellable lease agreements with expiration dates through 2003. During the
normal course of business, most of these leases will be renewed or replaced by
other leases. Future minimum rental payments under these leases are $4.4 million
in 1996; $2.9 million in 1997; $2.2 million in 1998; $1.9 million in 1999; $1.5
million in 2000 and $8.5 million thereafter. Rent expense under operating leases
was $3.9 million, $5.1 million, and $5.6 million in 1993, 1994 and 1995,
respectively, and $1.3 million and $1.5 million for the three month period ended
March 31, 1995 (unaudited) and 1996 (unaudited), respectively.
F. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
--------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal:
Current............................ $12,075 $11,163 $14,826 $3,370 $3,778
Deferred........................... (776) (843) (812) (484) (54)
State................................ 1,547 4,007 4,559 823 621
------- ------- ------- ------ ------
$12,846 $14,327 $18,573 $3,709 $4,345
======== ======== ======== ====== ======
</TABLE>
F-11
<PAGE> 82
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. PROVISION FOR INCOME TAXES -- (CONTINUED)
The temporary differences that gave rise to deferred tax assets and
liabilities, which are included in the income tax receivable from or payable to
NCC, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ---------
1994 1995 1996
------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Bad debts.............................................. $ 212 $ 673 $ 624
Pension................................................ 29 453 421
Benefits and deferred compensation..................... 1,186 854 959
Other.................................................. 23 26 26
Deferred tax liabilities:
Depreciation........................................... (1,024) (1,342) (1,342)
Amortization........................................... (315) (122) (90)
Other.................................................. (700) (319) (321)
------- ------- ---------
Net deferred tax (liabilities) assets.................... $ (589) $ 223 $ 277
======== ======== =========
</TABLE>
The reconciliation of the U.S. statutory income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31 MARCH 31
------------------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. statutory rate.............................. 35.0% 35.0% 35.0% 35.0% 35.0%
Non-deductible amortization...................... 2.0 2.0 1.5 1.9 1.7
State taxes, net of federal benefit.............. 3.3 7.8 6.7 6.0 4.0
Other............................................ 2.2 (2.1) (1.3) (1.1) 1.9
---- ---- ---- ---- ----
42.5% 42.7% 41.9% 41.8% 42.6%
===== ===== ===== ===== =====
</TABLE>
Cash paid to NCC for income taxes was $11.9 million, $14.3 million, and
$15.4 million in 1993, 1994, and 1995, respectively. Cash received from NCC for
income taxes was $0.1 million and cash paid to NCC for income taxes was $0.9
million for the three months ended March 31, 1995 (unaudited) and 1996
(unaudited), respectively.
G. EMPLOYEE BENEFIT PLANS
An employee thrift plan offers all employees, who meet certain age and
eligibility requirements, a program of regular savings and investment funded by
their own contributions and discretionary matching contributions of NPC. NPC
recorded $1.1 million, $1.6 million, and $2.1 million, respectively, in matching
contributions during 1993, 1994, 1995 and $0.5 million and $0.6 million for the
three month period ended March 31, 1995 (unaudited) and 1996 (unaudited),
respectively.
NPC receives a charge from NCC for the administration of the remaining
assets and liabilities associated with a curtailed defined benefit retirement
plan which amounted to $1.0 million, $0.5 million, and $0.2 million in 1993,
1994, and 1995, respectively, and $0.1 million and $0.1 million for the three
month period ended March 31, 1995 (unaudited) and 1996 (unaudited),
respectively.
F-12
<PAGE> 83
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. STOCK OPTIONS
The Company was authorized on June 5, 1996 to grant options up to 4,000,000
and 200,000 shares of common stock under an employee stock option plan (the
Employee Plan) and a directors stock option plan (the Directors Plan),
respectively. The Employee Plan authorizes the issuance of options to purchase
common stock to officers and key employees at the market price of the shares on
the date of grant. Options generally become exercisable 33% annually beginning
one year from the date of grant. The Directors Plan authorizes the issuance of
options to purchase common stock to certain directors at the market price of the
shares on the date of grant.
In connection with its initial public offering of common stock, the Company
expects to grant options of 2,050,000 and 100,000 shares under the Employee Plan
and the Directors Plan, respectively, at the initial public offering price,
which will be accounted for in accordance with APB Opinion No. 25.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a fair value-based method of accounting for
stock-based employee compensation plans. Under the fair-value based method,
compensation cost is measured at the grant date based upon the value of the
award and is recognized over the service period. The standard encourages all
entities to adopt this method of accounting for all employee stock compensation
plans. However, it also allows an entity to measure compensation costs for its
plans as prescribed in APB Opinion No. 25, "Accounting for Stock Issued to
Employees." If an entity elects to use the accounting in Opinion 25, pro forma
disclosures of net income and earnings per share must be made as if the fair
value method of accounting, as defined by SFAS No. 123, had been applied. The
disclosure requirements of SFAS No. 123 will be adopted as required for
financial statements in 1996.
I. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in litigation
from time to time. In the opinion of management, the ultimate liability, if any,
arising from this litigation is not expected to have a material adverse effect
on the Company's financial condition, results of operations, or liquidity.
J. SELECTED QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended December 31, 1995 and 1994 are
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $78,350 $84,902 $85,136 $90,907 $339,295
Operating profit.................. 8,789 10,719 10,496 13,755 43,759
Net income........................ 5,167 6,301 6,170 8,168 25,806
Net income per share.............. 0.12 0.15 0.14 0.19 0.60
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $72,972 $79,102 $80,675 $86,783 $319,532
Operating profit.................. 6,765 9,196 8,707 9,497 34,165
Net income........................ 3,581 4,908 4,675 6,092 19,256
Net income per share.............. 0.09 0.11 0.11 0.14 0.45
</TABLE>
F-13
<PAGE> 84
NATIONAL PROCESSING, INC.
[MAP]
[TO COME]
<PAGE> 85
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................. 3
Prospectus Summary...................... 4
Risk Factors............................ 8
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Consolidated Financial Data.... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
Business................................ 26
Management.............................. 45
Executive Compensation.................. 47
Certain Transactions.................... 60
Description of Capital Stock............ 63
Shares Available for Future Sale........ 66
Underwriting............................ 67
Legal Matters........................... 68
Experts................................. 68
Index to Financial Statements........... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
6,000,000 SHARES
NATIONAL PROCESSING, INC.
COMMON STOCK
(WITHOUT PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
NATCITY INVESTMENTS, INC.
SMITH BARNEY INC.
PROSPECTUS
DATED , 1996
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the Common Stock
being registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee..................... $ 38,069
National Association of Securities Dealers, Inc. filing fee............. 11,540
New York Stock Exchange application fee................................. *
Transfer Agent's and Registrar's fees................................... *
Printing costs.......................................................... *
Accounting fees and expenses............................................ *
Legal fees and expenses (not including Blue Sky)........................ *
Blue Sky fees and expenses.............................................. *
Miscellaneous expenses.................................................. *
---------------
Total......................................................... $ *
===============
<FN>
- ---------------
* To be supplied by amendment.
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13 of the Ohio Revised Code sets forth the conditions and
limitations governing the indemnification of officers, directors and other
persons. Section 1701.13 provides that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation in a similar capacity with another corporation or
other entity, against expenses (including attorneys fees), judgments, fines and
amounts paid in settlement incurred in connection therewith if he acted in good
faith and in a manner that he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
With respect to a suit by or in the right of the corporation, indemnity may be
provided to the foregoing persons under Section 1701.13 on a basis similar to
that set forth above, except that no indemnity may be provided in respect of any
claim, issue or matter as to which such person has been adjudged to be liable to
the corporation unless and to the extent that the court in which such action,
suit or proceeding was brought determines that despite the adjudication of
liability but in view of all the circumstances of the case such person is
entitled to indemnity for such expenses as the court deems proper. Moreover,
Section 1701.13 provides for mandatory indemnification of a director, officer,
employee or agent of the corporation to the extent that such person has been
successful in defense of any such action, suit or proceeding and provides that a
corporation shall pay the expenses of an officer or director in defending an
action, suit or proceeding upon receipt of an undertaking to repay such amounts
if it is ultimately determined that such person is not entitled to be
indemnified. Section 1701.13 establishes provisions for determining whether a
given person is entitled to indemnification, and also provides that the
indemnification provided by or granted under Section 1701.13 is not exclusive of
any rights to indemnity or advancement of expenses to which such person may be
entitled under any regulation, agreement, vote of stockholders or disinterested
directors or otherwise.
Under certain circumstances provided in Regulations 30, 31 and 32 of the
Registrant's Code of Regulations and subject to Section 1701.13 of the Ohio
Revised Code (which sets forth the conditions and limitations governing the
indemnification of officers, directors and other persons), the Registrant will
indemnify any director or officer or any former director or officer of the
Registrant against expenses, including attorney's fees, judgments, fines and
amounts paid in settlement, actually and reasonably
II-1
<PAGE> 87
incurred by him by reason of the fact that he is or was such director or officer
in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative. A copy of
the Registrant's Code of Regulations is included herein as Exhibit 3.1(ii).
The Company intends to enter into indemnity agreements (the "Indemnity
Agreements") with the current directors and executive officers of the Registrant
and expects to enter into similar agreements with any director or executive
officer elected or appointed in the future at the time of their election or
appointment. Pursuant to the Indemnity Agreements, the Registrant will indemnify
a director or executive officer of the Registrant (the "Indemnitee") if the
Indemnitee is a party to or otherwise involved in any legal proceeding by reason
of the fact that the Indemnitee is or was a director or executive officer of the
Registrant, or is or was serving at the request of the Registrant in certain
capacities with another entity, against all expenses, judgments, settlements,
fines and penalties actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement of such proceeding. Indemnity is only
available if the Indemnitee acted in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant. The same coverage is provided whether or not the suit or proceeding
is a derivative action. Derivative actions may be defined as actions brought by
one or more shareholders of a corporation to enforce a corporate right or to
prevent or remedy a wrong to the corporation in cases where the corporation,
because it is controlled by the wrongdoers or for other reasons, fails or
refuses to take appropriate action for its own protection. The Indemnity
Agreements mandate advancement of expenses to the Indemnitee if the Indemnitee
provides the Registrant with a written promise to repay the advanced amounts in
the event that it is determined that the conduct of the Indemnitee has not met
the applicable standard of conduct. In addition, the Indemnity Agreements
provide various procedures and presumptions in favor of the Indemnitee's right
to receive indemnification under the Indemnity Agreement. Copies of the forms of
Indemnity Agreements for directors, officers and persons who serve in both
capacities with the Company are included herein as Exhibits 10.33, 10.34 and
10.35.
The Registrant currently is negotiating to obtain an insurance policy
insuring the directors and officers of the Registrant against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
Reference is made to the Form of Underwriting Agreement filed as Exhibit
1.1 hereto with respect to the indemnification provisions contained therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 5, 1996, the Registrant issued 750 shares of Common Stock to
National City Corporation and National City Corporation contributed all of the
shares of National Processing Company to the Registrant.
On June 6, 1996, the Registrant effected a 57,465 2/3-to-one stock split in
the form of a stock dividend of 43,099,250 shares to National City Corporation.
The foregoing transactions were effected pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
II-2
<PAGE> 88
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------
<C> <S>
* 1.1 Form of Underwriting Agreement.
3.1(i) Amended Articles of Incorporation of the Registrant.
3.1(ii) Code of Regulations of the Registrant.
* 4.1 Specimen Certificate for the Common Stock, without par value, of the
Registrant.
* 4.2 Registration Rights Agreement between the Registrant and National City
Corporation dated , 1996.
5.1 Form of Opinion of Jones, Day, Reavis & Pogue as to the validity of the
securities being offered.
10.1 Absolute Net Ground Lease by and between Preston Manor, Inc. and Allied
Stores Corporation dated January 16, 1969.
10.2 Second Amendment to Lease by and between William G. Earley, Plaza Centers,
Inc. and First National Bank of Louisville dated April 15, 1986.
*10.3 Building Lease between First National Bank of Louisville and NPC of Arizona
dated September 1, 1984.
*10.4 Form of Sponsorship Agreement between the Registrant and National City Bank
of Kentucky.
*10.5 Form of Administrative Services Agreement between the Registrant and
National City Corporation.
*10.6 Form of Remittance Processing Services Agreement by and among the
Registrant and certain bank subsidiaries of National City Corporation.
*10.7 Form of Administrative Services Agreement by and among the Registrant and
Stored Value Systems, Inc.
*10.8 Form of Card Services Agreement by and among the Registrant and certain
bank subsidiaries of National City Corporation.
*10.9 Form of Tax Allocation Agreement between the Registrant and National City
Corporation.
*10.10 The Agreement between Airlines Reporting Corporation and First National
Bank of Louisville and the Registrant for Area Settlement Plan Processing
Services dated October 16, 1986.
10.11 First Amendment to Agreements between Airlines Reporting Corporation and
First National Bank of Louisville and the Registrant dated December 12,
1991.
10.12 1994 Amendment to Agreements between Airlines Reporting Corporation and the
Registrant dated December 31, 1994.
10.13 Supplemental Agreement by and between the Registrant and Airlines Reporting
Corporation, dated February 24, 1995.
10.14 Amendment to Agreement between Airlines Reporting Corporation and National
City Bank of Kentucky (formerly known as First National Bank of Louisville)
and the Registrant for Area Settlement Plan Processing Services, dated
August 19, 1995.
*10.15 Agreement between the Registrant and VISA(R) U.S.A. Inc. dated January 1,
1996.
*10.16 Point-of-Sale Service Agreement between the Registrant and Mastercard
International Incorporated dated January 25, 1994.
</TABLE>
II-3
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------
<C> <S>
10.17 Employment Agreement and Undertaking of Confidentiality between the
Registrant and Tony G. Holcombe dated November 1, 1994.
10.18 Employment Agreement and Undertaking of Confidentiality between the
Registrant and Richard A. Alston dated January 18, 1995.
10.19 Employment Agreement and Undertaking of Confidentiality between the
Registrant and Robert E. Johnson dated April 4, 1995.
10.20 Employment Agreement and Undertaking of Confidentiality between the
Registrant and Kurt S. Knipp dated February 6, 1995.
10.21 Employment Agreement and Undertaking of Confidentiality between the
Registrant and Thomas A. Wimsett dated May 23, 1995.
10.22 Employment, Non-Disclosure and Non-Competition Agreement between the
Registrant and David R. Zook dated March 17, 1995.
*10.23 Severance Agreement between the Registrant and Tony G. Holcombe dated May
24, 1996.
*10.24 Severance Agreement between the Registrant and Richard A. Alston dated May
24, 1996.
*10.25 Severance Agreement between the Registrant and Robert E. Johnson dated May
24, 1996.
*10.26 Severance Agreement between the Registrant and Kurt S. Knipp dated May 24,
1996.
*10.27 Severance Agreement between the Registrant and Thomas A. Wimsett dated May
24, 1996.
*10.28 Severance Agreement between the Registrant and David R. Zook dated May 24,
1996.
*10.29 The Registrant's 1996 Stock Option Plan.
*10.30 The Registrant's Nonemployee Directors Stock Option Plan.
*10.31 The Registrant's Short-Term Incentive Compensation Plan for Senior
Executives.
10.32 The Registrant's Long-Term Incentive Compensation Plan for Senior Officers.
10.33 Form of Indemnification Agreement between the Registrant and its Executive
Officers who are Directors.
10.34 Form of Indemnification Agreement between the Registrant and its Executive
Officers who are not Directors.
10.35 Form of Indemnification Agreement between the Registrant and its Directors
who are not Executive Officers.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
23.3 Consent of Ernst & Young, LLP, independent auditors.
24.1 Powers of Attorney.
<FN>
- ---------------
* To be filed by amendment.
</TABLE>
(b) Financial Statement Schedules.
All schedules have been omitted because they are not applicable, not
required or the required information is included in the financial statements and
notes thereto.
II-4
<PAGE> 90
ITEM 17. UNDERTAKINGS
(a) Equity Offerings of Nonreporting Registrants. The undersigned
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Acceleration of Effectiveness. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
that the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) Rule 430A Prospectuses. The undersigned Registrant hereby undertakes
that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide public offering thereof.
II-5
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on June 7, 1996.
NATIONAL PROCESSING, INC.
By: /s/ Richard A. Alston
--------------------------------
Executive Vice President,
Finance and Corporate Development
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ----------------
<S> <C> <C>
* President, Chief Executive Officer June 7, 1996
- --------------------------------------- and Director (Principal Executive
Tony G. Holcombe Officer)
/s/ Richard A. Alston Executive Vice President, Finance June 7, 1996
- --------------------------------------- and Corporate Development
Richard A. Alston (Principal Financial Officer)
* Chief Accounting Officer June 7, 1996
- --------------------------------------- (Principal Accounting Officer)
Glenn Rhodes
* Director June 7, 1996
- ---------------------------------------
James R. Bell III
* Director June 7, 1996
- ---------------------------------------
William R. Robertson
* Director June 7, 1996
- ---------------------------------------
Robert G. Siefers
* Director June 7, 1996
- ---------------------------------------
Delroy R. Hayunga
<FN>
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
</TABLE>
By: /s/Richard A. Alston
------------------------------------
Richard A. Alston
as Attorney-in-Fact
II-6
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------------- -----------------------------------------------------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1(i) Amended Articles of Incorporation of the Registrant.
3.1(ii) Code of Regulations of the Registrant.
*4.1 Specimen Certificate for the Common Stock, without par
value, of the Registrant.
*4.2 Registration Rights Agreement between the Registrant and
National City Corporation dated , 1996.
5.1 Form of Opinion of Jones, Day, Reavis & Pogue as to the
validity of the securities being offered.
10.1 Absolute Net Ground Lease by and between Preston Manor,
Inc. and Allied Stores Corporation dated January 16, 1969.
10.2 Second Amendment to Lease by and between William G. Earley,
Plaza Centers, Inc. and First National Bank of Louisville
dated April 15, 1986.
*10.3 Building Lease between First National Bank of Louisville
and NPC of Arizona dated September 1, 1984.
*10.4 Form of Sponsorship Agreement between the Registrant and
National City Bank of Kentucky.
*10.5 Form of Administrative Agreement between the Registrant and
National City Corporation.
*10.6 Form of Remittance Processing Services Agreement by and
among the Registrant and certain bank subsidiaries of
National City Corporation.
*10.7 Form of Administrative Services Agreement by and among the
Registrant and Stored Value Systems, Inc.
*10.8 Form of Card Services Agreement by and among the Registrant
and certain bank subsidiaries of National City Corporation.
*10.9 Form of Tax Allocation Agreement between the Registrant and
National City Corporation.
*10.10 The Agreement between Airlines Reporting Corporation and
First National Bank of Louisville and the Registrant for
Area Settlement Plan Processing Services dated October 16,
1986.
10.11 First Amendment to Agreements between Airlines Reporting
Corporation and First National Bank of Louisville and the
Registrant dated December 12, 1991.
10.12 1994 Amendment to Agreements between Airlines Reporting
Corporation and the Registrant dated December 31, 1994.
10.13 Supplemental Agreement by and between the Registrant and
Airlines Reporting Corporation, dated February 24, 1995.
10.14 Amendment to Agreement between Airlines Reporting
Corporation and National City Bank of Kentucky (formerly
known as First National Bank of Louisville) and the
Registrant, for Area Settlement Plan Processing Services,
dated August 19, 1995.
*10.15 Agreement between the Registrant and VISA(R) U.S.A. Inc.
dated January 1, 1996.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------------- -----------------------------------------------------------
<C> <S> <C>
*10.16 Point-of-Sale Service Agreement between the Registrant and
Mastercard International Incorporated dated January 25,
1994.
10.17 Employment Agreement and Undertaking of Confidentiality
between the Registrant and Tony G. Holcombe dated November
1, 1994.
10.18 Employment Agreement and Undertaking of Confidentiality
between the Registrant and Richard A. Alston dated January
18, 1995.
10.19 Employment Agreement and Undertaking of Confidentiality
between the Registrant and Robert E. Johnson dated April 4,
1995.
10.20 Employment Agreement and Undertaking of Confidentiality
between the Registrant and Kurt S. Knipp dated February 6,
1995.
10.21 Employment Agreement and Undertaking of Confidentiality
between the Registrant and Thomas A. Wimsett dated May 23,
1995.
10.22 Employment, Non-Disclosure and Non-Competition Agreement
between the Registrant and David R. Zook dated March 17,
1995.
*10.23 Severance Agreement between the Registrant and Tony G.
Holcombe dated May 24, 1996.
*10.24 Severance Agreement between the Registrant and Richard A.
Alston dated May 24, 1996.
*10.25 Severance Agreement between the Registrant and Robert E.
Johnson dated May 24, 1996.
*10.26 Severance Agreement between the Registrant and Kurt S.
Knipp dated May 24, 1996.
*10.27 Severance Agreement between the Registrant and Thomas A.
Wimsett dated May 24, 1996.
*10.28 Severance Agreement between the Registrant and David R.
Zook dated May 24, 1996.
*10.29 The Registrant's 1996 Stock Option Plan.
*10.30 The Registrant's Nonemployee Directors Stock Option Plan.
*10.31 The Registrant's Short-Term Incentive Compensation Plan for
Senior Executives.
10.32 The Registrant's Long-Term Incentive Compensation Plan for
Senior Officers.
10.33 Form of Indemnification Agreement between the Registrant
and its Executive Officers who are Directors.
10.34 Form of Indemnification Agreement between the Registrant
and its Executive Officers who are not Directors.
10.35 Form of Indemnification Agreement between the Registrant
and its Directors who are not Executive Officers.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.3 Consent of Ernst & Young, LLP, independent auditors.
24.1 Powers of Attorney.
<FN>
- ---------------
* To be filed by amendment.
</TABLE>
<PAGE> 1
Exhibit 3.1(i)
AMENDED ARTICLES OF INCORPORATION
OF
NATIONAL PROCESSING, INC.
ARTICLE I
---------
The name of the corporation is National Processing, Inc. (the "Corporation").
ARTICLE II
----------
The place in the State of Ohio where the Corporation's principal office
is located is the City of Cleveland, Cuyahoga County.
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
ARTICLE IV
----------
A. AUTHORIZED CAPITAL STOCK. The Corporation is authorized to
issue 100,000,000 shares of capital stock, consisting of 5,000,000 shares of
preferred stock, without par value ("Preferred Stock"), and 95,000,000 shares of
common stock, without par value ("Common Stock").
B. PREFERRED STOCK. The Board of Directors shall have authority
to issue Preferred Stock from time to time in one or more classes or series. The
express terms of shares of a different series of any particular class shall be
identical except for such variations as may be permitted by law.
C. COMMON STOCK. Subject to any Preferred Stock Designation, the
holders of shares of Common Stock shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders for each share of Common Stock
held of record by such holder as of the record date for such meeting.
<PAGE> 2
ARTICLE V
---------
The Board of Directors shall be authorized hereby to exercise all
powers now or hereafter permitted by law providing rights to the Board of
Directors to adopt amendments to these Amended Articles of Incorporation to fix
or change the express terms of any unissued or treasury shares of any class,
including, without limiting the generality of the foregoing: division of such
shares into series and the designation and authorized number of shares of each
series; voting rights of such shares (to the extent now or hereafter permitted
by law); dividend or distribution rate; dates of payment of dividends or
distributions and the dates from which they are cumulative; liquidation price;
redemption rights and price; sinking fund requirements; conversion rights; and
restrictions on the issuance of shares of the same series or any other class or
series; all as may be established by resolution of the Board of Directors from
time to time (collectively, a "Preferred Stock Designation").
ARTICLE VI
----------
Except as may be provided in any Preferred Stock Designation, holders
of shares of capital stock of the Corporation shall not be entitled to
cumulative voting rights in the election of directors.
ARTICLE VII
-----------
Except as may be provided in any Preferred Stock Designation, no holder
of any shares of capital stock of the Corporation shall have any preemptive
right to acquire any shares of unissued capital stock of any class or series,
now or hereafter authorized, or any treasury shares or securities convertible
into such shares or carrying a right to subscribe to or acquire such shares of
capital stock.
ARTICLE VIII
------------
The Corporation may from time to time, pursuant to authorization by the
Board of Directors and without action by the shareholders, purchase or otherwise
acquire capital stock of the Corporation of any class or classes in such manner,
upon such terms and in such amounts as the Board of Directors shall determine;
subject, however, to such limitation or restriction, if any, as is contained in
any Preferred Stock Designation at the time of such purchase or acquisition.
ARTICLE IX
----------
The Corporation shall not engage in any activity, or own, control or
have the power to vote more than 5% of any class of voting securities of any
company engaged in any activity (i) for which the Bank Holding Company Act of
1956, 12
- 2 -
<PAGE> 3
U.S.C. secs. 1841 et seq. (or any successor thereto) (the "Act"), requires any
person controlling the Corporation to receive prior approval from the Board of
Governors of the Federal Reserve System without such approval having been
obtained or (ii) that would cause the Corporation or any affiliate of the
Corporation to violate any regulation, administrative ruling or court order made
pursuant to the Act. In the event that, at any time, it is determined that an
activity conducted by the Corporation or any subsidiary of the Corporation or
the ownership, control, or power to vote more than 5% of any class of voting
securities of any corporation by the Corporation or any subsidiary of the
Corporation does not comply with the requirements of the preceding sentence, the
Corporation shall take all reasonable steps to cease such activity, or to divest
such securities, immediately. All terms used in this Article IX that are defined
in or pursuant to the Act shall have the meanings assigned to them in or
pursuant to the Act. Notwithstanding anything to the contrary contained in these
Amended Articles of Incorporation, the affirmative vote of the holders of at
least 95.1% of the voting power of the Corporation, voting together as a single
class, shall be required to amend or repeal, or adopt any provision inconsistent
with, this Article IX.
ARTICLE X
---------
Notwithstanding anything to the contrary contained in these Amended
Articles of Incorporation, but subject to Article IX, the affirmative vote of
the holders of at least 80% of the voting power of the Corporation, voting
together as a single class, shall be required to amend or repeal, or adopt any
provision inconsistent with, Article V, Article VI, Article VII, Article VIII or
this Article X; provided, however, that this Article X shall not alter the
voting entitlement of shares that, by virtue of any Preferred Stock Designation,
are expressly entitled to vote on any amendment to these Amended Articles of
Incorporation. For purposes of these Amended Articles of Incorporation, "voting
power of the Corporation" means the aggregate voting power of (1) all the
outstanding shares of Common Stock of the Corporation and (2) all the
outstanding shares of any class or series of capital stock of the Corporation
that has (i) rights to distributions senior to those of the Common Stock
including, without limitation, any relative, participating, optional, or other
special rights and privileges of, and any qualifications, limitations or
restrictions on, such shares and (ii) voting rights entitling such shares to
vote generally in the election of directors.
ARTICLE XI
----------
Any and every statute of the State of Ohio hereafter enacted, whereby
the rights, powers or privileges of corporations or of the shareholders of
corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
shall apply to the Corporation and shall be binding not only upon the
Corporation but upon every shareholder of the Corporation to the same extent as
if such statute had been in force at the date of filing these Amended Articles
of Incorporation in the office of the Secretary of State of Ohio.
- 3 -
<PAGE> 1
Exhibit 3(ii)
- --------------------------------------------------------------------------------
NATIONAL PROCESSING, INC.
CODE OF REGULATIONS
As Adopted and in
Effect on June 5, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
NATIONAL PROCESSING, INC.
CODE OF REGULATIONS
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SHAREHOLDER MEETINGS............................................................................................ 1
1. Time and Place of Meetings.................................................................... 1
2. Annual Meeting................................................................................ 1
3. Special Meetings.............................................................................. 1
4. Notice of Meetings............................................................................ 1
5. Inspectors.................................................................................... 1
6. Quorum........................................................................................ 1
7. Voting........................................................................................ 2
8. Order of Business............................................................................. 2
DIRECTORS....................................................................................................... 3
9. Function...................................................................................... 3
10. Number, Election, and Terms of Directors...................................................... 3
11. Newly Created Directorships and Vacancies..................................................... 4
12. Removal....................................................................................... 4
13. Nominations of Directors; Election............................................................ 4
14. Resignation................................................................................... 5
15. Regular Meetings.............................................................................. 5
16. Special Meetings.............................................................................. 5
17. Quorum and Vote............................................................................... 5
18. Participation in Meetings by
Communications Equipment.................................................................... 5
19. Committees.................................................................................... 5
20. Compensation.................................................................................. 6
21. Bylaws........................................................................................ 6
OFFICERS ....................................................................................................... 6
22. Generally..................................................................................... 6
23. Authority and Duties of Officers.............................................................. 6
24. Compensation.................................................................................. 6
25. Succession.................................................................................... 6
STOCK ....................................................................................................... 7
26. Transfer and Registration of Certificates..................................................... 7
27. Substituted Certificates...................................................................... 7
28. Voting Of Shares Held by the Corporation...................................................... 7
29. Record Dates and Owners....................................................................... 7
INDEMNIFICATION AND INSURANCE................................................................................... 7
30. Indemnification............................................................................... 7
31. Insurance..................................................................................... 8
32. Agreements.................................................................................... 8
GENERAL ....................................................................................................... 8
33. Fiscal Year................................................................................... 8
34. Seal.......................................................................................... 8
35. Amendments.................................................................................... 8
</TABLE>
<PAGE> 3
SHAREHOLDER MEETINGS
--------------------
1. TIME AND PLACE OF MEETINGS. All meetings of the shareholders for the
election of directors or for any other purpose will be held at such time and
place, within or without the State of Ohio, as may be designated by the Board of
Directors or, in the absence of a designation by the Board of Directors, the
Chairman of the Board of Directors, if any (the "Chairman"), the President, or
the Secretary, and stated in the notice of meeting. The Board of Directors may
postpone and reschedule any previously scheduled annual or special meeting of
the shareholders.
2. ANNUAL MEETING. An annual meeting of the shareholders will be held
at such date and time as may be designated from time to time by the Board of
Directors, at which meeting the shareholders will elect directors to succeed
those directors whose terms expire at such meeting and will transact such other
business as may be brought properly before the meeting in accordance with
Regulation 8.
3. SPECIAL MEETINGS. (a) Special meetings of shareholders may be called
by the Chairman or the President or by a majority of the Board of Directors
acting with or without a meeting or by any person or persons who hold not less
than 50% of all the shares outstanding and entitled to be voted on any proposal
to be submitted at said meeting. Special meetings of the holders of shares that
are entitled to call a special meeting by virtue of any Preferred Stock
Designation may call such meetings in the manner and for the purposes provided
in the applicable terms of such Preferred Stock Designation. For purposes of
this Code of Regulations, "Preferred Stock Designation" has the meaning ascribed
to such term in the Amended Articles of Incorporation of the Corporation, as may
be amended from time to time.
(b) Upon written request by any person or persons entitled to call a
meeting of shareholders delivered in person or by certified mail to the
Chairman, the President or the Secretary, such officer shall forthwith cause
notice of the meeting to be given to the shareholders entitled to notice of such
meeting in accordance with Regulation 4. If such notice shall not be given
within 60 days after the delivery or mailing of such request, the person or
persons requesting the meeting may fix the time of the meeting and give, or
cause to be given, notice in the manner provided in Regulation 4.
4. NOTICE OF MEETINGS. Written notice of every meeting of the
shareholders called in accordance with these Regulations, stating the time,
place, and purposes for which the meeting is called, will be given by or at the
direction of the President, a Vice President, the Secretary or an Assistant
Secretary (or in case of their refusal, by the person or persons entitled to
call the meeting under Regulation 3). Such notice will be given not less than 7
nor more than 60 calendar days before the date of the meeting to each
shareholder of record entitled to notice of such meeting. If such notice is
mailed, it shall be addressed to the shareholders at their respective addresses
as they appear on the records of the Corporation, and notice shall be deemed to
have been given on the day so mailed. Notice of adjournment of a meeting need
not be given if the time and place to which it is adjourned are fixed and
announced at such meeting.
5. INSPECTORS. Inspectors of election may be appointed to act at any
meeting of shareholders in accordance with Ohio law.
6. QUORUM. To constitute a quorum at any meeting of shareholders, there
shall be present in person or by proxy shareholders of record entitled to
exercise not less than a majority of the voting power of the Corporation in
respect of any one of the purposes for which the meeting is called, unless a
greater or lesser number is expressly provided for with respect to a particular
class or series of capital stock by the terms of any applicable Preferred Stock
Designation. Except as may be otherwise provided in any Preferred Stock
Designation, the holders of a majority of the voting power of the Corporation
<PAGE> 4
represented in person or by proxy at a meeting of shareholders, whether or not a
quorum be present, may adjourn the meeting from time to time. For purposes of
this Code of Regulations, "voting power of the Corporation" has the meaning
ascribed to such term in the Amended Articles of Incorporation of the
Corporation, as may be amended from time to time.
7. VOTING. Except as otherwise expressly required by law, the Amended
Articles of Incorporation or this Code of Regulations, at any meeting of
shareholders at which a quorum is present, a majority of the votes cast, whether
in person or by proxy, on any matter properly brought before such meeting in
accordance with Regulation 8 will be the act of the shareholders. An abstention
shall not represent a vote cast. Every proxy must be duly executed and filed
with the Secretary. A shareholder may revoke any proxy that is not irrevocable
by attending the meeting and voting in person or by filing with the Secretary
written notice of revocation or a later appointment. The vote upon any question
brought before a meeting of the shareholders may be by voice vote, unless
otherwise required by law, the Amended Articles of Incorporation or this Code of
Regulations or unless the presiding officer otherwise determines.
8. ORDER OF BUSINESS. (a) The Chairman, or such other officer of the
Corporation designated by a majority of the total number of directors that the
Corporation would have if there were no vacancies on the Board of Directors
(such number being referred to as the "Whole Board"), will call meetings of
shareholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board of Directors prior to the meeting, the
presiding officer of the meeting of shareholders will also determine the order
of business and have the authority in his or her sole discretion to regulate the
conduct of any such meeting including, without limitation, by imposing
restrictions on the persons (other than shareholders of the Corporation or their
duly appointed proxies) who may attend any such shareholders' meeting, by
ascertaining whether any shareholder or his proxy may be excluded from any
meeting of shareholders based upon any determination by the presiding officer,
in his sole discretion, that any such person has unduly disrupted or is likely
to disrupt the proceedings of the meeting, and by determining the circumstances
in which any person may make a statement or ask questions at any meeting of
shareholders.
(b) At an annual meeting of the shareholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the President, a Vice President, the Secretary or an Assistant Secretary in
accordance with Regulation 4, (ii) otherwise properly brought before the meeting
by the presiding officer or by or at the direction of a majority of the Whole
Board, or (iii) otherwise properly requested to be brought before the meeting by
a shareholder of the Corporation in accordance with Regulation 8(c).
(c) For business to be properly requested by a shareholder to be
brought before an annual meeting, the shareholder must (i) be a shareholder of
the Corporation of record at the time of the giving of the notice for such
annual meeting provided for in this Code of Regulations, (ii) be entitled to
vote at such meeting, and (iii) have given timely notice thereof in writing to
the Secretary. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 30 nor more than 60 calendar days prior to the annual meeting;
provided, however, that in the event public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. A
shareholder's notice to the Secretary must set forth as to each matter the
shareholder proposes to bring before the annual meeting (A) a description in
reasonable detail of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (B)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business and of the beneficial owner, if any, on
whose behalf the proposal is made, (C) the class and number of shares of the
Corporation that are owned beneficially and of record by the shareholder
proposing such business and
2
<PAGE> 5
by the beneficial owner, if any, on whose behalf the proposal is made, and (D)
any material interest of such shareholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made in such business.
Notwithstanding the foregoing provisions of this Code of Regulations, a
shareholder must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Regulation 8(c). For purposes of this
Regulation 8(c) and Regulation 13, "public announcement" means disclosure in a
press release reported by the Dow Jones News Service, Associated Press, or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14, or 15(d) of the Securities Exchange Act of 1934, as amended, or publicly
filed by the Corporation with any national securities exchange or quotation
service through which the Corporation's stock is listed or traded, or furnished
by the Corporation to its shareholders. Nothing in this Regulation 8(c) will be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended.
(d) At a special meeting of shareholders, only such business may be
conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the President, a Vice President, the Secretary or an Assistant Secretary (or
in case of their failure to give any required notice, the other persons entitled
to give notice) in accordance with Regulation 4 or (ii) otherwise brought before
the meeting by the presiding officer or by or at the direction of a majority of
the Whole Board.
(e) The determination of whether any business sought to be brought
before any annual or special meeting of the shareholders is properly brought
before such meeting in accordance with this Regulation 8 will be made by the
presiding officer of such meeting. If the presiding officer determines that any
business is not properly brought before such meeting, he or she will so declare
to the meeting and any such business will not be conducted or considered.
DIRECTORS
---------
9. FUNCTION. Except where the law, the Amended Articles of
Incorporation, or this Code of Regulations requires action to be authorized or
taken by the shareholders, all of the authority of the Corporation shall be
exercised by or under the direction of the Board of Directors.
10. NUMBER, ELECTION, AND TERMS OF DIRECTORS. (a) Except as may be
otherwise provided in any Preferred Stock Designation, the number of the
directors of the Corporation will not be less than five nor more than nine, as
may be determined from time to time only (i) by a vote of a majority of the
Whole Board, or (ii) by the affirmative vote of the holders of at least 80% of
the voting power of the Corporation, voting together as a single class.
(b) At any time when the number of directors of the Corporation is less
than six, as determined in accordance with Regulation 10(a), the directors,
other than those who may be expressly elected by virtue of the terms of any
Preferred Stock Designation, will hold office for a term of one year expiring at
the annual meeting of shareholders at which their successors are elected. At any
time when the number of directors of the Corporation is six or more, as
determined in accordance with Regulation 10(a), the directors, other than those
who may be expressly elected by virtue of the terms of any Preferred Stock
Designation, will be classified with respect to the time for which they
severally hold office into at least two classes, as nearly equal in size as
possible and consisting of not less than three directors in each class,
designated Class I, Class II and, if appropriate, Class III. The directors first
appointed to Class I will hold office for a term expiring at the annual meeting
of shareholders to be held in the year next succeeding the year in which such
directors are elected, and the directors first appointed to Class II will hold
office for a term expiring at the annual meeting of shareholders to be held
3
<PAGE> 6
in the second year succeeding the year in which such directors are elected, and
the directors first appointed to Class III, if any, will hold office for a term
expiring in the third year succeeding the year in which such directors are
elected, with the members of each class to hold office until their successors
are elected. Except as may be otherwise provided in any Preferred Stock
Designation, at each annual meeting of the shareholders of the Corporation, the
successors of the class of directors whose terms expire at that meeting shall be
elected by plurality vote of all votes cast at such meeting to hold office for a
term expiring (i) if there are two classes of directors, at the annual meeting
of shareholders held in the second year following the year of their election, or
(ii) if there are three classes of directors, at the annual meeting of
shareholders held in the third year following the year of their election. Except
as may be otherwise provided in any Preferred Stock Designation, directors may
be elected by the shareholders only at an annual meeting of shareholders. No
decrease in the number of directors constituting the Board of Directors may
shorten the term of any incumbent director. Election of directors of the
Corporation need not be by written ballot unless requested by the presiding
officer or by the holders of a majority of the voting power of the Corporation.
11. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as may be
otherwise provided in any Preferred Stock Designation, any vacancy (including
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other cause) may be filled only (i)
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director or (ii) by the affirmative vote of the shareholders after a vote to
increase the number of directors at a meeting called for that purpose in
accordance with this Code of Regulations. Any director elected in accordance
with the preceding sentence will hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor has been elected.
12. REMOVAL. Any director may be removed from office by the
shareholders only in the manner provided in this Regulation 12. At any annual
meeting or special meeting of the shareholders, the notice of which states that
the removal of a director or directors is among the purposes of the meeting, the
affirmative vote by the holders of at least 65% of the voting power of the
Corporation may remove such director or directors with or without cause.
13. NOMINATIONS OF DIRECTORS; ELECTION. (a) Except as may be otherwise
provided in any Preferred Stock Designation, only persons who are nominated in
accordance with this Regulation 13 will be eligible for election at a meeting of
shareholders to be members of the Board of Directors of the Corporation.
(b) Nominations of persons for election as directors of the Corporation
may be made only at an annual meeting of shareholders (i) by or at the direction
of the Board of Directors or a committee thereof or (ii) by any shareholder who
is a shareholder of record at the time of giving of notice provided for in this
Regulation 13, who is entitled to vote for the election of directors at such
meeting, and who complies with the procedures set forth in this Regulation 13.
All nominations by shareholders must be made pursuant to timely notice in proper
written form to the Secretary.
(c) To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
30 nor more than 60 calendar days prior to the annual meeting of shareholders;
provided, however, that in the event that public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. To be
in proper written form, such shareholder's notice must set forth or include: (i)
the name and address, as they appear on the Corporation's books, of the
shareholder giving the notice and of the beneficial owner, if any, on whose
behalf the nomination is made; (ii) a representation that the shareholder giving
the notice is a holder of record of stock of the Corporation entitled to vote at
4
<PAGE> 7
such annual meeting and intends to appear in person or by proxy at the annual
meeting to nominate the person or persons specified in the notice; (iii) the
class and number of shares of stock of the Corporation owned beneficially and of
record by the shareholder giving the notice and by the beneficial owner, if any,
on whose behalf the nomination is made; (iv) a description of all arrangements
or understandings between or among any of (A) the shareholder giving the notice,
(B) the beneficial owner on whose behalf the notice is given, (C) each nominee,
and (D) any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the shareholder giving the
notice; (v) such other information regarding each nominee proposed by the
shareholder giving the notice as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (vi) the signed consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer of any annual
meeting may, if the facts warrant, determine that a nomination was not made in
accordance with this Regulation 13, and if he or she should so determine, he or
she will so declare to the meeting, and the defective nomination will be
disregarded. Notwithstanding the foregoing provisions of this Regulation 13, a
shareholder must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Regulation 13.
14. RESIGNATION. Any director may resign at any time by giving written
notice of his resignation to the Chairman or the Secretary. Any resignation will
be effective upon actual receipt by any such person or, if later, as of the date
and time specified in such written notice.
15. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held immediately after the annual meeting of the shareholders and at such other
time and place either within or without the State of Ohio as may from time to
time be determined by a majority of the Whole Board. Notice of regular meetings
of the Board of Directors need not be given.
16. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman or the President on one day's notice to each director by
whom such notice is not waived, given either personally or by mail, telephone,
telegram, telex, facsimile, or similar medium of communication, and will be
called by the Chairman or the President, in like manner and on like notice, on
the written request of not less than one-third of the Whole Board. Special
meetings of the Board of Directors may be held at such time and place either
within or without the State of Ohio as is determined by a majority of the Whole
Board or specified in the notice of any such meeting.
17. QUORUM AND VOTE. At all meetings of the Board of Directors,
one-third of the total number of directors then in office will constitute a
quorum for the transaction of business. Except for the designation of committees
as hereinafter provided and except for actions required by this Code of
Regulations to be taken by a majority of the Whole Board, the act of a majority
of the directors present at any meeting at which a quorum is present will be the
act of the Board of Directors. If a quorum is not present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time to another time or place, without notice other than announcement at
the meeting, until a quorum is present.
18. PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. Meetings of
the Board of Directors or of any committee of the Board of Directors may be held
through any means of communications equipment if all persons participating can
hear each other, and such participation will constitute presence in person at
such meeting.
19. COMMITTEES. The Board of Directors may from time to time create an
executive committee or any other committee or committees of directors to act in
the intervals between meetings of the Board of Directors and may delegate to
such committee or committees any of its authority other than that of filling
vacancies among the Board of Directors or in any committee of the Board of
Directors. No committee shall consist of less than three directors. The Board of
Directors may appoint
5
<PAGE> 8
one or more directors as alternate members of any such committee to take the
place of absent committee members at meetings of such committee. Unless
otherwise ordered by the Board of Directors, a majority of the members of any
committee appointed by the Board of Directors pursuant to this Regulation 19
shall constitute a quorum at any meeting thereof, and the act of a majority of
the members present at a meeting at which a quorum is present shall be the act
of such committee. Action may be taken by any such committee without a meeting
by a writing or writings signed by all of its members. Any such committee shall
prescribe its own rules for calling and holding meetings and its method of
procedure, subject to any rules prescribed by the Board of Directors, and will
keep a written record of all action taken by it.
20. COMPENSATION. The Board of Directors may establish the compensation
and expense reimbursement policies for directors in exchange for membership on
the Board of Directors and on committees of the Board of Directors, attendance
at meetings of the Board of Directors or committees of the Board of Directors,
and for other services by directors to the Corporation or any of its
subsidiaries.
21. BYLAWS. The Board of Directors may adopt Bylaws for the conduct of
its meetings and those of any committees of the Board of Directors that are not
inconsistent with the Amended Articles of Incorporation or this Code of
Regulations.
OFFICERS
--------
22. GENERALLY. The Corporation may have a Chairman, elected by the
directors from among their number, and shall have a President, a Secretary and a
Treasurer. The Corporation may also have one or more Vice Presidents and such
other officers and assistant officers as the Board of Directors may deem
appropriate. If the Board of Directors so desires, it may elect a Chief
Executive Officer to manage the affairs of the Corporation, subject to the
direction and control of the Board of Directors. All of the officers shall be
elected by the Board of Directors. Notwithstanding the foregoing, by specific
action, the Board of Directors may authorize the Chairman or the President to
appoint any person to any office other than Chairman, President, Secretary, or
Treasurer. Any number of offices may be held by the same person, and no two
offices must be held by the same person. Any of the offices may be left vacant
from time to time as the Board of Directors may determine. In case of the
absence or disability of any officer of the Corporation or for any other reason
deemed sufficient by a majority of the Board of Directors, the Board of
Directors may delegate the absent or disabled officer's powers or duties to any
other officer or to any director.
23. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation
shall have such authority and shall perform such duties as are customarily
incident to their respective offices, or as may be specified from time to time
by the Board of Directors regardless of whether such authority and duties are
customarily incident to such office.
24. COMPENSATION. The compensation of all officers and agents of the
Corporation who are also members of the Board of Directors of the Corporation
will be fixed by the Board of Directors or by a committee of the Board of
Directors. The Board of Directors may fix, or delegate the power to fix, the
compensation of the other officers and agents of the Corporation to the Chief
Executive Officer or any other officer of the Corporation.
25. SUCCESSION. The officers of the Corporation will hold office until
their successors are elected. Any officer may be removed at any time by the
affirmative vote of a majority of the Whole Board. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors or by the
Chairman or President as provided in Regulation 22.
6
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STOCK
-----
26. TRANSFER AND REGISTRATION OF CERTIFICATES. The Board of Directors
shall have authority to make such rules and regulations as they deem expedient
concerning the issuance, transfer and registration of certificates for shares
and the shares represented thereby and may appoint transfer agents and
registrars thereof.
27. SUBSTITUTED CERTIFICATES. Any person claiming a certificate for
shares to have been lost, stolen or destroyed shall make an affidavit or
affirmation of that fact, shall give the Corporation and its registrar or
registrars and its transfer agent or agents a bond of indemnity satisfactory to
the Board of Directors or a committee thereof or to the President or a Vice
President and the Secretary or the Treasurer, whereupon a new certificate may be
executed and delivered of the same tenor and for the same number of shares as
the one alleged to have been lost, stolen or destroyed.
28. VOTING OF SHARES HELD BY THE CORPORATION. Unless otherwise ordered
by the Board of Directors, the President in person or by proxy or proxies
appointed by him will have full power and authority on behalf of the Corporation
to vote, act and consent with respect to any shares issued by other corporations
that the Corporation may own.
29. RECORD DATES AND OWNERS. (a) In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, the Board of Directors may fix a record
date, which will not be less than 7 nor more than 60 calendar days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders will be the date next preceding the day on which notice
is given, or, if notice is waived, at the date next preceding the day on which
the meeting is held.
(b) The Corporation will be entitled to treat the person in whose name
shares are registered on the books of the Corporation as the absolute owner
thereof, and will not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation has knowledge or notice thereof, except as expressly provided by
applicable law.
7
<PAGE> 10
INDEMNIFICATION AND INSURANCE
-----------------------------
30. INDEMNIFICATION. The Corporation shall indemnify, to the full
extent then permitted by law, any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a member of the Board of Directors or an officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation shall pay, to the full extent then required by law, expenses,
including attorney's fees, incurred by a member of the Board of Directors in
defending any such action, suit or proceeding as they are incurred, in advance
of the final disposition thereof, and may pay, in the same manner and to the
full extent then permitted by law, such expenses incurred by any other person.
The indemnification and payment of expenses provided hereby shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under any law, the Amended Articles of Incorporation,
any agreement, vote of shareholders or disinterested members of the Board of
Directors, or otherwise, both as to action in official capacities and as to
action in another capacity while he or she is a member of the Board of
Directors, or an officer, employee or agent of the Corporation, and shall
continue as to a person who has ceased to be a member of the Board of Directors,
trustee, officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
31. INSURANCE. The Corporation may, to the full extent then permitted
by law and authorized by the Board of Directors, purchase and maintain insurance
or furnish similar protection, including but not limited to trust funds, letters
of credit or self-insurance, on behalf of or for any persons described in
Regulation 30 against any liability asserted against and incurred by any such
person in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability. Insurance may be purchased from or maintained with a person in which
the Corporation has a financial interest.
32. AGREEMENTS. The Corporation, upon approval by the Board of
Directors, may enter into agreements with any persons whom the Corporation may
indemnify under this Code of Regulations or under law and undertake thereby to
indemnify such persons and to pay the expenses incurred by them in defending any
action, suit or proceeding against them, whether or not the Corporation would
have the power under law or this Code of Regulations to indemnify any such
person.
GENERAL
-------
33. FISCAL YEAR. The fiscal year of the Corporation will end on the
thirty-first day of December in each calendar year or such other date as may be
fixed from time to time by the Board of Directors.
34. SEAL. The Board of Directors may adopt a corporate seal and use the
same by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
35. AMENDMENTS. Except as otherwise provided by law or by the Amended
Articles of Incorporation or this Code of Regulations, these Regulations or any
of them may be amended in any respect or repealed at any time at any meeting of
shareholders, provided that any amendment or supplement proposed to be acted
upon at any such meeting has been described or referred to in the notice of such
meeting. Notwithstanding the foregoing sentence or anything to the contrary
contained in the Amended Articles of Incorporation or this Code of Regulations,
Regulations 1, 3(a), 8, 10, 11, 12, 13, 30 and 35 may not be amended or repealed
by the shareholders, and no provision inconsistent therewith may be adopted by
the shareholders, without the affirmative vote of the holders of at least 80% of
the voting power of the Corporation, voting together as a single class.
Notwithstanding the foregoing
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<PAGE> 11
provisions of this Regulation 35, no amendment to Regulations 30, 31 or 32 will
be effective to eliminate or diminish the rights of persons specified in those
Regulations existing at the time immediately preceding such amendment.
9
<PAGE> 1
DRAFT Exhibit 5.1
______, 1996
National Processing, Inc.
1231 Durrett Lane
Louisville, Kentucky 40285-0001
Re: 6,900,000 Shares of Common Stock, without
par value, of National Processing, Inc.
---------------------------------------
Gentlemen:
We are acting as counsel for National Processing, Inc., an
Ohio corporation (the "Company"), in connection with the issuance and sale of up
to 6,900,000 shares, including 900,000 shares which may be sold pursuant to an
over-allotment option granted by the Company to the Underwriters (as defined
below), of Common Stock, without par value, of the Company (the "Shares") in
accordance with the terms and conditions of an Underwriting Agreement (the
"Underwriting Agreement") to be entered into among the Company, Salomon Brothers
Inc, Montgomery Securities, NatCity Investments, Inc. and Smith Barney Inc., as
representatives of the Underwriters named therein (the "Underwriters") with
respect to the Shares.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereupon we
are of the opinion that, subject to the approval of the specified terms of sale
of the Shares by the Pricing Committee of the Board of Directors of the Company:
The Shares will be duly authorized and, when issued and
delivered by the Company to the Underwriters pursuant to the Underwriting
Agreement against payment of the consideration therefor as provided therein,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement on Form S-1 filed by the Company to effect the
registration of the Shares under the Securities Act of 1933 and to the reference
to us under the caption "Legal Matters" in the Prospectus constituting a part of
such Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<PAGE> 1
Exhibit 10.1
ABSOLUTE NET
GROUND LEASE
THIS INDENTURE OF LEASE, made and entered into this 16th day of January,
1969, by and between PRESTON MANOR, INC., a Kentucky corporation (hereinafter
called "Lessor"), and ALLIED STORES CORPORATION, a Delaware corporation
(hereinafter called "Lessee");
W I T N E S S E T H:
That the Lessor, for and in consideration of the rents hereinafter
reserved, and the terms, covenants, conditions and agreements hereinafter
expressly contained on the part of the Lessee to be paid, performed, observed
and fulfilled, does hereby demise, lease and rent unto the Lessee a parcel of
land ("the demised premises") consisting of 28 acres, more or less, located in
the southeast quadrant of the intersection of Preston Highway and Henry
Patterson Expressway in the City of Louisville, Kentucky, more particularly
described in Exhibit "A" and shown on Exhibit "B", both of which are attached
hereto and by reference made a part hereof.
TO HAVE AND TO HOLD the aforesaid property with all of the rights,
privileges, easements and appurtenances thereunto appertaining for the term and
or the conditions hereinafter set forth.
ARTICLE I.
Term
1.01 The term of this Lease shall commence on March 1, 1969 and shall
terminate at midnight on the 28th day of February, 2019.
1.02 Lessee shall have the option to extend the term of this Lease for
four (4) successive additional terms of ten (10) years each, upon the same
terms and conditions as set forth herein. Lessee shall give Lessor notice of
its intention to exercise its options at least two (2) years and six (6) months
prior to the expiration of the original term of the Lease or any extensions
thereof as the case may be.
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<PAGE> 2
ARTICLE 2.
Rent
Lessee covenants and agrees to pay to Lessor as rental for use of the
demised premises annual absolute net rental of $100,000.00. Such annual rent
shall be payable in equal monthly installments in advance on the first day of
each calendar month of the term hereof. The parties agree that the annual
rental payable hereunder shall be subject to prospective adjustments on the
25th (and, if the term of this Lease be extended as hereinabove provided, on the
50th and 75th) anniversary of the commencement of the term hereof, the
adjusted annual rental to bear the same ratio to $100,000.00 as the Consumer
Price Index (Bulab State Index for City Wage Earners and Clerical Workers,
Consumer Prices, all Items, 1957-9 Equal 100, which Index was 120.9 for June,
1968) of the U.S. Bureau of Labor Statistics on such anniversary bears to such
index at the end of the calendar month in which the within Lease is executed,
provided, however, that in no event shall the annual net rental be adjusted
below $100,000.00. In the event of discontinuance of publication of such index,
said adjustment shall be made on the basis of the successor index or nearest
equivalent of such index then in existence.
ARTICLE 3.
Place of Payment
The aforesaid rentals and all other payments to the Lessor herein
provided shall be made to the Lessor at 5330 South Third Street, Suite 100,
Louisville, Kentucky, 40214, or at such other place or to such other person as
the Lessor shall from time to time designate by written notice to the Lessee.
ARTICLE 4.
Taxes, Assessments and Utilities
4.01 In addition to the rentals hereinabove provided to be paid, the
Lessee covenants and agrees to pay when they become due, all taxes of every
kind or character, accruing after the date of commencement of the term hereof,
including betterment assessments which may hereafter be assessed against the
prem-
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<PAGE> 3
ises. Nothing contained in this clause shall be construed to require the Lessee
to pay any tax in the nature of an income tax or any other tax imposed on the
Lessor by reason of the receipt of the rent provided in this Lease, or any
estate, inheritance or succession tax imposed upon the Lessor or its estate.
4.02 Lessee shall exhibit to Lessor as often as requested by Lessor,
receipts showing payment of the aforesaid taxes, assessments, rates, charges
and levies prior to the time when the same may become delinquent under
applicable law.
4.03 Upon default by the Lessee in the payment of any of the said
taxes, assessments, rates, charges and levies, Lessor may at its option pay the
same, and the amount so paid shall be considered as additional rent due from
the Lessee to the Lessor to be paid at the time of next installment of rent
falling due hereunder, with interest at the rate of six per cent (6%) per annum
from the date of such payment by the Lessor.
4.04 Notwithstanding the provisions of this ARTICLE 4, if the Lessee
in good faith and by appropriate legal proceedings contests the validity of any
such tax, assessment or other charge, and deposits with the Lessor a surety
bond or other security in such form and amount as Lessor may reasonably require,
or makes other provisions satisfactory to the Lessor for the payment thereof,
plus interest and penalties, if any, and so long as the proceedings are
prosecuted with diligence and operate as a stay of execution against said
property for the collection of said taxes, the Lessee shall not be deemed to be
in default hereunder for the non-payment of such tax, assessment or other
charge until a final decision in such proceedings has been rendered sustaining
the same.
4.05 Lessee agrees to pay all charges when due for water, gas,
electricity, sewer rentals or charges, and any utility or other charges
assessed against the demised premises.
4.06 It is understood and agreed by and between the parties hereto
that except as otherwise provided in the within Lease this is an absolute net
lease and that Lessee shall pay all charges of any kind assessed against the
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<PAGE> 4
demised premises, whether or not said charges arise form Lessee's use thereof.
ARTICLE 5.
Mechanics' Liens
5.01 Lessee shall promptly pay and discharge all mechanics, laborers' or
materialmen's liens and claims that may at any time be filed or asserted
against the demised premises or any improvements thereon. If the Lessee fails
to pay and discharge any such liens within thirty (30) days after written
notice from the Lessor to the Lessee, then unless the Lessee shall, during such
period, have commenced in good faith appropriate legal proceedings to contest
the validity of any such lien and diligently prosecute the same to a final
decision resulting in the removal of such lien, the Lessor shall have the
right at its option to pay off and discharge the same or any portion thereof,
and the amount so paid in connection therewith shall be construed as additional
rent from the Lessee to the Lessor to be paid at the time of the next
installment falling due, plus interest thereon at the rate of six per cent (6%)
per annum from the date of such payment by the Lessor.
5.02 Unless otherwise provided in this Lease, Lessee shall do no act
which shall in any way encumber the Lessor's estate in the demise premises, nor
shall the estate of the Lessor by in any way subject to any claim, lien or
encumbrance created or suffered by the Lessee, whether claimed by operation of
law or by virtue of any contract by the Lessee and any claim of lien arising
from any act or omission of the Lessee shall accrue only against the leasehold
estate of the Lessee and shall in all respects be subject to the paramount
title of the Lessor.
ARTICLE 6.
Conformance to Laws and Restrictions
6.01 Lessee will at its own expense and without cost and expense to the
Lessor at all times observe and comply with all lawful requirements, rules,
regulations, laws and ordinances of any state, county, municipality, the United
States Government, or other legally constituted authority in any way affecting
this Lease, the demised premises, the streets and areas adjacent to said prem-
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<PAGE> 5
ises, or the buildings and improvements thereon, and the Lessee will not use or
knowingly permit any of the demised premises or the buildings or improvements
thereon to be used for any illegal or immoral business or occupation or
purpose, or use or knowingly permit the same to be used so as to constitute a
nuisance.
6.02 Notwithstanding the provisions of subparagraph 6.01 of this ARTICLE 6,
if Lessee in good faith and by appropriate legal proceedings contests the
validity and applicability of any such law, ordinance, rule, regulation, or
restriction, then so long as such proceeding is prosecuted with diligence, the
Lessee shall not be deemed to be in default hereunder until a final decision in
such proceeding has been rendered sustaining the validity or applicability
thereof.
ARTICLE 7.
Lessee to Pay All Expenses of Suits, Etc.
7.01 Lessee will promptly pay and indemnify the Lessor against all loss,
legal costs and charges, including reasonable attorney's fees, by the Lessor
lawfully and reasonably incurred or expended in or about the prosecution or
defense of any suit or other proceedings in discharging the premises or any
part thereof from any lien, judgment or encumbrance created or suffered by the
Lessee, its assigns, tenants, licensees, or anyone acting or claiming by,
through, or under them upon or against the demised premises, or against the
Lessor's estate therein.
7.02 Lessee covenants and agrees that in case Lessor shall, without any
fault on its part, be made a party to any litigation commenced by a third party
against Lessor or Lessee, or both, involving this Lease or the demised
premises, then, unless such litigation shall arise directly or indirectly out
of any breach by Lessor of any warranty or other obligation of Lessor
hereunder, Lessee shall assume the defence of Lessor and pay all costs and
expenses incurred by Lessor in connection with such litigation, including
attorney's fees.
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<PAGE> 6
7.03 Lessee covenants and agrees to pay to Lessor all costs and expenses
which Lessor may reasonably incur, including reasonable attorney's fees, in the
successful enforcement of the covenants and agreements in this Lease, and shall
hold Lessor harmless and indemnified against all liability, cost and expense of
every nature arising therefrom but only in cases and to the extent that it
shall be finally determined that Lessee was in default hereunder.
ARTICLE 8.
Lessee to Indemnify Lessor Against Claims
Except as otherwise provided herein, Lessee will indemnify and save the
Lessor harmless against all claims, demands, suits and judgments, and loss,
damage or bodily injury to any person, property, or state caused by accident or
otherwise, and accruing by reason of the occupancy and use by the Lessee and
those claiming under it of the demised premises, and against all loss, legal
costs and charges, including reasonable attorney's fees that Lessor may incur
in and about the opposition to any such claim that may arise and accrue by
reason of any occupancy and use of the demised premises.
ARTICLE 9.
Lessor's Rights on Termination
9.01 Lessee covenants and agrees that at the expiration of the term of
this Lease, as the same may be extended from time to time, or at the sooner
termination thereof as a result of Lessee's breach hereunder, it will quietly
and peaceably deliver up to Lessor possession of the demised premises and all
structures and improvements then affixed to the realty thereon, and
appurtenances, in good order and condition, ordinary wear and tear,
depreciation, destruction by fire or other casualties ordinarily covered by a
standard fire insurance policy with extended coverage endorsement excepted. All
of Lessee's interest in such structures and improvements shall thereupon pass
to Lessor without compensation to Lessee therefor. Any trade fixtures placed on
the demised premises by Lessee, Sublessee, Licensees, Concessionaires, and
anyone holding or claiming under Lessee shall remain his or their property and
may be removed from the premises by such
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<PAGE> 7
owner provided he is not in default in the performance of any of his
obligations in the instrument under which he holds possession.
9.02 Lessee shall have the unqualified right to remove or alter the
exterior of any buildings or improvements constructed on the premises by Lessee,
at any time during the term hereof, as the same may be extended from time to
time.
ARTICLE 10.
Insurance
10.01 Lessee shall keep the buildings and other structures on the
demised premises insured against loss or damage by fire and those perils
commonly covered by an extended endorsement in an amount not less than eighty
per cent (80%) of the actual replacement cost of such buildings and other
structures (excluding the cost of foundations, excavations and footings below
the lowest basement floor).
Such policies shall be made payable to the Lessee, or at Lessee's
option, to the holder of any first mortgage which is a lien upon the site of
the insured under a standard mortgagee clause, provided such mortgagee is a
bank, trust company, insurance company, pension fund, retirement fund or other
reputable institutional lender.
10.02 Lessee shall maintain a policy of comprehensive public liability
insurance, naming itself and Lessor as their interests may appear as the
insureds, against claims on account of bodily injury and property damage
incurred upon or about the demised premises, such insurance to be written with
limits of not less than (i) $500,000.00 in respect of bodily injury to or death
of any one person, (ii) $1,000,000.00 in respect of bodily injury to or death of
any number of persons arising out of any one occurrence, and (iii) $100,000.00
per occurrence in respect of any instance of property damage.
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<PAGE> 8
ARTICLE 11.
Damage or Destruction
If the facilities on the demised premises shall be damaged or destroyed
by casualty, the Lessee shall, at its sole option, but at its own expense, do
either of the following:
(a) promptly repair or rebuild same to as good condition (although not
necessarily to the same size or character) as existed prior to such damage or
destruction, or (b) clear away the ruins and leave the property in a clean,
orderly and sightly condition.
ARTICLE 12.
No Abatement of Rents
No damages to or destruction of any of the buildings or improvements on
the demised premises caused by fire, windstorm, act of God, invasion by a
public enemy or other casualty, shall entitle the Lessee to surrender the
demised premises, nor shall such casualty entitle the Lessee to a suspension or
abatement of rent, nor shall the obligation herein covenanted by the Lessee to
pay rent and taxes be abated during such period of time that construction may
be in process on the demised premises.
ARTICLE 13.
Warranties of Title
Lessor warrants that the Lessee shall and may peaceably and quietly
have, hold and enjoy the demised premises without let or hindrance of and from
the Lessor or any person or persons whomsoever lawfully claiming the same,
provided that the Lessee pays the rent herein reserved and performs each and
every covenant and agreement herein on its part to be performed.
Lessor further warrants that Lessor has a valid fee title to the land
and that there is no lien, restriction, covenant, encumbrance, law, ordinance
or regulation which at the time of execution hereof prevents, and that the
Lessor will not at any time hereafter create or suffer to be created any lien,
restriction, covenant or encumbrance which would prevent, the use by Lessee of
any portion or all of the demised premises for the conduct of a retail shopping
center
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<PAGE> 9
or general commercial activities, or which prevents the Lessor from entering
into the within lease or which creates or would create an estate in the demised
premises paramount to the Lessee's interest therein under the within lease,
except as set out on Exhibit "C" attached hereto.
Lessor shall, as a condition to the validity and enforceability of this
Lease by Lessor supply to Lessee, at Lessor's sole expense, within a reasonable
time after receipt by Lessor of Lessee's written request therefor, an
instrument of title guaranty or policy of title insurance issued by a company
or recognized standing, to the effect that, or guarantying or insuring that,
the Lessor's warranties as above set forth are true and factual.
Lessor acknowledges and admits that the Lessee has entered into the
within lease in reliance upon the above conditions and Lessor's above
warranties and covenants.
Nothing herein shall, however, be deemed to prevent the Lessor from
selling, transferring or assigning Lessor's reversionary interest in the
demised premises or Lessor's interest in this Lease, subject to all of the
terms, covenants and conditions hereof.
ARTICLE 14.
Assignment and Subletting
Lessee shall have the right and privilege to freely assign this Lease,
or sublet all or any part of the demised premises in whole or in part at any
time without the prior consent or approval of the Lessor, but no such
assignment or subletting shall relieve the Lessee of its obligations hereunder.
The right to assign and/or sublet as herein provided shall be a continuing one
so that any assignee and/or subtenant or subsequent assignees and/or subtenants
shall have a similar right to assign or sublet.
ARTICLE 15.
Events of Default by Lessee
It is agreed between the parties that if any material default on the
part of the Lessee under this Lease shall continue for sixty (60) days after
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<PAGE> 10
written notice of the default shall have been delivered to the Lessee, then
Lessor may re-enter the premises and terminate this Lease and all improvements
erected on the premises shall revert to the Lessor; provided, however, that if
any such default of the Lessee is of such a nature that it cannot be corrected
within the sixty (60) day period the Lessee shall be allowed whatever
additional time is reasonably necessary to cure the default. In addition to the
above right to re-enter and terminate the Lease, the Lessor, in a case of
breach of any covenant to be performed by the Lessee, shall have all other
remedies afforded by the laws of the State of Kentucky.
ARTICLE 16.
Notices
16.01 All notices required to be served on Lessor shall be sufficiently
served by delivering the same to the Lessor at 5330 South Third Street,
Louisville, Kentucky, 40214, or any other address hereafter designated by
Lessor in writing, or by mailing the same by certified United States mail,
postage prepaid, addressed to Lessor in the manner hereinabove set forth.
16.02 All notices required to be served on Lessee shall be sufficiently
served by delivering the same to the Lessee at 401 Fifth Avenue, New York, New
York, c/o Real Estate Department, or such other addresses hereafter designated
by Lessee in writing, or by mailing the same by certified United States mail,
postage prepaid, addressed to Lessee in the manner hereinabove set forth, with
copy to Almart Stores, Inc., Attention of President, 10 W. 33rd Street, New
York, New York.
ARTICLE 17.
Licenses and Permits
17.01 Lessor agrees to cooperate with Lessee, at Lessee's expense, in the
securing of any license and/or permit (including, without limitation, building
permits) necessary or desirable for the conduct of Lessee's intended activities
on the demised premises, or Lessee's use thereof. Such cooperation shall
include the execution, filing and prosecution of any application for any such
license or permit, whether in the name of Lessor, Lessee or both.
Lessor further agrees that, upon Lessee's written request therefor, it
shall (a) join in, or institute, at Lessee's expense, any proceedings, the
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purpose of which is to enable Lessee more effectively to utilize or use the
demised premises for Lessee's intended purpose, where such joinder or
institution is necessary or desirable; (b) join in, consent to, or execute,
acknowledge and deliver, in Lessor's own name, as the case may require any
instruments of grant, in such form as shall be required by the intended grantee
or grantees, the intent and effect of which is to grant public utility
companies and/or the U. S. Government and/or the State of Kentucky, and/or
agencies or political subdivisions of either of them, the right to enter and
use such portion of the demised premises as may be necessary or desirable for
purposes of installing and maintaining thereon utility or other facilities
(including, without limitation, access roads) necessary or desirable for
Lessee's effective utilization and use of the demised premises for Lessee's
intended purposes; Lessee shall use its best efforts to restrict the grant of
such easements to a term not in excess of the term of the within Lease and any
extensions thereof. However, in the event any grantee(s) of said easement(s)
require or demand permanent easements, Lessor agrees to fully comply with the
provisions of this Article 17 and to join in, consent to, or execute,
acknowledge and deliver in Lessor's own name, as the case may require, such
instruments of grant in recordable form; (c) consent to any reasonable request
made by Lessee's Mortgagee for modifications in the within Lease to meet
technical requirements of financing and shall execute, acknowledge and deliver
such instruments which so modify the within Lease. Lessor shall not, however,
be obligated to consent to or enter into any modifications which would: (i)
reduce the rentals or any other charges required to be paid by Lessee
hereunder, or (ii) change the term of the within Lease or any extensions
thereof, or (iii) require Lessor to subordinate any of its right, title or
interest in the demised premises or in the within Lease.
17.02 In pursuance of the purposes and spirit of clause (b) and (c) of
Section 17.01 hereof, Lessor hereby agrees that in the event of Lessor's
failure or refusal to execute, acknowledge and deliver the instruments
contemplated by such clause, for reasons inconsistent with the terms and spirit
of
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of this Lease, the Lessee, in addition to other remedies, may execute,
acknowledge and deliver the same in the name of, and as agent or
attorney-in-fact of, the Lessor; accordingly, the Lessor hereby irrevocably
nominates, constitutes and appoints Lessee the Lessor's lawful agent and proper
and legal attorney-in-fact for the purpose of executing, acknowledging and
delivering any such instrument necessary or desirable to carry out the purposes
of such clauses and this Lease, and hereby irrevocably ratifies all that the
Lessee may do as such agent and attorney-in-fact of Lessor so long as it is
consistent with the purposes and spirit of this Lease. Such agency of Lessee
shall be deemed to be an agency coupled with an interest.
17.03 Lessor waives, relinquishes, and releases all right of levy or
distraint for rent and all other claims and demands of every kind which the
Lessor has or may have against any and all improvements, fixtures, equipment
and other personalty placed in or on the demised premises. Lessor acknowledges
Lessee's right and privilege of encumbering its leasehold estate granted herein
as well as Lessee's exclusive right, title and interest in any improvements,
fixtures, equipment and other personalty placed in or on the demised premises,
subject however to mortgages or security interest which Lessee may grant
therein, if any. Nothing contained herein shall be deemed to grant to Lessee
the right and privilege of encumbering Lessor's reversionary right to the
demised premises or to prevent Lessor from selling, transferring or assigning
Lessor's reversionary interest in the demised premises or Lessor's interest in
this Lease, subject to all of the terms, covenants and conditions hereof.
ARTICLE 18.
Estoppel Certificate
Each party agrees that it will at any time and from time to time upon not
less than five (5) days' prior request by the other, execute, acknowledge and
deliver to the other a statement in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications
that the same is in full force and effect as modified, and stating the modifica-
-12-
<PAGE> 13
tions), and if so, the dates to which rent and any other charges have been paid
in advance, it being intended that any such statement delivered pursuant to
this paragraph may be relied upon by any prospective purchaser or encumbrancer
of the leasehold estate created hereby, or of the Lessor's interest in this
Lease.
ARTICLE 19.
Lessor's and Lessee's Liability
If Lessor Lessee is in breach or default with respect to its obligations,
representations, warranties, or otherwise, under this Lease, then each hereby
agrees to indemnify, defend and save the other harmless against any costs,
expenses, liability, loss, claim or damage (including reasonable attorney's
fees) suffered or incurred by the Lessee or Lessor as a result, direct or
indirect, of such breach or default. In addition, (a) the Lessee or Lessor
shall thereupon have all other remedies provided by the laws of the State of
Kentucky, and (b) the Lessee or Lessor shall have the right, but not the
obligation, to cure any such breach or default for the account and in the name
of the Lessor or Lessee, as the case may be.
Should either the Lessee or Lessor elect to exercise its right to cure a
breach or default as aforesaid or should either party suffer or incur any such
cost, expense, liability, loss, damage or claim, the Lessor or Lessee shall
promptly reimburse the other to the full extent of Lessee's or Lessor's cost of
curing and/or such other cost, expense, liability, loss, damage or claim
suffered or incurred by the Lessee or Lessor or may be incurred by Lessee or
Lessor as a result, direct or indirect, of Lessor's or Lessee's breach or
default as aforesaid. Upon Lessor's failure to effect such reimbursement within
thirty (30) days from receipt of Lessee's invoice therefor, the Lessee shall
have the right to deduct all amounts due to Lessee from rental payments next
becoming due under this Lease.
-13-
<PAGE> 14
ARTICLE 20.
Benefit
This Lease and each and every covenant thereof shall inure to the
benefit of the parties thereto and their respective successors and assigns, as
fully as though appropriate words had been inserted in each instance.
Accordingly, (a) the word "Lessor", whenever and wherever used herein, shall,
except where the sense of this Lease necessarily dictates otherwise, mean
PRESTON MANOR, INC., its successors and assigns; (b) the word "Lessee",
whenever and wherever used herein, shall except where the sense of this Lease
necessarily dictates otherwise, mean ALLIED STORES CORPORATION, its successors
and assigns.
ARTICLE 21.
Holding Over
In the event that the Lessee remains in possession of the demised
premises after the expiration of the term or any extension thereof, of this
Lease, without the exercise by Lessee of any extension option herein granted to
the Lessee, the Lessee shall be deemed for all purposes to be occupying said
premises as a tenant from month to month, subject to all of the conditions,
provisions and obligations of this Lease insofar as the same are applicable to
a month-to-month tenancy.
ARTICLE 22.
Short Form
The parties hereto agree to execute a short form of lease with a
minimum of the terms herein provided, but in such form as shall be sufficient
to enable the same to be recorded.
ARTICLE 23.
APPROPRIATION FOR PUBLIC USE
23.1 If the whole or any material portion of the demised premises shall
be taken for any public or quasi-public use under right of eminent domain, or
by private purchase in lieu thereof, then and in such event this Lease and the
term hereby granted shall, at the option of the Lessee, cease and expire as
-14-
<PAGE> 15
respects the entire demised premises, which option shall be exercised by
written notice to the Lessor within sixty (60) days after the date of actual
deprivation of possession. All rents, taxes and other charges shall be prorated
as of the date of deprivation of possession, and Lessor shall refund to Lessee
all rents and other charges paid by Lessee with respect to any period
subsequent to such date.
23.02 In the event of any partial taking or in the event of a material
taking and the Lessee elects not to terminate this Lease, then in such case
this Lease shall remain unaffected, except Lessee shall be entitled to a pro
rata reduction in the annual rent hereunder applicable to the particular
premises affected by such taking, to be determined by mutual agreement between
Lessor and Lessee or in the absence of such agreement to be determined by
arbitration in accordance with the then existing rules of the American
Arbitration Association.
23.03 Irrespective of whether or not the taking by eminent domain is of
such a nature as to terminate this Lease, any award through legal proceedings
or any negotiated payment by private sale in lieu thereof, and jointly
accepted by both Lessor and Lessee shall be divided between the parties as
follows:
(i) That portion of the award equal to the value of the land so
taken shall be paid to the Lessor.
(ii) The Lessee shall be entitled to the remaining portion of the
award for improvements on the portion of the demised premises so taken.
23.04 In the event of any governmental action not resulting in the
taking or condemnation of any portion of the demised premises but creating a
right to compensation therefor, such as, without limiting the generality of the
foregoing, the changing of the grade of any street upon which the demised
premises abut, or if less than the leasehold title of the Lessee to all or any
portion of the demised premises shall be so taken for temporary use or
occupancy, this Lease shall continue in full force and effect without reduction
or abatement of rent, and the rights of the Lessor and Lessee to compensation or
award resulting therefrom shall be governed by applicable law.
-15-
<PAGE> 16
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to
be executed, in duplicate, as of the day and year first above written.
Signed, Sealed and Delivered PRESTON MANOR, INC.
in the presence of:
By /s/ J. George LaBeau
-----------------------------
Vice Pres.
/s/ Bobbie C. Norton ATTEST: /s/ J. G. Parish
- ----------------------------- ------------------------
/s/ Mary C. George (Corporate Seal) LESSOR
ALLIED STORES CORPORATION
- -----------------------------
(Corporate Seal) LESSEE By /s/ Seymour Ainbender
----------------------------
Vice-President
/s/ Joseph P. Cramer
- ---------------------------- ATTEST: /s/ F. J. Zambone
-----------------------
/s/ Ambrose F. Cramler Assistant Secretary
- ----------------------------
STATE OF KENTUCKY )
: SS
COUNTY OF JEFFERSON )
I, JUANITA J. MILES, a Notary Public in and for the County of
Jefferson, do certify that on this day the foregoing instrument of writing from
PRESTON MANOR, INC. to ALLIED STORES CORPORATION was produced to me in my
County by the aforesaid parties and acknowledged before me by J. GEORGE LABEAU,
as VICE PRESIDENT of PRESTON MANOR, INC., a corporation, party hereto, to be
the act and deed of said corporation by him as its VICE PRESIDENT, thereunto
duly authorized, and the seal of said corporation, as affixed to said
instrument was attested and proven before me by J.G. PARISH, as its ASSISTANT
Secretary.
Given under my hand and seal this 18TH day of DECEMBER, 1968.
/s/ Juanita J. Miles
--------------------------
Notary Public
Notary Public, Jefferson County, Ky.
My commission expires: My commission expires Feb. 7, 1970
---------------------------------------
STATE OF NEW YORK )
: SS
COUNTY OF NEW YORK )
I hereby certify that on this day, before me, an officer duly
authorized in the State and County aforesaid to take acknowledgements,
personally appeared SEYMOUR AINBENDER and F.J. ZAMBONE.
-16-
<PAGE> 17
well known to me to be the VICE President and ASST Secretary, respectively, of
Allied Stores Corporation, a corporation, and that they severally acknowledged
executing the same in the presence of two subscribing witnesses freely and
voluntarily under authority duly vested in them by said corporation and that
the seal affixed thereto is the true corporate seal of said corporation.
Witness my hand and official seal in the County and State last
aforesaid, this 10TH day of JANUARY, 1969.
/s/ Veronica M. Dawson
-----------------------------
Notary Public
My commission expires: ________________________
-17-
<PAGE> 18
TRACT 1: BEGINNING in the Southerly line of the right-of-way conveyed to the
Commonwealth of Kentucky by deed dated April 16, 1953, of record in Deed Book
3010, Page 520, in the office of the Clerk of the County Court of Jefferson
County, Kentucky, at its intersection with the Southeasterly line of the tract
conveyed to Ethel Kunzler by deed dated July 18, 1946, of record in Deed Book
2144, Page 145, in said office; thence with the Southeasterly line of said tract
conveyed to Ethel Kunzler South 59 degrees 09 minutes West 1397.82 feet to a
corner; thence with the existing right-of-way line of Ramp 3 of the Preston
Street, Inner Belt Cloverleaf; thence with the existing right-of-way line of
Ramp 3, North 25 degrees 46 minutes 30 seconds West 156.67 feet to a point 49.42
feet right (East) of Station 105+93.88 in the centerline of Preston Highway,
thence continuing with the right-of-way line of Ramp 3, with a curve to the
right, having a radius of 170.85 feet, an arc distance of 178.59 feet to a point
in the North property line, said point being 10 feet east of and opposite
Station 256+14.84 on the survey line for Ramp 3, aforesaid; thence with the
North property line North 62 degrees 50 minutes 30 seconds East 805.23 feet to a
point in the Southerly line of the right-of-way conveyed to the Commonwealth of
Kentucky, aforesaid; thence with said Southerly right-of-way line North 85
degrees (previously mistakenly stated as 84 degrees) 54 minutes East 538.57 feet
to the point of beginning.
TRACT 2: BEGINNING in the Northeasterly line of Preston Highway as widened by
deed to the Commonwealth of Kentucky dated May 1941, of record in Deed Book
1784, Page 528, in the Office of the Clerk of the County Court of Jefferson
County, Kentucky, at its intersection with the Northwesterly line of the tract
conveyed to Standard Oil Company by deed dated January 20, 1950, of record in
Deed Book 2569, Page 138, in the aforesaid Clerk's office; thence with the
Northeasterly line of Preston Highway as widened by deed aforesaid, the
following courses and distances, North 28 degrees 36 minutes West 100 feet,
North 28 degrees 03 minutes West 100 feet and North 27 degrees 49 minutes West
372.80 feet to a point 40 feet left of Preston Highway centerline Station
108+00; thence North 25 degrees 49 minutes West 49.67 feet to the Northeasterly
line of the tract conveyed to Carl E. Breitenstein and wife, by deed dated March
14, 1941, of record in Deed Book 1774, Page 403, in the aforesaid Clerk's
office; thence with the Northwesterly line of same, North 59 degrees 09 minutes
East 1272.02 feet to a stone at the most Northerly corner of said tract; thence
with the Northeasterly line of said last mentioned tract, South 30 degrees 13
minutes East 533.26 feet to a corner of the tract conveyed to John Breitenstein
by deed dated November 6, 1919, of record in Deed Book 925, Page 614, in the
aforesaid Clerk's office; thence with the Northwesterly line of said tract,
South 52 degrees 30 minutes West 105 feet to another corner of said tract;
thence with the Southwesterly line of said last mentioned tract, South 30
degrees 13 Minutes East 187.28 feet to the Northwesterly line of Durrett Lane,
as widened by deed to Jefferson County dated May 19, 1941, of record in Deed
Book 1782, Page 515, in the office aforesaid; thence with the Northwesterly line
of Durrett Lane, as widened by deed aforesaid, South 52 degrees 30 minutes West
645.31 feet to a corner of the tract retained by M. H. Breitenstein by deed
dated May 14, 1941, of record in Deed Book 1774, Page 403, in the aforesaid
Clerk's office; thence with the Northeasterly line of said tract, North 31
degrees 42 minutes West 164.74 feet to a corner of same; thence with the
Northwesterly line of the aforesaid tract, South 58 degrees 18 minutes West 60
feet to another corner of said tract; thence South 50 degrees 46 minutes West
211.35 feet to a corner of the tract conveyed to Kenneth B. Farmer and wife by
deed dated June 5, 1951, of record in Deed Book 2761, Page 497, in the aforesaid
Clerk's office; thence with the Northwesterly line of said tract, South 52
degrees 30 minutes West 85 feet to the Northeasterly line of the tract conveyed
to Standard Oil Company by deed recorded in Deed Book 2569, Page 138, aforesaid;
thence with the Northeasterly line of same, North 29 degrees 25 minutes West 85
feet to a corner of said tract; thence with the Northwesterly line of same,
South 52 degrees 30 minutes West 200 feet to the beginning.
EXHIBIT "A"
<PAGE> 19
1. Defects, liens, encumbrances, adverse claims or other matters, on any,
created, first appearing in the public records or attaching subsequent to
the effective date hereof but prior to the date the proposed Insured
acquires for value of record the estate or interest or mortgage thereon
covered by this Commitment.
2. Rights or claims of parties other than insured in actual possession of any
or all of the property.
3. Unrecorded easement, if any, on, above or below surface.
4. Any discrepancies or conflicts in boundary lines and shortage in area or
encroachments, if any, which a correct survey or an inspection of the
premises would disclose.
5. Community property rights or the rights of dower, courtesy or homestead, if
any, of the spouse of the Insured.
6. State and County Taxes assessed as of January 1, 1968, due and payable in
October, 1968.
7. City of Louisville Taxes assessed as of January 1, 1968, due and payable in
January, 1969.
8. Easement to construct and perpetually maintain a sewer through a strip of
ground 5 feet in width, granted to the United States of America by
Instrument dated August 2, 1917, recorded in Deed Book 880, Page 180, in the
Office aforesaid, which crosses Parcel #1 above, near the most Eastern
corner thereof. Affects Tract #1.
9. Easement over a 15-foot strip granted to Louisville & Jefferson County
Metropolitan Sewer District, of record in Deed Book 3144, Page 153, in the
aforesaid Office. The location of same is undefinite; may affect Tract #1.
10. Easement granted Louisville Gas and Electric Company, of record in Deed Book
4155, Page 127, in the aforesaid Office.
11. Any conveyance must be supported by a proper Resolution of the Board of
Directors of the titleholder corporation.
---------------------
<PAGE> 1
Exhibit 10.2
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE is made and entered into this
15th day of April, 1986, by and between WILLIAM G. EARLEY, Executor of
the Estate of William A. Gardner, and PLAZA CENTERS, INC., Agent for Robert E.
Gardner and Evelyn A. Gardner, his wife, and Jane G. Head, unmarried, and MAREA
BURKE GARDNER, unmarried, as successors in interest to Preston Manor, Inc., a
Kentucky corporation (hereinafter called "Lessor") and FIRST NATIONAL BANK OF
LOUISVILLE, the successor in interest to Allied Stores Corporation, a Delaware
corporation (hereinafter called "Lessee") .
W I T N E S S E T H:
--------------------
The Commonwealth of Kentucky Transportation Cabinet Department
of Highways has undertaken to acquire by condemnation a certain portion of a
tract of land owned by Lessor (the "Property") and leased by Lessee under the
terms and provisions of that certain lease agreement dated January 16, 1969, as
amended by an amendment to lease dated April 20, 1971 (the 1969 lease as amended
by the 1971 amendment is hereinafter referred to as the "Lease"). The Lease is
incorporated herein by reference. Said condemnation action is identified as
Civil Action No. 84C1-02045 in Jefferson Circuit Court. Lessor and Lessee desire
to modify and amend the Lease to provide for adjustments in the Lease resulting
from said taking.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, Lessor and Lessee
hereby agree as follows:
Lessor and Lessee agree that by reason of the taking of the Property
resulting from the aforesaid condemnation action, Lessee is entitled to a pro
rata reduction in the absolute annual net rental in the sum of $100,000.00 and
to a reduction in the base for prospective adjustments, as provided for in the
Lease. Lessor and Lessee agree that the taking represents 7.835% of the total
area leased based on a survey prepared by Sabak, Wilson, Heiner and Lingo, Inc.,
professional engineers in their report dated July 25, 1984. The absolute annual
net rental shall be reduced from the sum of $100,000.00 to the sum of $92,165.00
effective August 21, 1984, the date of entry of the interlocutory judgment in
said condemnation action.
Article 2 of the Lease is amended, effective August 21, 1984, to read as
follows:
Lessee covenants and agrees to pay to Lessor as rental for use of the
demised premises annual absolute net rental of $92,165.00. Such annual rent
shall be payable in equal monthly installments in advance on the first day
of each calendar month of the term hereof. The parties agree that the
annual rental payable hereunder shall be subject to prospective adjustments
on the 25th (and, if the term of this Lease be extended as hereinabove
provided, on the 50th and 75th) anniversary of the commencement of the term
hereof, the adjusted
-2-
<PAGE> 3
annual rental to bear the same ratio to $92,165.00 as the Consumer Price
Index (Bulab Stats Index for City Wage Earners and Clerical Workers,
Consumer Prices, all Items, 1957-9 Equal 100, which Index was 120.9 for
June, 1968) of the U.S. Bureau of Labor Statistics on such anniversary
bears to such index at the end of the calendar month in which the within
Lease is executed, provided, however, that in no event shall the annual net
rental be adjusted below $92,165.00. In the event of discontinuance of
publication of such index, said adjustment shall be made on the basis of
the successor index or nearest equivalent of such index then in existence.
In all other respects, the language and provisions of the Lease
remain unchanged and in full force and effect. This Amendment to Lease is made a
part of the Lease.
IN WITNESS WHEREOF, each of the parties hereto do cause this
Amendment to Lease to be executed, in duplicate, as of the day and year first
above written.
LESSOR:
/s/ William G. Earley
-------------------------------------
WILLIAM G. EARLEY, Executor
of the Estate of William A.
Gardner
-3-
<PAGE> 4
PLAZA CENTER, INC., Agent for
Robert E. Gardner, Evelyn A. Gardner
and Jane G. Head
BY: /s/ William G. Earley,
--------------------------------------
William G. Earley, President
/s/ Marea Burke Gardner
--------------------------------------
MAREA BURKE GARDNER
LESSEE:
FIRST NATIONAL BANK OF LOUISVILLE
BY: /s/ Daniel L. Abbott
-------------------------------------
TITLE: V.P.
----------------------------------
STATE OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )
The foregoing Second Amendment to Lease was acknowledged before me this
10TH day of APRIL, 1986, by William G. Earley, as Executor of the Estate of
William A. Gardner.
Notary Public, State at Large, KY
My commission expires: My commission expires Apr. 10, 1989
------------------------------------------------
/s/ Darlene Sapp
------------------------------------------------
NOTARY PUBLIC
STATE OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )
The foregoing Second Amendment to Lease was acknowledged before me this
10TH day of APRIL, 1986, by William G. Earley, as President of Plaza Centers,
Inc., a Kentucky corporation, on behalf of the corporation, Agent for Robert E.
Gardner, Evelyn A. Gardner, and Jane G. Head.
Notary Public, State at Large, KY
My commission expires: My commission expires Apr. 10, 1989
------------------------------------------------
/s/ Darlene Sapp
------------------------------------------------
NOTARY PUBLIC
-4-
<PAGE> 5
STATE OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )
The foregoing Second Amendment to Lease was acknowledged before me this
10TH day of APRIL, 1986, by Marea Burke Gardner.
My commission expires: 9-22-86
------------------------------------------------
/s/ Pamela A. Boulds
------------------------------------------------
NOTARY PUBLIC
STATE OF KENTUCKY )
) SS:
COUNTY OF JEFFERSON )
The foregoing Second Amendment to Lease was acknowledged before me this
15TH day of APRIL, 1986, by DANIEL L. ABBOTT, as VICE PRESIDENT of FIRST
NATIONAL BANK OF LOUISVILLE, a National Banking Association, on behalf of said
association.
Notary public, State at Large, KY
My commission expires: My commission expires Sep. 10, 1988
------------------------------------------------
/s/ Maurine M. Crossett
------------------------------------------------
NOTARY PUBLIC
THIS INSTRUMENT PREPARED BY:
- ----------------------------
C. Dant Kearns
STITES & HARBISON
600 West Main Street
Louisville, Kentucky 40202
-5-
<PAGE> 1
Exhibit 10.11
AMENDMENT TO AGREEMENTS
BETWEEN
AIRLINES REPORTING CORPORATION
AND
FIRST NATIONAL BANK OF LOUISVILLE
AND
NATIONAL PROCESSING COMPANY, INC.
The purpose of this Agreement is to amend, where noted, certain agreements
between the parties, specifically, 1) the Agreement between Airlines Reporting
Corporation and First National Bank of Louisville and National Processing
Company, Inc. for Area Settlement Plan Processing Services, dated October 16,
1986, and 2) the Agreement between Airlines Reporting Corporation and National
Processing Company, Inc. for Travel Agent Management Information System, dated
September 24, 1987. As detailed in the Memorandum of Agreement entered into
between Airlines Reporting Corporation and National Processing Company, Inc.,
dated September 18, 1991, the parties agree that the prime purposes for these
amendments are to move to a "cost plus" pricing system in all contractual
arrangements, and to extend the terms of the current, above-referenced
agreements. In accordance with these understandings, the parties agree as
follows:
1. CURRENT AGREEMENTS STILL IN EFFECT.
-----------------------------------
Unless specifically noted to the contrary in this Agreement, the provisions
of the current, above-referenced agreements between the parties, as previously
amended and supplemented, remain in full force and effect.
2. EXCEPTIONS WITH RESPECT TO THE AGREEMENT FOR AREA SETTLEMENT PLAN
PROCESSING SERVICES.
-----------------------------------------------------------------
A. The following provisions of the Agreement for Area Settlement Plan
Processing Services (ASPPS) are superseded by this Agreement:
1. Section 1.2 to the extent that it refers to annual contract term
extensions.
2. Section 1.3 to the extent that it guarantees that NPC shall
perform the Area Settlement Plan processing work for all agents.
3. Section 2.1 to the extent that it references billable items.
4. Section 3.3 to the extent that it limits ARC's audit rights;
rather, this section is amended to
<PAGE> 2
read as follows: "ARC will, from time to time, notify NPC, in
advance, of those persons who are to have the right to audit
NPC's costs and services pertaining to work performed for ARC.
Such persons will have reasonable access to all documentation
pertaining to, and systems utilized for, work performed for ARC."
5. Section 4.2 to the extent that it refers to item processing fees
and the providing of cost-free man hours to ARC.
6. Section 6 in its entirety.
7. Section 7.1.d.iii to the extent that it does not provide
specifically for arbitration as a means for resolving disputes
between the parties.
B. The parties agree that the provisions of Sections 7.1.a. and b., and
the corresponding Schedules A and B, shall remain in full force and
effect with the exception that NPC shall not be liable for financial
penalties where failure to meet a performance standard under Sections
7.1.a. and b. is the direct result of an ARC management directive
given to NPC during the course of an operations review meeting held
pursuant to the provisions of Section 6 of this Agreement.
3. EXCEPTIONS WITH RESPECT TO THE AGREEMENT FOR TRAVEL AGENT MANAGEMENT
INFORMATION SYSTEM.
--------------------------------------------------------------------
The following provisions of the Agreement for Travel Agent Management
Information System (TAMIS) are superseded by this Agreement:
A. Section 1.1 to the extent that it references payment in accordance
with terms contained in the Agreement.
B. Section 1.2 in its entirety.
C. Section 2.l.d in its entirety.
D. Section 4.2 to the extent that it refers to monthly processing fees,
fees for personnel and NPC's providing on-site systems professionals
to ARC.
E. Sections 6.1, 6.3 and 6.4 in their entirety.
F. Section 6.2 to the extent it references future prices to be charged
for equipment and establishes a 5% ceiling on the markup of equipment
costs.
G. Sections 7.1 and 7.2 in their entirety.
H. Section 7.4 to the extent that it refers to section 7.2.
<PAGE> 3
I. Section 8.2 to the extent that it references Section 6.1.
J. Section 9.6 in its entirety.
4. CONTRACT TERMS AND SCOPE.
-------------------------
4.1 ASPPS AGREEMENT.
----------------
A. The ASPPS Agreement is extended for a period of five (5) years, and
shall end, unless otherwise agreed to in writing by the parties no
later than December 31, 1995, after completion of all services
relating to the ASP processing, e.g., data capture, output reporting
and carrier disbursements, for the period ending date (PED) December
29, 1996, excluding any and all services relating to reports not
received by noon on January 6, 1997. It is agreed that NPC shall not
be required to provide ASP processing services or consequential
processing after January 9, 1997.
B. The scope of coverage in Section 1.3 of the ASPPS Agreement is amended
to provide that it covers ASP work for all those agents (i.e., ACN
Locations) who do not report by electronic transmission their
weekly/daily sales reports to the Automated Agent Reporting (AAR)
System processing center and, therefore, must report their
weekly/daily sales reports to the ASP System operated by NPC. The
parties agree that the processing functions of the ASPPS, as detailed
in the ASPPS Manual, may change during the term of this Agreement.
4.2 TAMIS AGREEMENT.
----------------
The TAMIS Agreement is likewise extended, and shall end, unless otherwise
agreed to in writing by the parties no later than December 31, 1995, after
completion of all services relating to the period ending date (PED) December 29,
1996, excluding any services relating to reports not received by noon on January
6, 1997. It is agreed that NPC shall not be required to provide any TAMIS
services or consequential processing after January 9, 1997.
5. PAYMENTS TO NPC.
----------------
5.1 BASIS FOR PAYMENTS.
-------------------
All payments from ARC to NPC will be on a "cost plus" basis. Such "cost
plus" payments will cover the costs of providing all services to ARC, including
ASPPS services, TAMIS services, systems development costs and all products and
services costs.
A. As used in this Agreement, "cost plus" refers to a form of
pricing based on NPC's actual costs of providing the services,
plus a per cent (%) markup.
<PAGE> 4
i. Such costs include, but are not limited to the following:
a. ARC portion of NPC's Airlines Services Division ("ASD")
direct costs
I. Personnel (salaries, overtime, incentive
compensation, benefits); includes systems
application staff and ASD Management.
II. Equipment (desks, chairs, data entry equipment,
maintenance); costs may be either depreciation or
actual lease outlays.
III. Material and supplies (stationery, FED transit,
TCN charges, postage, courier.)
IV. Funding on capital assets.
V. Other (travel, training, misc.)
b. ARC portion of NPC shared resources
I. Data center (personnel, equipment.)
II. Accounting.
III. Personnel.
IV. Management.
V. Facilities (floor space leases, telephone,
security, utilities, maintenance.)
VI. Mailroom (personnel, direct mail charges.)
ii. Penalties assessed against NPC pursuant to Schedules A and B
of the ASPPS are not includable in NPC's actual costs;
rather they are to be deducted from the cost mark up (see
Section 5.2 below).
iii. Except as expressly noted in Section 8.1.A. below, costs
associated with the downsizing or closure of processing
centers in Louisville or Phoenix are not includable in NPC's
actual costs for cost markup purposes.
B. The income (or expense) resulting to NPC from the cash
<PAGE> 5
flow of the operation of the Area Settlement Plan shall be
deducted from (or added to) the billing amount (cost plus
markup), as appropriate.
a. ARC and NPC will review, and agree to, the cash management
policies to be used with respect to these funds.
C. The parties may agree to additions to, and deletions from, the
list of cost items, detailed in section 5.1.A.i above, from time
to time during the duration of this Agreement.
5.2. COST MARK UP.
------------------
The per cent (%) markup to be applied to the cost base will be 19%.
5.3. PAYMENT INCENTIVES.
------------------------
A. The parties agree that incentive payments will be made to NPC for the
successful implementation of cost savings to ARC and the carriers, and
that incentive plans for cost savings programs will be developed
jointly. Prior to implementation of any cost savings programs, the
parties will meet and agree to the size of the program, the estimated
cost savings, the incentive payment to be made upon successful
implementation, and the criteria by which the success of the program
will be measured. The general format and structure of these programs
is detailed below.
i. For each dollar of cost savings, NPC will receive an incentive
payment in an amount equal to $.19, payable in the year earned
and annually thereafter for the balance of the Agreement. Net
cost savings calculations will incorporate any one time
expenditures, such as severance per NPC's normal policy,
overstaffing and special salary incentives.
ii. In addition to the annual payments, detailed in Section 5.3.A.i,
above, NPC will receive a one time bonus equal to the incentive
payment for one full year's cost savings.
iii. Incentive payments will not be made for cost reductions resulting
from the transfer of agents from the ASP System operated by NPC
to the AAR System processing center.
iv. NPC will be eligible to receive incentive payments for the
transfer of an additional processing center from Louisville to
the El Paso (Juarez) processing center.
<PAGE> 6
B. The parties also agree that they will engage in good faith discussions
concerning incentive payments for cost savings initiated by NPC that
benefit the travel industry as a whole, but do not directly reduce
NPC's costs to ARC or the carriers with any degree of quantifiable
measurement.
5.4 COST BILLINGS.
-------------------
A. ARC will develop a methodology to distribute NPC costs equitably to
participating carriers and will so instruct NPC as to individual
carrier costs in order to facilitate the monthly deduction from
carrier disbursements, as discussed below.
B. NPC is authorized to deduct all charges related to ASP processing from
carrier disbursements on a monthly basis. The current procedure of
deducting the costs due to NPC, for all services performed by NPC
during the month, from the individual carrier disbursements will
continue on the same schedule as is currently in practice. Detailed
support for the deduction will be provided to each carrier by ARC.
6. OPERATIONS REVIEW.
------------------
Appropriate representatives of the parties will meet, in person or via
telephonic conference call, each month, commencing in November of 1991, to
review the operations of the ASPPS and TAMIS services. Such meetings will be the
basis for mutual agreement as to the prioritization of systems development and
enhancement efforts by NPC; for resolving operational issues; and, for reviewing
cost savings measures, performance enhancements and quality control issues. They
will also serve as the initial forum for resolving outstanding cost issues (See,
also, Section 7), including the plans for downsizing the processing centers
(See, also, section 8).
7. PERFORMANCE REVIEW AND DISPUTES.
--------------------------------
7.1 GOOD FAITH NEGOTIATIONS.
-----------------------------
The parties reaffirm the applicable provisions of the agreement to provide
ASPPS services (Section 7.l.d.i and ii) and agree to its applicability under
this Agreement.
7.2 ARBITRATION.
-----------------
If, despite their best efforts, the parties are unable to resolve disputes
arising under this Agreement, or the underlying agreements to provide ASPPS and
TAMIS services, the parties agree that arbitration shall be the sole and
exclusive legal remedy for resolving disputes. Any party may request
arbitration. The rules and procedures of the American Arbitration Association
(AAA) shall apply to any arbitration. If the parties are unable to agree on
<PAGE> 7
the appointment of an arbitrator acceptable to all parties within 15
days after the request for arbitration has been made, the AAA shall be requested
to select an arbitrator. The arbitration shall be conducted in Washington, D.C.
within 30 days after the selection of the arbitrator. The expense of
arbitration, including fees payable to the arbitrator, shall be assigned by the
arbitrator. (If assigned to NPC, the costs shall NOT be included in the cost
base under this Agreement.) The decision of the arbitrator shall be final and
binding upon the parties.
7.3 Governing Law.
-------------------
This Agreement shall be governed and construed by the laws of Kentucky.
8. DOWNSIZING OF OPERATIONS.
-------------------------
The parties agree that it is their intent that the number of the processing
centers currently operated by NPC on ARC's behalf will be reduced and/or
downsized during the term of this Agreement. The parties further agree that the
closing of any processing center will only proceed if agreed to by the parties,
and that they are in agreement that the transfer of at least one processing
center from Louisville to the El Paso (Juarez) processing center will proceed
with all reasonable speed.
8.1 COST PRINCIPLES.
---------------------
A. Personnel Costs.
----------------
The transition to a smaller number of processing centers and/or to smaller
processing centers may involve temporary additional costs, e.g., severance per
NPC's normal policy, overstaffing and special salary incentives, and ARC agrees
to compensate NPC for reasonable expenditures in this area, following a review
and pre-approval of such transition costs by the parties.
B. Furniture and Equipment Costs.
------------------------------
The transition may also result in surplus furniture and equipment being
retained by NPC. ARC agrees to purchase from NPC, at NPC's option, at current
book value, any such furniture and equipment made surplus by ARC-initiated
closings and downsizing, which could not be utilized at other locations;
provided, however that ARC will assume financial responsibility only for
furniture and equipment utilized 75% or more for ARC operational activities.
C. Real Estate Costs.
------------------
Should the transition result in the closure or downsizing of the processing
centers in Louisville or Phoenix, the associated residual real estate cost of
the closure or downsizing (excluding those covered by section 8.1.A. or B.,
above) will be assumed by NPC. If the processing center in El Paso (Juarez) is
closed during
<PAGE> 8
the term of this Agreement, or at the end of the agreement, if it is not
extended, ARC agrees to purchase the facility, including the building and land,
from NPC, if so requested by NPC, at the then-current book value of the El Paso
(Juarez) center. The parties agree that the original cost of the El Paso
(Juarez) center is approximately $2.0 million, and that the facility is being
depreciated over 20 years in accordance with Mexican accounting conventions.
Dated this 12 day of December, 1991, by:
-- --------
Airlines Reporting Corporation
By: /s/ David R. B. Collins
--------------------------------
David R. B. Collins, President
First National Bank of Louisville
BY: /s/ Delroy R. Hayunga
--------------------------------
XXX
National Processing Company, Inc.
BY: /s/ Delroy R. Hayunga
--------------------------------
Delroy Hayunga, President
<PAGE> 1
Exhibit 10.12
1994 AMENDMENT TO AGREEMENTS
BETWEEN
AIRLINES REPORTING CORPORATION
AND
NATIONAL CITY BANK, KENTUCKY
(F/K/A, First National Bank of Louisville)
AND NATIONAL CITY PROCESSING COMPANY
(F/K/A, National Processing Company, Inc.)
The purpose of this Agreement is to amend, where noted, certain agreements
between the parties, specifically, 1) the Agreement between Airlines Reporting
Corporation and First National Bank of Louisville and National Processing
Company, Inc. for Area Settlement Plan Processing Services, dated October 16,
1986; 2) the Agreement between Airlines Reporting Corporation and National
Processing Company, Inc. for Travel Agent Management Information System, dated
September 24, 1987; and, 3) the Amendment to Agreements between Airlines
Reporting Corporation and First National Bank of Louisville and National
Processing Company, Inc., dated December 12, 1991. As detailed in the Memorandum
of Agreement entered into between Airlines Reporting Corporation and National
City Processing Company, dated September 1, 1994, the parties agree that the
prime purpose for these amendments is to summarize the future business
relationship between Airlines Reporting Corporation ("ARC") and National City
Processing Company ("NPC").
1. CURRENT AGREEMENTS STILL IN EFFECT
----------------------------------
Unless specifically noted to the contrary in this Agreement, the current
provisions of the above-referenced agreements between the parties remain in full
force and effect. The parties agree
<PAGE> 2
that the amended agreements between the parties will be rewritten to consolidate
all of the existing contracts and their respective addendum and amendments,
without any intent by either party to renegotiate the terms of any such
contracts.
2. TERM OF AGREEMENT
-----------------
This Agreement shall both extend the terms and duration of the
above-referenced agreements between the parties until December 31, 2001, and
address the parties' agreements with respect to Interactive Agent Reporting
("IAR") . This Agreement shall end after completion of all services relating to
the ASP processing (e.g., data capture, output reporting and carrier
disbursements), IAR services, and TAMIS services for the period ending December
30, 2001, excluding any and all services relating to reports not received by
noon on January 7, 2002. It is agreed that NPC shall not be required to provide
ASP processing services, IAR services, TAMIS services or consequential
processing after January 10, 2002.
3. COVERAGE
--------
(A) NPC will be the exclusive processing vendor, and thereby provide the
services set forth in the above-referenced agreements between the
parties, for all those travel agents (i.e., ACN locations) whose sales
reports are processed by ARC, either manually or electronically.
(B) ARC may move "support functionality" (such as TAMIS, select master
file copies, or non-core production functions) from the mainframe at
NPC to ARC owned and
2
<PAGE> 3
operated personal computers or office environment mini computers.
4. INTERACTIVE AGENT REPORTING
---------------------------
(A) NPC will be the exclusive processing vendor for all electronic travel
agency sales reports and will be the exclusive facilities service
provider for ARC during the development, beta, implementation, and
ongoing production processing of Interactive Agent Reporting.
(B) ARC will decide on the architectural solution, and such will be placed
at, owned, and operated by NPC.
(C) ARC will retain the right to produce, own, and operate a development
and/or test system.
(D) Any software developed by ARC in connection with Interactive Agent
Reporting, as well as any software to support ARC developed by ARC'S
systems staff (see S5, below), is and shall remain the sole property
of ARC.
5. CONSOLIDATION OF SYSTEMS STAFF
------------------------------
(A) Transfer of Positions
---------------------
Thirty-three (33) positions in the NPC ASD-Systems group and
their functions and responsibilities are agreed to be consolidated
with the ARC - Information Systems group (and such was accomplished in
October 1994). The positions will report to and be payrolled by
3
<PAGE> 4
ARC. NPC will use reasonable efforts to assist ARC in the transfer of
the incumbents in these positions, to the extent such efforts are not
in conflict with applicable law or NPC's employment policies or
practices.
(B) Transfer of Furniture and Equipment
-----------------------------------
Upon the consolidation of systems staff described in Section 5(A)
hereof, the furniture and/or equipment (i.e., personal computers,
printers, file cabinets, etc.) used to support those thirty-three (33)
positions that were utilized seventy-five percent (75%) or more for
ARC operational activities will, at NPC's option, be purchased by ARC
at NPC's book value.
(C) Transfer of Hardware
--------------------
The hardware used by ARC employees associated with TAMIS was
transferred to ARC's control in October, 1994, in accordance with the
current NPC lease, at ARC's expense.
(D) Continuing Service
------------------
NPC will continue to provide to ARC the computer test time,
facilities, as provided for in the Supplemental Agreement, to be
signed February 1995, and any supplies ordered
4
<PAGE> 5
by ARC through NPC for the systems staff.
6. TRANSMISSION CONTROL NUMBER ("TCN") CONTRACTS
---------------------------------------------
(A) Definition
----------
I. "Control Files" shall mean the data files containing the
information made available from the Computerized Reservation
Systems-produced tickets generated by agents that report to ARC
under the Area Settlement Plan.
(B) Assignment of TCN Contracts
---------------------------
Subject to the airlines' concurrence, the TCN contracts will be assigned to
ARC, and the existing relationships will be redirected from NPC to ARC. ARC will
negotiate new contracts for the "Control Files" as appropriate.
(C) Management of Control Files
---------------------------
ARC will be responsible for managing the "Control Files." However, NPC will
continue to handle the "day-to-day" Control File operations. ARC shall notify
NPC as necessary, in writing, as to the rates to be used within the Area
Settlement Plan Processing Services System to calculate all TCN payments to be
made by NPC on ARC's behalf, and to whom such payments are to be made.
(D) Payments to NPC Concerning TCN Markup
-------------------------------------
NPC's mark-up on TCN expenses is calculated from the actual year-to-date
TCN expenses from January, 1994 through July, 1994. The amounts of the mark-up
payments, to be made in a manner that
5
<PAGE> 6
the parties mutually agree to, are as follows:
I. For the period August 1, 1994 through December 31, 1994, ARC will pay
NPC Seven Hundred Seventy Seven Thousand Dollars ($777,00).
II. For the period January 1, 1995 through December 31, 1995, ARC will pay
NPC One Million Eight Hundred Sixty Five Thousand Dollars
($1,865,000).
III. For the period January 1, 1996 through December 31, 1996, ARC will pay
NPC One Million Eight Hundred Sixty Five Thousand Dollars
($1,865,000).
(E) Cessation of Payments To NPC Concerning TCN Markup
--------------------------------------------------
After December 31, 1996, ARC will not make any mark-up payments to NPC
based on TCN expenses.
7. NPC'S COSTS
-----------
(A) With respect to the calculation of NPC's actual costs, as used as a
basis for payments to NPC in Section 5.1 of the 1991 Amendment to
Agreements, such costs (and mark-up), for systems operations shall be
limited to computer test time, facilities, as provided for in the
Supplemental Agreement, to be signed February 1995, and any supplies
ordered by ARC through NPC, for systems staff, upon the consolidation
of systems staff as described in Section 5 of this Agreement which was
accomplished in October, 1994.
6
<PAGE> 7
(B) As of August 1, 1994, costs associated with TCN charges are not
includable in NPC' s actual costs for cost mark-up purposes.
(C) ARC shall reimburse NPC for all actual TCN costs paid by NPC on ARC's
behalf.
8. INCENTIVE PAYMENTS TO NPC
-------------------------
(A) For cost savings programs implemented in the 1994 calendar year or
earlier, ARC will be liable for incentive payments to NPC, in
accordance with this Section, only until December, 1996.
(B) For cost savings programs implemented in the 1995 or 1996 calendar
years, ARC will be liable for incentive payments to NPC, in accordance
with this Section, for thirty-six (36) months after implementation of
such program.
(C) For cost savings programs implemented in the 1997 calendar year or
later, ARC will be liable for incentive payments to NPC, in accordance
with this Section, until December 31, 2001.
(D) Incentive payments will not be made for cost reductions resulting from
the transfer of agents from manual processing to electronic processing
(See Section 4 above)
7
<PAGE> 8
(E) Incentive payments will not be made for cost reductions resulting from
the consolidation of Systems staff, as described in Section 5 hereof.
IN WITNESS WHEREOF, ARC and NPC have executed and delivered this Agreement,
as of the 31st day of December, 1994.
AIRLINES REPORTING CORPORATION
By /s/ David R. B. Collins
---------------------------
Title President
------------------------
Date December 31, 1994
-------------------------
NATIONAL CITY PROCESSING COMPANY
By /s/ Robert E. Johnson
----------------------------
Title Executive Vice President
-------------------------
Date December 31, 1994
--------------------------
NATIONAL CITY BANK, KENTUCKY
By /s/ Delroy R. Hayunga
----------------------------
Title Executive Vice President
-------------------------
Date December 31, 1994
--------------------------
2-23-95
8
<PAGE> 1
Exhibit 10.13
SUPPLEMENTAL AGREEMENT
This Supplemental Agreement is entered into as of this 24TH day of
February, 1995, by and between National City Processing Company ("NPC"), a
Kentucky corporation whose address for purposes of this Supplemental Agreement
is 1231 Durrett Lane, Louisville, KY 40285-0001 and Airlines Reporting
Corporation ("ARC"), a Delaware corporation whose address for purposes of this
Supplemental Agreement is 1530 Wilson Blvd., Suite 800, Arlington, VA
22209-2448.
WITNESSETH:
WHEREAS, the parties wish to supplement existing agreements to which they
are parties; and
WHEREAS, the parties desire that nothing in this Supplemental Agreement
shall in any way invalidate any part of the existing agreements.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and intending to be legally bound, the parties hereto agree as
follows:
1. SUPPLEMENT TO PRIMARY AGREEMENT. This Supplemental Agreement shall be
supplemental to the following existing agreements to which NPC and ARC are
parties: (a) the Agreement between Airlines Reporting Corporation and First
National Bank of Louisville and National Processing Company, Inc., for Area
Settlement Plan Processing Services, dated October 16, 1986; (b) the Agreement
between Airlines Reporting Corporation and National Processing Company, Inc. for
Travel Agent Management Information System, dated September 24, 1987; (c) the
Amendment to Agreements between Airlines Reporting Corporation and First
National Bank of Louisville and National Processing Company, Inc., dated
December 12, 1991; and (d) the 1994 Amendment to Agreements between Airlines
Reporting Corporation and National City Bank, Kentucky and National City
Processing Company, dated December 31, 1994. Such existing agreements, as same
may be amended from time to time, are hereinafter referred to collectively as
the "Primary Agreement." The Amendment to Agreements dated December 12, 1991 is
hereinafter referred to as the "1991 Amendment." The 1994 Amendment to
Agreements dated December 31, 1994 is hereinafter referred to as the "1994
Amendment."
This Supplemental Agreement shall serve to define the terms under which the
systems staff referred to in Section 5(A) of the 1994 Amendment, who are
employees of ARC performing work in support of NPC's performance of the Primary
Agreement, may occupy physical premises (the "Premises") which are under the
control of NPC.
2. TERM. The term of this Supplemental Agreement shall commence on May 1,
1995, and shall terminate concurrently with the termination of the Primary
Agreement, unless earlier terminated as provided herein. ARC may terminate this
Supplemental Agreement as of midnight on December 31 of any year, following not
less than twelve (12) months' written notice to NPC accompanied by payment of a
sum equal to $7,500 times the number of years, if any, remaining from the date
of termination through December 31, 2001.
<PAGE> 2
3. FEES. It is the parties' intent that NPC be compensated for ARC's
occupancy of the Premises in a manner consistent with its cost-plus compensation
for facilities expenses, as set forth in Sections 5.1.A.i.b.V. and 5.2 of the
1991 Amendment. To that end, NPC shall collect monthly, together with and in the
same manner as payments for services rendered under the Primary Agreement, an
amount equal to Nineteen Percent (19%) in excess of the sum of the following:
(a) FIXED FEE. Ten Thousand Dollars ($10,000.00) (subject to increase
each January 1 by NPC by not more than Five Percent (5%) over the preceding
year's rate); and
(b) TELEPHONE. All of ARC's long distance telephone charges billed to
NPC for each month; and
(c) ADDITIONAL FEES. The amount, if any, by which NPC's allocated and
verifiable costs for the Premises for each month, including without limitation
all utilities, attendant services and improvements requested or required by ARC,
exceed the Fixed Fee refereed to in subsection 3(a) above.
If the Fixed Fees and any Additional Fees are not payable for a full month,
then the same shall be prorated on a per diem basis using the applicable monthly
amount divided by 30 and multiplied by the number of days for which the same are
payable.
4. PREMISES. Initially, the Premises shall be the floor space and
improvements described in Exhibit A, which is attached hereto and made a part
hereof. If, for any reason, such space becomes unavailable to NPC, NPC shall
offer comparable space at another location which ARC shall accept or reject, in
writing, within thirty (30) days following NPC's notice of relocation; failure
to so accept or reject shall be deemed a rejection. If ARC accepts relocation,
relocation to such replacement space shall be at NPC's reasonable expense and
will be conducted at such time and in such manner as to not unduly affect ARC's
operations. If ARC rejects relocation, this Supplemental Agreement shall
terminate as of the relocation date specified in NPC's notice of relocation or
at such earlier date as ARC shall specify in writing; upon such termination,
ARC shall compensate NPC as provided in Section 2 hereof, prorating any partial
year curtailed. NPC shall give ARC at least ninety (90) days' advance written
notice of any such relocation.
5. USE. ARC shall use the Premises primarily for the purpose of ARC work to
support the services provided by NPC under the Primary Agreement. ARC shall not
use or permit the use of the Premises for any work which is in competition with
NPC's services under the Primary Agreement. ARC shall use and occupy the same
in a safe, proper and lawful manner, and will not commit or suffer any waste
therein. ARC will not allow the Premises to be used for any purpose or in any
way that will increase the rate of insurance thereon, nor for any purpose other
than that herein specified, nor to be occupied in whole or in part by any other
person; and will not bring nor suffer to be brought into or upon the Premises
any substance or force that will increase the hazard of fire in or on the
Premises. NPC confirms that ARC's use of the Premises, as herein described, will
not increase the rate of NPC's insurance thereon. ARC shall also comply with all
laws, including without limitation, environmental laws, in its use of the
Premises. ARC will also comply with all building rules and regulations, as may
be provided by NPC from time to time. ARC shall pay before
-2-
<PAGE> 3
delinquency all taxes and assessments, whether general or special, license fees,
and other charges of any kind that may be levied or assessed against ARC's
personal property installed or located in, on or upon the Premises.
6. CONDITION OF PREMISES. NPC has not made nor shall it make any
representations, warranties in law or in fact or statements concerning the
condition or value of the Premises. ARC has examined the floor space and
improvements described in Exhibit A hereto and hereby accepts the same "AS IS",
in its present state and condition, subject to NPC's agreement to perform work
specified in Exhibit B, which is attached hereto and made a part hereof, and
subject to reasonable wear and tear until the date of actual possession.
7. UTILITIES. ARC shall receive, as is provided by NPC, basic local
telephone service and telephone equipment, reasonable amounts of heat, air
conditioning, water, sewer usage and electrical power all appropriate to the
season, during normal business hours and regular working days (defined as 8:00
a.m. to 6:00 p.m. Monday through Friday, and 8:00 a.m. to 1:00 p.m. Saturday,
except holidays). NPC shall also provide the normal cleaning and janitorial
services required to support an eight hour per day, five day per week work
schedule.
If ARC's use of the Premises requires (i) electrical service other than
standard 110 volts, or (ii) separate electrical circuit(s), ARC can arrange for
such services through NPC. With the approval of NPC, ARC may arrange for such
services itself but shall pay for the cost of installation of such electrical
service, including without limitation, dedicated electrical circuits and
separate meters indicating the amount of electrical service to the Premises. ARC
shall not use any electrical equipment which will overload or interfere with the
electrical installations in the Premises or other portions of the building
containing the Premises.
NPC does not warrant that any of the utilities provided to the Premises
shall be free from interruption, fluctuation or suspension. ARC shall not be
deemed to have been evicted as the result of, nor shall NPC be liable for any
loss or damage to the property of ARC located on the Premises, any loss of
business or profits of ARC, or consequential, punitive, or special damages of
any kind arising from (i) any failure of NPC to provide any of the foregoing
services, (ii) any interruption or unavailability of utilities or any stoppage,
leaking, bursting, or other defect or failure in the utility lines, pipes,
wires, and other facilities serving the Premises as long as NPC uses reasonable
efforts to remedy or to cause a utility company or other third party to remedy
the problem, or (iii) any repairs, maintenance, alterations, or improvements to
the Premises as long as NPC uses reasonable efforts to minimize disruption to
the Premises. If, as the result of any of the foregoing, the Premises remain
untenantable for more than ten (10) days after written notice from ARC to NPC
specifying the circumstances giving rise to such untenantability, then, as ARC's
sole and exclusive remedy, all fees due pursuant to Section 3 hereof shall abate
for so long as the Premises remain untenantable. Notwithstanding any other
provision, ARC will have the right to terminate this Supplemental Agreement
should the time to repair the above exceed one hundred twenty (120) days,
without any payment pursuant to Section 2. 2
8. ATTENDANT SERVICES. ARC shall at all times maintain and keep in good
order and repair the Premises. NPC will provide maintenance, card-access
security, purchasing services, and other internal service support as reasonably
required by ARC. ARC agrees to allow NPC access to the Premises at all times for
the purposes of any such
-3-
<PAGE> 4
maintenance and services. ARC shall pay any other direct cost associated with
the conduct of ARC's business at the Premises.
9. PARKING. ARC, its employees, customers, licensees and invitees shall be
entitled to the same parking rights granted to NPC -- i.e., first-come,
first-served -- with regard to the building containing the Premises.
10. IMPROVEMENTS. ARC shall not make any improvements to the Premises. ARC
may request that NPC make improvements to the Premises; if NPC agrees to such
improvements, the cost of same shall be included in the computation of any
Additional Fees under subsection 3(c) hereof.
11. INSURANCE.
(a) At all times after the execution of this Supplemental Agreement,
ARC will obtain and keep in force, at its expense:
(1) comprehensive general liability insurance, including
insurance against assumed or contractual liability, with respect to the
Premises, to afford protection to the limit for each occurrence of not less than
One Million Dollars ($1,000,000.00) with respect to bodily injury or death, One
Million Dollars ($1,000,000.00) with respect to property damage and One Million
Dollars ($1,000,000.00) with respect to personal injury;
(2) all-risk property insurance, written at replacement cost
value and with replacement cost endorsement, covering all of ARC's personal
property in the Premises (including, without limitation, inventory, trade
fixtures, wall and floor coverings, furniture and other property removable by
ARC under the provisions of this Supplemental Agreement), all improvements
installed in the Premises and all plate glass and other glass; and
(3) if and to the extent required by law, Worker's Compensation
or similar insurance in form and amounts required by law.
(b) Waiver of Subrogation. NPC and ARC hereby release the other from
any and all liability or responsibility to the other or any one claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any of the extended coverage. NPC and ARC shall each
cause their carriers to include in their policies a clause or endorsement to the
effect that any such release shall not adversely affect or impact said policies
or prejudice any right of recovery thereon.
(c) The company or companies writing any insurance which ARC is
required to secure and maintain or cause to be secured and maintained as well as
the form of such insurance, shall at all times be subject to NPC's written
approval. Each such company or companies shall be licensed to do business in the
State of Kentucky, and shall be rated at least A-1 by A.M. Best. Each policy
evidencing such insurance shall name NPC and each designee of NPC as additional
named insured and shall also contain a provision by which the insurer agrees
that such policy shall not be canceled except after thirty (30) days written
notice to NPC and its designees, if any. The original of each such policy, or a
certificate thereof, shall be deposited with NPC by ARC promptly upon
commencement of ARC's obligation to procure
-4-
<PAGE> 5
the same. Prior to the expiration or termination of any such policy, ARC shall
deliver to NPC a new or renewal policy (or a certificate thereof).
(d) Should ARC fail to carry such insurance as hereinabove described
NPC may at its option (but shall not be required to do so) cause such insurance
as aforesaid to be issued and in such event, ARC agrees to pay the premium for
such insurance promptly upon NPC's demand.
12. PERFORMANCE BY NPC OR ARC. In the event of ARC's failure to observe and
perform any of its covenants or agreements under this Supplemental Agreement,
NPC may, after reasonable notice to ARC, perform the same for ARC in which event
ARC shall reimburse NPC upon demand for the cost of such performance.
13. ASSIGNMENT AND SUBLETTING. ARC shall not assign, encumber or transfer,
nor sublet the Premises, or any part thereof. A corporate merger shall not be
deemed an assignment under this Supplemental Agreement.
14. TERMINATION. If at any time proceedings in bankruptcy, or pursuant to
any other act for the relief of debtors, shall be instituted by or against ARC,
or if any execution shall issue against ARC or any of ARC's effects whatsoever,
or if a receiver or trustee shall be appointed of ARC's property, or if this
Supplemental Agreement shall in any way pass to any person, persons or entity
other than ARC or its successor, then and in each of such cases, NPC may at its
option terminate this Supplemental Agreement forthwith by notifying ARC as
herein provided. Further, if at any time NPC ceases its ARC processing business,
this Supplemental Agreement shall terminate upon such cessation. Upon
termination for any reason, all sums due and payable or to become due and
payable by ARC shall at once become due and payable upon demand by NPC.
15. INDEMNIFICATION. ARC shall indemnify and hold NPC and its officers,
employees, agents, directors, shareholders, and partners harmless against any
loss, liability, damage, fine or other governmental penalty, cost, or expense
(including attorneys' fees and costs of litigation), or any claim therefor,
resulting from: (i) ARC's noncompliance with or violation of any law, ordinance,
or other governmental regulation applicable to ARC or its use and occupancy of
the Premises; or (ii) injury to persons or loss or damage to property to the
extent caused by any act or omission of ARC or its employees, agents, and
contractors.
NPC shall indemnify and hold ARC and its officers, employees, agents,
directors, shareholders, and partners harmless against any loss, liability,
damage, fine or other governmental penalty, costs, or expense (including
attorneys' fees and costs of litigation), or any claim therefor, resulting from:
(i) NPC's noncompliance with or violation of any law, ordinance, or other
governmental regulation applicable to NPC, but only to the extent such
noncompliance or violation is not based on the use or occupancy of the Premises
by ARC or on any other act or omission of ARC or its employees, agents, or
contractors; or (ii) injury to persons or loss or damage to property (other than
trade fixtures or personal property owned by or in the custody of ARC) to the
extent caused by any act or omission of NPC or its employees, agents, and
contractors.
-5-
<PAGE> 6
16. SURRENDER. Upon the expiration of the term or termination of this
Supplemental Agreement for any reason, ARC shall return to NPC the Premises in
as good condition as of the date of the commencement of the term hereof,
ordinary wear and tear excepted.
17. NOTICES. Any notice provided herein shall be considered given as of the
mailing date, if sent by certified mall or overnight delivery, duly addressed by
either party to the other at the address shown in the Primary Agreement.
18. APPLICABLE LAWS. This Supplemental Agreement shall be construed in
accordance with and governed pursuant to the laws of the State of Kentucky.
19. PARTIAL INVALIDITY. If any agreement, condition or covenant of this
Supplemental Agreement or the application thereof to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder hereof, or the
application of such agreement, condition or covenant to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each agreement, condition or covenant of this Supplemental
Agreement shall be valid and be enforced to the fullest extent permitted by law.
20. ENTIRE AGREEMENT. This Supplemental Agreement contains the entire terms
and conditions between the parties with respect to the Premises and specified
services and no modification of any provision hereof shall be valid unless in
writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Supplemental
Agreement as of the date first above written.
National City Processing Company (NPC)
By: /s/ Robert E. Johnson
------------------------------------
Robert E. Johnson
Title: Exec. Vice President
---------------------------------
Airlines Reporting Corporation (ARC)
By: /s/ David R. B. Collins
------------------------------------
David R. B. Collins
Title: President
---------------------------------
-6-
<PAGE> 1
Exhibit 10.14
AMENDMENT ("Amendment") TO AGREEMENT
BETWEEN
AIRLINES REPORTING CORPORATION
AND
NATIONAL CITY BANK, KENTUCKY
(formerly known as First National Bank of Louisville)
AND
NATIONAL CITY PROCESSING COMPANY
(formerly known as National Processing Company, Inc.)
FOR
AREA SETTLEMENT PLAN PROCESSING SERVICES
This Amendment is entered into as of AUGUST 19, 1995, by and between AIRLINES
REPORTING CORPORATION ("ARC"), NATIONAL CITY BANK, KENTUCKY (formerly known as
First National Bank of Louisville) ("Bank"), and NATIONAL CITY PROCESSING
COMPANY (formerly known as National Processing Company, Inc.) ("NPC") and amends
and/or supplements tile Agreement (the "Agreement"), dated October 16, 1986, by
and between ARC, Bank, and NPC.
The purpose of this Amendment is to clarify the procedures pursuant to which ARC
may establish, amend, or delete repetitive wire transfer instructions received
by it from its participating carriers ("Carriers").
ARC, Bank. and NPC hereby agree as follows:
1. AUTHORITY. Bank, in accordance with its procedures, as it may from time to
time establish, shall transfer funds from NPC's demand deposit account no.
7036503-0 at Bank to any other account, whether such other account is with
Bank or another financial institution, in accordance with instructions
received from NPC using repetitive transfer codes ("Repeat Codes"). The
parties acknowledge that NPC is authorized to deliver instructions on
behalf of ARC for the transfer of Carriers' funds as part of NPC's
responsibilities as processor for the Area Settlement Plan Processing
Service System (the "ASPPS System"). Bank shall execute such wire transfer
instructions in any order convenient to Bank and shall select such means
and routes for the transfer of funds, as Bank, in its sole discretion,
considers appropriate under the circumstances.
2. ORIGINATOR. The parties hereto agree that ARC shall be deemed to be the
originator of any request for the transfer of funds received by Bank from
NPC in accordance with the Agreement as hereby amended.
3. PERSONAL IDENTIFICATION NUMBERS. ARC will designate those persons who will
act as ARC Representatives and Security Administrator in a writing in the
form of Addendum I hereto. Each ARC Representative "'ill be issued a
personal identification number (a "PIN"). The Security Administrator
designated on Addendum 1 will receive sealed, confidential envelopes which
shall set forth each ARC Representative's PIN. Said envelopes will be sent
to the attention of the Security Administrator by such method as Bank shall
deem appropriate. The ARC Representative's PIN will be verified as part of
the confirmation procedure described in Paragraph 4 below. ARC shall be
solely responsible for controlling the distribution and safekeeping of. and
access to, the PINs.
4. ESTABLISHMENT AND MAINTENANCE OF REPETITIVE WIRE INSTRUCTIONS. ARC will
initiate requests to establish, amend, or delete repetitive wire
instructions for a Carrier in writing to NPC. Each such request shall be
signed by an ARC Representative designated on Addendum I hereto, shall be
accompanied by a letter from the Carrier on letterhead of the Carrier, and
shall set forth the name and ABA number of' the bank and the number and
title of the account, to be credited. ARC shall be solely responsible for
determining the authenticity of the letter from the Carrier. NPC may rely
and shall be protected in acting upon any written request furnished to it
hereunder and believed by it to be genuine and to have been signed by an
ARC
<PAGE> 2
Representative. Upon receipt of any such notice and letter, NPC shall
forward the same to Bank. Bank will confirm the information set forth in
the Carrier's letter by calling an ARC Representative designated on
Addendum I, other than the individual who signed the request. If Bank is
unable to confirm a repetitive wire instruction request within a
reasonable time. Bank reserves the right to reject said request. Bank will
make a reasonable effort to notify ARC and NPC by telephone of such
inability to verify and/or rejection; provided. however, that Bank shall
not be liable for any failure to provide such notice. Except as provided
herein, Bank shall have no duty to. and shall not. question the
authenticity of the notice or letter and shall not be liable for doing so.
5. TRANSFER REQUESTS. As processor for the ASPPS System, NPC will determine
the amounts payable to each Carrier and will deliver appropriate transfer
requests to Bank at appropriate times in accordance with the Agreement. NPC
will transmit transfer requests to Bank in accordance with that certain
Wire Transfer Agreement entered into by and between NPC and Bank, dated
AUGUST 19, 1995 (the "NPC Agreement"), as amended from time to time. The
terms of the NPC Agreement are hereby incorporated by reference as if fully
rewritten herein. A copy of the NPC Agreement is attached hereto as Exhibit
A. ARC hereby acknowledges that it has read arid understands the terms C':
the NPC Agreement and, without limiting the generality of the foregoing,
specifically agrees that the Security Procedures set forth on Schedule A
thereto are commercially reasonable. NPC agrees to notify ARC promptly of
any changes in the Security Procedures set forth in the NPC Agreement and
any modification or termination of the NPC Agreement.
Except as amended and/or supplemented herein, the parties hereto ratify and
confirm the terms of the Agreement, as previously amended.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and each of the undersigned hereby warrants and represents that he
or she has been and is, on the date of this Amendment, duly authorized by all
necessary and appropriate corporate action to execute this Amendment
AIRLINES REPORTING CORPORATION NATIONAL CITY BANK, KENTUCKY
By /s/ Jack Mallinger By /s/ Tony G. Holcombe
--------------------------- ---------------------------
(Authorized Signer) (Authorized Signer)
Jack Mallinger TONY G. HOLCOMBE
--------------------------- ---------------------------
(Printed Name) (Printed Name)
Title V.P./Financial Services Title SENIOR VICE PRESIDENT
------------------------ ------------------------
NATIONAL CITY PROCESSING COMPANY
By /s/ Robert E. Johnson
---------------------------
(Authorized Signer)
ROBERT E. JOHNSON
---------------------------
(Printed Name)
Title EXECUTIVE VICE PRESIDENT
------------------------
-2-
<PAGE> 1
Exhibit 10.17
EMPLOYMENT AGREEMENT AND
UNDERTAKING OF CONFIDENTIALITY
This Employment Agreement and Undertaking of Confidentiality
("Agreement"), is entered into as of the 1st day of November, 1994 by and
between National City Processing Company ("NPC") and Tony G. Holcombe
("Employee"):
WHEREAS, the parties specifically agree that this Agreement shall be
effective as of the promotion of employee to the position of President of NPC,
and,
WHEREAS, each party acknowledges that this Agreement accurately
documents and memorializes the intentions, understandings and agreement of the
parties at the time of said promotion, NOW THEREFORE;
In consideration of the mutual promises and agreements and subject to
the terms and conditions set forth below, the parties hereby agree as follows:
1. NPC agrees to continue to employ Employee and to make available to
Employee those benefits provided by NPC to employees with similar
responsibilities, all as amended from time to time, upon the terms and
conditions set forth below. As additional consideration for the mutual
promises and agreements set forth herein, NPC also agrees to promote employee to
the position of President of NPC and increase his annual base salary to
$225,000 and pay to him on March 15, 1995, a $100,000 bonus.
2. Employee acknowledges and agrees that in the performance of his
duties of employment he may be brought into frequent contact with clients and
potential clients of NPC either in person, through the mails, by telephone or
by other means. Employee also acknowledges and agrees that trade secrets and
confidential information of NPC, as described in paragraph 12 of this
Agreement, gained by Employee during his employment with NPC, have been
developed by NPC through substantial expenditures of time, effort and financial
resources and constitute valuable and unique property of NPC. Employee further
understands, acknowledges and agrees that the foregoing makes it necessary for
the protection of NPC's business that Employee not compete with NPC during his
employment and for a reasonable period thereafter.
3. Employee agrees that he will not, during his employment, compete
with NPC within the United States and Mexico. Employee agrees that, in
accordance with this restriction, but without limiting its terms, he will not
during his employment:
(i) enter into or engage in any business that competes with NPC's
Business; or
(ii) solicit any customers, clients, business, patronage or orders for,
or sell any services in competition with, or for any business that
competes with NPC's Business; or
(iii) divert, entice, or take away any customers, clients, business,
patronage or orders of NPC, or attempt to do so; or
<PAGE> 2
(iv) promote or assist, financially or otherwise, any person, firm,
association or corporation engaged in any business that competes with NPC's
Business.
4. Employee agrees that, within the United States and Mexico (the
"Territory"), he will not, for a period of two (2) years following the
termination of his employment, enter into or engage in any business that
competes with NPC's Business.
5. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, solicit
customers, clients, business, patronage, or orders for, or sell any services in
competition with NPC's Business.
6. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, divert,
entice, or otherwise take away any customers, clients, business or orders of NPC
or attempt to do so.
7. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, promote or
assist financially or otherwise, any person, firm, association, partnership,
corporation, or other entity engaged in any business that competes with NPC's
Business.
8. For the purposes of this Agreement Employee understands and
agrees that he will be competing if he engages in any or all of the activities
set forth therein directly as an individual on his own account, or indirectly as
a partner, joint venturer, employee, agent, salesman, consultant, officer and/or
director of any firm or corporation, or as a stockholder of any corporation in
which Employee or Employee's spouse, child or parent owns, directly or
indirectly, individually or in the aggregate, more than ten percent (10%) of the
outstanding stock.
9. For the purposes of this Agreement "NPC's Business" is defined
as:
Bankcard Services: the acquisition and processing of credit and debit
card transactions accepted by merchants at the point of sale.
Check Services: the guarantee, authorization, and collection of checks
accepted by merchants at the point of sale.
Airline Services: the receipt, processing, and collection of Travel
Agent payments being made to the Airlines as the result of tickets issued by the
Agents; also, the handling of Passenger Revenue Accounting functions for
airlines.
Retail Lockbox Services: the receipt, processing, and collection of
consumer payments being made to corporations for services rendered.
Payables Services: the audit and processing of payments being made by
corporations to their suppliers for services rendered - Freight Payment being a
particular specialty.
Electronic Benefits Transfer Services: the electronic distribution of
governmental benefits to welfare recipients by a variety of governmental
agencies at the local, state, and national levels.
<PAGE> 3
10. If it shall be judicially determined that Employee has violated any
of his obligations under this Agreement, then the period applicable to the
obligation which Employee shall have been determined to have violated shall
automatically be extended by a period of time equal in length to the period
during which said violation(s) occurred.
11. Employee agrees that he will not directly or indirectly at any time
solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC.
12. Employee will keep in strict confidence, and will not, directly or
indirectly, at any time during or after his employment, disclose, furnish,
disseminate, make available or use (except in the course of performing his
duties or employment hereunder) any trade secrets or confidential business and
technical information of NPC or its customers or clients, without limitation as
to when or how Employee may have acquired such information. Such confidential
information shall include, the whole or any portion or phase of any scientific
or technical information, design, process, procedure, formula, pattern,
compilation, program, device, method, technique or improvement, or any business
information or plans, financial information, or listing of names, addresses or
telephone numbers, including without limitation, information relating to any of
NPC's customers or prospective customers, NPC's customer lists, contract
information including terms, pricing and services provided, information
received as a result of customer contacts, NPC's products and processing
capabilities, methods of operation, business plans, financials or strategy, and
agreements to which NPC may be a party. Employee specifically acknowledges that
such information, whether reduced to writing or maintained in the mind or
memory of Employee and whether compiled by NPC and/or Employee, derive
independent economic value from not being readily known to or ascertainable by
proper means by others who can obtain economic value from its disclosure or
use, that reasonable efforts have been put forth by NPC to maintain the secrecy
of such information, that such information is the sole property of NPC and that
any retention and use of such information during or after his employment with
NPC (except in the course of performing his duties of employment hereunder)
shall constitute a misappropriation of NPC's trade secrets. Employee further
agrees that, at the time of termination of his employment, he will return to
NPC, in good condition, all property of NPC, including, without limitation, the
information identified above. In the event that said items are not so returned,
NPC shall have the right to charge Employee for all reasonable damages, costs,
attorney's fees and other expenses incurred in searching for, taking, removing,
and/or recovering such property.
13. During his employment and for two (2) years thereafter, Employee
agrees to communicate the contents of this Agreement to any person, firm,
association, or corporation that he intends to be employed by, associated with,
or represent, that is engaged in a business that is competitive to NPC's
Business.
14. Employee acknowledges and agrees that the remedy at law available
to NPC for breach of any of Employee's obligations under this Agreement would
be inadequate, and agrees and consents that in addition to any other rights or
remedies that NPC may have at law or in equity, temporary and permanent
injunctive relief may be granted in any proceeding that may be brought to
enforce any provision contained in this Agreement, without the necessity of
proof of actual damage.
3
<PAGE> 4
15. Employee acknowledges that his obligations under this Agreement are
reasonable in the context of the nature of NPC's business and the competitive
injuries likely to be sustained by NPC if Employee violated such obligations.
Employee further acknowledges that this Agreement is made in consideration of,
and is adequately supported by the obligations undertaken by NPC in paragraph 1
above, which Employee acknowledges constitutes new and/or good, valuable and
sufficient consideration. Employee acknowledges that his employment relationship
with NPC is and following the execution of this Agreement shall continue to be
"at will," and may be terminated at any time and for any reason, or for no
reason, by NPC or by Employee. If however, NPC terminates the employee's
employment at any time and for any reason, other than a violation of this
Agreement, NPC agrees to pay in monthly installments to employee his then base
pay for two years after termination and, in addition, to pay to employee an
annual bonus on March 1 for two years after termination with each such bonus
being in an amount equal to the average of the last two bonuses received by
employee during his last two years of employment.
16. The failure of NPC to enforce any provision of this Agreement shall not
be construed to be a waiver of such provision or of the right of NPC thereafter
to enforce each and every provision.
17. This Agreement supersedes all previous agreements, written or oral,
between Employee and NPC. No modification, waiver, amendment or addition to any
of the terms of this Agreement shall be effective except as set forth in a
writing signed by Employee and NPC.
18. All provisions, terms, conditions, paragraphs, agreements and covenants
("Provisions") contained in this Agreement are severable and, in the event any
one of them shall be held to be invalid by any competent court, this Agreement
shall be interpreted as if such Provision was not contained herein, and such
determination shall not otherwise affect the validity of any other Provision.
The within Provisions shall be applicable irrespective of whether such
termination shall be by NPC or by the Employee, whether voluntary or
involuntary, whether for cause or without cause, and whether by reason of the
expiration of this or any other written or oral agreement or arrangement (or any
extensions thereof) with NPC.
19. This Agreement shall become effective on the date set forth below and
shall be governed by, and construed in accordance with, the internal,
substantive laws of the Commonwealth of Kentucky. Employee agrees that the state
and federal courts located in the Commonwealth of Kentucky, shall have
jurisdiction in any action, suit or proceeding against Employee based on or
arising out of this Agreement and Employee hereby: (i) submits to the personal
jurisdiction of such courts; (ii) consents to service of process in connection
with any action, suit or proceeding against Employee; and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction, venue or service of process.
Employee represents that, prior to signing this Agreement, he has read,
fully understands and voluntarily agrees to the terms and conditions as stated
above, that he was not coerced to sign this Agreement, that he was not under
duress at the time he signed this Agreement and that, prior to signing this
Agreement, he had adequate time to consider entering into this Agreement,
including without limitation, the opportunity to discuss the terms
4
<PAGE> 5
and conditions of this Agreement, as well as its legal consequences, with an
attorney of his choice.
IN WITNESS WHEREOF, the Employee, having read and fully understood each
of the foregoing provisions, has executed this Agreement effective as of the
1st day of November, 1994.
EMPLOYEE: Tony G. Holcombe
------------------------
(Print Name)
/s/ TONY G. HOLCOMBE
----------------------------------
(Signature)
NATIONAL CITY PROCESSING COMPANY
By: /s/ DELROY R. HAYUNGA
------------------------------
(Signature)
5
<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT AND
UNDERTAKING OF CONFIDENTIALITY
In consideration of their mutual promises and agreements and subject to
the terms and conditions set forth below in this Employment Agreement and
Undertaking of Confidentiality ("Agreement"), National City Processing Company
("NPC") and Richard Alston ("Employee") hereby agree as follows:
1. NPC agrees to employ Employee in the position of Executive Vice
President of Corporate Resources at the base salary of One Hundred and
Forty-Five Thousand Dollars ($145,000.00) and to make available to Employee
those benefits provided by NPC to employees with similar responsibilities, all
as amended from time to time, upon the terms and conditions set forth below. As
additional consideration for the mutual promises and agreements set forth
herein, NPC agrees to adjust its standard noncompete period from two (2) years
to a period equal to Employee's length of employment with NPC, not to exceed
two (2) years.
2. Employee acknowledges and agrees that in the performance of his
duties of employment he may be brought into frequent contact with clients and
potential clients of NPC either in person, through the mails, by telephone or
by other electronic means. Employee also acknowledges and agrees that trade
secrets and confidential information of NPC, more fully described in paragraph
12 of this Agreement, gained by Employee during his employment with NPC, have
been developed by NPC through substantial expenditures of time, effort and
financial resources and constitute valuable and unique property of NPC.
Employee further understands, acknowledges and agrees that the foregoing makes
it necessary for the protection of NPC's business that Employee not compete
with NPC during the term of his employment and for a reasonable period
thereafter.
3. Employee agrees that he will not, during his employment, compete
with NPC within the United States. Employee agrees that, in accordance with
this restriction, but without limiting its terms, he will not during the term
of his employment:
(i) enter into or engage in any business that competes with NPC's
Business; or
(ii) solicit any customers, clients, business, patronage or orders for,
or sell any services in competition with, or for any business that
competes with NPC's Business; or
(iii) divert, entice, or take away any customers, clients, business,
patronage or orders of NPC, or attempt to do so; or
<PAGE> 2
(iv) promote or assist, financially or otherwise, any person, firm,
association or corporation engaged in any business that competes
with NPC's Business.
4. Employee agrees that, within the United States (hereinafter referred
to as the "Territory"), he will not enter into or engage in any business that
competes with NPC's Business for a period of time which will not be less than
one month and not be greater than twenty-four months (hereinafter referred to
as the "Excluded Time Period"). The actual length of the Excluded Time Period
will be equal to the number of months which the Employee worked at NPC prior to
termination, but not greater than twenty-four months.
5. Employee agrees that, following termination of his employment, he
will not solicit within the Territory during the Excluded Time Period any NPC
customers, clients, business, patronage, or orders, nor will he sell any
services in competition with NPC's Business.
6. Employee agrees that, following the termination of his employment,
he will not divert, entice, or otherwise take away any customers, clients,
business or orders of NPC or attempt to do so within the Territory during the
Excluded Time Period.
7. Employee agrees that, following the termination of his employment
during the Excluded Time Period, he will not promote or assist financially or
otherwise, any entity within the Territory, regardless of ownership structure
or legal form, which is engaged in any business that competes with NPC's
Business. This excludes, however, the promotion or assistance of entities which
may be affiliated with other entities which directly compete with NPC's
Business, provided that the entity being promoted or assisted does not, itself,
compete with NPC's Business.
8. For the purposes of paragraphs 3 through 7, inclusive, Employee
understands and agrees that he will be competing if he engages in any or all of
the activities set forth therein directly as an individual on his own account,
or indirectly as a partner, joint venturer, employee, agent, salesman,
consultant, officer and/or director of any firm or corporation, or as a
stockholder of any corporation in which Employee or Employee's spouse, child or
parent owns, directly or indirectly, individually or in the aggregate, more
than ten percent (10%) of the outstanding stock. It is further understood,
however, that Employee will not be deemed to be competing if he engages in any
or all of the activities in paragraphs three through seven in one or more of
the roles referenced in this paragraph if the entity is merely affiliated
through ownership with an entity in NPC's Business, and Employee does not
participate in the activities of the competing Business.
9. For the purposes of this Agreement "NPC's Business" is defined as:
Bankcard Services: the acquisition and processing of credit and debit card
transactions accepted by merchants at the point of sale.
-2-
<PAGE> 3
Check Services: the guarantee, authorization, and collection of checks accepted
by merchants at the point of sale.
Airline Services: the receipt, processing, and collection of Travel Agent
payments being made to the Airlines as the result of tickets issued by the
Agents; also, the handling of Passenger Revenue Accounting functions for
Airlines.
Retail Lockbox Services: the receipt, processing, and collection of consumer
payments being made to corporations for services rendered.
Payables Services: the audit and processing of payments being made by
corporations to their suppliers for services rendered - Freight Payment being a
particular specialty.
Electronic Benefits Transfer Services: the electronic distribution of
governmental benefits to welfare recipients by a variety of governmental
agencies at the local, state, and national levels.
For the purposes of paragraphs 4 through 7, inclusive, and 13, the Territory
shall be limited to the United States of America.
10. If it shall be judicially determined that Employee has violated
any of his obligations under paragraphs 3 through 7, inclusive, then the period
applicable to the obligation which Employee shall have been determined to have
violated shall automatically be extended by a period of time equal in length to
the period during which said violation(s) occurred.
11. Employee agrees that he will not directly or indirectly at any
time solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC.
12. Employee will keep in strict confidence, and will not, directly or
indirectly, at any time during or after his employment, disclose, furnish,
disseminate, make available or use (except in the course of performing his
duties of employment hereunder) any trade secrets or confidential business and
technical information of NPC or its customers or clients, without limitation as
to when or how Employee may have acquired such information. Such confidential
information shall include,the whole or any portion or phase of any scientific
or technical information, design, process, procedure, formula, pattern,
compilation, program, device, method, technique or improvement, or any business
information or plans, financial information, or listing of names, addresses or
telephone numbers, including without limitation, information relating to any of
NPC's customers or prospective customers, NPC's customer lists, contract
information including terms, pricing and services provided, information
received as a result of customer contacts, NPC's products and processing
capabilities, methods of operation, business plans, financials or strategy, and
agreements to which NPC may be a party. Employee specifically acknowledges that
such information,whether reduced to writing
-3-
<PAGE> 4
or maintained in the mind or memory of Employee and whether compiled by NPC
and/or Employee, derive independent economic value from not being readily known
to or ascertainable by proper means by others who can obtain economic value
from its disclosure or use, that reasonable efforts have been put forth by NPC
to maintain the secrecy of such information, that such information is the sole
property of NPC and that any retention and use of such information during or
after his employment with NPC (except in the course of performing his duties of
employment hereunder) shall constitute a misappropriation of NPC's trade
secrets. Employee further agrees that, at the time of termination of his
employment, he will return to NPC, in good condition, all property of NPC,
including, without limitation, the information identified above. In the event
that said items are not so returned, NPC shall have the right to charge
Employee for all reasonable damages, costs, attorney's fees and other expenses
incurred in searching for, taking, removing, and/or recovering such property.
13. During his employment and during the Excluded Time Period, Employee
agrees to communicate the contents of this Agreement to any person, firm,
association, or corporation that he intends to be employed by, associated with,
or represent, that is engaged in a business that is competitive to NPC's
Business.
14. Employee acknowledges and agrees that the remedy at law available
to NPC for breach of any of Employee's obligations under this Agreement would
be inadequate, and agrees and consents that in addition to any other rights or
remedies that NPC may have at law or in equity, temporary and permanent
injunctive relief may be granted in any proceeding that may be brought to
enforce any provision contained in paragraphs 3 through 7, inclusive, of this
Agreement, without the necessity of proof of actual damage.
15. Employee acknowledges that his obligations under this Agreement are
reasonable in the context of the nature of NPC's business and the competitive
injuries likely to be sustained by NPC if Employee violated such obligations.
Employee further acknowledges that this Agreement is made in consideration of,
and is adequately supported by the obligations undertaken by NPC in paragraph 1
above, which Employee acknowledges constitutes new and/or good, valuable and
sufficient consideration. Employee acknowledges that his employment
relationship with NPC is and following the execution of this Agreement shall
continue to be "at will," and may be terminated at any time and for any reason,
or for no reason, by NPC or by Employee. If, however, NPC terminates Employee's
employment for any reason other than cause or a violation of the terms of this
Agreement, NPC shall pay Employee an amount equal to his then current base
salary during the Excluded Time Period, not to exceed twenty-four months. Such
payments shall be made by NPC to Employee on the same periodic basis as NPC's
regular payroll. Should Employee violate the terms of this Agreement during the
Excluded Time Period, NPC's obligation to make such payments will cease. In the
event of such a breach, however, Employee's obligations hereunder will continue.
-4-
<PAGE> 5
16. The failure of NPC to enforce any provision of this Agreement shall not
be construed to be a waiver of such provision or of the right of NPC thereafter
to enforce each and every provision.
17. This Agreement supersedes all previous agreements, written or oral,
between Employee and NPC, except page one (1) of Employee's employment offer
letter from NPC, dated November 30, 1994, is hereby incorporated and attached as
Exhibit No. 1. No modification, waiver, amendment or addition to any of the
terms of this Agreement shall be effective except as set forth in a writing
signed by Employee and NPC.
18. All provisions, terms, conditions, paragraphs, agreements and covenants
("Provisions") contained in this Agreement are severable and, in the event any
one of them shall be held to be invalid by any competent court, this Agreement
shall be interpreted as if such Provision was not contained herein, and such
determination shall not otherwise affect the validity of any other Provision.
The within Provisions shall be applicable irrespective of whether such
termination shall be by NPC or by the Employee, whether voluntary or
involuntary, whether for cause or without cause, and whether by reason of the
expiration of this or any other written or oral agreement or arrangement (or any
extensions thereof) with NPC.
19. Employee and NPC discussed the requirement that Employee and NPC enter
into this Agreement as a condition of employment. Consequently, Employee
acknowledges and accepts as fact that this Agreement and its terms preceded the
date of Employee's employment, irrespective of the date of signing by Employee
and NPC. Employee and NPC agree that this Agreement is mutually binding on both
NPC and Employee and that due consideration has been given to support this
Agreement.
20. This Agreement shall become effective on the date of execution by
Employee and shall be governed by, and construed in accordance with, the
internal, substantive laws of the Commonwealth of Kentucky. Employee agrees that
the state and federal courts located in the Commonwealth of Kentucky shall have
jurisdiction in any action, suit or proceeding against Employee based on or
arising out of this Agreement and Employee hereby: (i) submits to the personal
jurisdiction of such courts; (ii) consents to service of process in connection
with any action, suit or proceeding against Employee; and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction, venue or service of process.
Employee represents that, prior to signing this Agreement, he has read,
fully understands and voluntarily agrees to the terms and conditions as stated
above, that he was not coerced to sign this Agreement, that he was not under
duress at the time he signed this Agreement and that, prior to signing this
Agreement, he had adequate time to consider entering into this Agreement,
including without limitation, the opportunity to discuss the terms
-5-
<PAGE> 6
and conditions of this Agreement, as well as its legal consequences, with an
attorney of his choice.
IN WITNESS WHEREOF, the Employee, having read and fully understood each
of the foregoing provisions, has executed this Agreement as of this 18th day of
January, 1995.
EMPLOYEE: Richard Alston
-------------------------------
(Print Name)
/s/ RICHARD ALSTON
-----------------------------------------
(Signature)
NATIONAL CITY PROCESSING COMPANY
By: /s/ TONY HOLCOMBE
--------------------------------------
(Signature)
Dated this 18 day of January, 1995
CFI432F
01/17/95
-6-
<PAGE> 1
Exhibit 10.19
EMPLOYMENT AGREEMENT AND
UNDERTAKING OF CONFIDENTIALITY
-------------------------------
In consideration of their mutual promises and agreements and subject to
the terms and conditions set forth below in this Employment Agreement and
Undertaking of Confidentiality ("Agreement"), National City Processing Company
("NPC") and Robert E. Johnson ("Employee") hereby agree as follows:
1. NPC agrees to continue to employ Employee in the position of
Executive Vice President of NPC's Airline Division at the base salary of One
Hundred Sixty-One Thousand Dollars ($161,000.00). NPC further agrees to continue
Employee's eligibility to participate in NPC's bonus program and to make
available to Employee those benefits currently provided by NPC to Employee and
to employees with similar responsibilities, all as amended from time to time,
upon the terms and conditions set forth below. As additional consideration for
the mutual promises and agreements set forth herein, NPC agrees to pay Employee,
contemporaneous with the execution of this Agreement, a bonus in the amount of
Twenty-Five Thousand Dollars ($25,000).
2. Employee acknowledges and agrees that in the performance of his
duties of employment he may be brought into frequent contact with clients and
potential clients of NPC either in person, through the mails, by telephone or by
other electronic means. Employee also acknowledges and agrees that trade secrets
and confidential information of NPC, more fully described in paragraph 13 of
this Agreement, gained by Employee during his employment with NPC, have been
developed by NPC through substantial expenditures of time, effort and financial
resources and constitute valuable and unique property of NPC. Employee further
understands, acknowledges and agrees that the foregoing makes it necessary for
the protection of NPC's business that Employee not compete with NPC during the
term of his employment and for a reasonable period thereafter.
3. Employee agrees that he will not, during his employment, compete
with NPC within the United States. Employee agrees that, in accordance with this
restriction, but without limiting its terms, he will not during the term of his
employment:
(i) enter into or engage in any business that competes with NPC's
Business; or
(ii) solicit any customers, clients, business, patronage or orders
for, or sell any services in competition with, or for any
business that competes with NPC's Business; or
<PAGE> 2
(iii)divert, entice, or take away any customers, clients, business,
patronage or orders of NPC, or attempt to do so; or
(iv) promote or assist, financially or otherwise, any person, firm,
association or corporation engaged in any business that competes
with NPC's Business.
4. Employee agrees that, within the geographic territory (the
"Territory"), he will not, for a period of two (2) years following the
termination of his employment, enter into or engage in any business that
competes with NPC's Business.
5. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, solicit
customers, clients, business, patronage, or orders for, or sell any services in
competition with NPC's Business.
6. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, divert,
entice, or otherwise take away any customers, clients, business or orders of NPC
or attempt to do so.
7. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, promote or
assist financially or otherwise, any person, firm, association, partnership,
corporation, or other entity engaged in any business that competes with NPC's
Business.
8. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, be employed
by any airline in a passenger revenue accounting ticket processing function or
by Airline Reporting Corporation and its successors.
9. For the purposes of paragraphs 3 through 8, inclusive, Employee
understands and agrees that he will be competing if he engages in any or all of
the activities set forth therein directly as an individual on his own account,
or indirectly as a partner, joint venturer, employee, agent, salesman,
consultant, officer and/or director of any firm or corporation, or as a
stockholder of any corporation in which Employee or Employee's spouse, child or
parent owns, directly or indirectly, individually or in the aggregate, more than
ten percent (10%) of the outstanding stock.
10. For the purposes of paragraphs 3 through 7, inclusive, and 14,
"NPC's Business" is defined as Airline Services: the receipt, processing, and
collection of travel agent payments being made to the airlines as the result of
tickets issued by the agents; and, the handling of passenger revenue accounting
ticket processing functions performed by NPC for airlines.
-2-
<PAGE> 3
For the purposes of paragraphs 3 through 8, inclusive, and 14, the
Territory shall be limited to the United States of America.
11. If it shall be judicially determined that Employee has violated any
of his obligations under paragraphs 3 through 8, inclusive, then the period
applicable to the obligation which Employee shall have been determined to have
violated shall automatically be extended by a period of time equal in length to
the period during which said violation(s) occurred.
12. Employee agrees that he will not directly or indirectly at any time
solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC,
except in the course of performing his duties of employment hereunder.
13. Employee will keep in strict confidence, and will not, directly or
indirectly, at any time during or after his employment, disclose, furnish,
disseminate, make available or use (except in the course of performing his
duties of employment hereunder) any trade secrets or confidential business and
technical information of NPC or its customers or clients, without limitation as
to when or how Employee may have acquired such information. Such confidential
information shall include, the whole or any portion or phase of any scientific
or technical information, design, process, procedure, formula, pattern,
compilation, program, device, method, technique or improvement, or any business
information or plans, financial information, or listing of names, addresses or
telephone numbers, including without limitation, information relating to any of
NPC's customers or prospective customers, NPC's customer lists, contract
information including terms, pricing and services provided, information received
as a result of customer contacts, NPC's products and processing capabilities,
methods of operation, business plans, financials or strategy, and agreements to
which NPC may be a party. Employee specifically acknowledges that such
information, whether reduced to writing or maintained in the mind or memory of
Employee and whether compiled by NPC and/or Employee, derive independent
economic value from not being readily known to or ascertainable by proper means
by others who can obtain economic value from its disclosure or use, that
reasonable efforts have been put forth by NPC to maintain the secrecy of such
information, that such information is the sole property of NPC and that any
retention and use of such information during or after his employment with NPC
(except in the course of performing his duties of employment hereunder) shall
constitute a misappropriation of NPC's trade secrets. The provisions contained
in this paragraph shall not apply to information that is publicly available or
has otherwise been publicly disclosed by other persons. Employee further agrees
that, at the time of termination of his employment, he will return to NPC, in
good condition, all property of NPC, including, without limitation, the
information identified above if it is in written or electronic form. In the
event that said items are not so returned, NPC shall have the right to charge
Employee for all reasonable damages, costs, attorney's fees
-3-
<PAGE> 4
and other expenses incurred in searching for, taking, removing, and/or
recovering such property.
14. Employee acknowledges and agrees that the remedy at law available to
NPC for breach of any of Employee's obligations under this Agreement would be
inadequate, and agrees and consents that in addition to any other rights or
remedies that NPC may have at law or in equity, temporary and permanent
injunctive relief may be granted in any proceeding that may be brought to
enforce any provision contained in paragraphs 3 through 8, inclusive, of this
Agreement, without the necessity of proof of actual damage. NPC and Employee
agree that in the event a court awards damages under this provision, the
employee's total liability for damages shall be limited to the lesser of One
Hundred Thousand Dollars ($100,000.00) or 25% of the employee's then net worth.
15. Employee acknowledges that his obligations under this Agreement are
reasonable in the context of the nature of NPC's business and the competitive
injuries likely to be sustained by NPC if Employee violated such obligations.
Employee further acknowledges that this Agreement is made in consideration of,
and is adequately supported by the obligations undertaken by NPC in paragraph 1
above, which Employee acknowledges constitutes new and/or good, valuable and
sufficient consideration. Employee acknowledges that his employment relationship
with NPC is and following the execution of this Agreement shall continue to be
"at will," and may be terminated at any time, other than if Employee is on
disability status, and for any reason, or for no reason, by NPC or by Employee.
Employee's termination of his employment with NPC shall not be considered
voluntary unless NPC receives either a written or verbal resignation from
Employee. If however, NPC terminates Employee's employment, for reasons other
than violation of this Agreement, NPC shall pay Employee an amount equal to two
(2) times Employee's annual base salary at the time of termination and provide
him with NPC benefits in place at that time for a period of two (2) years
following the date of termination, with said sum amount being paid over a
twenty-four (24) month period on the same periodic basis as NPC's regular
payroll, so long as Employee does not violate any part of this Agreement. In
addition, in the event Employee's services are discontinued by NPC under this
provision for reasons other than violation of this Agreement, NPC agrees that
all stock options and grants issued to Employee prior to the discontinuation of
Employee's services shall remain in effect for a period of two (2) years
following the discontinuation of Employee's services.
16. The failure of NPC to enforce any provision of this Agreement shall
not be construed to be a waiver of such provision or of the right of NPC
thereafter to enforce each and every provision.
17. This Agreement supersedes all previous agreements, written or oral,
between Employee and NPC. No modification, waiver, amendment or addition to any
of the terms of
-4-
<PAGE> 5
this Agreement shall be effective except as set forth in a writing signed by
Employee and NPC.
18. NPC shall have the right to sell, assign or transfer this Agreement
with all its rights, title and interest and any assignee will acquire all of the
rights and assume all of the obligations of NPC under this Agreement. However,
should NPC or any buyer, assignee or transferee of this Agreement seek to
relocate Employee's place of employment from the Louisville, Kentucky area,
Employee shall have the right to refuse such relocation and if terminated for
such refusal, he shall be entitled to the salary continuation and benefits
referenced in paragraph 15 above. This Agreement and all conditions imposed
herein shall be binding upon and inure to the benefit of Employee and NPC, their
respective heirs, executors, administrators, transferees, successors and
assigns.
19. While the restrictions set forth herein are considered by the
parties to be reasonable in all circumstances, it is recognized that
restrictions of this nature may fail for reasons unforeseen, and accordingly it
is hereby agreed and declared that if any of such restrictions shall be adjudged
to be void as going beyond what is reasonable in all the circumstances, but
would be valid if the geographical area or temporal extent were reduced in part,
or the range of activities or area dealt with thereby reduced in scope, the said
restriction shall apply with such modification as may be necessary to make it
valid and effective.
20. All provisions, terms, conditions, paragraphs, agreements and
covenants ("Provisions") contained in this Agreement are severable and, in the
event any one of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such Provision was not contained herein,
and such determination shall not otherwise affect the validity of any other
Provision.
21. This Agreement shall become effective on the date of execution by
Employee and shall be governed by, and construed in accordance with, the
internal, substantive laws of the Commonwealth of Kentucky. NPC and Employee
agree that the state and federal courts located in the Commonwealth of Kentucky,
shall have jurisdiction in any action, suit or proceeding against NPC or
Employee based on or arising out of this Agreement and NPC and Employee hereby:
(i) submit to the personal jurisdiction of such courts; (il) consent to service
of process in connection with any action, suit or proceeding against NPC or
Employee; and (iii) waive any other requirement (whether imposed by statute,
rule of court or otherwise) with respect to personal jurisdiction, venue or
service of process.
Employee represents that, prior to signing this Agreement, he has read,
fully understands and voluntarily agrees to the terms and conditions as stated
above, that he was not coerced to sign this Agreement, that he was not under
duress at the time he signed this Agreement and that, prior to signing this
Agreement, he had adequate time to consider
-5-
<PAGE> 6
entering into this Agreement, including without limitation, the opportunity to
discuss the terms and conditions of this Agreement, as well as its legal
consequences, with an attorney of his choice.
IN WITNESS WHEREOF, the Employee, having read and fully understood each
of the foregoing provisions, has executed this Agreement as of this 4th day
of April, 1995.
EMPLOYEE: Robert E. Johnson
/s/ Robert E. Johnson
- ---------------------------------
(Signature)
NATIONAL CITY PROCESSING COMPANY
By: Tony G. Holcombe
Title: PRESIDENT
---------------------------
/s/ Tony G. Holcombe
- ---------------------------------
(Signature)
Dated this 4th day of April, 1995
-6-
<PAGE> 1
Exhibit 10.20
EMPLOYMENT AGREEMENT AND
UNDERTAKING OF CONFIDENTIALITY
------------------------------
In consideration of their mutual promises and agreements and subject to
the terms and conditions set forth below in this Employment Agreement and
Undertaking of Confidentiality ("Agreement"), National City Processing Company
("NPC") and Kurt S. Knipp ("Employee") hereby agree as follows:
1. NPC agrees to employ Employee in the position of Executive Vice
President of Bankcard at the salary of One Hundred and Sixty Five Thousand
Dollars ($165,000.00) and to make available to Employee those benefits provided
by NPC to employees with similar responsibilities, all as amended from time to
time, upon the terms and conditions set forth below and in the 1-16-95 letter
attached hereto and incorporated herein by this reference.
2. Employee acknowledges and agrees that in the performance of his
duties of employment he may be brought into frequent contact with clients and
potential clients of NPC either in person, through the mails, by telephone or by
other electronic means. Employee also acknowledges and agrees that trade secrets
and confidential information of NPC, more fully described in paragraph 12 of
this Agreement, gained by Employee during his employment with NPC, have been
developed by NPC through substantial expenditures of time, effort and financial
resources and constitute valuable and unique property of NPC. Employee further
understands, acknowledges and agrees that the foregoing makes it necessary for
the protection of NPC's business that Employee not compete with NPC during the
term of his employment and for a reasonable period thereafter.
3. Employee agrees that he will not, during his employment, compete
with NPC within the United States. Employee agrees that, in accordance with this
restriction, but without limiting its terms, he will not during the term of his
employment:
(i) enter into or engage in any business that competes with NPC's
Business; or
(ii) solicit any customers, clients, business, patronage or orders
for, or sell any services in competition with, or for any
business that competes with NPC's Business; or
(iii) divert, entice, or take away any customers, clients, business,
patronage or orders of NPC, or attempt to do so; or
(iv) promote or assist, financially or otherwise, any person, firm,
association or corporation engaged in any business that competes
with NPC's Business except as to certain workout transactions
pending between Employee's former employer and one or more
merchants, as necessary to transition these transactions and as
disclosed to NPC.
<PAGE> 2
4. Employee agrees that, within the geographic territory (the
"Territory"), he will not, for a period of two (2) years following the
termination of his employment, enter into or engage in any business that
competes with NPC's Business.
5. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, solicit
customers, clients, business, patronage, or orders for, or sell any services in
competition with NPC's Business.
6. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, divert,
entice, or otherwise take away any customers, clients, business or orders of NPC
or attempt to do so.
7. Employee agrees that, within the Territory, he will not, for a
period of two (2) years following the termination of his employment, promote or
assist financially or otherwise, any person, firm, association, partnership,
corporation, or other entity engaged in any business that competes with NPC's
Business.
8. For the purposes of paragraphs 3 through 7, inclusive, Employee
understands and agrees that he will be competing if he engages in any or all of
the activities set forth therein directly as an individual on his own account,
or indirectly as a partner, joint venturer, employee, agent, salesman,
consultant, officer and/or director of any firm or corporation, or as a
stockholder of any corporation in which Employee or Employee's spouse, child or
parent owns, directly or indirectly, individually or in the aggregate, more than
ten percent (10%) of the outstanding stock.
9. For the purposes of paragraphs 3 through 7, inclusive, and 13, NPC's
Business is defined as the acquisition from merchants of credit and debit card
transactions initiated at point of sale, and related data processing. For the
purposes of paragraphs 4 through 7, inclusive, and 13, the Territory shall be
limited to the United States of America.
10. If it shall be judicially determined that Employee has violated any
of his obligations under paragraphs 3 through 7, inclusive, then the period
applicable to the obligation which Employee shall have been determined to have
violated shall automatically be extended by a period of time equal in length to
the period during which said violation(s) occurred.
11. Employee agrees that he will not directly or indirectly at any time
solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC.
12. Employee will keep in strict confidence, and will not,
directly or indirectly, at any time during or after his employment, disclose,
furnish, disseminate, make available or use (except in the course of performing
his duties of employment hereunder) any trade secrets or confidential business
and technical information of NPC or its customers or clients, without limitation
as to when or how Employee may have acquired such information. Such confidential
information shall
2
<PAGE> 3
include, the whole or any portion or phase of any scientific or technical
information, design, process, procedure, formula, pattern, compilation, program,
device, method, technique or improvement, or any business information or plans,
financial information, or listing of names, addresses or telephone numbers,
including without limitation, information relating to any of NPC's customers or
prospective customers, NPC's customer lists, contract information including
terms, pricing and services provided, information received as a result of
customer contacts, NPC's products and processing capabilities, methods of
operation, business plans, financials or strategy, and agreements to which NPC
may be a party. Employee specifically acknowledges that such information,
whether reduced to writing or maintained in the mind or memory of Employee and
whether compiled by NPC and/or Employee, derive independent economic value from
not being readily known to or ascertainable by proper means by others who can
obtain economic value from its disclosure or use, that reasonable efforts have
been put forth by NPC to maintain the secrecy of such information, that such
information is the sole property of NPC and that any retention and use of such
information during or after his employment with NPC (except in the course of
performing his duties of employment hereunder) shall constitute a
misappropriation of NPC's trade secrets. Employee further agrees that, at the
time of termination of his employment, he will return to NPC, in good condition,
all property of NPC, including, without limitation, the information identified
above. In the event that said items are not so returned, NPC shall have the
right to charge Employee for all reasonable damages, costs, attorney's fees and
other expenses incurred in searching for, taking, removing, and/or recovering
such property.
13. During his employment and for two (2) years thereafter, Employee
agrees to communicate the contents of this Agreement to any person, firm,
association, or corporation that he intends to be employed by, associated with,
or represent, that is engaged in a business that is competitive to NPC's
Business.
14. Employee acknowledges and agrees that the remedy at law available to
NPC for breach of any of Employee's obligations under this Agreement would be
inadequate, and agrees and consents that in addition to any other rights or
remedies that NPC may have at law or in equity, temporary and permanent
injunctive relief may be granted in any proceeding that may be brought to
enforce any provision contained in paragraphs 3 through 7, inclusive, of this
Agreement, without the necessity of proof of actual damage.
15. Employee acknowledges that his obligations under this Agreement are
reasonable in the context of the nature of NPC's Business and the competitive
injuries likely to be sustained by NPC if Employee violated such obligations.
Employee further acknowledges that this Agreement is made in consideration of,
and is adequately supported by the obligations undertaken by NPC in paragraph 1
above, which Employee acknowledges constitutes new and/or good, valuable and
sufficient consideration. Employee acknowledges that his employment relationship
with NPC is and following the execution of this Agreement shall continue to be
"at will," and may be terminated at any time and for any reason, or for no
reason, by NPC or by Employee. If, however, NPC terminates Employee's employment
at any time and for any reason, other than a violation of this Agreement, NPC
shall pay Employee an amount equal to Employee's annual base
3
<PAGE> 4
salary at the time of termination but not less than $165,000 a year and provide
him with NPC benefits in place at that time, for a period of two (2) years from
the date of termination, with said payments being made to Employee on the same
periodic basis as NPC's regular payroll, so long as Employee does not violate
any part of this Agreement.
16. The failure of NPC to enforce any provision of this
Agreement shall not be construed to be a waiver of such provision or of the
right of NPC thereafter to enforce each and every provision.
17. This Agreement supersedes all previous agreements, written
or oral, between Employee and NPC. No modification, waiver, amendment or
addition to any of the terms of this Agreement shall be effective except as set
forth in a writing signed by Employee and NPC.
18. All provisions, terms, conditions, paragraphs, agreements
and covenants ("Provisions") contained in this Agreement are severable and, in
the event any one of them shall be held to be invalid by any competent court,
this Agreement shall be interpreted as if such Provision was not contained
herein, and such determination shall not otherwise affect the validity of any
other Provision. The within Provisions shall be applicable irrespective of
whether such termination shall be by NPC or by the Employee, whether voluntary
or involuntary, whether for cause or without cause, and whether by reason of the
expiration of this or any other written or oral agreement or arrangement (or any
extensions thereof) with NPC.
19. This Agreement shall become effective on the date of
execution by Employee and shall be governed by, and construed in accordance
with, the internal, substantive laws of the Commonwealth of Kentucky. Employee
agrees that the state and federal courts located in the Commonwealth of
Kentucky, shall have jurisdiction in any action, suit or proceeding against
Employee based on or arising out of this Agreement and Employee hereby: (i)
submits to the personal jurisdiction of such courts; (ii) consents to service of
process in connection with any action, suit or proceeding against Employee; and
(iii) waives any other requirement (whether imposed by statute, rule of court or
otherwise) with respect to personal jurisdiction, venue or service of process.
Employee represents that, prior to signing this Agreement, he
has read, fully understands and voluntarily agrees to the terms and conditions
as stated above, that he was not coerced to sign this Agreement, that he was not
under duress at the time he signed this Agreement and that, prior to signing
this Agreement, he had adequate time to consider entering into this Agreement,
including without limitation, the opportunity to discuss the terms and
conditions of this Agreement, as well as its legal consequences, with an
attorney of his choice.
4
<PAGE> 5
IN WITNESS WHEREOF, the Employee, having read and fully understood each
of the foregoing provisions, has executed this Agreement as of this 6th day
of February, 1995.
EMPLOYEE: Kurt S. Knipp
-----------------------
(Print Name)
/s/ Kurt S. Knipp
- --------------------------------
(Signature)
NATIONAL CITY PROCESSING COMPANY
By: /s/ Delroy R. Hayunga
-----------------------------
(Signature)
Dated this 19th day of January, 1995
5
<PAGE> 1
Exhibit 10.21
EMPLOYMENT AGREEMENT AND
UNDERTAKING OF CONFIDENTIALITY
------------------------------
In consideration of their mutual promises and agreements and subject to
the terms and conditions set forth below in this Employment Agreement and
Undertaking of Confidentiality ("Agreement"), National City Processing Company
("NPC") and Thomas A. Wimsett ("Employee") hereby agree as follows:
1. NPC agrees to continue to employ Employee in the position of Senior
Vice President of Check Services at the salary of Ninety-Seven Thousand Dollars
($97,000.00) and to make available to Employee those benefits provided by NPC
to employees with similar responsibilities, all as amended from time to time,
upon the terms and conditions set forth below. As additional consideration for
the mutual promises and agreements set forth herein, NPC also agrees to pay
Employee the sum of Ten Thousand Dollars ($10,000.00) less appropriate federal,
state and local taxes, contemporaneous with the execution of this Agreement.
2. Employee agrees to use his best efforts to perform the duties
assigned to him by NPC.
3. Employee acknowledges and agrees that in the performance of his
duties of employment he may be brought into frequent contact with clients and
potential clients of NPC either in person, through the mails, by telephone or
by other electronic means. Employee also acknowledges and agrees that trade
secrets and confidential information of NPC, more fully described in paragraph
13 of this Agreement, gained by Employee during his employment with NPC, have
been developed by NPC through substantial expenditures of time, effort and
financial resources and constitute valuable and unique property of NPC.
Employee further understands, acknowledges and agrees that the foregoing makes
it necessary for the protection of NPC's business that Employee not compete
with NPC during the term of his employment and for a reasonable period
thereafter.
4. Employee agrees that he will not, during his employment, compete
with NPC within the continental United States. Employee agrees that, in
accordance with this restriction, but without limiting its terms, he will not
during the term of his employment:
(i) enter into or engage in any business that competes with NPC's
Business; or
(ii) solicit any customers, clients, business, patronage or orders for,
or sell any services in competition with, or for any business that
competes with NPC's business; or
(iii) divert, entice, or take away any customers, clients, business,
patronage or orders of NPC, or attempt to do so; or
(iv) promote or assist, financially or otherwise, any person, firm,
association or corporation engaged in any business that competes
with NPC's Business.
1
<PAGE> 2
5. Employee agrees that, within the continental United States, he will
not, for a period of one (1) year following the termination of his employment,
enter into or engage in any business that competes with NPC's Business.
6. Employee agrees that, within the continental United States, he will
not, for a period of one (1) year following the termination of his employment,
solicit customers, clients, business, patronage, or orders for, or sell any
services in competition with NPC's Business.
7. Employee agrees that, within the continental United States, he will
not, for a period of one (1) year following the termination of his employment,
divert, entice, or otherwise take away any customers, clients, business or
orders of NPC or attempt to do so.
8. Employee agrees that, within the continental United States, he will
not, for a period of one (1) year following the termination of his employment,
promote or assist financially or otherwise, any person, firm, association,
partnership, corporation, or other entity engaged in any business that competes
with NPC's Business.
9. For the purposes of paragraphs 4 through 8, inclusive, Employee
understands and agrees that he will be competing if he engages in any or all of
the activities set forth therein directly as an individual on his own account,
or indirectly as a partner, joint venturer, employee, agent, salesman,
consultant, officer and/or director of any firm or corporation, or as a
stockholder of any corporation in which Employee or Employee's spouse, child or
parent owns, directly or indirectly, individually or in the aggregate, more
than ten percent (10%) of the outstanding stock.
10. For the purposes of paragraphs 4 through 8, inclusive, and 14,
NPC's Business is defined as retail check acceptance, and guarantee,
authorization and check collection services.
11. If it shall be judicially determined that Employee has violated any
of his obligations under paragraphs 4 through 8, inclusive, then the period
applicable to the obligation which Employee shall have been determined to have
violated shall automatically be extended by a period of time equal in length to
the period during which said violation(s) occurred.
12. Employee agrees that he will not directly or indirectly at any time
solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC.
13. Employee will keep in strict confidence, and will not, directly or
indirectly, at any time during or after his employment, disclose, furnish,
disseminate, make available or use (except in the course of performing his
duties of employment hereunder) any trade secrets or confidential business and
technical information of NPC or its customers or clients, without limitation as
to when or how Employee may have acquired such information. Such confidential
information shall include, the whole or any portion or phase of any scientific
or technical information, design, process, procedure, formula, pattern,
compilation, program, device, method, technique or improvement, or any business
information or plans, financial information, or listing of names, addresses or
telephone numbers, including without limitation,
2
<PAGE> 3
information relating to any of NPC's customers or prospective customers, NPC's
customer lists, contract information including terms, pricing and services
provided, information received as a result of customer contacts, NPC's products
and processing capabilities, methods of operation, business plans, financials or
strategy, and agreements to which NPC may be a party. Employee specifically
acknowledges that such information, whether reduced to writing or maintained in
the mind or memory of Employee and whether compiled by NPC and/or Employee,
derive independent economic value from not being readily known to or
ascertainable by proper means by others who can obtain economic value from its
disclosure or use, that reasonable efforts have been put forth by NPC to
maintain the secrecy of such information, that such information is the sole
property of NPC and that any retention and use of such information during or
after his employment with NPC (except in the course of performing his duties of
employment hereunder) shall constitute a misappropriation of NPC's trade
secrets. Employee further agrees that, at the time of termination of his
employment, he will return to NPC, in good condition, all property of NPC,
including, without limitation, the information identified above. In the event
that said items are not so returned, NPC shall have the right to charge
Employee for all reasonable damages, costs, attorney's fees and other expenses
incurred in searching for, taking, removing, and/or recovering such property.
14. During his employment and for one (1) year thereafter, Employee
agrees to communicate the contents of this Agreement to any person, firm,
association, or corporation that he intends to be employed by, associated with,
or represent, that is engaged in a business that is competitive to NPC's
Business.
15. Employee acknowledges and agrees that the remedy at law available
to NPC for breach of any of Employee's obligations under this Agreement would
be inadequate, and agrees and consents that in addition to any other rights or
remedies that NPC may have at law or in equity, temporary and permanent
injunctive relief may be granted in any proceeding that may be brought to
enforce any provision contained in paragraphs 4 through 8, inclusive, of this
Agreement, without the necessity of proof of actual damage.
16. Employee acknowledges that his obligations under this Agreement are
reasonable in the context of the nature of NPC's business and the competitive
injuries likely to be sustained by NPC if Employee violated such obligations.
Employee further acknowledges that this Agreement is made in consideration of,
and is adequately supported by the obligations undertaken by NPC in paragraph 1
above, which Employee acknowledges constitutes new and/or good, valuable and
sufficient consideration. Employee acknowledges that his employment
relationship with NPC is and following the execution of this Agreement shall
continue to be "at will," and may be terminated at any time and for any reason,
or for no reason, by NPC or by Employee. However, if NPC terminates Employee's
employment for reasons other than cause and/or violation of this Agreement, then
NPC shall pay Employee and amount equal to Employee's annual base salary at
the time of termination, with said amount being paid to Employee over a twelve
(12) month period on the same periodic basis as NPC's regular payroll, so long
as Employee does not violate any part of this Agreement. For the purposes of
this Agreement, "Cause" is defined as fraud, misconduct and/or violation of
NPC's employment policies.
3
<PAGE> 4
17. NPC and Employee agree that if at any time NPC's business no longer
includes Check Services as defined in paragraph 10 of this Agreement, then
Employee shall not be bound by the noncompete provisions in paragraphs 4
through 8, inclusive, and 14 of this Agreement and NPC shall not be bound by
the payment requirements of paragraph 16 of this Agreement.
18. The failure of NPC to enforce any provision of this Agreement shall
not be construed to be a waiver of such provision or of the right of NPC
thereafter to enforce each and every provision.
19. This Agreement supersedes all previous agreements, written or oral,
between Employee and NPC. No modification, waiver, amendment or addition to any
of the terms of this Agreement shall be effective except as set forth in a
writing signed by Employee and NPC.
20. All provisions, terms, conditions, paragraphs, agreements and
convenants ("Provisions") contained in this Agreement are severable and, in the
event any one of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such Provision was not contained herein,
and such determination shall not otherwise affect the validity of any other
Provision.
21. While the restrictions set forth herein are considered by the
parties to be reasonable in all circumstances, it is recognized that
restrictions of this nature may fail for reasons unforseen and accordingly it
is hereby agreed and declared that if any of such restrictions shall be
adjudged to be void as going beyond what is reasonable in all the
circumstances, but would be valid if the geographical area or temporal extent
were reduced in part, or the range of activities or area dealt with thereby
reduced in scope, the said restriction shall apply with such modification as may
be necessary to make it valid and effective.
22. NPC shall have the right to sell, assign or transfer this Agreement
with all its rights, title and interest and any assignee will acquire all of
the rights and assume all of the obligations of NPC under this Agreement.
However, NPC shall not have the right to sell, assign or transfer this
Agreement if NPC sells its Check Services Division and NPC remains a legal
entity. This Agreement and all conditions imposed herein shall be binding upon
and inure to the benefit of Employee and NPC.
23. This Agreement shall become effective on the date of execution by
Employee and shall be governed by, and construed in accordance with, the
internal, substantive laws of the Commonwealth of Kentucky. Employee agrees
that the state and federal courts located in the Commonwealth of Kentucky, shall
have jurisdiction in any action, suit or proceeding against Employee based on
or arising out of this Agreement and Employee hereby: (i) submits to the
personal jurisdiction of such courts; (ii) consents to service of process in
connection with any action, suit or proceeding against Employee; and (iii)
waives any other requirement (whether imposed by statute, rule of court or
otherwise) with respect to personal jurisdiction, venue or service of process.
4
<PAGE> 5
Employee represents that, prior to signing this Agreement, he has read,
fully understands and voluntarily agrees to the terms and conditions as stated
above, that he was not coerced to sign this Agreement, that he was not under
duress at the time he signed this Agreement and that, prior to signing this
Agreement, he had adequate time to consider entering into this Agreement,
including without limitation, the opportunity to discuss the terms and
conditions of this Agreement, as well as its legal consequences, with an
attorney of his choice.
IN WITNESS WHEREOF, the employee, having read and fully understood each
of the foregoing provisions, has executed this Agreement as of this 23 day of
May, 1995.
EMPLOYEE: Thomas A. Wimsett
/s/ Thomas A. Wimsett
--------------------------------------
(Signature)
NATIONAL CITY PROCESSING COMPANY
By: /s/ D. R. Zook
----------------------------------
(Signature)
Dated this 23 day of May, 1995
-- --- --
5
<PAGE> 1
Exhibit 10.22
EMPLOYMENT, NON-DISCLOSURE AND NON-COMPETITION AGREEMENT
--------------------------------------------------------
THIS EMPLOYMENT, NON-DISCLOSURE AND NON-COMPETITION AGREEMENT
("Agreement") dated for purposes of identification this 14th day of March, 1995,
but effective as of the date upon which it is signed by the last of the parties
hereto, by and between David R. Zook, an individual, ("Zook") with his principal
place of residence in Oldham County, Kentucky, and National City Processing
Company ("NPC"), a Kentucky corporation, with its principal place of business in
Louisville, Kentucky.
WITNESSETH:
-----------
WHEREAS, Zook presently serves as Executive Vice President of NPC and
has served in either that capacity or other executive capacities with NPC and,
as such, has been privy to proprietary information with regard to NPC including,
its clients, potential clients, and certain processes and techniques which NPC
has developed primarily with regard to the guarantee, authorization and
collection of checks accepted by merchants at the point of sale, commonly known
as Check Services as hereinafter defined, and the audit and processing of
payments made by corporations to their suppliers for freight services rendered,
commonly known as Freight Payable Services as hereinafter defined, which
information NPC desires to protect and which Zook recognizes in his position as
Executive Vice President that he is to maintain all such information and
processes as confidential. And,
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein the parties do hereby agree as follows:
1. NPC agrees to employ Zook as an employee at will in the position of
Executive Vice President of NPC and to make available to him those benefits
provided by NPC to employees with similar responsibilities, all as amended from
time to time, upon the terms and conditions set forth herein.
2. COMPENSATION. NPC agrees to Zook, in addition to his regular monthly
compensation and benefits heretofore provided to him, the following covenants:
A. As additional consideration for the mutual promises and
agreements set forth herein, NPC agrees to pay Zook the sum of Fifty Thousand
Dollars ($50,000.00) contemporaneous with the execution of this Agreement.
B. NPC agrees to pay Zook the sum of Sixty Thousand Dollars
($60,000.00) on or before March 15, 1995.
C. If Zook is actively employed by NPC on March 1,1996, then
NPC shall pay to Zook the sum of Sixty Thousand Dollars ($60,000.00), to be paid
on or before March 15, 1996.
<PAGE> 2
3. BONUS. In addition to the above compensation, NPC will pay a dollar
amount to Zook as a bonus and additional compensation and in addition to all
other amounts otherwise due, computed as follows:
A. If Zook is actively employed by NPC on December 31, 1995, then
NPC shall pay to Zook, on or before January 31, 1996, a bonus in an amount equal
to the percentage relationship of actual Check Services Division income before
tax (IBT as hereinafter defined) results as compared to 1995 budget as shown in
the following schedule:
Actual Results IBT Dollar Amount
as % of 1995 Budget of IBT Bonus Amount
------------------- ------------- ------------
70% ($1,505,000.00) $70,000.00
80% ($1,390,000.00) $80,000.00
90% ($1,274,000.00) $90,000.00
100% ($1,158,000.00) $100,000.00
110% ($1,042,000.00) $110,000.00
120% ($926,000.00) $120,000.00
130% ($811,000.00) $130,000.00
B. If Zook is actively employed by NPC on December 31, 1996, then
NPC shall pay to Zook, on or before January 31, 1997, an incentive bonus
computed on the pay structure described in Paragraph 3.(A) above, with payment
ranging from Seventy Thousand Dollars ($70,000.00) to One Hundred and Thirty
Thousand Dollars ($130,000.00) for results of 70% to 130% of budgeted IBT. For
the purposes of the 1997 bonus, budgeted IBT for 1996 shall be that budget for
Zook's 1996 managerial area of responsibility.
4. NON-DISCLOSURE. Zook agrees that during and after the term of his
employment, he will not disclose or use (except in the course of performing his
duties of employment hereunder or pursuant to judicial process or direction)
information that deals with the method of NPC's conducting the business herein
defined as Check Services and as Freight Payable Services. Zook agrees that all
such information shall remain confidential. Zook agrees that he will not
disclose NPC's trade secrets, confidential business and technical information or
its customers or clients. Such restrictions shall not prohibit or encompass any
data or information which is common or general knowledge in the trade or is
ascertainable by reference to facts or circumstances outside of NPC which are
capable of being ascertained or determined by reference to events, persons or
entities not unique or peculiar to NPC. Such confidential information as it
refers to Check Services or Freight Payable Services shall include, the whole or
any portion or phase of any scientific or technical information, design,
process, procedure, formula, pattern, compilation, program, device, method,
technique or improvement, or any business information or plans, financial
information, listing of names, addresses or telephone numbers, including without
limitation, confidential information relating to any of NPC's customers, NPC's
contract information including terms, pricing and services as it applies to the
business as defined in paragraph 10 hereof.
5. NON-COMPETITION. Zook agrees that for a period ending on March 1,
1998, he will not engage in any business in the continental United States that
is competitive with the
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<PAGE> 3
business conducted by NPC and hereinafter defined as the providing of Check
Services or Freight Payable Services. Zook also agrees that he will not solicit
customers or otherwise promote or assist a business that competes with NPC's
business. Zook further agrees that he will not directly or indirectly at any
time solicit or induce or attempt to solicit or induce any employee of NPC to
terminate his/her employment, representation or other association with NPC.
6. COMMENCEMENT OF PERIOD. The period during which Zook will not
compete shall begin on the date of execution of this Agreement and end on March
1, 1998.
7. PAYMENT OF COMPENSATION. If Zook is terminated by NPC prior to March
1, 1998, for reasons other than violation of this Agreement, then NPC shall pay
to Zook an amount equal to Zook's base pay at the time of termination, payable
in accordance with NPC's executive payroll practices, with said payments ending
on March 1, 1998. Such payments shall be subject to required federal, state and
local withholding taxes. Zook's agreement to refrain from entering into any
business that is competitive with NPC's as it pertains to Check Services or
Freight Payable Services is conditioned upon NPC making prompt payments under
this provision. If any such compensation is not paid when due or within thirty
(30) days after written notice of nonpayment is given to NPC by Zook, Zook shall
no longer be restricted from entering into competitive businesses. However, the
breach by NPC of this Agreement which will relieve Zook from any restriction on
his competing with NPC shall in no way release or relieve NPC from the payment
of its financial obligations to Zook during the balance of the noncompete
period, which expires on March 1, 1998. Zook shall also participate, at no cost
to Zook, in any executive employee benefit plan including medical and dental
coverage, retirement plan and other benefit plans made available to Zook during
his period of employment or available to other executives during the non-compete
period following termination of his employment, until March 1, 1998.
8. PERIOD OF EMPLOYMENT. It is acknowledged by Zook that he is and
remains an employee at will and that NPC will have the right at any time to
terminate his employment should it desire to do so, but NPC shall nonetheless
be obligated to pay Zook his base salary for the period set forth in paragraph
7.
9. RIGHT TO RESIGN. Nothing herein shall restrict or inhibit Zook's
right to resign his employment at any time, but such resignation by Zook shall
not diminish, reduce or eliminate his covenant not to compete.
10. DEFINITIONS. a) CHECK SERVICES is hereby defined to mean the
guarantee, authorization and collection of checks accepted by merchants at the
point of sale; (b) FREIGHT PAYABLE SERVICES is hereby defined to mean the audit
and processing of payments being made for freight services rendered; (c) IBT is
hereby defined as income before federal, state and local income tax for NPC's
check services division, plus any legal costs incurred for litigation relating
to NPC's acquisition of any of the business comprising its check services
division and plus costs related to hiring a replacement manager in 1995; (d)
Base pay shall be defined as the regular monthly or annual compensation paid to
Zook by NPC for the month or year immediately preceding his termination.
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<PAGE> 4
11. INJUNCTIVE RELIEF. Zook acknowledges and agrees that the remedy at
law available to NPC for breach of any of Zook's obligations under this
Agreement would be inadequate, and agrees and consents that in addition to any
other rights or remedies that NPC may have at law or in equity, temporary and
permanent injunctive relief may be granted in any proceeding that may be brought
to enforce any provision contained in this Agreement without the necessity of
proof of actual damage.
12. COMPETITION. Zook's entering into competition with NPC shall include
his or his spouse's being involved in any business that provides Check Services
or Freight Payable Services, whether as an individual on his own account,
indirectly as a partner, joint venturer, employee, agent, salesman, consultant,
officer or director or as a stockholder in any corporation that his and his
spouse's aggregate interest in the business is greater than ten (10%) percent of
either its outstanding stock or as a partner or joint venturer having more than
ten (10%) percent interest therein.
13. NOTICES. Any notices permitted or required under this Agreement
shall be deemed given upon the date of personal delivery or by certified United
States mail, addressed as follows:
As to Zook:
-----------
Mr. David R. Zook
100 Sunnyside Court
Pewee Valley, KY 40056
As to NPC
---------
National City Processing Company
Attn: Tony Holcombe
1231 Durrett Lane
Louisville, Kentucky 40285
14. BINDING COVENANTS. All of the terms and conditions herein shall be
binding upon and inure to the benefit of the respective parties hereto and NPC's
transferees, successors and assigns.
15. WAIVERS. One or more waivers of any breach of a covenant or
condition by any party shall not be construed as a waiver of a further breach of
the same covenant or condition.
16. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement. Any
amendments to this Agreement must be in writing and signed by the party against
whom enforcement of that amendment is sought.
17. PRONOUNS AND PLURALS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
-4-
<PAGE> 5
18. TITLES AND CAPTIONS. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor affect the interpretation of this Agreement.
19. SEVERABILITY. All provisions, terms, conditions, paragraphs,
agreements and covenants contained in this Agreement are severable and, in the
event anyone of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such provision was not contained herein,
and such determination shall not otherwise affect the capacity of any other
provision.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky. Zook agrees that the
State and Federal courts located in the Commonwealth of Kentucky shall have
jurisdiction in any action, suit or proceeding against him based on or arising
out of this Agreement and Zook hereby: (i) submits to the personal jurisdiction
of such courts; (ii) consents to service of process in connection with any
action, suit or proceeding against Zook; and (ill) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction, venue or service of process.
21. INFORMED REVIEW. Zook represents that, prior to signing this
Agreement, he has read, fully understands and voluntarily agrees to the terms of
conditions as stated above, that he was not coerced to sign this Agreement, that
he was not under duress at the time he signed this Agreement and that, prior to
signing this Agreement, he had adequate time to consider entering into this
Agreement, including without limitation, the opportunity to discuss the terms
and conditions of this Agreement, as well as its legal consequences, with an
attorney of his choice.
IN WITNESS WHEREOF, the signature of the parties the day and date
opposite their signatures.
NATIONAL CITY PROCESSING
COMPANY
By: /s/ Z. Kolch /s/ David R. Zook
--------------------------- -----------------------------
DAVID R. ZOOK
Title: President
--------------------------- -----------------------------
Date: 3-17-95 Date: 3-17-95
--------------------------- -----------------------------
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<PAGE> 1
Exhibit 10.32
NATIONAL CITY PROCESSING COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
FOR SENIOR OFFICERS
Effective January 1, 1995
-------------------------
ARTICLE 1. ESTABLISHMENT AND PURPOSE OF PLAN
1.1 ESTABLISHMENT OF THE PLAN. The following are the provisions
of the National City Corporation Long-Term Incentive Compensation Plan for
Senior Officers (herein referred to as the "Plan"), effective as of January 1,
1995.
The Plan shall be effective for all purposes with respect to
Plan Cycles commencing on or after January 1, 1995, and with respect to all
determinations to be made (without regard to the date a Plan Cycle commenced) on
or after such date (including but not limited to determinations of eligibility
to participate, amounts of Awards, and entitlement to Awards).
1.2 PURPOSE. The purpose of the Plan is to maximize the returns
to stockholders and to promote the long-term profitability and success of the
Corporation by providing an incentive to those key executives of the Corporation
who are primarily responsible for such profitability and success.
1.3 OPERATION OF THE PLAN. The Plan shall be administered by the
Committee. A Plan Cycle of three years will be established each year that the
Plan is in operation. Once an Award is made under the Plan the Plan shall serve
as a non-qualified plan providing for deferred compensation at the election of
the Participant and/or the Committee, as provided hereunder.
ARTICLE 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have the meanings set forth below, unless otherwise expressly provided. When the
defined meaning is intended, the term is capitalized.
<PAGE> 2
(a) "Active Participant" shall mean an Eligible Employee who is
approved by the Committee for participation in a Plan Cycle of
the Plan. Such approval shall be determined with respect to each
Plan Cycle January 1 of the first year of that Plan Cycle, and
shall be redetermined with respect to each new Plan Cycle.
(b) "Award" shall mean the payment earned by a Participant based on
an evaluation of the Corporation's actual results against
pre-established goals set by the Committee.
(c) "Base Salary" shall mean the average annual salary of an employee
during that portion, or all of the Plan Cycle for which he or she
is an Active Participant, exclusive of any bonuses, incentive
pay, special awards, or stock options.
(d) "Board" shall mean the Board of Directors of the Corporation.
(e) "Change in Control" see Section 12.3.
(f) "Corporation" shall mean National City Processing Company.
(g) "Committee" shall be composed of the Chief Executive
Officer of the Corporation, the individual at National City
Corporation who has primary responsibility of monitoring the
activities of the Corporation and the officer in charge of
Corporate Human Resources at National City Corporation.
(h) "Disability" shall have the same meaning as the term "Long Term
Disability" has in the National City Corporation Long-Term
Disability Plan as in existence at the commencement of the Plan
Cycle with respect to which such definition is relevant.
(i) "Early Retirement" shall mean early retirement as defined in the
provisions of the National City Corporation Non-Contributory
Retirement Plan.
(j) "Effective Date" see Section 12.4.
(k) "Eligible Employee" shall mean an Employee who is employed in a
position meeting the defined eligibility criteria for
participation in the Plan, as set forth in Article 3.
(l) "Employee" shall mean an individual employed by an Employer on a
regular active and full-time salaried basis.
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<PAGE> 3
(m) "Employer" shall mean the Corporation or any corporation,
organization or entity controlled by the Corporation.
(n) "Funds" shall mean the Funds provided for in Article 10 hereof.
(o) "Implementation Date" see Section 12.4.
(p) "Inactive Participant" shall mean an individual who was an Active
Participant in the Plan for a Plan Cycle, who is not currently an
Active Participant for a Plan Cycle but who continues to have an
interest under the Plan.
(q) "Normal Retirement" shall have the same meaning as in the
National City Corporation Non-Contributory Retirement Plan as in
existence at the commencement of the Plan Cycle with respect to
which such definition is relevant.
(r) "Participant" shall mean and include all Active Participants and
all Inactive Participants.
(s) "Plan" shall mean this National City Processing Company Long-Term
Incentive Compensation Plan for Senior Officers Effective January
1, 1995.
(t) "Plan Cycle" shall mean a period of three consecutive fiscal
years of the Corporation and shall be referred to by the fiscal
year in which a particular Plan Cycle commences.
(u) "SIP" shall mean the National City Savings and Investment Plan.
(v) "Subsidiary" see paragraph 12.3(e)
(w) "Vesting Event" shall mean the earliest to occur of the following
events:
(1) the date any Award is payable hereunder,
(2) the Effective Date of a Change in Control,
(3) the date a Participant is eligible to retire on a Normal
Retirement,
(4) the date a Participant incurs a Disability,
(5) the date of a Participant's death.
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<PAGE> 4
Each Participant and Beneficiary with respect to whom a Vesting Event
has occurred shall be 100% vested in his or her benefits or Awards
earned or accrued hereunder as of the date of such Vesting Event,
subject to the forfeiture provisions of Article 12.
(x) "Voting Stock" see paragraph 12.3(e).
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology used herein also shall include the feminine, and the
definition of any term in the singular shall include the plural.
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Eligibility for participation in the Plan will be
limited to those senior officers of the Corporation and its subsidiaries who, by
the nature and scope of their positions, are materially responsible for the
management, growth, and overall success of the Corporation, as determined by the
Committee.
3.2 PARTICIPATION. Participation in the Plan shall be determined by the
Committee with respect to each Plan Cycle prior to the commencement of the Plan
Cycle. The Committee may base its approval upon the recommendation of the
President of the Corporation. The Committee shall classify senior officers for
the purposes of the Plan into the following categories:
Category Persons Included
-------- ----------------
Category I President of the Corporation
Category II Executive officers of the Corporation and
Executive officers of major subsidiaries of
the Corporation and similar officers
Each Eligible Employee approved for participation shall be notified of
the selection as soon after approval as is practicable and shall become a
Participant upon acceptance by him or her of such selection; provided however,
that after December 31, 1994, no Eligible Employee shall become a Participant in
the Plan with respect to any Plan Cycle after the commencement of such Plan
Cycle.
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<PAGE> 5
3.3 PARTICIPANT FOR PART OF A PLAN CYCLE. In the event an Employee is an
Eligible Employee for only a portion of a Plan Cycle (Participation Portion)
such Eligible Employee may, in the Committee's discretion, be a Participant for
such portion of the Plan Cycle but his or her Award will be based upon his or
her Base Salary at the end of such Participation Portion and such Award will
normally be pro-rated to reflect the number of months in the Participation
Portion of the Plan Cycle compared to the number of months in the total Plan
Cycle.
3.4 CATEGORY CHANGES DURING A PLAN CYCLE. In the event a Participant is
promoted or demoted from one Category to another during a Plan Cycle, the
Committee may, in its discretion, (a) continue such Participant in the Category
he or she was in prior to such promotion or demotion, (b) provide for
participation from and after the promotion or demotion to the new Category, or
(c) provide for a combination of (a) and (b).
In the event of a Plan Cycle for which the Participant's participation
is thus split between two Categories, the Award for such Plan Cycle will
normally be pro-rated to reflect the portions of the Plan Cycle spent in each
Category and each part of the Award will be based upon the Participant's Base
Salary at the end of the appropriate portions of the Plan Cycle.
3.5 NO RIGHT TO PARTICIPATE. No Participant or Employee shall have
a right at any time to be selected for current or future participation in the
Plan.
ARTICLE 4. AWARD DETERMINATION
4.1 TARGET AND MAXIMUM AWARDS FOR EACH PLAN CYCLE. The Target Award
shall be awarded if. in the sole discretion of the Committee the Corporation has
achieved a compound growth rate in earnings of 10%. The Maximum Award shall be
awarded if, in the sole discretion of the Committee, the Corporation has
achieved a compound growth rate in earnings of 15%. If the compound growth rate
in earnings of the Corporation is greater than 10% but less than 15%. The
Committee shall pro-rate the award. In determining the compound growth rate in
earnings of the Corporation the Committee may make adjustments as it deems
appropriate for acquisitions, divestitures and other one-time events.
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<PAGE> 6
4.2 AWARD. The amount of incentive compensation that shall be
awarded to a Participant under this Plan shall be expressed as a percentage of
Base Salary. Such percentage shall be determined on the basis of the attainment,
or lack of attainment, by the Corporation of the Target or Maximum performance,
as follows:
Percent of Base Compensation
----------------------------
Category Threshold Target Maximum
-------- --------- ------ -------
I 30% 60%
II 20% 40%
ARTICLE 5. PAYMENT OF AWARDS
5.1 FORM AND TIMING OF PAYMENT OF AWARDS. Within 90 days after
the end of the Plan Cycle, the Participant shall be entitled to receive a cash
payment equal to the entire amount of the Participant's Award. Except as
otherwise provided for in Section 6.1, to receive an Award a Participant must be
an Employee on the date on which the Plan Cycle ends. The Committee may
terminate a Participant's Award prior to any Vesting Event.
5.2 REQUEST TO DEFER PAYMENT; DEFERRED PAYMENTS. A Participant
may elect to request to have a portion or all of his or her Award for a Plan
Cycle deferred and paid out at a future date. Such request shall be considered
by the Committee. The Committee may determine that some, all, or none of the
Awards, or parts thereof, shall be deferred in its discretion. Deferred amounts
are subject to the provisions of Article 10.
ARTICLE 6. TERMINATION OF EMPLOYMENT
6.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR NORMAL
RETIREMENT. In the event a Participant's employment is terminated during a Plan
Cycle at or after the occurrence of a Vesting Event other than a Change in
Control the Participant shall be eligible to receive a prorated Award reflecting
his or her partial participation. This pro-ration shall be determined by
multiplying the Award by a fraction the numerator of which is the number of
full months of
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<PAGE> 7
participation to the date participation ends, and the denominator of which is
36. The Award thus determined shall be payable as soon as practicable following
the end of the Plan Cycle.
6.2 OTHER TERMINATIONS OF EMPLOYMENT. In the event a Participant's
employment is terminated during a Plan Cycle prior to a Vesting Event, the
Participant's participation in such Plan Cycle shall end and the Participant
shall not be entitled to any Award for such Plan Cycle.
ARTICLE 7. RIGHTS OF PARTICIPANTS
7.1 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in
any way the right of the Corporation to terminate a Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Corporation.
7.2 RESTRICTIONS ON ASSIGNMENTS. The interest of a Participant or his or
her beneficiary under this Plan may not be sold, transferred, assigned, or
encumbered in any manner, either voluntarily or involuntarily, and any attempt
to so anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge
the same shall be null and void; neither shall the benefits hereunder be liable
for or subject to the debts, contracts, liabilities, engagements, or torts of
any person to whom such benefits or funds are payable, nor shall they be subject
to garnishment, attachment, or other legal or equitable process, nor shall they
be an asset in bankruptcy.
ARTICLE 8. ADMINISTRATION
ADMINISTRATION. The Plan shall be administered by the Committee in
accordance with any administrative guidelines and any rules that may be
established from time to time by the Committee. The procedures, standards and
provisions of this Plan for determining eligibility for and amounts of Awards in
themselves confer no rights, duties or privileges upon Participants nor place
obligations upon either the Committee or the Corporation. Accordingly, the
Committee may, in making such determinations hereunder, deviate from such
procedures and standards in whatever manner that it, in its judgment, deems
appropriate.
The Committee shall have full power and authority to interpret,
construe and administer the Plan and its interpretations and construction
hereof, and actions hereunder,
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<PAGE> 8
including the timing, form, amount or recipient of any payment to be made
hereunder, and its decisions shall be binding and conclusive on all persons for
all purposes.
The Committee may name assistants who may be, but need not be, members
of the Committee. Such assistants shall serve at the pleasure of the Committee,
and shall perform such functions as are provided for herein and such other
functions as may be assigned by the Committee.
No member of the Board, Committee or any assistant shall be liable to
any person for any action taken or omitted in connection with the interpretation
and administration of this Plan unless attributable to his or her own willfull
misconduct or lack of good faith.
ARTICLE 9. REQUIREMENTS OF LAW
9.1 LAWS GOVERNING. This Plan shall be construed in accordance with
and governed by the laws of the State of Ohio.
9.2 WITHHOLDING TAXES. The Corporation shall have the right to deduct
from all payments under this Plan any federal, local or State taxes required by
the law to be withheld with respect to such payments.
9.3 PLAN BINDING ON CORPORATION, EMPLOYEES AND THEIR SUCCESSORS. This
Plan shall be binding upon and inure to the benefit of the Corporation, its
successors and assigns and each Participant and his or her beneficiaries, heirs,
executors, administrators and legal representatives.
ARTICLE 10. DEFERRAL OF AWARDS
10.1 ELECTION TO REQUEST DEFERRAL OF AWARD; DEFERRAL PERCENTAGE. Each
Active Participant shall be given the opportunity, prior to the final year of
each Plan Cycle, to elect to request deferral of a portion or all of his or her
Award for each Plan Cycle. The Participant may not change his election with
respect to a Plan Cycle from and after the December 31 of the year prior to the
final year of the Plan Cycle.
10.2 DEFERRAL OF AWARDS; COMMITTEE'S DECISION. Notwithstanding any
request to defer none, a portion, or all of an Award hereunder submitted by a
Participant pursuant to Section 10.1 above, the Committee shall make the
decision, in each case, whether or not to defer any portion
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<PAGE> 9
or all of any Participant's Award with respect to any Plan Cycle. Such decision
shall be made in the discretion of the Committee. The Committee's discretion
extends to the percentage of any Award to be deferred.
The Committee's decision shall be final and binding on all
parties. Any amount to be deferred shall not be paid to the Participant but
shall be deferred as provided in this Article 10.
10.3 ACCOUNTS. An account shall be established and maintained by
the Corporation in the name of each Participant who has deferred compensation
hereunder. Such accounts shall remain a part of the general liabilities of the
Corporation and nothing in this Plan shall be deemed to create a trust or fund
of any kind or any fiduciary relationship. Each Account shall be comprised of
nine sub-accounts: (a) the "NCC Stock Fund"; (b) the "Equity Fund"; (c) the
"Fixed Income Fund"; (d) the "Money Market Fund"; (e) the "Capital Preservation
Fund"; (f) the "Mid Cap Regional Equity Fund": (g) the "Equity Income Fund"; (h)
the "Equity Index Fund;" and (j) the "Foreign Equity Fund"; such sub-accounts
jointly are herein called the "Funds".
10.4 CREDITING TO ACCOUNTS. As of the dates of payment of cash
Awards made under this Plan the amount of the Award to be deferred for each
Participant under this Section 10 shall be credited to such Participant's
Account, and shall correspondingly be credited to the Fund or Funds selected by
the Participant.
10.5 FUNDS. The Nine Funds are designed to reflect investment
finds maintained in the SIP. Accordingly, each such Parallel Fund and each
Participant's Account therein shall be adjusted hereunder as of the end of each
month to reflect the income, gain or loss of the corresponding SIP investment
fund for such month, as calculated and published on a monthly basis by the
Trustee of the SIP.
In the event the SIP no longer offers a fluid corresponding to
one of the Funds, the amounts which would have been deemed invested in such Fund
except for this provision shall be deemed to be invested in the Money Market
Fund or if the Money Market Fund is no longer offered any successor Money Market
Fund or if no successor a Money Market Fund chosen by the Committee.
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<PAGE> 10
10.6 SELECTION OF FUNDS. Each Participant (and each Beneficiary
of a deceased Participant) may select the Investment Fund or Funds he or she
wishes to be used hereunder for his or her account. The selection of Funds shall
be made in portions of the amount deferred equal to 5% of the total of such
amounts. In the event no election is made by a Participant (or Beneficiary) his
or her account shall be deemed invested in and credited to the Money Market
Fund.
Selection of Funds by Participants shall be made no later than
the earlier of December 1 of the final year of a Plan Cycle or the deferral or
payment of the Award; provided however, that in the event a Participant who has
not requested a deferral of any part of his or her Award nevertheless has a
portion thereof deferred by decision of the Committee, then in such event, such
Participant shall be given an election period of 10 days to determine
appropriate investments, such period running from the date of his or her
notification of the Committee's action.
10.7 NO CHANGE OF INVESTMENT FUND SELECTION PERMITTED EXCEPT
WITH COMMITTEE APPROVAL. Each selection of a Fund hereunder shall be final and
shall not thereafter be revised or changed, provided, however, that each
Participant (or Beneficiary if the Participant is deceased) may request a
change in his or her Investment Fund choice by filing such request with the
Committee. Notwithstanding the foregoing, the consent of the Committee shall be
necessary for any such change in investment fund choices; such consent is
discretionary in the Committee and the Committee shall act upon such requests as
are filed with it at the Committee's next regularly scheduled meeting.
10.8 VESTING OF DEFERRED AMOUNTS. Amounts of Awards made and
deferred under the Plan, and earnings and gains thereon, are always 100% vested.
10.9 MANNER OF DISTRIBUTION. Except as otherwise provided
herein, distributions hereunder shall take place over a period of ten years
commencing on the retirement, death or other termination of employment of the
Participant. The first distribution shall take place on the February 1 of the
calendar year following the calendar year in which such retirement, death or
other termination occurs. Succeeding payments shall be made on succeeding
February 1sts.
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<PAGE> 11
The amount to be distributed shall be determined by multiplying
(i) the dollar value of the Participant's entire interest hereunder on December
31 of the year immediately preceding such installment, by (ii) a fraction, the
numerator of which is one, and the denominator of which is the number of
distributions remaining unpaid at such time, or by such other method as may be
adopted by the Committee.
The balances of each Account and each Investment Fund shall be
appropriately reduced to reflect the distribution payments made. Amounts held
pending distribution pursuant to this Paragraph 10.8 shall continue to be
credited with appropriate income, gains and losses as herein otherwise provided
and shall be subject to investment changes as herein provided. Balances in more
than one Fund shall be reduced pro-rata to reflect distributions on a pro-rata
basis from each Fund.
10.10 ACCELERATED PAYMENTS; REVISED DISTRIBUTIONS.
Notwithstanding the foregoing or any Participant's request to receive a lump sum
distribution, the Committee, in its sole discretion, may determine that a
Participant's interest hereunder or any portion thereof shall be paid out in a
lump sum. A Participant may elect, not less than twelve months prior to the date
of such Participant's termination by reason of Early Retirement or Normal
Retirement, to request that amounts deferred be paid out in lump sum. Such
election shall be irrevocable and fixed with respect to such Participant from
and after twelve months prior to such retirement date of the Participant. The
Committee's decision with respect to a lump sum distribution shall be final and
binding on all parties.
In the event the Committee determines to make a lump sum
distribution, such lump sum distribution shall be paid on the next succeeding
February 1 based on the Participant's Account balances as of the December 31
immediately preceding such lump sum distribution payment, or at such other times
as may be determined by the Committee.
In the case of the first distribution after the death of a
Participant, the Committee may, in its discretion, provide for payment of a
portion or all of the distribution prior to the
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<PAGE> 12
February 1 of the calendar year following the calendar year of such death, or at
such other time as may be determined by the Committee.
Notwithstanding any other provision hereof, the Committee, in its
discretion, may provide that distributions may be made in a lesser number of
installments, but not less than 5.
10.11 BENEFICIARY DESIGNATIONS. Each Participant, and each Beneficiary
of a deceased Participant or Beneficiary hereunder, may designate, on a
Beneficiary Designation form supplied by the Committee, any person or persons to
whom payments are to be made if the Participant (or Beneficiary) dies before
receiving payment of all amounts due hereunder. A beneficiary designation will
be effective only after the signed Beneficiary Designation form is filed with an
officer of the Corporation designated by the Committee for such purpose while
the Participant (or Beneficiary) is alive, and will cancel all beneficiary
designations signed and filed earlier. If the Participant (or Beneficiary)
fails to designate a beneficiary as provided above, or if all designated
beneficiaries die before the Participant or before complete payment of all
amounts due hereunder remaining unpaid distribution amounts shall be paid to
the then surviving spouse of the Participant, if any, or, if there be none, in
one lump sum to the estate of the last to die of the Participant or his or her
designated beneficiaries, if any.
In the event a Participant (or a Beneficiary of a deceased Participant)
designates as a Beneficiary any so called "marital deduction trust" or any so
called "qualified income trust", the Participant (or Beneficiary) may
additionally indicate whether the dollar equivalent of the current income,
during the distribution of an interest hereunder, should be distributed yearly
to such Beneficiary. In the event of such an indication, such income shall be
distributed at least annually.
10.12 PARTICIPANTS RIGHTS; BENEFICIARIES RIGHTS. Except as otherwise
specifically provided, neither a Participant nor any of his or her Beneficiaries
has rights under this Plan. The payment of deferred compensation shall be a
general, unsecured obligation of the Corporation to be paid by the Corporation
from its own funds, and such payments shall not impose any obligation upon any
trust find for any tax qualified plan, be paid from any such trust fund, or
have any effect whatsoever upon the SIP or the payment of benefits from the
Trust Fund under the SIP. No
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<PAGE> 13
Participant or beneficiary shall have any title to or beneficial ownership in
any assets which the Corporation may earmark to pay benefits hereunder.
10.13 NATURE OF DEFERRED COMPENSATION. The election of deferred
compensation under this Plan and any setting aside by the Corporation of amounts
with which to discharge its deferred obligations hereunder in a trust fund, an
insurance policy, or otherwise, shall not be deemed to create a right in any
person; equitable title to any funds so set aside in a trust, an insurance
policy, or otherwise shall remain in the Corporation, and any recipient of
benefits hereunder shall have no security or other interest in such trust,
policies or funds. Any and all funds so set aside in a trust, an insurance
policy or otherwise shall remain subject to the claims of the general creditors
of the Corporation, present and future. This provision shall not require the
Corporation to set aside any funds, but the Corporation may set aside such funds
if it chooses to do so. Any amount so set aside for this Plan shall be accounted
for separately and apart from any other plan of the Corporation. This Plan is
intended to constitute an unfunded plan of deferred compensation described in
Section 201(2) of the Employee Retirement Income Security Act of 1974.
10.14 DISTRIBUTIONS IN CASH. Notwithstanding any other provision of this
Plan, distributions hereunder shall be made only in cash and shall be subject to
withholding of applicable taxes.
10.15 NATURE OF DEFERRED COMPENSATION PLAN. The provisions of the Plan
relating to deferred compensation are fixed and final unless and until amended,
revised or terminated as herein provided.
ARTICLE 11. FORFEITURES
Notwithstanding any provision in this Plan to the contrary excepting
only the provisions of Article 12, in the event the Committee finds
(a) that an Employee or former Employee who has an interest under this
Plan has been discharged by his or her Employer in the reasonable
belief (and such reasonable belief is the reason or one of the reasons
for such discharge) that the
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<PAGE> 14
Employee or former Employee did engage in fraud against the Employer
or anyone else, or
(b) that an Employee or former Employee who has an interest tender
this Plan has been convicted of a crime as a result of which it
becomes illegal for his Employer to employ him or her,
then any amounts held under this Plan for the benefit of such Employee or former
Employee or his or her beneficiaries shall be forfeited and no longer payable to
such Employee or former Employee or to any person claiming by or through such
Employee or former Employee.
ARTICLE 12. CHANGE IN CONTROL
12.1 TREATMENT OF AWARDS. In the event of a Change in Control the
Corporation shall pay to each Active Participant on the Implementation Date of
such Change in Control a lump sum cash payment equal to the amount hereinafter
determined. Such payment shall be payable in cash to the Participant within five
business days after the Implementation Date of such Change in Control and shall
be payment in full to each such Participant for such Plan Cycle, each of which
shall be deemed terminated by operation of this Article 12. No further Plan
Cycles shall commence thereafter under this Plan.
Such cash payment shall be made without regard to any request to defer
made with respect to any such Plan Cycle (which shall be inoperative) and
without regard to any deferral action by the Committee.
Amounts deferred under this Plan prior to the Effective Date (by
request, as required, or as decided by the Committee) shall continue to be
payable from time to time under this Plan as deferred payments hereunder.
12.2 AMOUNT OF PAYMENT. The amount of the payment to be made as a
consequence of a Change in Control shall, with respect to each Plan Cycle, be
equal to the Maximum Award level (without regard to stockholder return during
such abbreviated Plan Cycle) for the Participant for such Plan Cycle multiplied
by a fraction the numerator of which is the number of full months
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<PAGE> 15
completed from the commencement of the Plan Cycle to the Implementation Date of
the Change in Control, and the denominator of which is 36.
12.3 DEFINITION OF CHANGE IN CONTROL. Change in Control shall mean
the occurrence of any of the following events:
(a) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person other than NCC, a
successor of NCC (direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) ("Successor"), or an
affiliate of NCC or of a Successor and as a result of such merger,
consolidation or reorganization less than fifty percent of the
combined voting power of the then-outstanding securities of such
resulting corporation or person immediately after such transaction are
held by NCC, a Successor or an affiliate of NCC or of a Successor; or
(b) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than fifty
percent of the combined voting power of the then-outstanding Voting
Stock of such corporation or person immediately after such sale or
transfer is held by NCC, a Successor or an affiliate of NCC or of a
Successor, provided, however, that a Change in Control of NCC
determined by the standards set forth herein or otherwise shall not
constitute a Change in Control of the Company.
12.4 EFFECTIVE DATE OF CHANGE IN CONTROL. Notwithstanding the foregoing,
in the event a Change in Control ultimately results from discussions or
negotiations involving the Corporation or any of its officers or directors, the
"Effective Date" of such Change in Control shall be the date such discussions or
negotiations commenced; otherwise, such Effective Date or Change in Control
shall be the Implementation Date of such Change in Control.
12.5 IMPLEMENTATION DATE OF CHANGE IN CONTROL. The "Implementation Date"
shall be the earliest to occur of the events specified in subsections (a) or (b)
of Section 12.3. As used herein, the Implementation Date of Change in Control
shall be the last date of all current Plan Cycles.
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<PAGE> 16
12.6 EFFECT OF CHANGE IN CONTROL. In addition to other vesting under the
Plan, the opportunity of a Participant to participate to the end of all current
Plan Cycles is vested in such Participant in the event of a Change in Control,
as of the Effective Date of and such Change in Control.
ARTICLE 13. MISCELLANEOUS
In the event of the liquidation of the Corporation the Committee may
make any provisions for holding, handling and distributing the amounts standing
to the credit of the Participants or beneficiaries hereunder which, in the
discretion of the Committee, are appropriate and equitable under all
circumstances and which are consistent with the spirit and purposes of these
provisions.
ARTICLE 14. AMENDMENT AND DISCONTINUANCE
The Corporation expects to continue this Plan indefinitely, but reserves
the right, by action of the Board, to amend it from time to time or to
discontinue it. However, if the Board should amend or discontinue this Plan, the
Corporation shall remain obligated under the Plan with respect to (1) Awards
made final (and thus payable) by decision by the Committee prior to the date of
such amendment or discontinuance, (2) Awards and rights of any Participant or
beneficiary with respect to whom a Vesting Event has occurred, and (3) with
respect to amounts deferred prior to the date of such amendment or
discontinuation.
Executed this 4th day of August, 1995 at Louisville, Kentucky.
NATIONAL CITY PROCESSING COMPANY
By:
-----------------------------
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Exhibit 10.33
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
----------------------------------------------
This Director and Officer Indemnification Agreement, dated as of
_________________, 1996 (this "Agreement"), is made by and between National
Processing, Inc, an Ohio corporation (the "Company"), and ____________________
(the "Indemnitee"), a director and an officer of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director and an officer of
the Company, and the Company desires that the Indemnitee continue serving in
those capacities. The Indemnitee is willing, subject to certain conditions
including the execution and performance of this Agreement by the Company, to
continue serving in those capacities.
B. In addition to the indemnification to which the Indemnitee is
entitled under the Code of Regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors including the Indemnitee against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, the Company and the Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
(a) The Indemnitee shall continue to serve, at the will of the Company
or in accordance with a separate contract, to the extent that such a contract is
in effect at the time in question, as a director and an officer of the Company
so long as he is duly elected in accordance with the Regulations or until he
resigns in writing in accordance with applicable law.
- 1 -
<PAGE> 2
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the Company), by
reason of the fact that he is or was a Director or an officer of the Company or
is or was serving at the request of the Company as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, or by reason of
any action alleged to have been taken or omitted in any such capacity, against
any and all costs, charges, expenses (including fees and expenses of attorneys
and/or others; all such costs, charges and expenses being herein jointly
referred to as "Expenses"), judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection therewith
including any appeal of or from any judgment or decision, if the Indemnitee
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, he had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Indemnitee did not satisfy
the foregoing standard of conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was a Director or an officer of the Company or is or was serving at the request
of the Company as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, against any and all Expenses actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement thereof or any appeal of or from any judgment or decision, if the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of (i) any claim, issue, or matter as
to which the Indemnitee is adjudged to be liable for negligence or misconduct in
the performance of his duty to the Company unless, and only to the extent that,
the court of common pleas or other court in which such action, suit, or
proceeding was brought determines, notwithstanding any adjudication of
liability, that in view of all the circumstances of the case the Indemnitee is
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<PAGE> 3
fairly and reasonably entitled to indemnity for such expenses as such court of
common pleas or other court shall deem proper, or (ii) any action or suit in
which the only liability asserted against Indemnitee is pursuant to Section
1701.95 of the Ohio Revised Code.
(c) Any indemnification under Section 2(a) or 2(b) or (unless ordered
by a court) shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 2(a) or 2(b). Such authorization shall be made (i) by the Board of
directors of the Company (the "Board") by a majority vote of a quorum
consisting of directors who were not and are not parties to or threatened with
such action, suit, or proceeding, or (ii) if such a quorum of disinterested
directors is not available or if a majority of such quorum so directs, in a
written opinion by independent legal counsel (designated for such purpose by
the Board) which shall not be an attorney, or a firm having associated with it
an attorney, who has been retained by or who has performed services for the
Company, or any person to be indemnified, within the five years preceding such
determination, or (iii) by the shareholders of the Company (the
"Shareholders"), or (iv) by the court of common pleas or other court in which
such action, suit, or proceeding was brought.
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in
defense of any action, suit, or proceeding referred to in Section 2(a) or 2(b),
or in defense of any claim, issue, or matter therein, he shall be indemnified
against Expenses actually and reasonably incurred by him in connection
therewith. Expenses incurred by the Indemnitee in defending any such action,
suit, or proceeding shall be paid by the Company as they are incurred in
advance of the final disposition of such action, suit, or proceeding under the
procedure set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee, or agent of the Company which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa; the word including is used by way of illustration only and not
by way of limitation; and if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in the interest of the participants and
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<PAGE> 4
beneficiaries of an employee-benefit plan he shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to herein.
(f) No amendment to the Amended Articles of Incorporation of the
Company (the "Articles") or the Regulations shall deny, diminish, or encumber
the Indemnitee's rights to indemnity pursuant to the Regulations, the General
Corporation Law of the State of Ohio (the "OCL"), or any other applicable law as
applied to any act or failure to act occurring in whole or in part prior to the
date (the "Effective Date") upon which the amendment was approved by the
Shareholders. In the event that the Company shall purport to adopt any amendment
to its Articles or Regulations or take any other action the effect of which is
to deny, diminish, or encumber the Indemnitee's rights to indemnity pursuant to
the Articles, the Regulations, the OCL, or any such other law, such amendment
shall apply only to acts or failures to act occurring entirely after the
Effective Date thereof unless the Indemnitee shall have voted in favor of such
amendment as a director or holder of record of the Company's voting stock, as
the case may be.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Without limiting any right which the Indemnitee may have pursuant
to Section 2 hereof or any other provision of this Agreement or the Articles,
the Regulations, the OCL, any policy of insurance, or otherwise, but subject to
any limitation on the maximum permissible indemnity which may exist under
applicable law at the time of any request for indemnity hereunder and subject
to the following provisions of this Section 3, the Company shall pay on behalf
of the Indemnitee any amount which he is or becomes obligated to pay relating
to or arising out of any claim made against him because of any act, failure
to act, or neglect or breach of duty, including any actual or alleged error,
statement, or misleading statement, that he commits, suffers, permits, or
acquiesces in while acting in his capacity as a director or an officer of the
Company. The payments which the Company is obligated to make pursuant to this
Section shall include without limitation any and all Expenses, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee in connection therewith including any appeal of or from any judgment
or decision; PROVIDED, HOWEVER, that the Company shall not be obligated under
this Section 3 to make any payment in connection with any claim against the
Indemnitee:
(i) for which payment is actually made to the Indemnitee
under a valid and collectible insurance policy,
except in respect of any retention or excess
- 4 -
<PAGE> 5
beyond the amount of payment under such insurance;
(ii) for which the Indemnitee is actually and fully
indemnified by the Company otherwise than pursuant to
this Section 3;
(iii) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(iv) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to
which this Section 3 applies shall be paid by the Company as they are incurred
in advance of the final disposition of such claim under the procedure set forth
in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section hereof, the Indemnitee shall submit to the Board a sworn statement of
request for indemnification substantially in the form of Exhibit 1 attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder. Submission of an Indemnification
Statement to the Board shall create a presumption that the Indemnitee is
entitled to indemnification hereunder, and the Company shall, within 60 calendar
days after submission of the Indemnification Statement,
- 5 -
<PAGE> 6
make the payments requested in the Indemnification Statement to or for the
benefit of the Indemnitee, unless (i) within such 60-calendar-day period the
Board shall resolve by vote of a majority of the directors at a meeting at
which a quorum is present that the Indemnitee is not entitled to
indemnification under Section 3 hereof, (ii) such vote shall be based upon
clear and convincing evidence (sufficient to rebut the foregoing presumption),
and (iii) the Indemnitee shall have received within such period notice in
writing of such vote, which notice shall disclose with particularity the
evidence upon which the vote is based. The foregoing notice shall be sworn to
by all persons who participated in the vote and voted to deny indemnification.
The provisions of this Section 4(a) are intended to be procedural only and
shall not affect the right of Indemnitee to indemnification under Section 3 of
this Agreement so long as Indemnitee follows the prescribed procedure and any
determination by the Board that Indemnitee is not entitled to indemnification
and any failure to make the payments requested in the Indemnification Statement
shall be subject to judicial review by any court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the second sentence of Section 2(d) or the last
sentence of Section 3 hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he
has reasonably incurred or will reasonably incur actual Expenses in defending
an action, suit or proceeding referred to in Section 2(a) or 2(b) or any
claim referred to in Section 3, or pursuant to Section 7 hereof. Unless at the
time of the Indemnitee's act or omission at issue, the Articles or Regulations
of the Company prohibit such advances by specific reference to OCL Section
1701.13(E)(5)(a) and unless the only liability asserted against the Indemnitee
in the subject action, suit or proceeding is pursuant to OCL Section 1701.95,
the Indemnitee shall be eligible to execute Part A of the Undertaking by which
he undertakes to (a) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that the Indemnitee's action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim. In all cases, the Indemnitee
shall be eligible to execute Part B of the Undertaking by which he undertakes
to repay such amount if it ultimately is determined that he is not entitled to
be indemnified by the Company under this Agreement or otherwise. In the event
that the Indemnitee is eligible to and does execute both Part A and Part B of
the Undertaking, the Expenses which are paid by the Company pursuant thereto
shall be required to be repaid by the Indemnitee only if
- 6 -
<PAGE> 7
he is required to do so under the terms of both Part A and Part B of the
Undertaking. Upon receipt of the Undertaking, the Company shall thereafter
promptly pay such Expenses of the Indemnitee as are noticed to the Company in
writing and in reasonable detail arising out of the matter described in the
Undertaking. No security shall be required in connection with any Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
(a) Notwithstanding anything contained herein to the contrary, the
Company shall not be required hereby to indemnify the Indemnitee with respect to
any action, suit, or proceeding that was initiated by the Indemnitee unless (i)
such action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (ii) authorized
by another agreement to which the Company is a party whether heretofore or
hereafter entered, or (iii) otherwise ordered by the court in which the suit was
brought
6. SHAREHOLDER RATIFICATION
------------------------
(a) The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; provided,
however, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
7. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the
- 7 -
<PAGE> 8
Company, in any jurisdiction. Regardless of the outcome thereof, the Company
shall pay and be solely responsible for any and all costs, charges, and
expenses, including fees and expenses of attorneys and others, reasonably
incurred by the Indemnitee pursuant to this Section 7.
8. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving, or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
9. NONEXCLUSIVELY AND SEVERABILITY
-------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the OCL or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators. In the event of any payment under this Agreement, the Company
shall be subrogated to the extent thereof to all rights of recovery previously
vested in the Indemnitee, who shall execute all instruments and take all other
actions as shall be reasonably necessary for the Company to enforce such right.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable, or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
- 8 -
<PAGE> 9
10. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
11. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL PROCESSING, INC.
By________________________________
Title
__________________________________
[Signature of Indemnitee]
- 9 -
<PAGE> 10
Exhibit 1
---------
INDEMNIFICATION STATEMENT
STATE OF ________________)
) SS
COUNTY OF _______________)
I, ________________ , being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated __________ 1996 between National Processing,
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges, expenses
(which may include fees and expenses of attorneys and/or others), judgments,
fines, and amounts paid in settlement (collectively, "Liabilities"), which have
been actually and reasonably incurred by me in connection with a claim referred
to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am entitled
to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
__________________________________
______________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ____ day of ____________ 1996.
______________________________
[Seal]
My commission expires the ____ day of _____________ 1996.
<PAGE> 11
Exhibit 2
---------
UNDERTAKING
-----------
STATE OF _______________
SS
COUNTY OF ______________
I, _____________________ , being first duly sworn do depose and say as
follows:
l. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated __________________ , 1996, between National Processing, Inc.,
an Ohio corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses which I have
reasonably incurred or will reasonably incur in defending an action, suit or
proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 7, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is requested are,
in general, all expenses related to __________________________________________
______________________________________________________________________________.
4. Part A(1)
---------
-------------------------------
- --------
1 The Indemnitee shall not be eligible to execute Part A of this Undertaking if
at the time of the Indemnitee's act or omission at issue, the Amended Articles
of Incorporation or Code of Regulations of the Company prohibit such advances by
specific reference to OCL Section 1701.13(E)(5)(a) and unless the only liability
asserted against Indemnitee in the subject action, suit or proceeding is
pursuant to OCL Section 1701.95. In the event that the Indemnitee is eligible to
and does execute both Part A and Part B hereof, the costs, charges and expenses
which are paid by the Company pursuant hereto shall be required to be repaid by
the Indemnitee only if he is required to do so under the terms of both Part A
and Part B hereof.
<PAGE> 12
I hereby undertake to (a) repay all amounts paid pursuant hereto if it
is proved by clear and convincing evidence in a court of competent jurisdiction
that my action or failure to act which is the subject of the matter described
herein involved an act or omission undertaken with deliberate intent to cause
injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
__________________________
[Signature of Indemnitee]
4. Part B
------
I hereby undertake to repay all amounts paid pursuant hereto if it
ultimately is determined that I am not entitled to be indemnified by the Company
under the aforesaid Indemnification Agreement or otherwise.
_________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ____ day of ___________ 1996.
[Seal]
My commission expires the _____ day of _______________ 1996.
<PAGE> 1
Exhibit 10.34
OFFICER INDEMNIFICATION AGREEMENT
---------------------------------
This Officer Indemnification Agreement, dated as of _________________,
1996 this "Agreement"), is made by and between National Processing, Inc., an
Ohio corporation (the "Company"), and ____________________ (the "Indemnitee"),
an officer of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as an officer of the Company,
and the Company desires that the Indemnitee continue serving in that capacity.
The Indemnitee is willing, subject to certain conditions including the execution
and performance of this Agreement by the Company, to continue serving in that
capacity.
B. In addition to the indemnification to which the Indemnitee is
entitled under the Code of Regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors including the Indemnitee against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, the Company and the Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve, at the will of the Company or
in accordance with a separate contract, to the extent that such a contract is in
effect at the time in question, as an officer of the Company so long as he is
duly elected and qualified in accordance with the Regulations or until he
resigns in writing in accordance with applicable law.
- 1 -
<PAGE> 2
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the Company), by
reason of the fact that he is or was an officer of the Company or is or was
serving at the request of the Company as a director, trustee, officer, employee,
or agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, or by reason of any
action alleged to have been taken or omitted in any such capacity, against any
and all costs, charges, expenses (including fees and expenses of attorneys
and/or others; all such costs, charges and expenses being herein jointly
referred to as "Expenses"), judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection therewith
including any appeal of or from any judgment or decision, if the Indemnitee
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, he had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Indemnitee did not satisfy
the foregoing standard of conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was an officer of the Company or is or was serving at the request of the Company
as a director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against any and all Expenses actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement thereof
or any appeal of or from any judgment or decision, if the Indemnitee acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of (i) any claim, issue, or matter as to which the Indemnitee is
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless, and only to the extent that, the court of common
pleas or other court in which such action, suit, or proceeding was brought
determines, notwithstanding any adjudication of liability, that in view of all
the circumstances of the case the Indemnitee is fairly and reasonably entitled
to indemnity for such expenses as such court
- 2 -
<PAGE> 3
of common pleas or other court shall deem proper, or (ii) any action or suit in
which the only liability asserted against Indemnitee is pursuant to Section
1701.95 of the Ohio Revised Code.
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by
a court) shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 2(a) or 2(b). Such authorization shall be made (i) by the Board of
Directors of the Company (the "Board") by a majority vote of a quorum
consisting of directors who were not and are not parties to or threatened with
such action, suit, or proceeding, or (ii) if such a quorum of disinterested
directors is not available or if a majority of such quorum so directs, in a
written opinion by independent legal counsel (designated for such purpose by
the Board) which shall not be an attorney, or a firm having associated with it
an attorney, who has been retained by or who has performed services for the
Company, or any person to be indemnified, within the five years preceding such
determination, or (iii) by the shareholders of the Company (the
"Shareholders"), or (iv) by the court of common pleas or other court in which
such action, suit, or proceeding was brought.
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in
defense of any action, suit, or proceeding referred to in Section 2(a) or 2(b),
or in defense of any claim, issue, or matter therein, he shall be indemnified
against Expenses actually and reasonably incurred by him in connection
therewith. Expenses incurred by the Indemnitee in defending any such action,
suit, or proceeding shall be paid by the Company as they are incurred in
advance of the final disposition of such action, suit, or proceeding under the
procedure set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee, or agent of the Company which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa; the word including is used by way of illustration only and not
by way of limitation; and if the Indemnitee acted in good faith and in a manner
he reasonably believed to be in the interest of the participants and
beneficiaries of an employee-benefit plan he shall be deemed to
- 3 -
<PAGE> 4
have acted in a manner "not opposed to the best interests of the Company" as
referred to herein.
(f) No amendment to the Amended Articles of Incorporation of the
Company (the "Articles") or the Regulations shall deny, diminish, or encumber
the Indemnitee's rights to indemnity pursuant to the Regulations, the General
Corporation Law of the State of Ohio (the "OCL"), or any other applicable law as
applied to any act or failure to act occurring in whole or in part prior to the
date (the "Effective Date") upon which the amendment was approved by the
Shareholders. In the event that the Company shall purport to adopt any amendment
to its Articles or Regulations or take any other action the effect of which is
to deny, diminish, or encumber the Indemnitee's rights to indemnity pursuant to
the Articles, the Regulations, the OCL, or any such other law, such amendment
shall apply only to acts or failures to act occurring entirely after the
Effective Date thereof unless the Indemnitee shall have voted in favor of such
amendment as a director or holder of record of the Company's voting stock, as
the case may be.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Without limiting any right which the Indemnitee may have pursuant
to Section 2 hereof or any other provision of this Agreement or the Articles,
the Regulations, the OCL, any policy of insurance, or otherwise, but subject to
any limitation on the maximum permissible indemnity which may exist under
applicable law at the time of any request for indemnity hereunder and subject
to the following provisions of this Section 3, the Company shall pay on behalf
of the Indemnitee any amount which he is or becomes obligated to pay relating
to or arising out of any claim made against him because of any act, failure to
act, or neglect or breach of duty, including any actual or alleged error,
statement, or misleading statement, that he commits, suffers, permits, or
acquiesces in while acting in his capacity as an officer of the Company. The
payments which the Company is obligated to make pursuant to this Section 3 shall
include any and all Expenses, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection therewith
including any appeal of or from any judgment or decision; PROVIDED, HOWEVER,
that the Company shall not be obligated under this Section 3 to make any payment
in connection with any claim against the Indemnitee:
(i) for which payment is actually made to the Indemnitee
under a valid and collectible insurance policy,
except in respect of any retention or excess beyond
the amount of payment under such insurance;
- 4 -
<PAGE> 5
(ii) for which the Indemnitee is actually and fully
indemnified by the Company otherwise than pursuant to
this Section 3;
(iii) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(iv) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to
which this Section 3 applies shall be paid by the Company as they are incurred
in advance of the final disposition of such claim under the procedure set
forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section 3 hereof, the Indemnitee shall submit to the Board a sworn statement of
request for indemnification substantially in the form of Exhibit 1 attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder. Submission of an Indemnification
Statement to the Board shall create a presumption that the Indemnitee is
entitled to indemnification hereunder, and the Company shall, within 60 calendar
days after submission of the Indemnification Statement, make the payments
requested in the Indemnification Statement to or for the benefit of the
Indemnitee, unless (i) within such 60-calendar-day period the Board shall
resolve by vote of a majority
- 5 -
<PAGE> 6
of the directors at a meeting at which a quorum is present that the Indemnitee
is not entitled to indemnification under Section 3 hereof, (ii) such vote shall
be based upon clear and convincing evidence (sufficient to rebut the foregoing
presumption), and (iii) the Indemnitee shall have received within such period
notice in writing of such vote, which notice shall disclose with particularity
the evidence upon which the vote is based. The foregoing notice shall be sworn
to by all persons who participated in the vote and voted to deny
indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of Indemnitee to
indemnification under Section 3 of this Agreement so long as Indemnitee
follows the prescribed procedure and any determination by the Board that
Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to
judicial review by any court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the second sentence of Section 2(d) or the last
sentence of Section 3 hereof, the Indemnitee shall submit to the Company a
sworn request for advancement of Expenses substantially in the form of Exhibit
2 attached hereto and made a part hereof (the "Undertaking"), averring that he
has reasonably incurred or will reasonably incur actual Expenses in defending
an action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 7 hereof. Unless at the time
of the Indemnitee's act or omission at issue, the Articles or the Regulations
of the Company prohibit such advances by specific reference to OCL Section
1701.13(E)(5)(a) and unless the only liability asserted against the Indemnitee
in the subject action, suit or proceeding is pursuant to OCL Section 1701.95,
the Indemnitee shall be eligible to execute Part A of the Undertaking by which
he undertakes to (a) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that the Indemnitee's action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim. In all cases, the Indemnitee
shall be eligible to execute Part B of the Undertaking by which he undertakes
to repay such amount if it ultimately is determined that he is not entitled to
be indemnified by the Company under this Agreement or otherwise. In the event
that the Indemnitee is eligible to and does execute both Part A and Part B of
the Undertaking, the Expenses which are paid by the Company pursuant thereto
shall be required to be repaid by the Indemnitee only if he is required to do
so under the terms of both Part A and Part B of the Undertaking. Upon receipt
of the Undertaking, the Company shall thereafter promptly pay such Expenses of
the Indemnitee as
- 6 -
<PAGE> 7
are noticed to the Company in writing and in reasonable detail arising out of
the matter described in the Undertaking. No security shall be required in
connection with any Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the Company
shall not be required hereby to indemnify the Indemnitee with respect to any
action, suit, or proceeding that was initiated by the Indemnitee unless (a) such
action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (b) authorized
by another agreement to which the Company is a party whether heretofore or
hereafter entered, or (c) otherwise ordered by the court in which the suit was
brought.
6. SHAREHOLDER RATIFICATION
------------------------
The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; provided,
however, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
7. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of
- 7 -
<PAGE> 8
attorneys and others, reasonably incurred by the Indemnitee pursuant to this
Section .
8. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving, or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
9. NONEXCLUSIVELY AND SEVERABILITY
-------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the OCL or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators. In the event of any payment under this Agreement, the Company
shall be subrogated to the extent thereof to all rights of recovery previously
vested in the Indemnitee, who shall execute all instruments and take all other
actions as shall be reasonably necessary for the Company to enforce such right.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable, or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
- 8 -
<PAGE> 9
10. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
11. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL PROCESSING, INC.
By________________________________
Title:
__________________________________
[Signature of Indemnitee]
- 9 -
<PAGE> 10
Exhibit 1
---------
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ________________)
) SS
COUNTY OF _______________)
I, ________________ , being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated __________ 1996, between National Processing,
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges, expenses
(which may include fees and expenses of attorneys and/or others), judgments,
fines, and amounts paid in settlement (collectively, "Liabilities"), which have
been actually and reasonably incurred by me in connection with a claim referred
to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am entitled
to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
__________________________________
______________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ____ day of ____________ 1996.
______________________________
[Seal]
My commission expires the ____ day of _____________ 1996.
<PAGE> 11
Exhibit 2
---------
UNDERTAKING
-----------
STATE OF _______________
SS
COUNTY OF ______________
I, _____________________ , being first duly sworn do depose and say as
follows:
l. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated __________________ , 1996, between National Processing, Inc.,
an Ohio corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses which I have
reasonably incurred or will reasonably incur in defending an action, suit or
proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 7, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is requested are,
in general, all expenses related to
_______________________________________________________________________________
______________________________________________________________________________.
4. Part A(1)
---------
-------------------------------
- --------
1 The Indemnitee shall not be eligible to execute Part A of this Undertaking if
at the time of the Indemnitee's act or omission at issue, the Amended Articles
of Incorporation or Code of Regulations of the Company prohibit such advances by
specific reference to OCL Section 1701.13(E)(5)(a) and unless the only liability
asserted against Indemnitee in the subject action, suit or proceeding is
pursuant to OCL Section 1701.95. In the event that the Indemnitee is eligible to
and does execute both Part A and Part B hereof, the costs, charges and expenses
which are paid by the Company pursuant hereto shall be required to be repaid by
the Indemnitee only if he is required to do so under the terms of both Part A
and Part B hereof.
<PAGE> 12
I hereby undertake to (a) repay all amounts paid pursuant hereto if it
is proved by clear and convincing evidence in a court of competent jurisdiction
that my action or failure to act which is the subject of the matter described
herein involved an act or omission undertaken with deliberate intent to cause
injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
__________________________
[Signature of Indemnitee]
4. Part B
------
I hereby undertake to repay all amounts paid pursuant hereto if it
ultimately is determined that I am not entitled to be indemnified by the Company
under the aforesaid Indemnification Agreement or otherwise.
_________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ____ day of ___________ 1996.
[Seal]
My commission expires the _____ day of _______________ 1996.
<PAGE> 1
Exhibit 10.35
DIRECTOR INDEMNIFICATION AGREEMENT
----------------------------------
This Director Indemnification Agreement, dated as of _________________,
1996 (this "Agreement"), is made by and between National Processing, Inc., an
Ohio corporation (the "Company"), and ____________________ (the "Indemnitee"), a
director of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director of the Company,
and the Company desires that the Indemnitee continue serving in that capacity.
The Indemnitee is willing, subject to certain conditions including the execution
and performance of this Agreement by the Company, to continue serving in that
capacity.
B. In addition to the indemnification to which the Indemnitee is
entitled under the Code of Regulations of the Company (the "Regulations"), the
Company has obtained, at its sole expense, insurance protecting the Company and
its officers and directors including the Indemnitee against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue to serve
in his present capacity, the Company and the Indemnitee agree as follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve at the will of the Company as a
director of the Company so long as he is duly elected in accordance with the
Regulations or until he resigns in writing in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other
- 1 -
<PAGE> 2
than an action by or in the right of the Company), by reason of the fact that he
is or was a director of the Company or is or was serving at the request of the
Company as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, or by reason of any action alleged to have
been taken or omitted in any such capacity, against any and all costs, charges,
expenses (including fees and expenses of attorneys and/or others; all such
costs, charges and expenses being herein jointly referred to as "Expenses"),
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by the Indemnitee in connection therewith including any appeal of or
from any judgment or decision, unless it is proved by clear and convincing
evidence in a court of competent jurisdiction that the Indemnitee's action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company. In addition, with respect to any criminal action or
proceeding, indemnification hereunder shall be made only if the Indemnitee had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Indemnitee did not satisfy the foregoing standard of
conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee, if or when he is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was a director of the Company or is or was serving at the request of the Company
as a director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against any and all Expenses actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement thereof
or any appeal of or from any judgment or decision, unless it is proved by clear
and convincing evidence in a court of competent jurisdiction that the
Indemnitee's action or failure to act involved an act or omission undertaken
with deliberate intent to cause injury to the Company or undertaken with
reckless disregard for the best interests of the Company, except that no
indemnification shall be made in respect of any action or suit in which the only
liability asserted against Indemnitee is pursuant to Section 1701.95 of the Ohio
Revised Code.
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is proper in the
circumstances
- 2 -
<PAGE> 3
because he has met the applicable standard of conduct set forth in Section 2(a)
or 2(b). Such authorization shall be made (i) by the Board of Directors of the
Company (the "Board") by a majority vote of a quorum consisting of directors
who were not and are not parties to or threatened with such action, suit, or
proceeding, or (ii) if such a quorum of disinterested directors is not
available or if a majority of such quorum so directs, in a written opinion by
independent legal counsel (designated for such purpose by the Board) which
shall not be an attorney, or a firm having associated with it an attorney, who
has been retained by or who has performed services for the Company, or any
person to be indemnified, within the five years preceding such determination,
or (iii) by the shareholders of the Company (the "Shareholders"), or (iv) by
the court of common pleas or other court in which such action, suit, or
proceeding was brought.
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including the dismissal of an action without prejudice, in
defense of any action, suit, or proceeding referred to in Section 2(a) or 2(b),
or in defense of any claim, issue, or matter therein, he shall be indemnified
against Expenses actually and reasonably incurred by him in connection
therewith. Expenses actually and reasonably incurred by the Indemnitee in
defending any such action, suit, or proceeding shall be paid by the Company as
they are incurred in advance of the final disposition of such action, suit, or
proceeding under the procedure set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on the Indemnitee with respect to any employee benefit
plan; references to "serving at the request of the Company" shall include any
service as a director, officer, employee, or agent of the Company which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa; the word including is used by way of illustration only and not
by way of limitation.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Pursuant to Section 1701.13(E)(6) of the General Corporation Law of
the State of Ohio (the "OCL"), without limiting any right which the Indemnitee
may have pursuant to Section hereof or any other provision of this Agreement or
the Amended Articles of Incorporation of the Company (the "Articles"), the
Regulations, the OCL, any policy of insurance, or otherwise, but subject to any
limitation on the maximum permissible indemnity which may exist under applicable
law at the time of any request for indemnity hereunder
- 3 -
<PAGE> 4
and subject to the following provisions of this Section 3, the Company shall
indemnify the Indemnitee against any amount which he is or becomes obligated to
pay relating to or arising out of any claim made against him because of any
act, failure to act, or neglect or breach of duty, including any actual or
alleged error, misstatement, or misleading statement, that he commits, suffers,
permits, or acquiesces in while acting in his capacity as a director of the
Company. The payments which the Company is obligated to make pursuant to this
Section 3 shall include judgments, fines, and amounts paid in settlement and
any and all Expenses, actually and reasonably incurred by the Indemnitee in
connection therewith including any appeal of or from any judgment or decision;
PROVIDED, HOWEVER, that the Company shall not be obligated under this
Section 3 to make any payment in connection with any claim against the
Indemnitee:
(i) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(ii) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with Section
4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to
which this Section 3 applies shall be paid by the Company as they are actually
and reasonably incurred in advance of the final disposition of such claim under
the procedure set forth in Section 4(b) hereof.
- 4 -
<PAGE> 5
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification under
Section 3 hereof, the Indemnitee shall (i) submit to the Board a sworn
statement of request for indemnification substantially in the form of Exhibit 1
attached hereto and made a part hereof (the "Indemnification Statement")
averring that he is entitled to indemnification hereunder; and (ii) present to
the Company reasonable evidence of all amounts for which indemnification is
requested. Submission of an Indemnification Statement to the Board shall create
a presumption that the Indemnitee is entitled to indemnification hereunder, and
the Company shall, within 60 calendar days after submission of the
Indemnification Statement, make the payments requested in the Indemnification
Statement to or for the benefit of the Indemnitee, unless (i) within such
60-calendar-day period the Board shall resolve by vote of a majority of the
directors at a meeting at which a quorum is present that the Indemnitee is not
entitled to indemnification under Section 3 hereof, (ii) such vote shall be
based upon clear and convincing evidence (sufficient to rebut the foregoing
presumption), and (iii) the Indemnitee shall have received within such period
notice in writing of such vote, which notice shall disclose with particularity
the evidence upon which the vote is based. The foregoing notice shall be sworn
to by all persons who participated in the vote and voted to deny
indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of Indemnitee to indemnification
under Section of this Agreement so long as Indemnitee follows the prescribed
procedure and any determination by the Board that Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review by any court of
competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the second sentence of Section 2(d) or the last
sentence of Section 3 hereof, the Indemnitee shall submit to the Company a
sworn request for advancement of Expenses substantially in the form of Exhibit
2 attached hereto and made a part hereof (the "Undertaking"), averring that he
has reasonably incurred actual Expenses in defending an action, suit or
proceeding referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 8 hereof. Unless at the time of the
Indemnitee's act or omission at issue, the Articles or the Regulations prohibit
such advances by specific reference to OCL Section 1701.13(E)(5)(a) and unless
the only liability asserted against the Indemnitee in the subject action, suit
or proceeding is pursuant to OCL Section 1701.95, the Indemnitee shall be
eligible to execute Part A of the Undertaking by which he undertakes to (a)
repay such amount if it is proved by clear and convincing
- 5 -
<PAGE> 6
evidence in a court of competent jurisdiction that the Indemnitee's action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim. In all cases, the Indemnitee
shall be eligible to execute Part B of the Undertaking by which he undertakes to
repay such amount if it ultimately is determined that he is not entitled to be
indemnified by the Company under this Agreement or otherwise. In the event that
the Indemnitee is eligible to and does execute both Part A and Part B of the
Undertaking, the Expenses which are paid by the Company pursuant thereto shall
be required to be repaid by the Indemnitee only if he is required to do so under
the terms of both Part A and Part B of the Undertaking. Upon receipt of the
Undertaking, the Company shall thereafter promptly pay such Expenses of the
Indemnitee as are noticed to the Company in writing and in reasonable detail
arising out of the matter described in the Undertaking. No security shall be
required in connection with any Undertaking.
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the Company
shall not be required hereby to indemnify the Indemnitee with respect to any
action, suit, or proceeding that was initiated by the Indemnitee unless (a) such
action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder and such person shall have been
formally adjudged to be entitled to indemnity by reason hereof, (b) authorized
by another agreement to which the Company is a party whether heretofore or
hereafter entered, or (c) otherwise ordered by the court in which the suit was
brought.
6. SUBROGATION; DUPLICATION OF PAYMENTS
------------------------------------
(a) In the event of payment under this Agreement the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has actually received payment (under any insurance policy, the
Company's Regulations or otherwise) of the amounts otherwise payable hereunder.
- 6 -
<PAGE> 7
7. RATIFICATION
------------
The Company may, at its option, propose at any future meeting of
Shareholders that this Agreement be ratified by the Shareholders; provided,
however, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
8. FEES AND EXPENSES OF ENFORCEMENT
--------------------------------
It is the intent of the Company that the Indemnitee not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny, or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 8.
9. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving, or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
- 7 -
<PAGE> 8
10. NONEXCLUSIVITY AND SEVERABILITY
-------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the OCL or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable,
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable, or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
11. SECURITY
--------
To ensure that the Company's obligations pursuant to this Agreement can
be enforced by Indemnitee, the Company may establish a trust pursuant to which
the Company's obligations pursuant to this Agreement and other similar
agreements can be funded.
12. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
13. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL PROCESSING, INC.
By________________________________
Title:
__________________________________
[Signature of Indemnitee]
- 9 -
<PAGE> 10
Exhibit 1
---------
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ________________)
) SS
COUNTY OF _______________)
I, _______________ , being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated ___________, 1996, between National Processing,
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges, expenses
(which may include fees and expenses of attorneys and/or others), judgments,
fines, and amounts paid in settlement (collectively, "Liabilities"), which have
been actually and reasonably incurred by me in connection with a claim referred
to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am entitled
to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
______________________________________________________________________________
______________________________________________________________________________.
__________________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _____ day of _________ , 1996.
_________________________________
[Seal]
My commission expires the _____ day of __________ , 1996.
<PAGE> 11
Exhibit 2
---------
UNDERTAKING
-----------
STATE OF ________________)
) SS
COUNTY OF _______________)
I, _________________________________, being first duly sworn, do depose
and say as follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement dated ____________ , 1996, between National Processing, Inc., an Ohio
corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses which I have
reasonably incurred or will reasonably incur in defending an action, suit or
proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 8, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is requested are,
in general, all expenses related to ___________________________________________
_______________________________________________________________________________.
_______________________________________________.
4. Part A
------
I hereby undertake to (a) repay all amounts paid pursuant hereto if it
is proved by clear and convincing evidence in a court of competent jurisdiction
that my action or failure to act which is the subject of the matter described
herein involved an act or omission undertaken with deliberate intent to cause
injury to the Company or undertaken with reckless disregard for the best
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
_________________________________
[Signature of Indemnitee]
4. Part B
------
I hereby undertake to repay all amounts paid pursuant hereto if it
ultimately is determined that I am not entitled to
<PAGE> 12
be indemnified by the Company under the aforesaid Indemnification
Agreement or otherwise.
________________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this _____ day of _________ , 1996.
________________________________
[Seal]
My commission expires the ____ day of ___________ , 1996
<PAGE> 1
Exhibit 21.1
Subsidiaries
of the
Company
Name Jurisdiction
- ------ ------------
NPC Internacional S.A. de C.V. Mexico
B & L Consultants, Inc. Massachusetts
NPC Check Services, Inc. New Jersey
<PAGE> 1
Exhibit 23.3
Consent of Independent Auditors
We consent to the references to our firm under the captions "Experts," "Summary
Consolidated Financial Data," and "Selected Consolidated Financial Data" and to
the use of our report dated June 6, 1996, in the Registration Statement on Form
S-1 and related Prospectus of National Processing, Inc., for the registration
of 6,900,000 shares of its Common Stock.
Ernst & Young LLP
Cleveland, Ohio
June 7, 1996
<PAGE> 1
Exhibit 24.1
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
National Processing, Inc., an Ohio corporation (the "Company"), hereby
constitutes and appoints Tony G. Holcombe, Richard A. Alston and Christopher M.
Kelly and each of them, with full power of substitution and resubstitution, as
attorneys-in-fact or attorney-in-fact of the Company, for it and in its name,
place and stead, to sign and file with the Securities and Exchange Commission
under the Securities Act of 1933 (the "Securities Act") one or more Registration
Statement(s) on Form S-1 relating to the registration of the offering for sale
of the Common Stock, without par value per share of the Company, with any and
all amendments, supplements and exhibits thereto, including pre-effective and
post-effective amendments or supplements or any additional registration
statement filed pursuant to Rule 462 promulgated under the Securities Act, with
full power and authority to do and perform any and all acts and things
whatsoever that any of said attorneys or their substitutes may deem necessary or
desirable, in his or their sole discretion, with any such act or thing being
hereby ratified and approved in all respects without any further act or deed
whatsoever.
EXECUTED as of June 7, 1996.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
--------------------------------------
Tony G. Holcombe
President and Chief Executive Officer
<PAGE> 2
Exhibit 24.1
DIRECTOR AND OFFICER OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and officer of National Processing, Inc., an
Ohio corporation (the "Company"), hereby constitutes and appoints Richard A.
Alston and Christopher M. Kelly and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him and in his name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, without par value
per share of the Company, with any and all amendments, supplements and exhibits
thereto, including pre-effective and post-effective amendments or supplements or
any additional registration statement filed pursuant to Rule 462 promulgated
under the Securities Act, with full power and authority to do and perform any
and all acts and things whatsoever that any of said attorneys or their
substitutes may deem necessary or desirable, in his or their sole discretion,
with any such act or thing being hereby ratified and approved in all respects
without any further act or deed whatsoever.
EXECUTED as of June 7, 1996.
/s/ Tony G. Holcombe
- ------------------------------------------------
Tony G. Holcombe
President, Chief Executive Officer and Director
(Principal Executive Officer)
<PAGE> 3
Exhibit 24.1
OFFICER OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned officer of National Processing, Inc., an Ohio
corporation (the "Company"), hereby constitutes and appoints Tony G. Holcombe
and Christopher M. Kelly and each of them, with full power of substitution and
resubstitution, as attorneys-in-fact or attorney-in-fact of the undersigned, for
him and in his name, place and stead, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 (the "Securities Act") one
or more Registration Statement(s) on Form S-1 relating to the registration of
the offering for sale of the Common Stock, without par value per share of the
Company, with any and all amendments, supplements and exhibits thereto,
including pre-effective and post-effective amendments or supplements or any
additional registration statement filed pursuant to Rule 462 promulgated under
the Securities Act, with full power and authority to do and perform any and all
acts and things whatsoever that any of said attorneys or their substitutes may
deem necessary or desirable, in his or their sole discretion, with any such act
or thing being hereby ratified and approved in all respects without any further
act or deed whatsoever.
EXECUTED as of June 7, 1996.
/s/ Richard A. Alston
- ---------------------------------------
Richard A. Alston
Executive Vice President, Financial and Corporate Development
(Principal Financial Officer)
<PAGE> 4
Exhibit 24.1
OFFICER OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned officer of National Processing, Inc., an Ohio corporation
(the "Company"), hereby constitutes and appoints Tony G. Holcombe, Richard A.
Alston and Christopher M. Kelly and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for her and in her name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, without par value
per share of the Company, with any and all amendments, supplements and exhibits
thereto, including pre-effective and post-effective amendments or supplements or
any additional registration statement filed pursuant to Rule 462 promulgated
under the Securities Act, with full power and authority to do and perform any
and all acts and things whatsoever that any of said attorneys or their
substitutes may deem necessary or desirable, in his or their sole discretion,
with any such act or thing being hereby ratified and approved in all respects
without any further act or deed whatsoever.
EXECUTED as of June 6, 1996.
/s/ Glenn Rhodes
- -------------------------
Glenn Rhodes
Chief Accounting Officer
(Principal Accounting Officer)
<PAGE> 5
Exhibit 24.1
DIRECTOR OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director of National Processing, Inc., an Ohio corporation
(the "Company"), hereby constitutes and appoints Tony G. Holcombe, Richard A.
Alston and Christopher M. Kelly and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him and in his name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, without par value
per share of the Company, with any and all amendments, supplements and exhibits
thereto, including pre-effective and post-effective amendments or supplements or
any additional registration statement filed pursuant to Rule 462 promulgated
under the Securities Act, with full power and authority to do and perform any
and all acts and things whatsoever that any of said attorneys or their
substitutes may deem necessary or desirable, in his or their sole discretion,
with any such act or thing being hereby ratified and approved in all respects
without any further act or deed whatsoever.
EXECUTED as of June 6, 1996.
/s/ James R. Bell, III
- --------------------------------------
James R. Bell, III
Director
<PAGE> 6
Exhibit 24.1
DIRECTOR OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned Chairman of the Board and director of National
Processing, Inc., an Ohio corporation (the "Company"), hereby constitutes and
appoints Tony G. Holcombe, Richard A. Alston and Christopher M. Kelly and each
of them, with full power of substitution and resubstitution, as
attorneys-in-fact or attorney-in-fact of the undersigned, for him and in his
name, place and stead, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Securities Act") one or more
Registration Statement(s) on Form S-1 relating to the registration of the
offering for sale of the Common Stock, without par value per share of the
Company, with any and all amendments, supplements and exhibits thereto,
including pre-effective and post-effective amendments or supplements or any
additional registration statement filed pursuant to Rule 462 promulgated under
the Securities Act, with full power and authority to do and perform any and all
acts and things whatsoever that any of said attorneys or their substitutes may
deem necessary or desirable, in his or their sole discretion, with any such act
or thing being hereby ratified and approved in all respects without any further
act or deed whatsoever.
EXECUTED as of June 7, 1996.
/s/ William R. Robertson
- -----------------------------------
William R. Robertson
Chairman of the Board and director
<PAGE> 7
Exhibit 24.1
DIRECTOR OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director of National Processing, Inc., an Ohio
corporation (the "Company"), hereby constitutes and appoints Tony G. Holcombe,
Richard A. Alston, Christopher M. Kelly and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him and in his name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, without par value
per share of the Company, with any and all amendments, supplements and exhibits
thereto, including pre-effective and post-effective amendments or supplements or
any additional registration statement filed pursuant to Rule 462 promulgated
under the Securities Act, with full power and authority to do and perform any
and all acts and things whatsoever that any of said attorneys or their
substitutes may deem necessary or desirable, in his or their sole discretion,
with any such act or thing being hereby ratified and approved in all respects
without any further act or deed whatsoever.
EXECUTED as of June 7, 1996.
--
Robert G. Siefers
- ------------------------------
Robert G. Siefers
Director
<PAGE> 8
Exhibit 24.1
DIRECTOR OF
NATIONAL PROCESSING, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director of National Processing, Inc., an Ohio corporation
(the "Company"), hereby constitutes and appoints Tony G. Holcombe, Richard A.
Alston and Christopher M. Kelly and each of them, with full power of
substitution and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him and in his name, place and stead, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Securities Act") one or more Registration Statement(s) on Form S-1 relating to
the registration of the offering for sale of the Common Stock, without par value
per share of the Company, with any and all amendments, supplements and exhibits
thereto, including pre-effective and post-effective amendments or supplements or
any additional registration statement filed pursuant to Rule 462 promulgated
under the Securities Act, with full power and authority to do and perform any
and all acts and things whatsoever that any of said attorneys or their
substitutes may deem necessary or desirable, in his or their sole discretion,
with any such act or thing being hereby ratified and approved in all respects
without any further act or deed whatsoever.
EXECUTED as of June 6, 1996.
/s/ Delroy R. Hayunga
- --------------------------------
Delroy R. Hayunga
Director
