<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-05507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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:
DENNIS W. LABARRE, ESQ.
CHRISTOPHER M. KELLY, ESQ.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
DAVID L. ZOELLER, ESQ.
National City Corporation
1900 E. Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
PETER H. DARROW, ESQ.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
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. / /
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
JULY 18, 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
$14.00 and $16.00 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, among others, officers,
directors, employees, customers and suppliers of the Company and its
subsidiaries, and to directors and certain senior officers of National City and
one of its subsidiaries.
The Company's Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "NAP", subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO THE UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
- --------------------------------------------------------------------------------
<FN>
(1) Before deducting offering expenses payable by the Company estimated to be
$1,310,000.
(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."
</TABLE>
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
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. In addition, the Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
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.
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.
2
<PAGE> 5
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 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 434 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 by travel agents 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
approximately 43.8% of the Company's employees as of March 31, 1996.
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
3
<PAGE> 6
was $574.5 billion in 1995 compared to $463.1 billion in 1994, representing an
increase of 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. 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 1979 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
<FN>
- ---------------
(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 2,217,500 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."
</TABLE>
4
<PAGE> 7
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 sharing agreement and a
registration rights agreement with National City. See "Certain Transactions."
5
<PAGE> 8
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 $151.9
Goodwill(2)............................... 72.1 72.1
Total Assets.............................. 273.0 355.4
Total Liabilities......................... 93.2 93.2
Shareholder's Equity...................... 179.8 262.2
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
<FN>
- ---------------
(1) The Company made the following acquisitions during the periods presented: on
July 1, 1991, the Company acquired Consolidated Data-Tech, Inc., an accounts
payable processor; on February 20, 1992, the Company acquired B&L
Consultants, Inc., a freight payable processor; on July 6, 1992, the Company
acquired Check Security Services of America, Inc., a check acceptance and
collection company; on February 1, 1993, the Company acquired JBS
Associates, Inc., a check acceptance and collection company; and on January
3, 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."
</TABLE>
6
<PAGE> 9
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 a number of firms in specialized market
areas, software integrators offering operations support and 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 U.S.A. Inc. ("VISA") and MasterCard International
Incorporated ("MasterCard"), 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
7
<PAGE> 10
association clearing bank net of the fees payable to the card issuer
("interchange fees"). For those 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."
8
<PAGE> 11
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 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
9
<PAGE> 12
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 initial public
offering price to, among others, officers, directors, employees, customers and
suppliers of the Company and its subsidiaries and to directors and certain
senior 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."
10
<PAGE> 13
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.
11
<PAGE> 14
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 remain in effect, generally for a period of two
years, beyond 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
12
<PAGE> 15
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 2,217,500 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.
13
<PAGE> 16
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 $3.78 per share. This represents an
immediate increase in net tangible book value of $1.39 per share to existing
shareholders and an immediate dilution of $11.22 per share to purchasers of the
Common Stock in the Offering. See "Dilution."
14
<PAGE> 17
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 $15.00 per
share, are expected to be $82,390,000 (approximately $94,945,000 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.
15
<PAGE> 18
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 $15.00 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........................................ 64,825 147,215
Retained earnings................................................. 114,989 114,989
--------- ---------
Total shareholders' equity..................................... 179,815 262,205
--------- ---------
Total capitalization......................................... $ 182,450 $ 264,840
========= =========
<FN>
- ---------------
(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 2,217,500
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."
</TABLE>
16
<PAGE> 19
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 $15.00 per share), the pro forma net tangible book value of the Company
as of March 31, 1996 would have been approximately $185.4 million, or $3.78 per
share. This represents an immediate dilution of $11.22 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................................... $ 15.00
Net tangible book value per share as of March 31, 1996.................. $ 2.39
Increase per share attributable to new investors........................ 1.39
------
Pro forma net tangible book value per share after the Offering............ 3.78
-------
Dilution per share to new investors....................................... $ 11.22
======
</TABLE>
17
<PAGE> 20
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 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
<FN>
- ---------------
(1) The Company made the following acquisitions during the periods presented: on
July 1, 1991, the Company acquired Consolidated Data-Tech, Inc., an accounts
payable processor; on February 20, 1992, the Company acquired B&L
Consultants, Inc., a freight payable processor; on July 6, 1992, the Company
acquired Check Security Services of America, Inc., a check acceptance and
collection company; on February 1, 1993, the Company acquired JBS
Associates, Inc., a check acceptance and collection company; and on January
3, 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.
</TABLE>
18
<PAGE> 21
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 of America, Inc. in 1992 and JBS Associates, Inc. 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, Inc. ("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.
19
<PAGE> 22
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
20
<PAGE> 23
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 in part as a result of a loss of certain customers following
the acquisition of CTI, and 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
9.0% improvement in the collection rate on returned 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 Sharing 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
21
<PAGE> 24
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 Sharing
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.
22
<PAGE> 25
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 Sharing
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. Upon any drawdowns on this facility, the Company's
obligations would be required to be fully secured by certain assets of the
Company in accordance with Section 23A of the Bank Holding Company Act of 1956,
as amended (the "Bank Holding Act"). The Company has obtained a commitment from
an unaffiliated financial institution to provide an unsecured line of credit and
revolving credit facility in an aggregate amount of $75.0 million, which will
replace its existing borrowing facility with NCBK. The closing of such credit
facility is subject to, among other things, the execution of definitive
23
<PAGE> 26
documentation, which is expected to contain representations, warranties and
covenants customary for credit facilities of this type.
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 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 future acquisitions will be funded from
the proceeds of the Offering, through the issuance of Common Stock, with
operating cash flow or with borrowed funds. The Company currently has no
negotiations, understandings or agreements with respect to any acquisitions or
material technology investments.
24
<PAGE> 27
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 services in the United States, according to
published industry sources (the Nilson Report -- April 1996). 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 434 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 by travel agents 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
approximately 43.8% of the Company's employees as of March 31, 1996.
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.
25
<PAGE> 28
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% (the
Nilson Report -- April 1996, March 1995). 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. 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 Nilson Report -- April 1996). 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.
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 Nilson Report -- April 1996). The remainder of these markets are
highly fragmented among numerous smaller transaction processors.
26
<PAGE> 29
CORPORATE SERVICES MARKET
The market for the outsourcing of corporate administrative and financial
functions has also experienced strong growth in recent years. 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 - Market check services - Imaging - Technology providers
to national market technology
- Gaming - Independent Sales - Evolve systems
Organizations
- Cross-selling
CORPORATE - Utilities - Target regional - Expand off-shore - Competitors
SERVICES businesses operations
- Financial services - Cross-selling - Imaging - Complementary
technology products
- Healthcare - Evolve systems - Technology providers
TRAVEL SERVICES - Car rental - New products - Automate - Technology
for hospitality processing enhancements
- Cruise lines industry
- Hotels
</TABLE>
27
<PAGE> 30
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 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 will increase its sales force to focus on
leveraging cross-selling 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 Nilson Report -- April 1996). 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):
ARTWORK
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 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
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basis, the Company confirms that the cardholder has the available credit to
cover the purchase and 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 sophisti-
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cated chargeback control system for its merchants that includes actively
prescreening disputes and the use of proprietary software programs to automate
chargeback controls. These chargeback control systems are designed to reduce the
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,
due for release in April 1997, 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. This product is due for release in February 1997.
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 of America, Inc. in July 1992 and JBS Associates, Inc. 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-referenced 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):
ARTWORK
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
merchants 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. In May 1996, the Company introduced 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, scheduled for introduction
by January 1997, 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, 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. 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 May 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 believes it is one of the leading providers of freight
payment processing as measured by dollar 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 the Company's 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 outsourcing service
self-funding to the customer. Once freight bills are verified
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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 believes it is
one of the largest providers of accounts payable outsourcing in the United
States. The Company entered this market in 1989 through internal efforts and in
July 1991 through the acquisition of Consolidated Data-Tech, Inc.
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.
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. 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 currently offered to airlines
and financial institutions. For example, using software developed by a third
party, 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
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then compared to established airline fares maintained in the airline industry'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, expected to be introduced in 1997, 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 the airline industry'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 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.
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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 launching a product for auto
rental companies, hotels and cruise lines that 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, 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
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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 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 ISO
relationships that will facilitate offering services to the hospitality and
gaming industries.
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, 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
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<PAGE> 42
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. The Company believes that its fraud unit
has been 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. In the market for Merchant Card Services, the Company
competes against several other national service providers and banks that provide
these services to their merchant customers. The market for merchant card
processing 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 (the Nilson Report -- April 1996). Additional competitive factors include
customer service, product offerings and features, processing speed and systems
reliability, which the Company believes are critical considerations for
merchants when selecting a transaction processor. The Company
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<PAGE> 43
also faces competition from VISA(R) and MasterCard(R), who have recently entered
into joint ventures to provide card transaction processing services.
In the market for Merchant Check Services, the Company's 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 Nilson Report -- April 1996). The
Company competes principally with these two other national services providers
primarily on the basis of price, product offerings and customer service.
Corporate Services. In the market for Corporate Services, the Company
competes against a number of firms in specialized market areas, software
integrators offering operations support and logistics management firms. 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.
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 one of the largest providers of payables processing and
freight payment services in the United States.
In the market for Imaging Solutions, the Company competes on a
product-by-product basis against large system integration companies that develop
image processing products for corporate outsourcing markets. 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
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 an acquisition. Pursuant to the Bank
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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.
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 -- Lease Agreement." The Company's lease for the
Louisville facility is scheduled to expire on February 28, 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, 1997. The Company's
Juarez operations utilized 160,000 square feet in the aggregate, divided
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among three separate parcels as follows: 50,000 square feet is owned by the
Company; 65,000 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 3,900 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........ 55 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. 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 Chairman of the Board since 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 three 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 directors, divided into two or
three classes depending on the size of the board, with each class serving for
staggered terms of two years (if the board is divided into two classes) or three
years (if the board is divided into three classes). Each class of directors will
hold 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,
Nonemployee Directors Stock Option Plan and considering such other matters as
may from time to time be referred by the Board of Directors to the Compensation
Committee.
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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(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
<FN>
- ---------------
(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.
</TABLE>
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CERTAIN 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. Each of the
Employment Agreements provides for a minimum annual base salary that does not
differ materially from the amounts shown as salary on the Summary Compensation
Table. 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 (and, in the case of Mr. Holcombe, his
bonus) will be continued for two years after his termination. The Employment
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. Certain of the Employment
Agreements provide for fixed bonuses and/or formula bonuses that vary depending
on the income achieved by the businesses managed by such Executive Officers. The
Employment Agreements also generally provide for the continuation of certain
employee benefits, including in certain cases the ability to exercise stock
options, for two years.
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
generally 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 as 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 less the sum of (iii) any and all payments received
from the Company, National City, a successor or their affiliates following a
Change in Control plus (iv) any future payments to be made in accordance with
any employment agreements or other contracts between the Company and such other
entities (specifically excluding payments from any deferred compensation plan).
For three years (for Executive Officers) and two years (for other executives)
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.
47
<PAGE> 50
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 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 corporation, or the Company causes or
permits the sale or transfer of all or substantially all of the assets of any
subsidiary that has assets equal to or greater than eighty percent of the total
assets of the Company, as reported on a consolidated basis, 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.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS
Described below are certain employee benefit plans of the Company and
National City pursuant to which cash or non-cash compensation was paid or
distributed to the Company's 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
executives.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS/SARS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING NATIONAL CITY 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
<FN>
- ---------------
(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.
</TABLE>
48
<PAGE> 51
The following table sets forth the National City stock options exercised by
each of the named executives during fiscal year 1995 and the December 31, 1995
value of all unexercised options for National City Common Stock held by the
Executive Officers.
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(1)
SHARES ------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE 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 New York Stock Exchange 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 to Long-Term
Incentive Compensation 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 currently 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.
49
<PAGE> 52
SHORT-TERM INCENTIVE COMPENSATION PLAN
Under the Company's Short-Term Incentive Compensation Plan ("STP"), all
officers of the Company selected by the administrative committee of the STP are
eligible to receive incentive cash bonus awards generally 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 which are expressed as a
percentage of base salary. The administrative committee has discretion in
establishing key financial goals and levels of performance. In the past fiscal
year, the administrative committee determined that net income must equal the
amount established in the Company's annual budget in order to achieve a
"minimum" bonus. Net income in the past fiscal year must exceed the annual
budget by 15% during a year in order to achieve a "target" bonus and 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 maximum percentage of base salary normally payable under the STP to the
Chief Executive Officer, Executive Vice Presidents, Senior Vice Presidents, and
Vice Presidents is 70%, 55%, 40% and 20% of base salary, respectively. Bonus
payments are made annually each March for performance by the individual during
the preceding year. At the administrative committee's discretion, each
participant may elect to defer all or a portion of the bonus payment. In the
event of a change in control, each participant will be paid the maximum benefit
the participant is entitled to receive under the STP.
1996 STOCK OPTION PLAN
General. The Board of Directors adopted the 1996 Stock Option Plan (the
"Option Plan") as of June 5, 1996, and National City as sole shareholder
approved the Option Plan on the same day. 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 is administered by the Board of Directors
who may from time to time delegate all or any part of its authority under the
Option Plan to a committee of not less than three directors appointed by the
Board of Directors. To the extent necessary to comply with Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), certain matters relating
to the award of Option Rights have been delegated to the Compensation and
Organization Committee of National City.
In furtherance of the purpose of the Option Plan, it is intended that
concurrently with the Offering the Board of Directors will grant Option Rights
with respect to an aggregate of 2,092,500 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
50
<PAGE> 53
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.
Terms of Option Grants. The Option Plan contemplates that Option Rights
may be granted by the Board of Directors with respect to 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.
(b) Each grant shall be at an option price which is not less than the
market price of Common Stock on the date of grant, or prior to or within
ten days after the commencement of any trading, the fair market value per
share of the Common Stock as determined by the Board of Directors in its
discretion.
(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 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 Board of Directors 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, (iii) at the discretion of
the Board of Directors, 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, or (iv) by any combination of such methods of payment.
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 Board of Directors 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 in cash or
shares equal to 100%, or such lesser percentage as the Board of Directors 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
51
<PAGE> 54
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 Board of Directors 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 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 Board of Directors 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 New York Stock Exchange 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 a 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, (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, permanent disability, Retirement or a change in control, (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 Board
of Directors 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 will be
transferable by a participant except by will or the laws of descent and
distribution. Option Rights may not be exercised during a participant's
52
<PAGE> 55
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 Board of Directors 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 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 approved the Nonemployee Directors Plan
(the "Director Plan") as of June 5, 1996, and National City as sole shareholder
approved the Director Plan on the same day. 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 Common Stock.
In furtherance of the purpose of the Director Plan, it is intended that in
connection with the Offering, participants will be granted options with respect
to an aggregate of 125,000 shares of Common Stock to all 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.
53
<PAGE> 56
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, any of its subsidiaries, or any of its
affiliates except for former employees of the Company at the time of option
award ("Nonemployee Directors") 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 Board of Directors may approve and which will in substantial
form provide the following:
(a) Each grant shall be at an option price which is equal to the fair
market value per share of Common Stock on the date of grant, except for
options granted prior to or within ten days following consummation of the
Offering, which will be at an option price equal to 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) Except as otherwise described below, 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 or upon
cessation of service six months or more after the date of grant, 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 Board of Directors 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
("Automatic Initial Awards") will be granted upon election to the Company's
Board of Directors to each Nonemployee Director who is neither an employee of
National City or any of its affiliates nor has been previously employed by the
Company ("Nonaffiliated Director"). Any Nonaffiliated Director who is so elected
within ten days following consummation of the Offering will receive Automatic
Initial Awards to purchase Common Stock at the IPO Price, and Nonaffiliated
Directors elected after such ten-day period will receive such awards at the fair
market value per share of the Common Stock. 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").
54
<PAGE> 57
Discretionary Awards. The Board of Directors 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 Board of Directors. No Nonaffiliated
Director may receive Discretionary Awards, and no Nonemployee Director who is
eligible to receive Discretionary Awards may receive Formula Awards. In
connection with the Offering, Delroy R. Hayunga, former Chief Executive Officer
of NPC, will receive a grant of 50,000 Initial Director Options.
Administration. The Director Plan is administered by the Board of
Directors who may from time to time delegate all or any part of its authority
under the Plan to a committee consisting of not less than three directors
appointed by the Board of Directors. Subject to the provisions of the Director
Plan, the Board of Directors 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 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 Employee
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.
55
<PAGE> 58
PLAN BENEFITS
Set forth in the table below are the numbers of shares of Common Stock
covered by the Initial Awards and Initial Director Options 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
Delroy R. Hayunga
Former Chief Executive Officer............. -- 50,000 --
Executive Group (6 persons).................. 700,000 -- --
Non-Executive Director Group................. -- 125,000 --
Non-Executive Officer........................ 1,392,500 -- --
Employee Group
</TABLE>
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(1) The Option Rights granted to date have an exercise price per share equal to
the IPO Price. Therefore there is no value assignable as of the IPO date.
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.
Option Rights granted pursuant to the Director Plan will be "non-qualified"
options.
Non-qualified Option Rights 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 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 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 taxable ordinary 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
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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 certain 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 COMPENSATION PLAN
The 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.
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. At the discretion of the administrative committee of the
LTP, each participant may elect to defer all or a portion of the bonus payment.
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
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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 on the
committee that administers the LTP, which includes payouts awarded to the Chief
Executive Officer and the STP, which includes bonus payments to the Chief
Executive Officer. See "-- Compensation Pursuant to Employee Benefit Plans --
Long-Term Incentive Compensation Plan."
COMPENSATION OF DIRECTORS
The three outside directors to be appointed 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 three outside directors to be appointed 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
The Company is or will be a party to the following agreements with National
City or its affiliates.
SPONSORSHIP AGREEMENT
In connection with the Offering, the Company and NCBK have entered 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 is 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.
The Company has agreed to indemnify NCBK for any failure to perform its
obligations under the Sponsorship Agreement and for certain other actions.
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. Under this lease, the term of which expires on February 28, 2019,
the Company pays an aggregate of $502,176 as annual rent. 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 have entered 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. Under the Services
Agreement, the Company has agreed to pay National City not less than $825,000 in
connection with the provision of human resources and certain tax related
services and will pay additional amounts for other services that may be provided
on an as-needed basis. National City will have the option to increase its prices
any time after renewal of the contract. The Company will also 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. The miscellaneous expenses may not exceed $2,000 per month without
prior approval from the Company. The Services Agreement has a term of one year,
subject to renewal for one additional year by the Company. Certain
indemnification provisions are also set forth in
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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 has entered 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 will be compensated on a per
transaction basis, which may be adjusted from time to time to reflect unforeseen
processing costs or excess activity. 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, each party will
indemnify the other against certain claims.
REMITTANCE PROCESSING SERVICES AGREEMENTS
The Company has entered into Remittance Processing Services Agreements (the
"Lockbox Agreements") 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 Company will be responsible for all mailroom and
facilities costs by year end 1996. The Company will not be responsible for any
other kind of service not specifically identified in the Lockbox Agreements,
including research and photocopying.
For basic remittance processing, the Company will charge a cost-plus markup
necessary to yield a negotiated percentage after-tax return on revenue. Basic
remittance processing services 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.
The Banks will pay the Company fees on a per transaction basis in addition
to basic remittance processing fees. During the third year of the initial term
of the Lockbox Agreements, 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 Agreements will expire December 31,
1999, and shall be automatically renewed for successive three-year terms unless
terminated by either party.
CHECK PROCESSING SERVICES AGREEMENT
Prior to the Offering, the Company and NCBK will enter into a Check
Processing Services Agreement (the "Check Processing Agreement") whereby NCBK
will process and clear customer checks received by the Company's lockbox
operations. Under the Check Processing Agreement, NCBK will also deposit these
checks into the accounts of the Company's customers. The Company will pay NCBK
fees on a per transaction basis, as well as the transportation and bank-related
costs associated with the processing of such checks. Fees charged by NCBK will
be based on market-competitive pricing to be agreed upon by NCBK and the
Company. The initial term of the Check Processing Agreement will expire December
31, 1997, and will be automatically renewed for successive one-year terms unless
terminated by either party as provided therein. Under the Check Processing
Agreement, the Company will also indemnify NCBK against certain claims.
REGISTRATION RIGHTS AGREEMENT
In connection with the Offering, National City and the Company have entered
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
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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 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 will be fully assignable. Under the Registration
Rights Agreement, the Company has agreed to indemnify National City against
certain claims.
TAX SHARING AGREEMENT
In connection with the Offering, the Company and National City have entered
into a Tax Sharing Agreement (the "Tax Sharing 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 Sharing
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 share of such taxes, determined as if the Company and its
subsidiaries filed separate returns. The Tax Sharing Agreement provides that
National City will retain control of preparing, filing and the audit of 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 Sharing Agreement.
SVS AGREEMENT
The Company and SVS, a wholly owned subsidiary of National City, have
entered 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 hourly
rate or cost-plus pricing which may be adjusted upon renewal of the contract
with advance written notice. The SVS Agreement will continue in effect until
terminated by either party. Under the SVS Agreement, SVS and the Company will
indemnify each other 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 July 18, 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. An additional 4,200,000 shares of Common Stock are reserved
for issuance upon the Company's grants of options to key employees and directors
under the Company's stock option plans. See "Executive Compensation --
Compensation Pursuant to Employee Benefit Plans." 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 any 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 any unissued or treasury shares of any 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 size of the Board of Directors is fixed at not less than five nor more than
nine directors divided into two or three classes depending on the size of the
board, with each class serving for staggered terms of two years (if the board is
divided into two
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classes) or three years (if the board is divided into three classes). Each class
of directors will hold office until the annual meeting of shareholders in the
year their respective term ends, at which time their successors are elected. In
addition to having a potential anti-takeover effect, classification reduces the
ability to alter the composition of the Board of Directors.
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, without shareholder approval, 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, (iii) the classification of the Board of Directors, as
described above, (iv) a limitation on the removal of directors except upon the
vote of 65% of the outstanding shares, (v) a limitation on 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) a limitation on 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
corporation'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. National City's ownership of its
43,100,000 shares of Common Stock has been approved by the Company's Board of
Directors and is therefore not restricted by these statutory provisions.
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
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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.
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 authorizes 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's Common Stock has been
approved for listing on the New York Stock Exchange under the symbol NAP,
subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The Company presently intends to use National City Bank 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. All of the currently outstanding shares of Common
Stock held by National City are deemed to have been held for two years.
In connection with the Offering, the Company has granted options to key
employees and directors to purchase 2,217,500 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.
65
<PAGE> 68
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 initial public offering price to,
among others, officers, directors, employees, customers and suppliers of the
Company and to directors and certain senior officers of National City and SVS.
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 100
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.
66
<PAGE> 69
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.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "NAP." The
Underwriters have advised the New York Stock Exchange that they will undertake
to ensure that the New York Stock Exchange share distribution standards required
to be satisfied for initial listing of the Common Stock will be met.
LEGAL MATTERS
A legal opinion to the effect that the shares of Common Stock offered
hereby when issued will be validly issued, fully paid and nonassessable will be
rendered by Jones, Day, Reavis & Pogue, Cleveland, Ohio, counsel to the Company.
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.
67
<PAGE> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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.
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> 80
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
D. 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> 81
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> 82
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 non-employee 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 2,092,500 and 125,000 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> 83
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.................. 2
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 15
Dividend Policy......................... 15
Capitalization.......................... 16
Dilution................................ 17
Selected Consolidated Financial Data.... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 25
Management.............................. 44
Executive Compensation.................. 46
Certain Transactions.................... 59
Description of Capital Stock............ 62
Shares Available for Future Sale........ 65
Underwriting............................ 66
Legal Matters........................... 67
Experts................................. 67
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> 84
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................................. 242,100
Transfer Agent's and Registrar's fees................................... 23,000
Printing and engraving costs............................................ 374,000
Accounting fees and expenses............................................ 200,000
Legal fees and expenses (not including Blue Sky)........................ 400,000
Blue Sky fees and expenses.............................................. 15,000
Miscellaneous expenses.................................................. 6,291
---------------
Total......................................................... $ 1,310,000
===============
</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> 85
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 ("NPC") 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> 86
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 July 16, 1996.
5.1 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 Sponsorship Agreement between NPC and National City Bank of Kentucky, dated
June 30, 1996.
10.5 Administrative Services Agreement between NPC and National City
Corporation, dated July 15, 1996.
10.6 Form of Remittance Processing Services Agreement by and among NPC and
certain bank subsidiaries of National City Corporation.
10.7 Administrative Services Agreement by and among NPC and Stored Value
Systems, Inc., dated July 3, 1996.
10.8 Form of Card Services Agreement by and among NPC and its affiliated
corporations and certain bank subsidiaries of National City Corporation.
10.9 Tax Sharing Agreement between the Registrant and National City Corporation,
dated July 17, 1996.
10.10 The Agreement between Airlines Reporting Corporation and First National
Bank of Louisville and NPC 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 NPC, dated December 12, 1991.
*10.12 1994 Amendment to Agreements between Airlines Reporting Corporation and
NPC, dated December 31, 1994.
*10.13 Supplemental Agreement by and between NPC and Airlines Reporting
Corporation, dated February 24, 1995.
*10.14 Amendment to Agreement between Airlines Reporting Corporation and National
City Bank of Kentucky and NPC for Area Settlement Plan Processing Services,
dated August 19, 1995.
10.15 [Intentionally Omitted]
10.16 [Intentionally Omitted]
*10.17 Employment Agreement and Undertaking of Confidentiality between NPC and
Tony G. Holcombe, dated November 1, 1994.
*10.18 Employment Agreement and Undertaking of Confidentiality between NPC and
Richard A. Alston, dated January 18, 1995.
*10.19 Employment Agreement and Undertaking of Confidentiality between NPC and
Robert E. Johnson, dated April 4, 1995.
</TABLE>
II-3
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------- ---------------------------------------------------------------------------
<S> <C>
*10.20 Employment Agreement and Undertaking of Confidentiality between NPC and
Kurt S. Knipp, dated February 6, 1995.
*10.21 Employment Agreement and Undertaking of Confidentiality between NPC and
Thomas A. Wimsett, dated May 23, 1995.
*10.22 Employment, Non-Disclosure and Non-Competition Agreement between NPC and
David R. Zook, dated March 17, 1995.
10.23 Severance Agreement between the Registrant and Tony G. Holcombe, dated June
7, 1996.
10.24 Severance Agreement between the Registrant and Richard A. Alston, dated
June 7, 1996.
10.25 Severance Agreement between the Registrant and Robert E. Johnson, dated
June 7, 1996.
10.26 Severance Agreement between the Registrant and Kurt S. Knipp, dated June 7,
1996.
10.27 Severance Agreement between the Registrant and Thomas A. Wimsett, dated
June 7, 1996.
10.28 Severance Agreement between the Registrant and David R. Zook, dated June 7,
1996.
10.29 1996 Stock Option Plan and Form of Stock Option Agreement.
10.30 Nonemployee Directors Stock Option Plan and Form of Stock Option Agreement.
10.31 NPC's Short-Term Incentive Compensation Plan for Senior Executives, dated
January 1, 1995.
*10.32 NPC's Long-Term Incentive Compensation Plan for Senior Officers, dated
January 1, 1995.
*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.
10.36 Amendment to Building Lease between National City Bank of Kentucky and NPC,
dated July 3, 1996.
10.37 Form of Severance Agreement between the Registrant and certain Senior Vice
Presidents.
10.38 Check Processing Services Agreement between National City Bank of Kentucky
and NPC.
10.39 Commitment Letter of SunTrust Bank, Nashville, N.A. to the Registrant,
dated July 16, 1996.
*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, dated July 18, 1996.
*24.1 Powers of Attorney.
</TABLE>
- ---------------
* Previously filed.
(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> 88
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> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment Number 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on July 18, 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 Amendment
Number 1 to the 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 July 18, 1996
Tony G. Holcombe and Director (Principal Executive
Officer)
/s/ Richard A. Alston Executive Vice President, Finance July 18, 1996
- ---------------------- and Corporate Development
Richard A. Alston (Principal Financial Officer)
- ---------------------- * Chief Accounting Officer July 18, 1996
Glen Rhodes (Principal Accounting Officer)
- ---------------------- * Director July 18, 1996
James R. Bell III
- ---------------------- * Director July 18, 1996
William R. Robertson
- ---------------------- * Director July 18, 1996
Robert G. Siefers
- ---------------------- * Director July 18, 1996
Delroy R. Hayunga
<FN>
* The undersigned by signing his name hereto, does sign and execute this
Amendment Number 1 to the 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> 90
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------------- -----------------------------------------------------------
<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 July 16, 1996.
5.1 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 Sponsorship Agreement between NPC and National City Bank of
Kentucky, dated June 30, 1996.
10.5 Administrative Services Agreement between NPC and National
City Corporation, dated July 15, 1996.
10.6 Form of Remittance Processing Services Agreement by and
among NPC and certain bank subsidiaries of National City
Corporation.
10.7 Administrative Services Agreement by and among NPC and
Stored Value Systems, Inc., dated July 3, 1996.
10.8 Form of Card Services Agreement by and among NPC and its
affiliated corporations and certain bank subsidiaries of
National City Corporation.
10.9 Tax Sharing Agreement between the Registrant and National
City Corporation, dated July 17, 1996.
10.10 The Agreement between Airlines Reporting Corporation and
First National Bank of Louisville and NPC 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 NPC,
dated December 12, 1991.
*10.12 1994 Amendment to Agreements between Airlines Reporting
Corporation and NPC, dated December 31, 1994.
*10.13 Supplemental Agreement by and between NPC and Airlines
Reporting Corporation, dated February 24, 1995.
*10.14 Amendment to Agreement between Airlines Reporting
Corporation and National City Bank of Kentucky and NPC, for
Area Settlement Plan Processing Services, dated August 19,
1995.
10.15 [Intentionally Omitted]
10.16 [Intentionally Omitted]
*10.17 Employment Agreement and Undertaking of Confidentiality
between NPC and Tony G. Holcombe, dated November 1, 1994.
*10.18 Employment Agreement and Undertaking of Confidentiality
between NPC and Richard A. Alston, dated January 18, 1995.
*10.19 Employment Agreement and Undertaking of Confidentiality
between NPC and Robert E. Johnson, dated April 4, 1995.
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------------- -----------------------------------------------------------
<S> <C>
*10.20 Employment Agreement and Undertaking of Confidentiality
between NPC and Kurt S. Knipp, dated February 6, 1995.
*10.21 Employment Agreement and Undertaking of Confidentiality
between NPC and Thomas A. Wimsett, dated May 23, 1995.
*10.22 Employment, Non-Disclosure and Non-Competition Agreement
between NPC and David R. Zook, dated March 17, 1995.
10.23 Severance Agreement between the Registrant and Tony G.
Holcombe, dated June 7, 1996.
10.24 Severance Agreement between the Registrant and Richard A.
Alston, dated June 7, 1996.
10.25 Severance Agreement between the Registrant and Robert E.
Johnson, dated June 7, 1996.
10.26 Severance Agreement between the Registrant and Kurt S.
Knipp, dated June 7, 1996.
10.27 Severance Agreement between the Registrant and Thomas A.
Wimsett, dated June 7, 1996.
10.28 Severance Agreement between the Registrant and David R.
Zook, dated June 7, 1996.
10.29 1996 Stock Option Plan and Form of Stock Option Agreement.
10.30 Nonemployee Directors Stock Option Plan and Form of Stock
Option Agreement.
10.31 NPC's Short-Term Incentive Compensation Plan for Senior
Executives, dated January 1, 1995.
*10.32 NPC's Long-Term Incentive Compensation Plan for Senior
Officers, dated January 1, 1995.
*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.
10.36 Amendment to Building Lease between National City Bank of
Kentucky and NPC, dated July 3, 1996.
10.37 Form of Severance Agreement between the Registrant and
certain Senior Vice Presidents.
10.38 Check Processing Services Agreement between National City
Bank of Kentucky and NPC.
10.39 Commitment Letter of SunTrust Bank, Nashville, N.A. to the
Registrant, dated July 16, 1996.
*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, dated
July 18, 1996.
*24.1 Powers of Attorney.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
National Processing, Inc.
6,000,000 Shares*
Common Stock
(without par value)
Underwriting Agreement
New York, New York
______, 1996
Salomon Brothers Inc
Montgomery Securities
NatCity Investments, Inc.
Smith Barney Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
National Processing, Inc., an Ohio corporation (the
"Company"), proposes to issue and sell to the underwriters named in Schedule I
hereto (the "Underwriters"), for whom you (the "Representatives") are acting as
representatives, 6,000,000 shares (the "Underwritten Securities") of Common
Stock, without par value ("Common Stock"), of the Company. The Company also
proposes to grant to the Underwriters an option to purchase up to 900,000
additional shares of Common Stock (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). The Company is a holding corporation that was organized to
own all of the capital stock of National Processing Company, a Kentucky
corporation ("NPC").
- --------
* Plus an option to purchase from National Processing, Inc. up to 900,000
additional shares to cover over-allotments.
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES. The Company and NPC,
jointly and severally, represent and warrant to, and agree with, each
Underwriter as set forth below in this Section 1. Certain terms used in this
Agreement are defined in paragraph (iii) of this Section 1.
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file number
333-05507) on Form S-1, including a related preliminary prospectus, for
the registration under the Securities Act of 1933, as amended (the
"Act") of the offering and sale of the Securities. The Company may have
filed one or more amendments thereto, including the related preliminary
prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (A) prior to
effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or
(B) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (B), the Company has included in such registration
statement, as amended at the Effective Date, all information (other
than Rule 430A Information) required by the Act and the rules
thereunder to be included in the Prospectus with respect to the
Securities and the offering thereof. As filed, such amendment and form
of final prospectus, or such final prospectus, shall contain all Rule
430A Information, together with all other such required information,
with respect to the Securities and the offering thereof and, except to
the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein. The Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any Prospectus.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Prospectus
(and any supplement thereto) will, comply in all material respects with
the applicable requirements of the Act and the rules thereunder; on the
Effective Date, the Registration Statement did not or will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the
Prospectus, if not filed pursuant to Rule 424(b), did not or will not,
and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that neither the Company nor NPC
make any representations or warranties as to the information contained
in or omitted from the Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on
2
<PAGE> 3
behalf of any Underwriter through the Representatives specifically for
inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(iii) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "Effective Date" shall mean
each date that the Registration Statement and any post-effective
amendment or amendments thereto became or become effective. "Execution
Time" shall mean the date and time that this Agreement is executed and
delivered by the parties hereto. "Preliminary Prospectus" shall mean
any preliminary prospectus referred to in paragraph (i) of this Section
1 and any preliminary prospectus included in the Registration Statement
at the Effective Date that omits Rule 430A Information. "Prospectus"
shall mean the prospectus relating to the Securities that is first
filed pursuant to Rule 424(b) after the Execution Time or, if no filing
pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date. "Registration Statement" shall mean
(i) the registration statement referred to in paragraph (i) above,
including exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time, in the form
in which it shall become effective) and, in the event any
post-effective amendment thereto becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration
statement as so amended, and (ii) in the event any registration
statement is filed by the Company pursuant to Rule 462(b) that relates
to the offering and sale of the Securities, shall also mean such
registration statement. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as
provided by Rule 430A. "Rule 424," "Rule 430A" and "Rule 462(b)" refer
to such rules under the Act. "Rule 430A Information" means information
with respect to the Securities and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A.
(iv) Each of the Company and NPC, and each of NPC
Internacional S.A. de C.V., a Mexican corporation; B. & L. Consultants,
Inc., a Massachusetts corporation; and NPC Check Services, Inc., a
Delaware corporation (each such subsidiary being a "Subsidiary" and
collectively referred to as the "Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
that requires such qualification wherein it owns or leases material
properties or conducts material business, except where the failure to
so qualify or be in good standing would not, individually or in the
aggregate, have a material adverse effect on the consolidated financial
condition or results of operation of the Company and its consolidated
subsidiaries taken as a whole (a "Material Adverse Effect"); no
proceeding has been instituted or threatened in any such jurisdiction
seeking to revoke, limit or curtail such power and authority or
qualification, which, if successful, would have a Material Adverse
Effect.
3
<PAGE> 4
(v) The Company does not own or control, directly or
indirectly, any interest in any corporation, association or other
entity other than NPC and the Subsidiaries; all of the outstanding
shares of capital stock of each Subsidiary have been duly authorized
and validly issued, are fully paid and nonassessable, and except for
directors' qualifying shares, are owned by the Company, either directly
or indirectly through NPC or one of the other Subsidiaries, free and
clear of any security interest, claim, lien, or other encumbrance.
(vi) All outstanding shares of capital stock of the Company
and NPC have been duly authorized and validly issued and are fully paid
and nonassessable, were issued in compliance with all federal and state
securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase
securities, all of the shares of outstanding stock of NPC are owned by
the Company, and the authorized, issued and outstanding capitalization
of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and
the Prospectus (and such statements correctly state in all material
respects the substance of the instruments defining the capitalization
of the Company); the Underwritten Securities and the Option Securities
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any security
interest, claim, lien, equity or other encumbrance; and no preemptive
right, co-sale right, registration right, right of first refusal or
other similar right of shareholders exists with respect to any of the
Underwritten Securities or Option Securities or the issuance and sale
thereof other than those that have been expressly waived prior to the
date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No
further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and
sale or transfer of the Securities except as may be required under the
Act or under state or other securities or Blue Sky laws. Except as
disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in
the Prospectus (A) neither the Company, NPC nor any Subsidiary has
outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or commitments,
whether direct or indirect, to issue or sell, shares of capital stock
of the Company, NPC or such Subsidiary, as the case may be, and (B)
there are no registration rights or similar rights of any person with
respect to the capital stock of the Company. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately presents in all
material respects the information required to be shown with respect to
such plans, arrangements, options and rights.
4
<PAGE> 5
(vii) Ernst & Young LLP, which has examined the consolidated
financial statements of the Company and its subsidiaries, together with
the related schedules and notes, as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995,
which are included in the Prospectus filed with the Commission as a
part of the Registration Statement, are independent accountants within
the meaning of the Act and the rules thereunder; the audited
consolidated financial statements of the Company its subsidiaries,
together with the related schedules and notes forming part of the
Registration Statement and Prospectus, fairly present the consolidated
financial position, results of operations, cash flows and shareholder's
equity of the Company, NPC and the Subsidiaries at the respective dates
or for the respective periods to which they apply; and all audited
consolidated financial statements of the Company and its subsidiaries,
together with the related schedules and notes, and the unaudited
consolidated financial information, filed with the Commission as part
of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated
therein. The selected and summary financial information included in the
Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on the basis
consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in
the Registration Statement.
(viii) The Company and NPC have the full legal right, power
and authority to enter into this Agreement and perform the transactions
contemplated hereby. The execution and delivery of, and the performance
by each of the Company and NPC of their respective obligations under,
this Agreement have been duly and validly authorized by each of the
Company and NPC, and this Agreement has been duly executed and
delivered by each of the Company and NPC and constitutes the valid and
legally binding agreement of each of the Company and NPC, enforceable
against each of the Company and NPC in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited
by federal or state securities laws and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ix) None of the issuance and sale of the Securities, the
execution, delivery or performance of this Agreement by the Company or
NPC, or the consummation of the transactions herein contemplated (A)
requires any consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company, NPC,
any Subsidiary or any of their respective properties (collectively, a
"Consent"), except such as may be required for the registration of the
Securities under the Act, under the Securities Exchange Act of 1934, as
amended, or under state or other securities or Blue Sky laws, all of
which requirements have been or will be satisfied in all material
respects; (B) will result in a material breach or violation of any of
the terms and provisions of, or constitute a breach of or default
under, (x) any bond, debenture, note or other evidence
5
<PAGE> 6
of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
other instrument to which the Company, NPC or any Subsidiary is a party
or by which any of them or their respective properties may be bound,
(y) the articles of incorporation or bylaws of the Company, NPC or any
Subsidiary, or (z) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company, NPC or
any Subsidiary or any of their respective properties; or (C) will
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, NPC or any Subsidiary
pursuant to the terms of any agreement or instrument to which any of
them is a party or by which any of them is bound or to which any of
their respective property or assets is subject.
(x) Each of the Company, NPC and the Subsidiaries is in
possession of and operating in compliance with all authorizations,
certificates of convenience and necessity, easements, rights-of-way,
operating rights, consents, orders, permits, licenses, franchises and
authorizations from state, federal, and other governmental authorities
("Permits") as are necessary to own its properties and to conduct its
business in the manner described in the Prospectus, all of which are
valid and in full force and effect, except for any noncompliance,
invalidity or ineffectiveness that would not have a Material Adverse
Effect. Except as described in the Prospectus, none of such Permits
contains any material limitation on the ability of the Company, NPC or
any of the Subsidiaries to own their respective properties or to
conduct their business in the manner described in the Prospectuses.
Neither the Company, NPC nor any of the Subsidiaries has received
notice of any proceedings relating to the revocation or material
modification of any such Permit.
(xi) Except as set forth in the Registration Statement and
Prospectus, (A) each of the Company, NPC and the Subsidiaries has good
and marketable title to all property and assets described in the
Registration Statement and Prospectus as being owned by it, free and
clear of any pledge, lien, security interest, encumbrance or claim,
other than such as would not have a Material Adverse Effect; (B) the
agreements to which the Company, NPC or any Subsidiary is a party
described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, NPC or such Subsidiary,
respectively, and, to the Company's and NPC's knowledge, the other
contracting party or parties thereto are not in material breach or
material default under any of such agreements; and (C) each of the
Company, NPC and the Subsidiaries has valid, subsisting and enforceable
leases or subleases for all properties described in the Registration
Statement and Prospectus as being held under lease by it.
(xii) Each of the Company, NPC and the Subsidiaries owns or
possesses the rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names,
copyrights and licenses and other intellectual property rights
("Intellectual Property") that are described in the Registration
Statement and Prospectus as being owned by (or licensed to) it or that
are necessary to conduct its
6
<PAGE> 7
businesses as described in the Registration Statement and Prospectus;
the expiration of any Intellectual Property would not have a Material
Adverse Effect; neither the Company nor NPC have received any notice
of, and they have no knowledge of, any infringement of or conflict with
asserted rights of the Company, NPC or any of the Subsidiaries by
others with respect to any Intellectual Property; and neither the
Company nor NPC have received any notice of, and they have no knowledge
of, any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
(xiii) Neither the Company, NPC nor any of the Subsidiaries is
in violation or default of (A) their respective articles of
incorporation or bylaws; (B) any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness, or in any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other
agreement or other instrument to which the Company, NPC or such
Subsidiary, respectively, is a party or by which any of their
respective properties may be bound; or (C) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, NPC or such Subsidiary, respectively, or
over their properties and of which the Company or NPC have knowledge,
except for violations or defaults which, in the case of clauses (B) or
(C) of this Section 1, do not or would not have a Material Adverse
Effect.
(xiv) There is not pending or, to the Company's and NPC's
knowledge, threatened any action, suit, claim or proceeding against the
Company, NPC or any Subsidiary, or any of their respective officers or
any of their respective properties, assets or rights before any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, NPC or such Subsidiaries, respectively,
or over their respective officers or properties or otherwise which (A)
might reasonably be expected to result in any Material Adverse Effect;
(B) might prevent consummation of the transactions contemplated hereby;
or (C) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements,
contracts, leases or other documents of the Company, NPC or any
Subsidiary of a character required to be described or referred to in
the Registration Statement or Prospectus or to be filed as an exhibit
to the Registration Statement by the Act or the rules thereunder which
have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(xv) To the Company's and NPC's knowledge, no labor
disturbance by the employees of the Company, NPC or any of the
Subsidiaries exists or is imminent. No collective bargaining agreement
exists with any of the Company's, NPC's or the Subsidiaries' employees
and, to the Company's knowledge, no such agreement is imminent.
7
<PAGE> 8
(xvi) To the Company's and NPC's knowledge and except as set
forth in the Registration Statement and Prospectus, (A) each of the
Company, NPC and the Subsidiaries is in compliance in all material
respects with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of
health or the environment ("Environmental Laws") that are applicable to
its business; (B) neither the Company, NPC nor any of the Subsidiaries
has received any notice from any governmental authority or third party
of an asserted claim under Environmental Laws, which claim is required
to be disclosed in the Registration Statement and the Prospectus; and
(C) no property which is owned, leased or occupied by the Company, NPC
or any Subsidiary has been designated as a Superfund site pursuant to
the Comprehensive Response, Compensation, and Liability Act of 1980, as
amended, or otherwise designated as a contaminated site under
applicable state or local law.
(xvii) All necessary federal, state and foreign income and
franchise tax returns, including, without limitation, consolidated
federal income tax returns of the "affiliated group" (as defined in
section 1504(a) of the Internal Revenue Code of 1986, as amended) that
includes the Company or any predecessor of or successor to the Company,
and all taxes shown thereon, and any other assessment, fine or penalty,
attributable to the Company and its Affiliates have been paid, to the
extent that any of the foregoing is due and payable, except for any
such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus, and
there is no tax deficiency that has been or, to the best of the
Company's knowledge, might be asserted against the Company and the
Subsidiaries or its Affiliates that might have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and the Subsidiaries,
taken as a whole; and all tax liabilities are adequately provided for
on the books of the Company. "Affiliate" means, with respect to another
entity, any entity directly or indirectly controlling, controlled by or
under control with, such other entity. For purposes of this definition,
"control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of an entity, whether through the ownership of voting securities or
otherwise.
(xviii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (A) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company, NPC and the Subsidiaries, taken as a whole;
(B) any transaction or series of related transactions that is material
to the Company, NPC and the Subsidiaries, taken as a whole, except
transactions entered into in the ordinary course of business; (C) any
obligation, direct or contingent, incurred by the Company, NPC or any
Subsidiary that is material to the Company, NPC and the Subsidiaries,
taken as a whole, except obligations incurred in the ordinary course of
business; (D) any change in the capital stock or outstanding
indebtedness of the Company, NPC or the Subsidiaries that is material
to the Company and NPC, (E) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or
8
<PAGE> 9
(F) any loss or damage (whether or not insured) to the property of the
Company, NPC or the Subsidiaries which has been sustained and which has
a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company,
NPC and the Subsidiaries, taken as a whole.
(xix) The Common Stock has been approved for listing on The
New York Stock Exchange, subject to official notice of issuance.
(xx) No holder of options to purchase capital stock of the
Company may exercise such options within the 90-day period following
the Execution Time.
2. PURCHASE AND SALE. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
$__.__ per share, the amount of the Underwritten Securities set forth opposite
such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to 900,000 shares of the Option Securities at the same purchase price per share
as the Underwriters shall pay for the Underwritten Securities. Said option may
be exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option Securities, and payment
therefor, shall be made as provided in Section 3 hereof. The number of shares of
the Option Securities to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. DELIVERY AND PAYMENT. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the first business
day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
__________, 1996, or such later date (not later than __________, 1996) as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Company or as provided in Section
9 hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representatives for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representatives of the
purchase price therefor to or upon the order of the Company by certified or
official bank check or checks drawn on or by a New York
9
<PAGE> 10
Clearing House bank and payable in same day funds or by such other manner of
payment as may be agreed upon by the Company and the Representatives. Delivery
of the Underwritten Securities and the Option Securities shall be made at such
location as the Representatives shall reasonably designate at least one
business day in advance of the Closing Date and payment for such Securities
shall be made at the office of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York 10006. Certificates for the Securities shall be
registered in such names and in such denominations as the Representatives may
request not less than two full business days in advance of the Closing Date.
The Company agrees to have the Securities available for
inspection, checking and packaging by the Representatives in New York, New York,
not later than 1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised
after the first business day prior to the Closing Date, the Company will deliver
(at the expense of the Company) to the Representatives, care of Salomon Brothers
Inc, at Seven World Trade Center, New York, New York, on the date specified by
the Representatives (which shall be within three business days after exercise of
said option), certificates for the Option Securities in such names and
denominations as the Representatives shall have requested against payment of the
purchase price thereof to or upon the order of the Company by certified or
official bank check or checks drawn on or by a New York Clearing House bank and
payable in same day funds or by such other manner of payment as may be agreed
upon by the Company and the Representatives. If settlement for the Option
Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. INDEPENDENT UNDERWRITER. (a) The Company hereby confirms
its engagement of the services of Salomon Brothers Inc as, and Salomon Brothers
Inc hereby confirms its agreement with the Company to render services as, a
"qualified independent underwriter" (in such capacity, the "Independent
Underwriter") within the meaning of Section (c)(3) of Rule 2720 of the Rules
("Rule 2720") of the National Association of Securities Dealers, Inc. (the
"NASD") with respect to the offering and sale of the Securities.
(b) The Independent Underwriter hereby represents and warrants
to, and agrees with, the Company and the other Underwriters that with respect to
the offering and sale of Securities as described in the Prospectus, the
Independent Underwriter is a "qualified independent underwriter" within the
meaning of Section (c)(3) of Rule 2720.
(c) The Independent Underwriter hereby consents to the
references to it as set forth under the caption "Underwriting" in the
Prospectus.
5. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
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6. AGREEMENTS. The Company agrees with the several
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus without
furnishing you a copy for your review prior to filing and to which you
reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule
424(b), the Company will cause the Prospectus, properly completed, and
any supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representatives of such
timely filing. The Company will promptly advise the Representatives (A)
when the Registration Statement, if not effective at the Execution
Time, and any amendment thereto, shall have become effective; (B) when
the Prospectus, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b); (C) when, prior
to termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective; (D)
of any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional
information; (E) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(ii) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company shall
comply with all requirements imposed upon it by the Act and the rules
thereunder so far as is necessary to permit the continuance of sales of
or dealings in the Securities as contemplated by the provisions hereof
and by the Prospectus. If, during such period, any event occurs as a
result of which the Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will prepare and file with the Commission, subject to the
second sentence of paragraph (i) of this Section 5(a), an amendment or
supplement which will correct such statement or omission or effect such
compliance.
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(iii) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act or Rule
158 under the Act.
(iv) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will furnish or
cause to be furnished to the Representatives copies of all reports on
Form SR required by Rule 463 under the Act. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(v) The Company will arrange for the qualification of the
Securities for sale under the laws of such jurisdictions as the
Representatives may designate (PROVIDED, HOWEVER, that the Company
shall not be obligated to qualify as a foreign corporation in any such
jurisdiction or execute any general consent to service of process in
any such jurisdiction), will maintain such qualifications in effect so
long as required for the distribution of the Securities and will pay
the fee of the NASD in connection with its review of the offering.
(vi) The Company will not, for a period of 90 days following
the Execution Time, without the prior written consent of Salomon
Brothers Inc, 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 any registration statement (other than registration
statements on Form S-8) under the Act with respect to, any shares of
Common Stock (other than the Securities) or any securities or options
convertible into, or exchangeable or exercisable for, shares of Common
Stock; PROVIDED, HOWEVER, that the Company may grant options pursuant
to the Company's 1996 Stock Option Plan or the Company's Nonemployee
Directors Plan, in either case, as in effect at the Execution Time, as
long as any option so granted shall not become exercisable within the
90-day period immediately following the Execution Time.
(vii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and
the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will
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provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company and NPC contained
herein as of the Execution Time, the Closing Date and any settlement date
pursuant to Section 3 hereof, as applicable, to the accuracy of the statements
of the Company, NPC and National City made in any certificates pursuant to the
provisions hereof, to the performance by the Company and NPC of their respective
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later than (i)
6:00 PM, New York City time, on the date of determination of the public offering
price, if such determination occurred at or prior to 3:00 PM, New York City
time, on such date or (ii) 12:00 Noon, New York City time, on the business day
following the day on which the public offering price was determined, if such
determination occurred after 3:00 PM, New York City time, on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b), the Prospectus, and any such supplement, will be filed in the
manner and within the time period required by Rule 424(b); no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been disclosed to you and complied with to your reasonable satisfaction.
(b) The Company shall have furnished to the Representatives
the opinion of Jones, Day, Reavis & Pogue, counsel for the Company, dated the
Closing Date, in substantially the form attached hereto as Exhibit A, and the
opinion of ______, the [Assistant] General Counsel of National City Bank,
Kentucky, in substantially the form attached hereto as Exhibit B.
(c) The Representatives shall have received from Cleary,
Gottlieb, Steen & Hamilton, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and sale of the
Securities, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(d) Each of the Company and NPC shall have furnished to the
Representatives a certificate of the Company or NPC, as the case may be, signed
by the President and the principal financial or accounting officer of the
Company or NPC, as the case may be, dated the Closing Date, to the effect that
the signers of such certificate have carefully examined the
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<PAGE> 14
Registration Statement, the Prospectus, any supplements to the Prospectus and
this Agreement and that:
(i) the representations and warranties of the Company or NPC,
as the case may be, in this Agreement are true and correct in all
material respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company or NPC, as the case may be,
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's or NPC's, as the case
may be, knowledge, threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
other), earnings, business or properties of the Company, NPC and the
Subsidiaries, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(e) The Company shall have furnished to the Representatives a
certificate of National City, signed by ___________ and ___________, dated the
Closing Date, to the effect that National City represents and warrants to, and
agrees with, each Underwriter that it has no reason to believe that the
representations and warranties of the Company contained in Section 1 of the
Underwriting Agreement are not true and correct.
(f) At the Execution Time and at the Closing Date, Ernst &
Young LLP shall have furnished to the Representatives a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement
and the Prospectus and reported on by them comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company, NPC and the
Subsidiaries; carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with respect
to the comments set forth in such letter; a reading of the minutes of
the meetings of the stockholders, directors and the compensation and
audit committees of the Company, NPC and the Subsidiaries; and
inquiries of certain officials of the Company and NPC who have
responsibility for financial and accounting matters of the Company, NPC
and
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<PAGE> 15
the Subsidiaries as to transactions and events subsequent to December 31, 1995,
nothing came to their attention which caused them to believe that:
(1) any unaudited financial statements included in
the Registration Statement and the Prospectus do not comply in
form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-1; or said unaudited financial statements
are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements included in the
Registration Statement and the Prospectus; or
(2) with respect to the period subsequent to March
31, 1996, there were any changes, at a specified date not more
than five business days prior to the date of the letter, in
the total current liabilities or total liabilities of the
Company, NPC and the Subsidiaries or capital stock of the
Company or decreases in the total shareholder's equity of the
Company or decreases in total current assets of the Company,
NPC and the Subsidiaries, as compared with the amounts shown
on the March 31, 1996 consolidated balance sheet included in
the Registration Statement and the Prospectus, or for the
period from April 1, 1996 to such specified date there were
any decreases, as compared with the corresponding period in
the preceding year in revenues, operating profit, net interest
(expense) income or income before income taxes or in total or
per share amounts of net income of the Company, NPC and the
Subsidiaries, except in all instances for changes or decreases
set forth in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives.
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company, NPC and the Subsidiaries)
set forth in the Registration Statement and the Prospectus agrees with
the accounting records of the Company, NPC and the Subsidiaries,
excluding any questions of legal interpretation.
References to the Prospectus in this paragraph (f) include any supplement
thereto at the date of the letter.
(g) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (f) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company, NPC and the Subsidiaries the effect of which, in any
case referred
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<PAGE> 16
to in clause (i) or (ii) above, is, in the judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to proceed with
the offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto).
(h) At or prior to the Execution Time, the Company shall have
furnished to the Representatives a letter in substantially the form attached
hereto as Exhibit C from each officer and director of the Company, NPC and
National City addressed to the Representatives, in which each such person agrees
not to offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, or file or cause to be filed any
registration statements (other than registration statements on Form S-8) under
the Act with respect to, any shares of Common Stock beneficially owned by such
person or any securities or options convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 90 days following the
Execution Time without the prior written consent of Salomon Brothers Inc, other
than shares of Common Stock disposed of as bona fide gifts, by will or by the
laws of descent and distribution, PROVIDED that the donee, heir, or legatee
agrees in writing to be bound by similar restrictions on transfer.
(i) At or prior to the Execution Time, the Company shall have
furnished to the Representatives a letter in substantially the form attached
hereto as Exhibit D from National City addressed to the Representatives, in
which National City agrees that it will not, for a period of 360 days following
the Execution Time, without the prior written consent of Salomon Brothers Inc,
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 any
registration statement (other than registration statements on Form S-8) under
the Act with respect to, any shares of Common Stock (other than the Securities)
or any securities or options convertible into, or exchangeable or exercisable
for, shares of Common Stock.
(j) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone or telegraph confirmed in writing.
8. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 11 hereof or because of any
refusal, inability or failure on the part of the Company
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<PAGE> 17
or NPC to perform any agreement herein or comply with any provision hereof other
than by reason of a default by any of the Underwriters, the Company and/or NPC
will reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.
9. INDEMNIFICATION AND CONTRIBUTION. (a) Each of the Company
and NPC, jointly and severally, agrees to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter,
and each person who controls any Underwriter within the meaning of either the
Act or the Securities Exchange Act of 1934 (the "Exchange Act") against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement for the registration
of the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that neither
the Company nor NPC will be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein; PROVIDED, FURTHER, that such indemnity with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any such controlling person) from whom the person asserting any
such loss, claim, damage, liability or action purchased Securities which are the
subject thereof to the extent that any such loss, claim, damage or liability (i)
results from the failure by such Underwriter to send or give a copy of the
Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Securities to such person in any case where
such delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (or any amendment or supplement
thereto). This indemnity agreement will be in addition to any liability which
the Company and NPC may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, each person who controls the Company within the meaning
of either the Act or the Exchange Act, NPC and each person who controls NPC
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company and NPC to each Underwriter, but only
with reference to written information relating to such Underwriter
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<PAGE> 18
furnished to the Company by or on behalf of such Underwriter through the
Representatives specifically for inclusion in the documents referred to in the
foregoing indemnity. The Company and NPC acknowledge that the statements set
forth in the last paragraph of the front cover page, the [first] paragraph of
the inside front cover page and under the heading "Underwriting" in any
Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus, and you, as the
Representatives, confirm that such statements are correct. This indemnity
agreement will be in addition to any liability which any Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantive rights and
defenses or it has been materially prejudiced by such failure and (ii) will not,
in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, and to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to such indemnified
party of its election so as to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 9 for any
legal expenses other than reasonable costs of investigation subsequently
incurred by such indemnified party in connection with the defense thereof,
except as provided in the next sentence. Notwithstanding the indemnifying
party's election to appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate counsel
(including one local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the use of
counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party, it being
understood, however, that the indemnifying party shall not, in connection with
any one
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<PAGE> 19
such action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such indemnified parties, which firm shall be
designated in writing by the Representatives, if the indemnified parties under
this Section 9 consist of any Underwriter or any of their respective controlling
persons, or by the Company or NPC, if the indemnified parties under this Section
9 consist of the Company, NPC or any of the Company's or NPC's directors,
officers or controlling persons. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
No indemnifying party shall be liable for any settlement of any such action
without its written consent.
(d) In the event that the indemnity provided in paragraph (a),
(b) or (e) of this Section 8 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Company, NPC and the Underwriters agree
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company,
NPC and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company, by NPC and
by the Underwriters from the offering of the Securities; PROVIDED, HOWEVER, that
in no case shall (i) any Underwriter (except as may be provided in any agreement
among underwriters relating to the offering of the Securities) be responsible
for any amount in excess of the underwriting discount or commission applicable
to the Securities purchased by such Underwriter hereunder or (ii) Salomon
Brothers Inc in its capacity as Independent Underwriter be responsible for any
amount in excess of the compensation received by Salomon Brothers Inc for acting
in such capacity. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company, NPC and the Underwriters
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company, of NPC and of the
Underwriters in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. Benefits
received by the Company and by NPC shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses), and benefits received by
the Underwriters shall be deemed to be equal to the total underwriting discounts
and commissions, in each case as set forth on the cover page of the Prospectus.
Benefits received by Salomon Brothers Inc in its capacity as Independent
Underwriter shall be deemed to be equal to the compensation received by Salomon
Brothers Inc for acting in such capacity. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company, NPC or the Underwriters. The Company, NPC
and the Underwriters agree that it would not be just and equitable if
contribution were determined by PRO RATA allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of
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<PAGE> 20
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company or NPC within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company or NPC shall have the same rights to contribution
as the Company and NPC, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) Without limitation of and in addition to its obligations
under the other paragraphs of this Section 8, each of the Company and NPC,
jointly and severally, agrees to indemnify and hold harmless Salomon Brothers
Inc, its directors, officers, employees and agents and each person who controls
Salomon Brothers Inc within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject insofar as such losses, claims,
damages or liabilities (or action in respect thereof) arise out of or are based
upon Salomon Brothers Inc's acting as a "qualified independent underwriter" in
connection with the offering contemplated by this Agreement, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that neither the Company nor NPC will be liable in any such case to the extent
that any such loss, claim, damage or liability results from the gross negligence
or willful misconduct of Salomon Brothers Inc.
10. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company or NPC. In the event of a default by any Underwriter as set forth in
this Section 9, the Closing Date shall be postponed for such period, not
exceeding seven days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and NPC and any nondefaulting Underwriter for damages occasioned by
its default hereunder.
20
<PAGE> 21
11. TERMINATION. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the New York Stock Exchange or trading in securities generally
on the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared by either Federal or New York State governmental
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 8 and 9 hereof shall survive the termination or cancellation of this
Agreement.
13. NOTICES. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telegraphed and confirmed to them, care of Salomon Brothers
Inc, at Seven World Trade Center, New York, New York 10048; or, if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at 1231
Durrett Lane, Louisville, Kentucky 40285-0001, attention of Richard A. Alston,
with copy to Christopher M. Kelly, Jones, Day, Reavis & Pogue, North Point, 901
Lakeside Avenue, Cleveland, OH 44114.
14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
15. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
21
<PAGE> 22
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company, NPC and the several Underwriters.
Very truly yours,
National Processing, Inc.
By:
--------------------------------------
Name:
Title:
National Processing Company
By:
--------------------------------------
Name:
Title:
22
<PAGE> 23
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Montgomery Securities
NatCity Investments, Inc.
Smith Barney Inc.
By: Salomon Brothers Inc
By:
---------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
23
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Securities
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Salomon Brothers Inc.....................................
Montgomery Securities....................................
NatCity Investments, Inc.................................
Smith Barney Inc.........................................
---------------
Total.................................. ----------
</TABLE>
<PAGE> 1
EXHIBIT 4.1
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
NATIONAL PROCESSING, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO
THIS CERTIFICATE IS TRANSFERABLE IN CLEVELAND, OHIO OR NEW YORK, NEW YORK.
COMMON STOCK CUSIP 637229 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
National Processing, Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney on surrender of this
certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
TREASURER [SEAL] PRESIDENT AND
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BY NATIONAL CITY BANK
(CLEVELAND, OHIO) TRANSFER AGENT
AND REGISTRAR,
AUTHORIZED SIGNATURE.
<PAGE> 2
The corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ________________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received,_________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________________________________________
___________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
___________________________________________________________________________
_________________________________________________________________ Shares of
the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_________________________________________
___________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,__________________
_________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:_________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of this 16th day of July, 1996 between National City
Corporation, a Delaware corporation ("National City"), and National Processing,
Inc., an Ohio corporation (the "Company").
R E C I T A L S
---------------
WHEREAS, the Company is currently a wholly owned subsidiary
of National City;
WHEREAS, the Company is contemplating the issuance of
6,900,000 shares of the Company's common stock, without par value (the "Common
Stock"), in an initial public offering pursuant to a Registration Statement on
Form S-1 (Registration No. 333-05507) (the "Offering");
WHEREAS, following the Offering, National City will be the
beneficial and record owner of 43,100,000 shares of Common Stock;
WHEREAS, in conjunction with the Offering, National City and
the Company desire to enter into this Agreement to provide National City with
certain registration rights as provided herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and for other good and valuable
consideration had and received, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms
shall have the following respective meanings:
"Affiliate" shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with such
Person. A Person shall be deemed to control another Person if such
Person owns [5%] or more of any equity interest in the "controlled"
Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled
Person, whether through ownership of stock or partnership interests,
by contract, agreement or understanding (whether oral or written), or
otherwise.
<PAGE> 2
"Common Stock" shall have the meaning in the second recital of
this Agreement.
"Designated Transferee" shall have the meaning set forth in
Section 10 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Holders" shall mean National City, any Affiliate of National
City (other than the Company) and any Designated Transferees who are
holders of record of any Registrable Shares, and any combination of
one or more such Holders.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"Other Holders" shall mean Persons who are holders of record of
equity securities of the Company who subsequent to the date hereof
acquire more than [5%] of the outstanding shares of Common Stock
pursuant to a transaction with the Company and to whom the Company
grants registration rights pursuant to a written agreement in
connection with such transaction.
"Person" shall mean any individual, corporation, association,
partnership, group (as defined in Section 13(d)(3) of the Exchange
Act), limited liability company, joint venture, business trust or
unincorporated organization, or a government or any agency or
political subdivision thereof.
"Registrable Shares" shall mean (i) the 43,100,000 shares of
Common Stock owned by the Holders on the date of this Agreement, and
(ii) any equity securities of the Company issued or distributed after
the date of this Agreement to a Holder in respect of Registrable
Shares by way of any stock dividend, stock split or other
distribution or any recapitalization or reclassification and any
equity securities of the Company acquired by a Holder upon exercise
or conversion of any such securities. As to any particular
Registrable Share, such Registrable Share shall cease to be a
Registrable Share when (w) it shall have been sold, transferred or
otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act; (x) it shall have been
distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act; (y) it shall have been sold or
transferred to a Person other than a Designated Transferee in a
private transaction effected other than pursuant to a registration
statement; or (z) it shall have been sold, transferred or otherwise
disposed of in violation of this Agreement.
2
<PAGE> 3
"Registration Expenses" shall have the meaning set forth in
Section 7(a) hereof.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency thereto.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
2. INCIDENTAL REGISTRATIONS
(A) RIGHT TO INCLUDE REGISTRABLE SHARES. Each time the Company
shall determine to file a registration statement under the Securities Act in
connection with a proposed offer and sale for cash of any equity securities
(other than debt securities which are convertible into equity securities or an
offering of equity securities in an amount not in excess of 5% of the number of
shares of Common Stock outstanding at such time in connection with the offering
of debt securities) either by it or by any holders of its outstanding equity
securities, the Company will give prompt written notice of its determination to
each Holder and of such Holder's rights under this Section 2, at least 30 days
prior to the anticipated filing date of such registration statement. Upon the
written request of each Holder made within 21 days after the receipt of any
such notice from the Company, (which request shall specify the Registrable
Shares intended to be disposed of by such Holder), the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Shares which the Company has been so requested to register by the
Holders thereof, to the extent required to permit the disposition of the
Registrable Shares so to be registered; PROVIDED, HOWEVER, that (i) if, at any
time after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to proceed with the proposed registration of the securities to be sold by
it, the Company may, at its election, give written notice of such determination
to each Holder of Registrable Shares and thereupon shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) if such registration involves an underwritten
offering, all Holders of Registrable Shares requesting to be included in the
Company's registration must sell their Registrable Shares to the underwriters
on the same terms and conditions as apply to the Company, with such
differences, including any with respect to indemnification and liability
insurance, as may be customary or appropriate in combined primary and secondary
offerings. If a registration requested pursuant to this Section 2(a) involves
an underwritten public offering, any Holder of Registrable Shares requesting to
be included in such registration may elect, in writing prior to the effective
date of the registration statement filed in connection with such registration,
not to register such
3
<PAGE> 4
securities in connection with such registration. No registration effected under
this Section 2 shall relieve the Company of its obligations to effect
registrations upon request under Section 4 hereof.
(B) PRIORITY IN INCIDENTAL REGISTRATION. If a registration
pursuant to this Section 2 involves an underwritten offering and the managing
underwriter or underwriters in good faith advises the Company in writing that,
in its opinion, the number of securities which the Company, the Holders and any
other Persons intend to include in such registration exceeds the largest number
of securities which can be sold in such offering without having an adverse
effect on such offering (including the price at which such securities can be
sold), then the Company will include in such registration (i) first, if the
registration pursuant to this Section 2 was initiated by Other Holders
exercising demand registration rights, 100% of the securities such Other
Holders propose to sell (except to the extent the terms of such Other Holders'
registration rights provide otherwise); (ii) second, 100% of the securities the
Company proposes to sell for its own account; (iii) third, to the extent that
the number of securities which such Other Holders exercising demand
registration rights and the Company propose to sell is less than the number of
securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, such number of Registrable
Shares which the Holders have requested to be included in such registration
pursuant to Section 2(a) hereof and which, in the opinion of such managing
underwriter or underwriters, can be sold without having the adverse effect
referred to above; and (iv) fourth, to the extent that the number of securities
which are to be included in such registration pursuant to clauses (i), (ii) and
(iii) is, in the aggregate, less than the number of securities which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, such number of other securities requested to
be included in the offering for the account of any Other Holders which, in the
opinion of such managing underwriter or underwriters, can be sold without
having the adverse effect referred to above.
3. HOLDBACK AGREEMENTS. (a) If any registration of
Registrable Shares shall be in connection with an underwritten public offering,
the Holders shall not effect any public sale or distribution (except in
connection with such public offering), of any equity securities of the Company,
or of any security convertible into or exchangeable or exercisable for any
equity security of the Company (in each case, other than as part of such
underwritten public offering), during the 90-day period (or such lesser period
as the managing underwriter or underwriters may permit) beginning on the
effective date of such registration, if, and to the extent, the managing
underwriter or underwriters of any such offering determines such action is
necessary or desirable to effect such offering; PROVIDED, HOWEVER, that each
Holder has received the written notice required by Section 2(a)
4
<PAGE> 5
hereof; PROVIDED, FURTHER, that each Holder shall not be obligated to comply
with such restrictions arising as a result of an underwritten public offering
subject to Section 2 hereof more than once in any twelve-month period.
(b) If any registration of Registrable Shares shall be in
connection with any underwritten public offering, the Company shall not effect
any public sale or distribution (except in connection with such public
offering) of any of its equity securities or of any security convertible into
or exchangeable or exercisable for any of its equity securities (in each case
other than as part of such underwritten public offering) during the 90-day
period (or such lesser period as the managing underwriter or underwriters may
permit) beginning on the effective date of such registration, and the Company
shall use its best efforts to cause each member of the management of the
Company who holds any equity security and each other holder of 5% or more of
the outstanding shares of any equity security, or of any security convertible
into or exchangeable or exercisable for any equity security, of the Company
purchased from the Company (at any time other than in a public offering) to so
agree.
4. REGISTRATION ON REQUEST.
(a) REQUEST BY HOLDERS. Upon the written request of the
Holders of at least 10% of the Registrable Shares that the Company effect the
registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount (which shall not be less than 10%
of the outstanding Registrable Shares in the aggregate) and the intended method
of disposition thereof, the Company will promptly give notice of such requested
registration to all other Holders of Registrable Shares and, as expeditiously
as possible, use its best efforts to effect the registration under the
Securities Act of: (i) the Registrable Shares which the Company has been so
requested to register by Holders of at least 10% of the Registrable Shares; and
(ii) all other Registrable Shares which the Company has been requested to
register by any other Holder thereof by written request received by the Company
within 21 days after the giving of such written notice by the Company (which
request shall specify the intended method of disposition of such Registrable
Shares); PROVIDED, HOWEVER, that the Company shall not be required to effect
more than two registrations pursuant to this Section 4; PROVIDED, FURTHER, that
the Company shall not be obligated to file a registration statement relating to
a registration request under this Section 4 (x) if the registration request is
delivered after delivery of a notice by the Company of an intended registration
and prior to the effective date of the registration statement referred to in
such notice, or (y) within a period of 90 days after the effective date of any
other registration statement of the Company requested by a Holder pursuant to
this Section 4 or pursuant to which the Holders included Registrable Shares.
The Holders initially requesting a registration pursuant to this Section 4 may,
at any time prior to
5
<PAGE> 6
the effective date of the registration statement relating to such registration,
revoke such request by providing a written notice to the Company revoking such
request; PROVIDED, HOWEVER, that, in the event the Holders shall have made a
written request for a demand registration (I) which is subsequently withdrawn
by the Holders after the Company has filed a registration statement with the
SEC in connection therewith but prior to such demand registration being
declared effective by the SEC or (II) which is not declared effective solely as
a result of the failure of Holders to take all actions reasonably required in
order to have the registration and the related registration statement declared
effective by the SEC, then, in any such event, such demand registration shall
be counted as a demand registration for purposes of this Section 4(a). Promptly
after the expiration of the 21-day period referred to in clause (ii) above, the
Company will notify all the Holders to be included in the registration of the
other Holders and the number of shares of Registrable Shares requested to be
included therein.
(b) REGISTRATION STATEMENT FORM. If any registration
requested pursuant to this Section 4 which is proposed by the Company to be
effected by the filing of a registration statement on Form S-3 (or any
successor or similar short-form registration statement) shall be in connection
with an underwritten public offering, and if the managing underwriter or
underwriters shall advise the Company in writing that, in its opinion, the use
of another form of registration statement is of material importance to the
success of such proposed offering, then such registration shall be effected on
such other form.
(c) EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to this Section 4 will not be deemed to have been effected
unless it has become effective under the Securities Act and, has remained
effective for 270 days or such shorter period as all the Registrable Shares
included in such registration have actually been sold thereunder. In addition,
if within 180 days after it has become effective, the offering of Registrable
Shares pursuant to such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental
agency or court, such registration will be deemed not to have been effected for
purposes of this Section 4.
(d) PRIORITY IN REQUESTED REGISTRATIONS. If a requested
registration pursuant to this Section 4 involves an underwritten offering and
the managing underwriter or underwriters in good faith advises the Company in
writing that, in its opinion, the number of securities requested to be included
in such registration (including securities of the Company which are not
Registrable Shares) exceeds the largest number of securities which can be sold
in such offering without having an adverse effect on such offering (including
the price at which such securities can be sold), then the Company will include
in such registration (i) first, 100% of the Registrable Shares
6
<PAGE> 7
requested to be registered pursuant to Section 4(a) hereof (provided that if
the number of Registrable Shares requested to be registered pursuant to Section
4(a) hereof exceeds the number which the Company has been advised can be sold
in such offering without having the adverse effect referred to above, the
number of such Registrable Shares to be included in such registration by the
Holders shall be allocated pro rata among such Holders on the basis of the
relative number of Registrable Shares each such Holder has requested to be
included in such registration); (ii) second, to the extent that the number of
Registrable Shares requested to be registered pursuant to Section 4(a) hereof
is less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, such
number of shares of equity securities the Company requests to be included in
such registration; and (iii) third, to the extent that the number of
Registrable Shares requested to be included in such registration pursuant to
Section 4(a) hereof and the securities which the Company proposes to sell for
its own account are, in the aggregate, less than the number of equity
securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, such number of other
securities proposed to be sold by any Other Holder which, in the opinion of
such managing underwriter or underwriters, can be sold without having the
adverse effect referred to above (provided that if the number of such
securities of such Other Holder requested to be registered exceeds the number
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of such securities to be
included in such registration pursuant to this Section 4(d) shall be allocated
pro rata among all such Other Holders on the basis of the relative number of
securities each such Other Holder has requested to be included in such
registration).
(e) ADDITIONAL RIGHTS. If the Company at any time grants to
any other holders of equity securities of the Company any rights to request the
Company to effect the registration of any such shares of equity securities on
terms more favorable to such holders than the terms set forth in this Section 4
and in Section 5 hereof, the terms of this Section 4 and of Section 5 hereof
shall be deemed amended or supplemented to the extent necessary to provide the
Holders such more favorable rights and benefits. In no event shall the Company
grant to any person any rights to request the Company to effect the
registration of any shares of equity securities of the Company on terms which
are adverse to rights of the Holders set forth in Section 2 and this Section 4.
5. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required by the provisions
of Sections 2 or 4 hereof to use its best efforts to effect or cause the
registration of Registrable Shares, the Company shall as expeditiously as
possible:
7
<PAGE> 8
(i) prepare and, in any event within 60 days after the end of
the period within which a request for registration may be given to the
Company, file with the SEC a registration statement with respect to
such Registrable Shares and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to
comply with the provisions of the Securities Act, the Exchange Act,
and the rules and regulations promulgated thereunder with respect to
the disposition of all the securities covered by such registration
statement during such period in accordance with the intended methods
of disposition by the Holders thereof set forth in such registration
statement; PROVIDED, HOWEVER, that (A) before filing a registration
statement (including an initial filing) or prospectus, or any
amendments or supplements thereto, the Company will furnish to one
counsel selected by the Holders of a majority of the Registrable
Shares covered by such registration statement copies of all documents
proposed to be filed, which documents will be subject to the review
and comment of such counsel and, (B) the Company will notify each
Holder of Registrable Shares covered by such registration statement of
any stop order issued or threatened by the SEC, any other order
suspending the use of any preliminary prospectus or of the suspension
of the qualification of the registration statement for offering or
sale in any jurisdiction, and take all reasonable actions required to
prevent the entry of such stop order, other order or suspension or to
remove it if entered;
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration
statement such number of copies of the registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as each Holder of Registrable
Shares covered by such registration statement may reasonably request
in order to facilitate the disposition of the Registrable Shares by
such Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such resignation statement under the
state securities or blue sky laws of such jurisdictions as each Holder
of Registrable Shares covered by such registration statement and, if
applicable, each underwriter, may reasonably request, and do any and
all
8
<PAGE> 9
other acts and things which may be reasonably necessary to consummate
the disposition in such jurisdictions of the Registrable Shares owned
by such Holder, except that the Company shall not for any purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this clause
(iv), it would not be obligated to be so qualified;
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition
of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
immediately give written notice thereof to each Holder and the
managing underwriter or underwriters, if any, of such Registrable
Shares and prepare and furnish to each such Holder a reasonable number
of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) use its best efforts to list any portion of such
Registrable Shares not already listed on any securities exchange on
which similar securities of the Company are then listed, and enter
into customary agreements including a listing application and
indemnification agreement in customary form, provided that the
applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such
registration statement not later than the effective date of such
registration statement;
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
as each Holder of Registrable Shares being sold or the underwriter or
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares, including
customary indemnification and opinions.
(ix) use its best efforts to obtain a "cold comfort" letter
or letters from the Company's independent public
9
<PAGE> 10
accountants in customary form and covering matters of the type
customarily covered by "cold comfort" letters as the Holders of the
Registrable Shares being sold or the underwriters retained by such
Holders shall reasonably request;
(x) make available for inspection by representatives of any
Holder of Registrable Shares covered by such registration statement,
by any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by such Holders or any such
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries'
officers, directors and employees to supply all information and
respond to all inquiries reasonably requested by such Holders or any
such representative, underwriter, attorney, accountant or agent in
connection with such registration statement;
(xi) promptly prior to the filing of any document which is to
be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement),
provide copies of such document to counsel to the Holders of
Registrable Shares covered by such registration statement and to the
managing underwriter or underwriters, if any, make the Company's
representatives available for discussion of such document and make
such changes in such document prior to the filing thereof as counsel
for such Holders or underwriters may reasonably request;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the
effective date of the registration statement, an earnings statement
which shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations promulgated thereunder;
(xiii) not later than the effective date of the applicable
registration statement, use its best efforts to provide a CUSIP number
for any portion of such Registrable Shares not already included in a
CUSIP number for similar securities of the Company, and provide the
applicable transfer agents with printed certificates for the
Registrable Shares which are in a form eligible for deposit with the
Depository Trust Company;
(xiv) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter
or underwriters, if any, immediately and confirm the notice in
writing, (A) when the registration statement, or any post-effective
amendment to the
10
<PAGE> 11
registration statement, shall have become effective, or any supplement
to the prospectus or any amendment prospectus shall have been filed,
(B) of the receipt of any comments from the SEC and (C) of any request
of the SEC to amend the registration statement or amend or supplement
the prospectus or for additional information; and
(xv) cooperate with each seller of Registrable Shares and
each underwriter, if any, participating in the disposition of such
Registrable Shares and their respective counsel in connection with any
filings required to be made with the NASD.
(b) Each Holder of Registrable Shares hereby agrees that,
upon receipt of any notice from the Company of the happening of any event of
the type described in Section 5(a)(vi) hereof, such Holder shall forthwith
discontinue disposition of such Registrable Shares covered by such registration
statement or related prospectus until such Holder's receipt of the copies of
the supplemental or amended prospectus contemplated by Section 5(a)(vi) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable Shares at
the time of receipt of such notice. In the event the Company shall give any
such notice, the period mentioned in Section 5(a)(ii) hereof shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 5(a)(vi) hereof and including the
date when such Holder shall have received the copies of the supplemental or
amended prospectus contemplated by Section 5(a)(vi) hereof. If for any other
reason the effectiveness of any registration statement filed pursuant to
Section 4 hereof is suspended or interrupted prior to the expiration of the
time period regarding the maintenance of the effectiveness of such Registration
Statement required by Section 5(a)(ii) hereof so that Registrable Shares may
not be sold pursuant thereto, the applicable time period shall be extended by
the number of days equal to the number of days during the period beginning with
the date of such suspension or interruption to and ending with the date when
the sale of Registrable Shares pursuant to such registration statement may be
recommenced.
(c) Each Holder hereby agrees to provide the Company, upon
receipt of its request, with such information about such Holder to enable the
Company to comply with the requirements of the Securities Act and to execute
such certificates as the Company may reasonably request in connection with such
information and otherwise to satisfy any requirements of law.
6. UNDERWRITTEN REGISTRATIONS.
Subject to the provisions of Sections 2, 3 and 4 hereof, any
of the Registrable Shares covered by a registration
11
<PAGE> 12
statement may be sold in an underwritten offering at the discretion of the
Holder thereof. In the case of an underwritten offering pursuant to Section 2
hereof, the managing underwriter or underwriters that will administer the
offering shall be selected by the Company; PROVIDED, HOWEVER, that such
managing underwriter or underwriters shall be reasonably satisfactory to the
Holders of a majority of the Registrable Shares to be registered. In the case
of any underwritten offering pursuant to Section 4 hereof, the managing
underwriter or underwriters that will administer the offering shall be selected
by the Holders of a majority of the Registrable Shares to be registered;
provided, however, that such underwriters shall be reasonably satisfactory to
the Company.
7. EXPENSES.
(a) Subject to Section 7(b), the Company shall pay all fees,
costs and expenses of all registrations pursuant to Section 2 hereof, including
all SEC and stock exchange or NASD registration and filing fees and expenses,
reasonable fees and expenses of any "qualified independent underwriter" and its
counsel as may be required by the rules of the NASD, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters, if any, in connection with blue
sky qualifications of the Registrable Shares), rating agency fees, printing
expenses (including expenses of printing certificates for Registrable Shares
and prospectuses), messenger, telephone and delivery expenses, the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange or national market system on which
similar securities issued by the Company are then listed, fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any annual audit, special audit and
"cold comfort" letters required by or incident to such performance and
compliance), the fees and disbursement of the underwriters customarily paid by
issuers or sellers of securities (including expenses relating to "road shows"
and other marketing activities), the reasonable fees and expenses of special
experts required to be retained by the Company in connection with such
registration, and the reasonable fees and expenses of other Persons required to
be retained by the Company (collectively, "Registration Expenses"); PROVIDED,
HOWEVER, that Registration Expenses shall not include (i) any allocation of the
overhead of the Company, including any allocation of the compensation or
benefits of employees of the Company that assist in a registration, or (ii) any
other expense to the extent it would have been incurred by the Company in the
absence of any sale of securities in connection with a registration pursuant to
this Agreement (including the cost of the Company's annual audit).
(b) The Holders shall pay the following: (i) all fees,
costs and expenses of all registrations effected pursuant to Section 4 hereof,
including all Registration Expenses, (ii)
12
<PAGE> 13
any underwriting discounts or commissions or transfer taxes, if any,
attributable to the sale of Registrable Shares by the Holders pursuant to this
Agreement and (iii) all fees, costs and expenses of counsel to the Holders
pursuant to this Agreement in connection with any registration pursuant to this
Agreement.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Sections 2 or 4 hereof, the Company will, and it hereby does, indemnify and
hold harmless, to the extent permitted by law, each of the Holders of any
Registrable Shares covered by such registration statement, each Affiliate of
such Holder and their respective directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Holder or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including any amounts paid in any settlement effected
with the Company's consent, which consent shall not be unreasonably withheld)
to which any Indemnified Party may become subject under the Securities Act,
state securities or blue sky laws, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof, whether or not such Indemnified Party is a party thereto) or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereof, (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating
to action required of or inaction by the Company in connection with any such
registration, and the Company will reimburse such Indemnified Party for any
legal or any other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED, HOWEVER, that the Company shall not be liable to any
Indemnified Party in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or
amendment or supplement thereof or in any such preliminary, final or summary
prospectus in reliance upon and in conformity with written information with
respect to such Holder furnished to the Company by such Holder specifically for
use in the preparation thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf
13
<PAGE> 14
of such Holder or any Indemnified Party and shall survive the transfer of such
securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. The
Company may require, as a condition to including any Registrable Shares in any
registration statement filed in accordance with Sections 2 or 4 hereof, that
the Company shall have received an undertaking reasonably satisfactory to it
from the Holders of such Registrable Shares or any underwriter to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
Section 8(a) hereof) the Company with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information with respect to the Holders of the Registrable Shares being
registered or such underwriter furnished to the Company by such Holders or such
underwriter specifically for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or supplement,
or a document incorporated by reference into any of the foregoing; provided,
however, that no such Holder shall be liable for any indemnity claims in excess
of the amount of the net proceeds received by such Holder from the sale of
Registrable Shares. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the Holders, or any of their respective Affiliates, directors, officers or
controlling Persons, and shall survive the transfer of such securities by such
Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; PROVIDED, HOWEVER, that the failure
of the indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 8, except to the
extent that the indemnifying party is actually materially prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that the indemnified party shall have the right, at the sole cost and
expense of the
14
<PAGE> 15
indemnifying party, to employ counsel to represent the indemnified party and
its respective controlling persons, directors, officers, employees or agents
who may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the indemnified party against such indemnifying
party under this Section 8 if (i) the employment of such counsel shall have
been authorized in writing by such indemnifying party in connection with the
defense of such action, (ii) the indemnifying party shall not have promptly
employed counsel reasonably satisfactory to the indemnified party to assume the
defense of such action or counsel, or (iii) any indemnified party shall have
reasonably concluded that there may be defenses available to such indemnified
party or its respective controlling persons, directors, officers, employees or
agents which are in conflict with or in addition to those available to an
indemnifying party; PROVIDED, FURTHER, that the indemnifying party shall not be
obligated to pay for more than the expenses of one firm of separate counsel for
the indemnified party (in addition to the reasonable fees and expenses of one
firm serving as local counsel). No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to any indemnified party under Section 8(a)
or 8(b) hereof or is insufficient to hold it harmless in respect of any loss,
claim, damage or liability, or any action in respect of any loss, claim, damage
or liability, or any action in respect thereof referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the indemnified party and
indemnifying party or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the indemnified party and indemnifying party with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. Notwithstanding any other provision of this Section
8(d), no Holder of Registrable Shares shall be required to contribute an amount
greater than the dollar amount of the proceeds received by such Holder with
respect to the sale of any such Registrable Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification similar to
that specified in the preceding subdivisions of this Section 8
15
<PAGE> 16
(with appropriate modifications) shall be given by the Company and each Holder
of Registrable Shares with respect of any required registration or other
qualification of securities under any federal or state law or regulation other
than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties
under this Section 8 shall be in addition to any liability which
any party may otherwise have to any other party.
9. RULE 144. The Company covenants that it will file in a
timely manner the reports required to be filed by it under the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder (or,
if the Company is not required to file such reports, it will, upon the request
of any Holder of Registrable Shares, make publicly available such information),
and it will take such further action as any Holder of Registrable Shares may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Shares without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Shares, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
10. ASSIGNABILITY. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as provided herein, no party may
assign any of its rights or delegate any of its duties under this Agreement
without the express consent of the other parties hereto. In addition, and
whether or not any express assignment shall have been made, the provisions of
this Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any subsequent
Holder of any Registrable Shares, subject to the provisions contained herein.
Any Holder may assign any of its rights or delegate any of its duties under
this Agreement; in whole or in part, without any prior consent of the Company,
only to a Person (a "Designated Transferee") (a) who is an Affiliate of
National City or (b) who is a transferee of Registrable Shares (whether through
purchase, share exchange, bequest or otherwise) and who agrees to be bound by
the terms of this Agreement. Any purported assignment in violation of this
Section 11 shall be void.
11. NOTICES. Any and all notices, designations, consents,
offers, acceptances or any other communications shall be given in writing by
either (a) personal delivery to and receipted for by the addressee or by (b)
telecopy or registered or certified mail which shall be addressed, in the case
of the Company, to: Richard A. Alston, 1231 Durrett Lane, Louisville, Kentucky
40285-0001, fax no. (502) 364-2284; in the case of
16
<PAGE> 17
Holders, to the address or addresses thereof appearing on the books of the
Company or of the transfer agent and registrar for its Common Stock.
All such notices and communications shall be deemed to have
been duly given and effective: when delivered by hand, if personally delivered;
two business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt acknowledged, if telecopied.
12. NO INCONSISTENT AGREEMENTS. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement.
13. SPECIFIC PERFORMANCE. The Company acknowledges that the
rights granted to the Holders in this Agreement are of a special, unique and
extraordinary character, and that any breach of this Agreement by the Company
could not be compensated for by damages. Accordingly, if the Company breaches
its obligations under this Agreement, the Holders shall be entitled, in
addition to any other remedies that they may have, to enforcement of this
Agreement by a decree of specific performance requiring the Company to fulfill
its obligations under this Agreement. The Company consents to personal
jurisdiction in any such action brought in the United States District Court for
the Northern District of Ohio or any such other court and to service of process
upon it in the manner set forth in Section 11 hereof.
14. SEVERABILITY. If any provision of this Agreement or any
portion thereof is finally determined to be unlawful or unenforceable, such
provision or portion thereof shall be deemed any portion of such invalidated
provision that is not invalidated by such a determination, shall remain in full
force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
16. DEFAULTS. A default by any party to this Agreement in
such party's compliance with any of the conditions or covenants hereof or
performance of any of the obligations of such party hereunder shall not
constitute a default by any other party.
17. AMENDMENTS, WAIVERS. This Agreement may not be amended,
modified or supplemented and no waivers of or consents to departures from the
provisions hereof may be given unless consented to in writing by the Company
and the holders of a majority of the Registrable Shares; provided, however,
that no such amendment, supplement, modification or waiver shall deprive any
Holder of any rights under Sections 2 or 4 hereof without the consent of such
Holder.
17
<PAGE> 18
18. CONSTRUCTION. The captions contained in this Agreement
are for reference purposes only and shall not constitute a part of this
Agreement. Unless the context requires otherwise, the use of the masculine
shall include the feminine, and the use of the singular shall include the
plural. The word "including" shall mean "including, without limitation,".
19. ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available remedy.
20. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions
contemplated herein and understandings among the parties relating to the
subject matter hereof. Any and all previous agreements and understandings
between or among the parties hereto regarding the subject matter hereof are,
whether written or oral, superseded by this Agreement.
21. GOVERNING LAW. This Agreement is made pursuant to and
shall be construed in accordance with the laws of the State of New York,
without regard to that state's conflicts of laws principles. The parties hereto
submit to the non-exclusive jurisdiction of the courts of the State of Ohio in
any action or proceeding arising out of or relating to this Agreement.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective authorized officers as of the date
first written above.
NATIONAL CITY CORPORATION
By /s/ Thomas A. Richlovsky
-----------------------------
Name: Thomas A. Richlovsky
Title: Senior Vice President &
Treasurer
NATIONAL PROCESSING, INC.
By /s/ Richard A. Alston
-----------------------------
Name: Richard A. Alston
Title: Executive Vice President
<PAGE> 1
Exhibit 5.1
July 18, 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 Amendment No. 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 10.3
BUILDING LEASE
--------------
Lease made as of September 1, 1984, between FIRST NATIONAL BANK
OF LOUISVILLE, a national banking association, with principal offices at 101
South Fifth Street, Louisville, Kentucky 40202 ("Lessor") and NPC OF ARIZONA,
INC., an Arizona corporation havings its principal place of business at 16402
North 28th Avenue, Phoenix, Arizona 85023 ("Lessee").
IN CONSIDERATION OF the mutual covenants contained herein, the
parties agree as follows:
1. DESCRIPTION OF PREMISES. Lessor leases to Lessee, and Lessee
leases from Lessor, the premises located at 1231 Durrett Lane, Louisville,
Jefferson County, Kentucky and described more particularly in Exhibit A hereto
(the "Premises").
2. TERM. (a) The term of this Lease is thirty-five (35) years,
beginning on September 1, 1984 and ending on August 31, 2019, unless earlier
terminated as herein provided (the "Term").
(b) This lease may be terminated by Lessor, in its sole
discretion, upon one year's advance written notice to Lessee, in the event
Lessee ceases to be a wholly owned subsidiary of First Kentucky National
Corporation.
3. RENT. Lessee shall pay to Lessor at its address set forth in
the heading to this Lease, or such other place as Lessor shall designate,
semiannual rental payments in arrears on the first day of each January and July
during the Term, commencing January 1, 1985, and determined as follows (the
"Rent"):
(i) a total rental of $4,172,588.03 payable
in 70 consecutive semiannual payments as set forth in the Schedule I
attached hereto, plus
(ii) a supplemental rent payment, commencing with
the first base rental payment computed by using a per annum interest rate equal
to the prime rate of interest generally charged by the Lessor from time to time
to its most substantial and creditworthy commercial borrowers for 90-day
unsecured loans with changes in such prime rate becoming effective immediately
the supplemental rent shall be computed on the unpaid balance of the total
rental outstanding during the period preceding each prior base rental payment at
the prime rate in effect on the fifteenth (15th) day prior to the rental payment
date. The Lessor will notify the Lessee of the supplemental rent payment amount,
at least ten (10) days prior to the Rent Payment Date.
4. USE. Lessee shall occupy and use the Premises for the
purposes of an item processing business. Lessee shall restrict its use to such
purposes, and shall not use or permit the use of the Premises for any other
purpose without the written consent of Lessor. Lessee shall not occupy or use
the Premises or
<PAGE> 2
permit the Premises to be occupied or used for any purpose, act or thing which
is in violation of any public law, ordinance or governmental regulation; which
may be dangerous to persons or property; or which may invalidate or increase the
amount of premiums for any policy of insurance carried on the Premises or
covering its operation or violate the terms thereof; provided, however, that if
any additional amounts of insurance premiums are caused by Lessee's occupancy or
use of the Premises, Lessee shall pay Lessor said additional amounts. Lessee, at
its sole expense, shall comply with, and shall not do or permit anything to be
done upon the Premises, or bring or keep anything thereon which is in violation
of, any public law, ordinance or governmental regulation or requirement of any
authority having jurisdiction over the Premises. Lessee shall not do or permit
anything to be done upon the Premises which in any way may create a nuisance,
disturb the occupants of neighboring property or injure the reputation of the
Premises.
5. TAXES, UTILITIES AND OTHER CHARGES.
(a) This Lease is intended to be an absolute net lease, and
payments hereunder are intended to be net to Lessor.
(b) All taxes, assessments, licenses, and other charges
(including, without limitation, personal and real property taxes and sales, use
and leasing taxes) imposed, levied or assessed on the ownership, possession,
rental or use of the Premises during the Term (except for Federal and State net
income taxes) shall be paid by Lessee before the same shall become delinquent,
whether such taxes would ordinarily be assessed against Lessor or Lessee. In
case of failure of Lessee to pay said taxes, assessments, licenses or other
charges, Lessor may pay all or any part of such items, in which event the amount
so paid by Lessor shall be immediately payable by Lessee to Lessor as additional
rental hereunder.
(c) Lessee shall arrange and pay for all utilities furnished to
the Premises for the Term, including, without limitation, electricity, gas,
water, sewer and telephone services.
(d) Lessee shall make all rental payments under the
Ground Lease (as defined in Section 16).
(e) Lessee shall promptly pay all costs, expenses and
obligations of every kind and nature incurred in connection with the use,
operation, rental, possession or ownership of the Premises which may arise or
become due during the Term, whether or not specifically mentioned herein.
6. ASSIGNMENT AND SUBLETTING.
(a) Lessee shall not, without the prior consent of Lessor: (i)
assign, sublease, convey, encumber or mortgage this Lease or any interest
hereunder; (ii) allow any transfer hereof or any lien upon Lessee's interest
hereunder by operation of
<PAGE> 3
law; or (iii) permit the use or occupancy of the Premises by any Party other
than Lessee, its agents and employees.
(b) All cash or other proceeds of any assignment, sale or
sublease of Lessee's interest in this Lease, whether consented to by Lessor or
not, shall be paid to Lessor notwithstanding the fact that such proceeds exceed
the Rent, unless Lessor agrees to the contrary in writing, and Lessee hereby
assigns all rights it might have or ever acquire in any such proceeds to Lessor.
7. REPAIRS AND MAINTENANCE. Lessee shall maintain the Premises
and keep them in good repair at its expense, such maintenance and repair shall
include, but not be limited to, windows, doors, skylights, adjacent sidewalks,
the front, side and rear exterior walk, the roof, the interior walls, plumbing,
electrical, heating, ventilation and air conditioning, and structural repairs of
every nature. The Lessee is obligated to maintain and repair the Premises
regardless of whether the necessary work is deemed an expense or capital in
nature.
8. ALTERATIONS AND IMPROVEMENTS.
(a) Lessee shall not, without prior written consent of Lessor,
make any alterations, improvements, additions or installations or perform any
decorating, painting or other similar work in or about the Premises. Lessee
agrees to hold Lessor and Lessor's agents and employees forever harmless against
all claims and liabilities of every kind, nature and description which may arise
out of or in any way be connected with such work. All such work shall be done
only by contractors or mechanics approved by Lessor and at such time and in such
manner as Lessor may from time to time designate. Lessee shall pay the cost of
all such work and the cost of decorating the Premises occasioned thereby. Upon
completion of such work, Lessee shall furnish Lessor with contractors'
affidavits and full and final waivers of lien and receipted bills covering all
labor and materials expended and used in connection therewith. All such work
shall comply with all insurance requirements and with all laws, ordinances,
rules and regulations of all governmental authorities, and shall be done in a
good and workmanlike manner and with the use of good grades of materials. Lessee
shall permit Lessor to supervise construction operations in connection with such
work.
(b) Lessee agrees not to suffer or permit any lien of any
mechanic or materialman to be placed or filed against the Premises. In case any
such lien shall be filed, Lessee shall immediately satisfy and release such lien
of record. If Lessee shall fail to have such lien immediately satisfied and
released of record, Lessor may, on behalf of Lessee, without being responsible
for making any investigation as to the validity thereof, pay the amount of said
lien and Lessee shall promptly reimburse Lessor therefor. Lessee has no
authority or power to
<PAGE> 4
cause or permit any lien or encumbrance of any kind whatsoever, whether created
by act of Lessee, operation of law or otherwise, to attach to or be placed upon
Lessor's title or interest in the Premises, and any and all liens and
encumbrances created by Lessee shall attach to Lessee's interest only.
9. DELIVERY, ACCEPTANCE, AND SURRENDER OF PREMISES. Lessee
represents that it has inspected the Premises and the Premises are in fit
condition for use by Lessee. Acceptance of the Premises by Lessee shall be
construed as recognition that the Premises are in good state of repair and in
sanitary condition and fit for Lessee s intended uses. Lessee shall surrender
the Premises at the end of the Term, or any renewal thereof, in the same
condition as when Lessee took possession, allowing for reasonable use and wear,
and damage by acts of God, including fires and storms. Before delivery, Lessee
shall remove all business signs placed on the Premises by Lessee and restore the
portion of the Premises on which they were placed in the same condition as when
received.
10. NONLIABILITY OF LESSOR FOR DAMAGES. Lessor shall not be
liable for liability or damage claims for injury to persons or property from any
cause relating to the occupancy of the Premises by Lessee, including those
arising out of damages or losses occurring on sidewalks and other areas adjacent
to the Premises during the Term or any extension thereof. Lessee shall indemnify
Lessor from all liability, loss, or other damage claims or obligations resulting
from injuries or losses of this nature.
11. LESSOR'S REMEDIES.
(a) If any voluntary or involuntary petition or similar
pleading is filed in any court seeking to declare Lessee bankrupt, insolvent or
unable to pay its debts, or seeking a plan of reorganization or arrangement
under the Bankruptcy Code, and such petition or pleading is not withdrawn or
denied within five days of its filing, then and in any such event Lessor may, if
Lessor so elects but not otherwise, and with or without notice of such election,
and with or without entry or other action by Lessor, immediately terminate this
Lease and notwithstanding any other provision of this Lease, Lessor shall
immediately upon such termination be entitled to recover damages in an amount
equal to the then present value of the Rent for the remainder of the Term, plus
any other sums owed by Lessee to Lessor, less the then present value of the fair
rental value of the Premises for the remainder of the Term (both discounted at
the rate of 4% per annum, convertible monthly).
(b) In the event: (i) Lessee defaults in the payment of Rent
and does not cure the default within five days after demand for payment thereof;
(ii) Lessee defaults in the prompt and full performance of any other provision
of this Lease and does not cure the default within ten days after demand by
<PAGE> 5
Lessor, that the default be cured; (iii) the leasehold interest of Lessee is
levied upon under execution or is attached by process of law and such execution
or attachment is not promptly released; (iv) Lessee makes an assignment for the
benefit of creditors, admits its inability to pay its debts or takes any action
towards a general compromise of its debts or a composition with its creditors or
a receiver or trustee is appointed for any property of Lessee; or (v) Lessee
abandons the Premises; then and in any such event Lessor may, if Lessor so
elects, and with or without notice of such election, and with or without any
demand whatsoever, either immediately terminate this Lease and Lessee's right to
possession of the Premises or, without terminating this Lease, immediately
terminate Lessee's right to possession of the Premises.
(c) Upon termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Lessee's right to possession of the
Premises without termination of the Lease, Lessee shall surrender and vacate the
Premises immediately and deliver possession thereof to Lessor in a clean, good
and tenantable condition. Upon such termination Lessee shall be entitled to
remove, without damage to the Premises, movable office furniture, trade
fixtures, office machines, equipment and special lighting fixtures which may be
removed without damage to the Premises. All other equipment additions,
decorations, fixtures, hardware, non-trade fixtures and all improvements,
temporary or permanent, in or about the Premises, whether placed there by Lessee
or by Lessor, shall, unless Lessor directs their removal, become Lessor's
property and shall remain upon the Premises without compensation, allowance or
credit to Lessee. In the event possession is not immediately delivered to Lessor
or if Lessee shall fail to remove all such property which it is entitled or
directed to remove, Lessee hereby grants to Lessor full and free license to
enter into and upon the Premises with or without process of law for the purpose
of returning to Lessor the Premises as of Lessor's former estate, to expel or
remove Lessee and any others who may be occupying the Premises and to remove any
and all property therefrom, using such force as may be necessary, without being
deemed guilty of trespass, eviction or forcible entry or detainer, and without
relinquishing Lessor's right to Rent or any other right hereunder.
(d) If Lessee abandons the Premises or otherwise entitles Lessor
so to elect, and the Lessor elects to termiuate Lessee's right to possession
only without terminating this Lease, Lessor may, at Lessor's option, enter into
the Premises, remove Lessee's signs and other evidences of tenancy, and take and
hold possession thereof as in Subsection (c) above; provided, however, that such
entry and possession shall not terminate this Lease or release Lessee, in whole
or in part, from Lessee's obligation to pay Rent hereunder for the full Term,
and in any such case, if Lessor so elects, payment of future installments of
Rent shall be accelerated, and Lessee shall pay forthwith to Lessor a sum equal
to the entire amount of the Rent for the
<PAGE> 6
remainder of the Term plus any other sums then due to Lessor hereunder. Upon
and after entry into possession without termination of the Lease, Lessor may,
but need not, relet the Premises or any part thereof for the account of Lessee
to any person, firm or corporation other than Lessee for such rent, for such
term and upon such conditions as Lessor in Lessor's sole discretion shall
determine, and Lessor shall not be required to accept any tenant offered by
Lessee or to observe any instructions given by Lessee concerning such
reletting. In any such case, Lessor may make repairs, alterations and additions
in or to the Premises, and redecorate the same to the extent deemed necessary or
desirable by Lessor, and Lessee shall, upon demand, pay the cost thereof
together with Lessor's expenses of the reletting. If the rent collected by
Lessor upon any such reletting for Lessee's account is insufficient to pay when
due the full amount of: unpaid Rent; all expenses of repairs, alterations,
improvements, additions and redecorating; and all of Lessor's expenses of
reletting, including brokers' commissions, Lessee shall pay to Lessor from time
to time the amount of each monthly deficiency promptly upon demand.
(e) Any and all property which may be removed from the Premises
by Lessor pursuant to Subsections (c) and (d) above or pursuant to law shall be
conclusively presumed to have been abandoned by Lessee and title thereto shall
pass to Lessor without any cost by setoff, credit or otherwise, and Lessor may,
at its option: (i) accept title to such property in which event Lessee shall be
conclusively presumed to have conveyed such property to Lessor under this Lease
as a bill of sale; (ii) at Lessee's expense, dispose of such property in any
manner that Lessor shall choose; or (iii) at Lessee's expense, store such
property. In no event, however, shall Lessor be responsible for the value,
preservation or safekeeping of such property.
(f) Lessee shall pay upon demand all of Lessor's costs, charges
and expenses, including attorneys' fees, incurred by Lessor in enforcing
Lessee's obligations hereunder.
(g) If Lessee shall default in the performance of any of its
obligations hereunder and such default shall continue after the expiration of
any notice or grace period herein provided, Lessor may perform such obligation
for the account and expense of Lessee without notice, and Lessee shall reimburse
Lessor therefor upon demand.
(h) All rights and remedies of Lessor under this Section 11 and
elsewhere in this Lease shall be distinct, separate and cumulative and none
shall exclude any other right or remedy of Lessor set forth in this Lease or
allowed by law. Lessee's obligations under this Section 11 shall survive the
expiration of the Term.
<PAGE> 7
12. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises are made substantially untenantable by fire
or other casualty, Lessor may elect either to: (i) terminate this Lease as of
the date of such fire or other casualty by delivery of notice of termination to
Lessee within sixty days after said date and retain for itself all insurance
proceeds; or (ii) make such insurance proceeds available to the Lessee and
require the Lessee without termination of this Lease proceed with due diligence
to repair, restore or rehabilitate the Premises at Lessee's expense.
(b) If the Premises are damaged by fire or other casualty but
are not made substantially untenantable, then the Lessor shall make all
insurance proceeds available to the Lessee and the Lessee shall proceed with due
diligence to repair and restore the Premises at Lessee's expense, unless such
damage occurs during the last twelve months of the Term, in which event Lessor
or Lessee shall have the right to terminate this Lease as of the date of such
fire or other casualty by delivery of written notice of termination to the other
within thirty days after said date.
(c) If all or any part of the Premises are rendered
substantially untenantable by fire or other casualty not due to the act or
neglect of Lessee, its employees, agents or servants and this Lease is not
terminated, Rent shall abate for all of said part of the Premises which are
untenantable on a per diem basis from and after the date of the fire or other
casualty and until the Premises are repaired and restored. The Lessee's
obligation to pay other expenses, such as taxes, insurance and the like shall
not abate nor shall the Lessee's obligations to pay additional rent abate.
(d) Prior to making insurance proceeds available to the Lessee,
the Lessee shall provide the Lessor with a cost estimate for the restoration. If
the cost estimate is greater than the insurance proceeds, no such proceeds will
be disbursed to the Lessee until the Lessee pays out the difference from its own
sources. If the cost estimate is equal to or less than the insurance proceeds,
the Lessor may disburse the insurance proceeds as restoration progresses and may
require proof that the Lessee has paid for all costs as incurred. All excess
insurance proceeds shall be the sole property of the Lessor.
13. LIABILITY AND CASUALTY INSURANCE.
(a) Lessee shall procure and maintain in force at its expense
during the Term and any extension thereof public liability insurance with
insurers and through brokers approved by Lessor. Such coverage shall be in the
minimum amount of $1,000,000.00. The insurance policies shall provide coverage
for contingent liability of Lessor on any claims or losses. The policies shall
be delivered to Lessor for keeping. Lessee shall obtain a written obligation
from the insurers to notify Lessor in writing at least 30 days prior to
cancellation or refusal to renew any policy.
<PAGE> 8
(b) The Lessee, at its expense, shall insure at all times during
the Term, for the benefit of Lessee and Lessor, as their respective interests
may appear, the Premises against loss or damage by fire, casualty, or other
perils covered by a standard extended coverage endorsement and such other perils
as Lessor may reasonably require for the full replacement value of the Premises
(as determined from time to time by the Lessor) in a responsible insurance
company satisfactory to the Lessor and qualified to transact insurance business
in the Commonwealth of Kentucky. Such insurance policy shall be made payable in
the event of loss or damage to the Lessee and the Lessor as their respective
interests may appear. Said policy (i) shall also contain a provision that it may
be cancelled, amended, or modified by the issuing insurance company, even for
nonpayment of premiums, only after thirty (30) days' prior written notice
thereof shall have been given to the Lessor; and (ii) shall also contain a
provision providing for waiver of subrogation against the Lessor; and (iii)
shall provide that Lessee shall have a deductible of not more than $1,000. Said
policy shall contain " an agreed-value" endorsement satisfactory to the Lessor
in its sole discretion. Lessee shall promptly upon the execution hereof deliver
to the Lessor a certificate of or the original insurance policies evidencing
such insurance coverage, together with proof of payments of the premiums , and
the Lessee subsequently shall deliver all renewals thereof prior to the
respective expiration thereof from time to time. The Lessee shall also, from
time to time, affect such further, additional, or different insurance coverage
with respect to the Premises as the Lessor shall demand or require.
(c) If the insurance policies are not kept in force during the
entire term of this Lease or any extension thereof, Lessor may procure the
necessary insurance and pay the premium therefor, shall be immediately payable
by Lessee to Lessor as additional rental hereunder.
14. ENTRY ON PREMISES BY LESSOR. Lessor reserves the right to enter
on the Premises at reasonable times to inspect them, perform required
maintenance and repairs, which the Lessee has failed to perform and which
seriously impair the value of the Premises or create an unsafe or hazardous
condition, and Lessee shall permit Lessor to do so. Lessor may erect
scaffolding, fences, and similar structures, post relevant notices, and place
moveable equipment in connection with making repairs, all without incurring
liability to Lessee for disturbance of quiet enjoyment of the Premises, or loss
of occupation thereof. Lessee shall be responsible for the cost of making
repairs or maintenance and such cost shall be immediately payable by Lessee to
Lessor as additional rental hereunder.
15. EMINENT DOMAIN.
(a) In the event the whole or any substantial part of the
Premises shall be taken or condemned by any competent
<PAGE> 9
authority for any public or quasi-public use or purpose, this Lease shall
terminate as of the date of the taking of Possession by the condemning
authority, and Rent shall be apportioned as of said date.
(b) in the event less than a substantial part of the Premises shall be
taken or condemned for any public or quasi-public use or purpose, or if any
adjacent property or street shall be condemned or improved in such manner as to
require the use of any part of the Premises, then at the election of Lessor
expressed by delivery of written notice to Lessee within ninety days after said
date of taking, condemnation or improvement, this Lease shall terminate as of
said date without any payment to Lessee therefor.
(c) Lessor shall be entitled to receive the entire award from any taking
condemnation without any payment to Lessee, and Lessee hereby assigns to Lessor
Lessee's interest, if any, in such award.
16. GROUND LEASE COMPLIANCE. The Lessee acknowledges receipt of a
copy of the ground lease dated January 16, 1969 and the amendment thereto dated
April 20, 1971 (the "Ground Lease"). The Lessee shall comply with all of the
provisions of the Ground Lease which are to be observed or performed during the
Term hereof by the lessee thereunder, including the payment of Rent thereunder.
Insofar as the provisions of the Ground Lease do not conflict with specific
provisions herein contained, they and each of them are incorporated into this
Building Lease as fully as if completely rewritten herein, and the Lessee agrees
to be bound to the Lessor by all of the terms thereof, and to assume toward the
Lessor and perform all of the obligations and responsibilities that the lessee
under the Ground Lease would assume toward the lessor thereunder. So long as
Lessee is not in default under the terms and conditions of this Lease or this
Lease is not terminated prior to the expiration of the Term, Lessee shall have
the right of quiet enjoyment of the ground lease premises with right of ingress
and egress, subject to the provision of Section 17 hereof.
17. SUBORDINATION OF LEASE AND ATTORNMENT.
(a) This Lease and the rights of Lessee hereunder shall be and
are hereby made expressly subject and subordinate at all times to the Ground
Lease of the real estate under and/or surrounding Premises now or hereafter
existing and all amendments, renewals and modifications thereto and extensions
thereof. Lessee agrees to execute and deliver such further instruments
subordinating this Lease to the Ground Lease as may be requested in writing by
Lessor from time to time. Lessee hereby appoints Lessor as attorney-in-fact for
Lessee with full power and authority to execute and deliver in the name of
Lessee any such instrument in the event Lessee fails to do so.
<PAGE> 10
(b) Lessee agrees that the cancellation or termination of any
such Ground Lease in accordance with its terms or by the surrender thereof,
whether voluntary, involuntary or by operation of law, shall not result in the
termination of this Lease or the Lessee's obligations hereunder, unless said
ground lessor elects in writing to terminate this Lease. In the absence of such
election, Lessee shall attorn to and recognize such ground lessor as Lessee's
Lessor under this Lease. Lessee agrees to execute and deliver at any time upon
request of such ground lessor, or its successor, any instrument to further
evidence such attornment. Lessee hereby waives its right, if any, to elect to
terminate this Lease or to surrender possession of the Premises in the event
of any such Ground Lease termination.
(c) Lessee acknowledges that its title is and always shall be
subordinate to the title of the owner of the Premises, and nothing herein
contained shall empower Lessee to do any act which can, shall or may encumber
the title of the owner of the Premises.
18. HOLDING OVER. If the Lessee retains possession of the
Premises or any part thereof after the termination of this Lease, by lapse of
time or otherwise, Lessee shall pay to Lessor the semiannual installments of
Rent, at double the rate payable for each semiannual period or part thereof
(without reduction for any such partial period) that the Lessee thus remains in
possession, and, in addition thereto, the Lessee shall pay to the Lessor all
direct and consequential damages sustained by reason of Lessee's retention of
possession. Alternatively, at the election of the Lessor expressed in a
written notice to the Lessee and not otherwise, such retention of possession by
the Lessee shall constitute a renewal of this Lease on all the terms and
conditions contained herein for a period of one year. The provisions of this
Section 18 shall not be deemed to limit or exclude any of the Lessor's rights
of reentry or any other right granted to the Lessor hereunder or under law.
19. NOTICES.
(a) All notices to be given by one party to the other under this
Lease shall be in writing and served, in the manner hereinafter described, at
the following addresses:
To Lessor at the address stated in the heading to this Lease, or
at such other address as Lessor shall designate by notice to Lessee.
To Lessee: Prior to the commencement of the Term--at
the address stated in heading to this Lease hereof. After the
commencement of the Term--at the Premises or at such other
address as Lessee shall designate by notice to Lessor.
(b) Notices shall be effectively served by Lessor
upon Lessee as follows:
<PAGE> 11
(i) by hand delivery to Lessee or to a representative of Lessee;
(ii) by mailing by certified or registered mail, postage prepaid,
return receipt requested; or
(iii) by leaving a copy at the Premises.
(C) Notices shall be effectively served by Lessee upon Lessor as
follows:
(i) by hand delivery to an officer of Lessor; or
(ii) by mailing by certified or registered mail, postage prepaid,
return receipt requested.
20. MISCELLANEOUS.
(a) All unpaid amounts due to Lessor under this Lease for Rent
shall bear interest at a rate per annum equal to the prime rate of interest
generally charged by First National Bank of Louisville from time to time to its
most substantial and creditworthy commercial customers for 90-day unsecured
loans from the date due until paid. All other amounts due to Lessor under this
Lease shall be considered as Rent, and if unpaid when due shall bear interest at
a rate per annum equal to the prime rate of interest generally charged by First
National Bank of Louisville from time to time to its most substantial and
creditworthy commercial customers for 90-day unsecured loans from the date until
paid.
(b) All of the representations, agreements and obligations of
Lessor are contained herein, and no modification, waiver or amendment of the
provisions of this Lease shall be binding upon Lessor unless in writing and
signed by Lessor or by a duly authorized agent of Lessor.
(C) No receipt of money by Lessor from Lessee after the
termination of this Lease or Lessee's right to possession of the Premises, the
service of any notice, the commencement of any suit, or any final judgment for
possession of the Premises, shall reinstate, continue or extend the Term or
affect any such event.
(d) No waiver of any default of Lessee hereunder shall be
implied from any failure by Lessor to take any action on account of such
default, whether or not such default persists or is repeated, and no express
waiver shall affect any default other than the default specified in such waiver
and then only for the time and to the extent therein stated.
<PAGE> 12
(e) The headings or captions of Sections are for convenience only, are
not part of this Lease, and shall not affect the interpretation of this Lease.
(f) This Lease and the terms and conditions hereof apply to and are
binding on the, legal representation, successors and assigns of both parties.
(g) This Lease shall be governed by and construed in accordance with
the laws of the Commonwealth of Kentucky.
(h) Time is of the essence in all provisions of this Lease.
IN WITNESS WHEREOF, Lessor and Lessee have caused this instrument to be
duly executed as of the date first written above.
LESSOR: FIRST NATIONAL BANK OF LOUISVILLE
By: /s/ George B. Wombwell
------------------------------
George B. Wombwell
Senior Vice President
LESSEE: NPC OF ARIZONA, INC.
By: /s/ Michael L. Douglas
------------------------------
Michael L. Douglas
President
37CON/6V
<PAGE> 13
SCHEDULE I
----------
to Building Lease dated as of September 1, 1984 between FIRST NATIONAL BANK OF
LOUISVILLE and NPC OF ARIZONA, INC.
Payment Periods Base Rent
- --------------- ---------
January 1, 1985 $45,902.33
July 1, 1985 through July 1, 1991 68,853,50
January 1, 1992 through July 1, 2004 65,214.13
January 1, 2005 through July 1, 2006 55,697.51
January 1, 2007 through July 1, 2019 50,508.94
37CON/6V/13
<PAGE> 14
EXHIBIT A
to Building Lease dated as of September 1, 1984 between FIRST NATIONAL BANK OF
LOUISVILLE and NPC OF ARIZONA, INC.
The following described property located in Louisville, Jefferson
County, Kentucky:
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
<PAGE> 15
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.
Subject to all encumbrances, easements and leases of record.
37CON/7P
<PAGE> 1
EXHIBIT 10.4
SPONSORSHIP AGREEMENT
---------------------
This Sponsorship Agreement is made between National Processing
Company ("NPC") and National City Bank of Kentucky ("NCB") effective June 30,
1996 ("Effective Date").
WITNESSETH:
WHEREAS, NCB is a member in good standing of Visa U.S.A., Inc.
("Visa") and a member in good standing of MasterCard International, Incorporated
("MasterCard"); and
WHEREAS, NPC, pursuant to its arrangements with NCB, a member
of Visa and MasterCard, provides data processing, settlement and authorization
services for merchants who participate in the Visa and MasterCard bankcard
programs (such activities being referred to as "Merchant Bankcard Business");
and
WHEREAS, NPC and NCB have concluded that it is in their mutual
best interests for NPC to continue to act as an agent of NCB for purposes of
providing data processing, settlement and authorization services for merchants
with respect to their Visa and MasterCard transactions and in connection with
such agency arrangement, for NPC to continue to use NCB for certain banking
relationships; and
WHEREAS, the parties desire to formalize the terms and
conditions on which NPC will act as agent of NCB, and NPC will perform certain
functions, for purposes of conducting Merchant Bankcard Business;
NOW, THEREFORE, in consideration of the premises, the
representations, acknowledgments, and mutual agreements set out in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged by the parties, NPC and NCB represent, acknowledge and
agree as follows:
ARTICLE I - MERCHANT PROCESSING, SETTLEMENT AND AUTHORIZATION SERVICES
----------------------------------------------------------------------
1.1 APPOINTMENT AS AGENT. NCB appoints NPC, and NPC agrees to
serve, as NCB's sole agent (i) to provide authorization, processing and
settlement services with respect to Visa and MasterCard transactions ("Merchant
Processing Services") to merchants who desire to receive Merchant Processing
Services from NCB or NPC ("Merchants") and (ii) to enter into contracts with
merchants ("Merchant Contracts") for the provision of Merchant Processing
Services as agent of NCB; provided, however, that nothing herein shall limit
NPC's right to provide, as agent for other members of Visa and MasterCard,
Merchant Processing Services to merchants who desire to receive such services
from NCB or others. NCB agrees that NPC may use NCB's name and its BIN, ICA and
any other Visa and MasterCard identification numbers to the extent necessary or
appropriate to perform the Merchant Processing Services.
1.2 PERFORMANCE BY NPC. NPC shall have full responsibility for
the proper performance of the Merchant Processing Services under each Merchant
Contract except for the obligations and responsibilities which NCB assumes
hereunder. Without limiting the foregoing, NPC shall provide authorization
services to the Merchants, perform data capture services with respect to all
credit card transactions by the Merchants, submit such data to the applicable
Interchange, process retrievals and chargebacks, and direct the settlement of
such transactions. In providing Merchant Processing Services, NPC agrees to
comply with: (i) all Visa and MasterCard Bylaws, Manuals, Operating Regulations
and other written materials as they may from time to time be amended which bind
or apply to NCB as a member of Visa and MasterCard with respect to Merchant
Processing Services or to NPC as a third party processor with respect to
Merchant Processing Services ("Rules"), (ii) all agreements between Merchants
and NCB with respect to Merchant Processing Services, and (iii) all applicable
laws and regulations, whether state or federal. NPC agrees to enter into any
agreements with Visa and MasterCard necessary to perform this Agreement
1
<PAGE> 2
in accordance with its terms, subject to the rights of NPC to terminate this
Agreement pursuant to Section 6.2. Without in any way limiting the foregoing,
NPC agrees as follows: (a) any material containing any of the Visa Card Program
Marks used by it in performing this Agreement will prominently identify NCB by
name and city adjacent to such marks and, in identifying NPC, will specify that
NPC is acting as agent or representative of NCB; (b) any solicitation material
used by NPC shall clearly disclose that NPC is acting as agent or representative
of NCB; and (c) NPC acknowledges that it does not have authority to permit the
use of Visa Card Program Marks by any of its own agents. NPC and NCB agree that
the foregoing clauses shall be deemed modified from time to time to reflect any
changes in Visa's requirements applicable to NPC's use of Visa Card Program
Marks and solicitation material or to the terms required herein.
1.3 MERCHANT CONTRACTS. NPC, as agent of NCB, shall be
responsible for establishing the terms and conditions of the Merchant Contracts,
including all changes thereunder, subject to Section 1.7 below. Without in any
way limiting the authority granted in Section 1.1, NCB hereby authorizes NPC to
use NCB's name to the extent necessary or appropriate in accordance with the
terms of this Agreement to enter into and to renew Merchant Contracts, to modify
Merchant Contracts to the extent necessary to assign them to NCB, to perform the
Merchant Contracts and to take other necessary or appropriate actions with
respect to the Merchant Contracts, all in accordance with requirements of Visa
and MasterCard. As between NPC and NCB, NPC shall be responsible for all credit,
fraud and other risks associated with each Merchant Contract.
1.4 AUTHORIZATION SERVICES. NPC, or its designated third
parties, shall provide the Merchants with telephonic or electronic authorization
for all Visa and MasterCard transactions exceeding any floor amount specified
pursuant to such Merchant's contract.
1.5 PROCESSING AND SUBMISSION TO INTERCHANGE. NPC shall
process all data received by it reflecting the Visa and MasterCard sales
transactions and any related return credits by the Merchants and shall submit to
the applicable Visa or MasterCard interchange networks ("Interchange")
"Settlement Files" reflecting such transactions and directing the applicable
Interchange to pay the net amount due to an account established by NCB for the
purpose of receiving all settlement amounts paid by Visa and MasterCard with
respect to the transactions processed by NPC pursuant to this Agreement and
effecting appropriate payments to the Merchants and NPC in accordance with this
Agreement ("the NCB Account").
1.6 ACCOUNT SETTLEMENT.
(a) PAYMENT INSTRUCTIONS. NPC shall prepare and transmit to
NCB, in a mutually acceptable format, instructions specifying the
payments to be made from the NCB Account to the Merchants and to NPC
pursuant to this Agreement (the "Payment Instructions"). Payment
Instructions shall be delivered to NCB in accordance with the schedule
and procedures established from time to time by the parties.
(b) PAYMENT. In accordance with the Payment Instructions, NCB
shall pay the Merchants on a timely basis the net settlement amounts
due to them and shall credit NPC's account at NCB for the fees due to
NPC hereunder. Such payments to Merchants shall be effected through
mutually acceptable procedures which are consistent with the payment
procedures established pursuant to the Merchant Contracts. NPC shall
perform on NCB's behalf all of the administrative and bookkeeping
functions necessary to effect payment in such manner.
1.7 DUE DILIGENCE BY NCB; NPC'S STANDARDS.
(a) DUE DILIGENCE PRIOR TO EXECUTION OF AGREEMENT. Senior
management officials of NPC have met with senior management officials
of NCB and have discussed with the NCB officials the credit and
financial review procedures and standards used by NPC in deciding
whether to accept or retain Merchants as customers for Merchant
Processing Services, as well as NPC's experience with respect to any
losses resulting from financial failures or fraud by its merchant
customers. Schedule A attached hereto outlines the credit and financial
review procedures and standards currently used by NPC. NPC represents
2
<PAGE> 3
to NCB, and has provided NCB's senior management with financial
information showing, that for 1994 and 1995 combined, the losses
incurred by NPC as a result of financial failures or fraud by its
merchant customers have averaged less than .60% of NPC's net revenues
from Merchant Processing Services.
(b) CONTINUING DUE DILIGENCE: NPC'S RISK STANDARDS. NPC shall
keep NCB's senior management advised of any material changes in the
credit and financial review procedures and standards and of any
material exceptions to such procedures and standards which may from
time to time be made with respect to particular Merchants. NPC shall
not make any such changes or exceptions until its management committee
has approved such changes or exceptions after carefully evaluating the
relative advantages and disadvantages expected to result from such
changes or exceptions. NPC also shall continue to advise senior
management officials of NCB on a timely basis with respect to any
substantial loss (meaning any loss of $1,000,000 or more with respect
to a single Merchant or $3,000,000 or more in the aggregate in any
twelve month period) incurred by NPC as a result of any financial
failures or fraud by its merchant customers. If NCB's senior management
officials reasonably determine from time to time that any changes are
needed in NPC's credit and financial review procedures and standards or
in the implementation thereof in order to avoid any significant
increase in NPC's losses from financial failures or fraud by its
merchant customers, then NCB shall so notify NPC in writing, and NPC
and NCB shall mutually agree upon, and NPC shall implement appropriate
changes.
(c) DUE DILIGENCE BY NCB FOR NPC PRICING STANDARDS. Senior
management officials of NPC have met with senior management officials
of NCB and have discussed with the NCB officials the pricing procedures
and standards used for Merchants as customers for Merchant Processing
Services. NPC shall keep NCB's senior management advised of any
material changes in its pricing procedures and standards and of any
material exceptions to such procedures and standards which may from
time to time be made with respect to particular Merchants. NPC shall
not make any such changes or exceptions until its management committee
has approved such changes or exceptions after carefully evaluating the
relative advantages and disadvantages expected to result from such
changes or exceptions. If NCB's senior management officials reasonably
determine from time to time that any changes are needed in NPC's
pricing procedures and standards or in the implementation thereof, then
NCB shall so notify NPC in writing, and NPC and NCB shall mutually
agree upon, and NPC shall implement appropriate changes.
ARTICLE II - AUTHORITY OF JOINT OFFICERS
----------------------------------------
2.1 JOINT OFFICERS. In order to enhance NPC's effectiveness as
an agent of NCB, the parties agree and acknowledge that it is desirable for one
or more officers of NPC to serve also as an officer of NCB (the "Joint
Officers") so that such persons shall have clear authority to represent NCB on
matters relating to Merchant Processing Services. Accordingly, the Board of
Directors of NCB shall elect the NPC officers named in Schedule B as Contracting
Officers of NCB only with respect to matters pertaining to Merchant Processing
Services. From time to time during the term of this Agreement, the Board of
Directors of NCB may elect other officers of NPC as officers of NCB in addition
to or in lieu of the Joint Officers. The authority of each Joint Officer to act
as an officer of NCB shall terminate immediately upon termination of this
Agreement or the termination or suspension of employment of that person by NPC
for whatever reason or the removal of that person by the Board of Directors of
NCB as an officer of NCB.
2.2 AUTHORITY TO REPRESENT NCB. Each Joint Officer or its
designated representative shall have authority to be the designated recipient of
all letters, correspondence and other material from Visa and MasterCard to NCB
as a member which relate to Merchant Processing Services, to attend as NCB's
representative those meetings for members of Visa and MasterCard which relate to
Merchant Processing Services, to maintain on behalf of NCB copies of all
Merchant Contracts to which NCB is a party, to act generally as the NCB
representative with respect to Merchant Processing Services in discussions,
meetings and otherwise between NCB as a member and Visa or MasterCard, and to
take such other actions on behalf of NCB That may be required by applicable Visa
or MasterCard rules to be performed by a member and that are necessary or
appropriate in order to perform this Agreement and effect the parties' intent
with respect to this Agreement. NPC shall keep NCB, or such other person
3
<PAGE> 4
as may be designated by NCB, advised of all material, non-routine actions taken
on behalf of NCB by any of the Joint Officers and shall consult in advance with
NCB or such other designated person with respect to any material, non-routine
actions to be taken by any of the Joint Officers on behalf of NCB.
2.3 COMPENSATION. Except to the extent NCB and NPC otherwise
agree, all compensation of the Joint Officers shall be paid by NPC, and NCB
shall have no obligation to compensate any of the Joint Officers.
ARTICLE III - BANKING SERVICES
------------------------------
3.1 MERCHANT PROCESSING - BANKING SERVICES. As soon as
practicable after the Effective Date NPC shall enter into agreements or make
other mutually acceptable arrangements with NCB pursuant to which NCB will
provide those banking services which are necessary for NPC to provide the
Merchant Processing Services and which the parties wish NCB to provide.
3.2 AUTHORITY TO ESTABLISH BANK ACCOUNTS. Each Joint Officer
shall have authority to establish at NCB or any other mutually acceptable
financial institution any deposit accounts on behalf of NCB as may be necessary
to provide some or all of the Merchant Processing Services contemplated by this
Agreement for such periods as NCB and NPC agree. No provision of this Agreement
authorizes or shall be construed to authorize any Joint Officer or NPC to incur
any debt to NCB or any other financial institution, or to create any overdraft,
which NCB is obligated directly or indirectly to repay.
3.3 LOANS AND OVERDRAFTS. Nothing in this Agreement shall be
deemed to create any obligation on the part of NCB to loan or advance to NPC any
amounts in connection with Merchant Processing Services for any period of time.
ARTICLE IV - FEES AND EXPENSES
------------------------------
4.1 CHARGES TO MERCHANTS. As between NPC and NCB, NPC shall
receive all fees, discounts and other amounts payable by Merchants for Merchant
Processing Services with respect to Merchant Contracts.
4.2 EXPENSES. NPC shall bear all expenses of maintaining
facilities and connections necessary to provide Merchant Processing Services
except for the facilities and connection maintained by NCB for purposes of
effecting payments pursuant to Section 1.6(b). In addition, NPC agrees to pay or
reimburse NCB in full all interchange or issuer reimbursement fees on outgoing
merchant sales volume, as well as all fee assessments or charges imposed on NCB
by Visa or MasterCard as a result of the Merchant Processing Services performed
by NPC. Such fees shall be paid by NPC directly when due or shall be paid by NPC
to NCB on the banking day immediately prior to the day on which NCB must pay
such fees. All such fees, assessments and charges for which NCB seeks payment by
NPC shall, upon request, be documented to NPC's reasonable satisfaction as being
attributable to NPC's Merchant Processing Services.
ARTICLE V - INDEMNIFICATION
---------------------------
5.1 INDEMNIFICATION. NPC agrees to indemnify, defend and save
NCB, its directors, officers and employees harmless from all losses, claims,
judgments, awards, penalties, expenses and other amounts of any nature arising
out of:
(a) NPC's failure to perform this Agreement in accordance with
its terms, including, but not limited to, the failure to pay expenses,
charges and other amounts in accordance with the provisions of this
Agreement,
4
<PAGE> 5
(b) The negligent exercise of or the exceeding by any Joint
Officer of the authority granted pursuant to this Agreement to act as
an officer of NCB, or,
(c) NCB's grant of authority to NPC pursuant to this
Agreement,
including, but not limited to, all court costs, investigation expenses and the
reasonable fees and expenses of separate counsel for NCB selected by NCB,
provided, however, that NCB shall not be entitled to indemnification as to
amounts arising from the negligence or willful misconduct of NCB.
ARTICLE VI - COMPLIANCE MODIFICATIONS
-------------------------------------
6.1 COMPLIANCE MODIFICATIONS. In the event that:
(a) the laws, rules and/or regulations or any official
interpretations thereof applicable to NCB as a National Bank or the Visa
or MasterCard rules and/or regulations or any official interpretations
thereof applicable to NCB and the matters covered by this Agreement are
modified such that
(i) any modifications in the relationship or
transactions contemplated hereby between NCB and NPC or in the
provisions of this Agreement are needed to comply with any such
laws, rules, regulations or official interpretations thereof, or
(ii) some or all of the activities contemplated by this
Agreement are prohibited, or
(b) Visa or MasterCard requires, as a condition to performance
of this Agreement, that NPC enter into an agreement with Visa or
MasterCard that NPC considers unacceptable,
then at NPC's request, NCB will cooperate in making any modifications to this
Agreement and to the parties' relationship hereunder to the extent any such
modifications will permit NPC to continue processing, settling and authorizing
bankcard transactions (or continue performing some of such functions) in
compliance with the laws, rules, regulations or any official interpretations
thereof applicable to NCB as a National Bank and the Visa and MasterCard rules,
regulations, and interpretations thereof and any contractual terms required by
Visa or MasterCard and acceptable to NPC (any such modifications being referred
to as "Compliance Modifications") provided that such Compliance Modifications
are reasonable and are not unduly burdensome to NCB, and NPC reimburses NCB for
any additional costs reasonably incurred by NCB in connection with such
Compliance Modifications.
6.2 FAILURE TO MAKE COMPLIANCE MODIFICATION. If NPC does not
request any Compliance Modifications or the parties cannot agree upon the terms
of any Compliance Modifications, then either party may terminate this Agreement
upon prior written notice to the other party effective at the later of: (a) the
deadline imposed by Visa or MasterCard for complying with any such rule,
regulation, official interpretation or contract requirement or (b) 120 days
after actual notice to NPC of such rule, regulation, interpretation or contract
requirement.
ARTICLE VII - TERM AND TERMINATION
----------------------------------
7.1 TERM. The term of this Agreement shall be five years
commencing on the Effective Date and ending at the close of business on the
fifth anniversary of the Effective Date. This Agreement shall automatically
renew for successive one-year terms unless one party gives the other party
written notice of non-renewal at least six months prior to automatic renewal.
5
<PAGE> 6
7.2 TERMINATION. Either party may terminate this Agreement
without penalty and without prejudice to any claims arising prior to termination
as follows:
(a) Upon the written agreement of both parties.
(b) Upon the other party's breach of this Agreement provided
the terminating party has given written notice of the breach to the
other party specifying the breach, the action necessary to cure the
breach and the breaching party has not cured the breach within five
business days after notice is given of any failure by NPC to provide
any funds required hereunder to be provided by NPC to pay Merchants or
within thirty business days after notice is given of any other breach.
(c) By NCB immediately upon NPC's voluntary filing of any
petition or complaint seeking relief under any federal or state
bankruptcy or other debt relief statute or upon an involuntary petition
in bankruptcy being filed against NPC if such petition is not dismissed
within sixty days after it is filed.
(d) By NPC immediately in the event that any agreements
between NCB and Visa and/or MasterCard or NCB's membership in either
such bankcard association shall be terminated or materially limited
which termination or material limitation would impair the ability of
NPC to authorize, process or settle merchant bankcard transactions.
7.3 SURVIVAL. The provisions of Sections 3.3, 4.2, 5.1, 8.1
and 10.6 of this Agreement shall survive any termination. No termination shall
prejudice any claim or rights of any party which accrued prior to termination.
ARTICLE VIII - CONFIDENTIALITY
------------------------------
8.1 CONFIDENTIALITY. In performing this Agreement, each party
will have access to confidential information of the other. Each party agrees to
hold in confidence and to instruct its employees and agents to hold in
confidence all information and materials, in whatever form, reasonably
designated as confidential by the party requesting confidentiality. NPC agrees
to comply with all laws and regulations relating to confidentiality of customer
lists and other information which are applicable to NCB and its agents or to
NPC. NCB agrees to comply with all contractual obligations of NPC actually known
to NCB and all laws and regulations applicable to NCB or NPC relating to
confidentiality of customer lists and other information.
ARTICLE IX - NOTICES
--------------------
9.1 NOTICES. All notices which are required or permitted by
this Agreement shall be in writing and shall be (i) delivered personally to the
designated addressee, (ii) sent by the United States Mail addressed to the
designated person by certified mail, return receipt requested, all postage
prepaid, or (iii) sent by overnight delivery service addressed to the designated
person, all charges prepaid, or (iv) by other means such as facsimile machine if
the designated addressee acknowledges receipt in writing. Notices shall be
addressed as follows:
If to NPC:
Louis Parker
Executive Vice President
National City Processing Company
1231 Durrett Lane
Louisville, KY 40285-0001
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<PAGE> 7
with copies to: Kurt Knipp
Executive Vice President
National City Processing Company
1231 Durrett Lane
Louisville, KY 40285-0001
If to NCB: Peter J. Barrick
Senior Vice President
National City Bank of Kentucky
101 S. 5th Street
Louisville, KY 40202
with copies to: Curtis M. Jacobs
Senior Vice President and Counsel
National City Bank of Kentucky
101 S. 5th Street
Louisville, KY 40202
Notices personally delivered are given when received. Notices sent by United
States Mail, certified mail, return receipt requested, are given five business
days after delivery to the United States Postal Service unless prior actual
receipt by the addressee is proven. Notice sent by overnight delivery service is
deemed given one business day after delivery to and acceptance by overnight
delivery service for next day delivery. Notices sent by other means and
acknowledged are deemed given when acknowledged in writing.
ARTICLE X - MISCELLANEOUS
-------------------------
10.1 HEADINGS. The headings are for information and are not
part of this Agreement.
10.2 ENTIRE AGREEMENT, MODIFICATION. This Agreement and the
attachments to it represent the entire agreement of the parties with respect to
the subject matter of the Agreement. This Agreement may not be modified except
by a written agreement which expressly refers to the Agreement and is signed by
both parties.
10.3 SEVERABILITY. If any section of this Agreement is deemed
void, illegal or unenforceable, that section shall be severed and the balance
shall remain in effect.
10.4 GOVERNING LAW. This Agreement and its interpretation
shall be governed by the laws of the United States and, to the extent not
inconsistent therewith, by the laws of the Commonwealth of Kentucky without
regard to conflicts of laws rules.
10.5 BINDING AGREEMENT, ASSIGNMENT PROHIBITED. This Agreement
shall bind the parties, their successors and permitted assigns. Neither party
shall assign this Agreement or any rights under it except with the prior written
consent of the other.
10.6 MONITORING BY NCB. NPC shall admit properly identified
and authorized NCB employees and agents onto its premises for purposes of
monitoring NPC's compliance with this Agreement. It is understood that such
monitoring will occur during normal business hours, will be preceded by
reasonable notification to NPC, and must not interfere with NPC's normal
operations.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the Effective Date.
NATIONAL PROCESSING COMPANY
By: /s/ Mark D. Schatz
--------------------------------
Name: Mark D. Schatz
------------------------------
Title: Vice President
-----------------------------
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Peter J. Barrick
--------------------------------
Name: Peter J. Barrick
------------------------------
Title: Senior Vice President
-----------------------------
8
<PAGE> 9
SCHEDULE A
to the
SPONSORSHIP AGREEMENT BETWEEN NCB
and
NPC
dated
June 30, 1996
1. BUSINESSES GENERALLY NOT SOLICITED. NPC does not generally solicit
customers engaged in any of the following businesses, but in special
circumstances it sometimes accepts customers engaged in one of these
businesses. Such exceptions occur primarily when NPC acquires another
processor's customer base or when NPC enters into a processing
agreement with an ISO/MSP which maintains merchant customers engaged in
such businesses.
- Telemarketing (In-bound or out-bound)
- Pawn Shops
- Door-to-Door Sales
- Massage Parlors
- Bail & Bond Payments
- Business operated out of Residence
- Flea Markets
- Fulfillment Houses
- Timesharing
- Travel Clubs/Packages
2. DOCUMENTATION REQUIRED FOR MERCHANT CUSTOMERS
- Merchant Application - all pertinent personal and business
information, including previous processor
- Site Visitation Report (when applicable)
- Bankcard Agreement - signed by Principal/Officer
- Personal Guarantee - signed by Principal (when applicable)
- Business Financial Statements (when applicable)
- Business and/or Personal Income Tax Filings if Financial Statements
unavailable (when applicable)
- Catalogues, Advertising Copy, etc. - as needed
3. CREDIT REVIEW PROCEDURES. The following credit review procedures are
completed by NPC before a Merchant is accepted as a new customer. These
procedures may be repeated with respect to any existing Merchant
customer if such Merchant has unusual credit card activity, unusual or
higher than normal chargebacks, or if other circumstances arise which,
in the judgment of NPC's management, warrant a new or on-going credit
review.
- Inquire against Terminated Merchant File
- Obtain and Review Personal Credit Reports on Principal(s) (when
applicable)
- Obtain and Review Dun & Bradstreet Report (when applicable)
- Review of Financial Statements, Tax Returns and all other pertinent
data (when applicable)
- Investigation of previous processing relationship
4. REASONS FOR DECLINING A MERCHANT.
- Listed on the terminated merchant file
- Insufficient credit history established
- Significant derogatory credit - personal or business
- Poor financial condition of business
- Derogatory report from previous processor
- Unacceptable line of business
9
<PAGE> 10
SCHEDULE B
to the
SPONSORSHIP AGREEMENT BETWEEN NCB
and
NPC
dated
June 30, 1996
<TABLE>
<CAPTION>
NAME NCB TITLE
---- ---------
<S> <C>
Tony G. Holcombe Contracting Officer
Kurt S. Knipp Contracting Officer
Wayne A. Chatham, Jr. Contracting Officer
</TABLE>
10
<PAGE> 1
EXHIBIT 10.5
NATIONAL CITY CORPORATION/NATIONAL PROCESSING COMPANY
SERVICES AGREEMENT
This Agreement by and between National City Corporation, a Delaware
corporation (hereinafter, "National City") and National Processing Company, a
Kentucky corporation (hereinafter, "NPC") is entered into this 15th day of July,
1996 (the "Agreement").
WHEREAS, National City is a Corporation located in Ohio; and
WHEREAS, NPC is a wholly owned subsidiary of National Processing, Inc.
located in Kentucky and National City is the majority shareholder of National
Processing, Inc.; and
WHEREAS, NPC is considering an initial public offering of common
shares; and
WHEREAS, National City desires to provide to NPC and NPC desires to
receive from National City certain support services as described hereunder;
NOW THEREFORE, in consideration of the above premises and mutual
promises and undertaking of the parties set forth below, the parties, intending
to be legally bound, do hereby agree as follows:
I. DESCRIPTION OF SERVICES
-----------------------
National City agrees to provide and NPC agrees to accept, in accordance
with the terms and conditions stated herein, those services and products as set
forth in the Schedules (the "Schedules"), attached hereto and incorporated
herein (the "Services").
The Services include, but are not limited to, Human Resources, Internal
Audit, Legal and Tax Services. National City will use good faith efforts to
provide the Services in a good, workmanlike and professional manner.
From time to time, National City may provide and NPC accept, additional
or New Services ("New Services"). Fees that NPC shall pay National City for New
Services shall be determined in accordance to Section III of the Agreement and
shall be governed by and made a part hereto of the Agreement.
II. TERM
----
National City shall provide Services to NPC hereunder at NPC's request
for a period of one year from the date hereof. Thereafter, on the anniversary of
this Agreement, NPC may renew this Agreement for an additional one year term
("Additional Term") at its option provided, however, that National City may
exercise its right to increase prices during an Additional Term pursuant to the
provisions of Section III hereunder.
<PAGE> 2
III. FEES
----
National City shall charge NPC for the Services as set forth on
Schedules A through D and for New Services based on mutually agreeable, market
competitive pricing. NPC shall pay fees to National City in accordance with the
attached Schedules on a quarterly basis, in arrears, commencing on September 30,
1996, and at the end of each subsequent fiscal quarter for as long as the
Agreement shall be effective (hereinafter, "Fees"). Payment not made within 30
days of the invoice date will have interest assessed at the annualized rate of
15% of the unpaid amount.
IV. EXPENSES
--------
In addition to Fees paid by NPC pursuant to the attached Schedules, NPC
shall reimburse National City promptly following submission of an
invoice for reasonable expenses and out-of-pocket costs as set forth in
this Section IV (hereinafter, "Expenses").
(a) Travel Expenses associated with commercial airlines and
automobile rentals incurred by National City and its staff in
connection with the rendering of Services;
(b) Lodging and Meal Expenses incurred by National City and its
staff in connection with the rendering of Services;
(c) Clerical Expenses incurred by National City and its staff in
connection with the rendering of Services;
(d) Other miscellaneous, direct Expenses not enumerated above as
may be reasonably required to render Services provided,
however, that such Expenses as described in this clause in no
event shall exceed $2,000 per month without National City
obtaining prior approval from NPC.
V. TERMINATION
-----------
This Agreement may be terminated in whole or in part at any time by
either party upon ninety (90) days written notice.
VI. INDEMNITY
---------
NPC agrees to indemnify and hold National City harmless against claims
and liabilities which may arise in connection with providing of Services by
National City hereunder except in the case of gross negligence by or willful
misconduct of National City.
2
<PAGE> 3
VII. MISCELLANEOUS
-------------
(a) APPLICABLE LAW This Agreement shall be construed in accordance
with the laws of the State of Ohio.
(b) ENTIRE AGREEMENT This Agreement represents the entire
understanding between the parties with respect to the matters
contained herein and, except as otherwise provided herein, may
be amended only by an instrument in writing signed by the
parties hereto. There are no representations or warranties,
expressed or implied, other than those contained herein.
(c) WAIVERS No delay or omission by either party hereto to
exercise any right or power under this Agreement shall impair
such right or be construed to be a waiver thereof. A waiver by
any of the parties hereto of any of the covenants to be
performed by the other party or of any breach thereof shall
not be construed to be waiver of any succeeding breach thereof
or of any other covenant contained in this Agreement.
(d) NOTICE Any notice required or permitted hereunder shall be in
writing and may be given by personal service, by certified or
registered mail, return receipt requested, postage prepaid, or
by overnight delivery by a nationally recognized courier to
the addresses of the parties as they appear below or as
changed through written notice to the other party. Delivery
shall be deemed to have occurred upon receipt by the party to
whom the notice is addressed.
To National Processing Company
------------------------------
National Processing Company
1231 Durrett Lane
Louisville, Kentucky 40285-0001
Attn: Richard Alston
To National City:
-----------------
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114-3484
Attn: Armando Ramirez
(e) ASSIGNMENT No party may assign or transfer this Agreement
without the prior written consent of the other party, which
consent shall not be withheld, conditioned or delayed
unreasonably. Notwithstanding the foregoing sentence, no
consent shall be required for any assignment or transfer by
NPC: (1) to any present or future wholly-owned subsidiary,
affiliate or parent of NPC or (2) to
3
<PAGE> 4
any successor in interest of the entire business of NPC as a
result of merger, consolidation, purchase, assignment, or
operation of law; and any such assignment or transfer shall
not be deemed an assignment or transfer for purposes of
voiding this Agreement.
(f) BINDING EFFECT This Agreement shall inure to the benefit of
and be binding upon the parties and their respective
successors and assigns.
(g) VALIDITY In the event that any of the terms of this Agreement
are in conflict with any rule of law, statutory provisions or
policy, or otherwise unenforceable under the laws or
regulations of any applicable jurisdiction within the United
States of America, or any governmental subdivision or agency
thereof, such terms shall be deemed stricken from this
Agreement, but such invalidity or unenforceability shall not
invalidate any of the other terms of this Agreement and this
Agreement shall continue in force and effect.
(h) COUNTERPARTS This Agreement may be executed in counterparts
and each such counterpart shall be deemed an original hereof.
(i) Nothing contained in this Agreement shall be deemed as
construed by the parties hereto or by any third party to
create the relationship of, principal and agent or of
partnership or of joint venture between the parties hereto.
(j) AUTHORITY OF PARTIES Each party hereto warrants that it is
authorized to enter into this Agreement, that the person
signing on its behalf is duly authorized to execute this
Agreement, and that no other signatures are necessary.
NATIONAL CITY CORPORATION NATIONAL PROCESSING COMPANY
By: /s/ Armando Ramirez By: /s/ Richard Alston
-------------------------- -----------------------------
Name: Armando Ramirez Name: Richard Alston
------------------------ ---------------------------
Title: Senior Vice President Title: Executive Vice President
----------------------- -------------------------
Attachments
lewis\dpl60001.agt
4
<PAGE> 1
EXHIBIT 10.6
REMITTANCE PROCESSING SERVICES AGREEMENT
THIS AGREEMENT, is made and entered into on _____________ by
and between NATIONAL PROCESSING COMPANY ("NPC") and _____________________
____________ ("National City").
WHEREAS, NPC is engaged in the processing and transmission of data
exclusively of a financial, banking or economic nature, including the day-to-day
acceptance of remittances for collection, and National City desires that NPC
receive and process customer payments and invoices for National City in
accordance with operating procedures developed by the parties and revised from
time to time;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and agreements set forth herein, the parties hereto agree as follows:
1. Beginning August 1, 1996, and in accordance with a mutually agreed
upon conversion schedule, NPC shall assume remittance processing services
responsibilities for National City's existing and future remittance processing
services customers, such responsibilities to include processing, equipment,
facilities, staffing and customer service. National City will transfer all
remittance processing services operations equipment to NPC no later than
December 31, 1996. Certain items of equipment, including one (1) CES 9400 and
one (1) OPEX 48 will be made available to NPC as of June 1, 1996. NPC shall
process clean, scannable items within twenty-four (24) hours from receipt
thereof and exception items within forty-eight (48) hours from receipt thereof;
provided that, for existing customers as of the date of this Agreement, NPC
shall process all items within twenty-four (24) hours of mail pickup by NPC. NPC
shall deliver all customer deposits to National City by approximately 8:00 a.m.
each business day. National City shall ensure that all mail is available to the
NPC courier by 8:00 a.m. each business day for transportation to the Columbus,
Ohio processing facility (which location may be changed by agreement of the
parties). National City shall notify NPC at least sixty (60) days in advance of
any change in the form of its customer payments, invoices and envelopes or in
the regular monthly mailing schedule of such documents. National City shall be
responsible, and shall not charge NPC, for miscellaneous services, including
without limitation research and photocopying. Upon request, NPC shall assist
National City with the marketing of its remittance processing services.
2. NPC shall admit properly identified and authorized National City
employees onto its premises for purposes of monitoring compliance with this
Agreement. It is understood that this admittance will be during normal
processing hours, will not require advance notification by National City and
shall not interfere with NPC's work. NPC agrees to exercise its best efforts to
comply with the terms and conditions of this Agreement, but NPC shall not be
liable for any loss where NPC and its employees exercise reasonable care in the
handling of remittances from National City's customers.
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<PAGE> 2
3. For basic remittance processing services for all customers acquired
by National City subsequent to the date of this Agreement, NPC shall charge its
cost plus the markup necessary to yield a five percent (5%) after-tax return on
revenue for NPC; provided that, such charge to National City shall not exceed
sixteen and forty-nine hundredth cents ($.1649) per item for existing customers
as of the date of this Agreement. Basic remittance processing services shall
include opening envelopes, extracting payments, encoding and endorsing checks,
preparing and delivering deposits to bank, fulfilling any other specific
processing requirements for a particular customer as negotiated, and
electronically transmitting accounts receivable information to the relevant
customer on a daily basis. National City shall pay NPC the fees set forth in the
Pricing Schedule (attached hereto as Exhibit A) for services in addition to
basic remittance processing services. Such Pricing Schedule reflects NPC's costs
for assuming responsibilities for the National City remittance processing
services operations mailroom and facilities. National City shall allow NPC an
opportunity to review each potential new customer and its processing
requirements and to provide pricing to National City for each such customer.
During the third year of the initial term of this Agreement, and every
year thereafter, NPC shall have the right to review and adjust the Pricing
Schedule, such adjustment to be effective on the next anniversary date of this
Agreement. Annual Fee increases within a term shall be made with not less than
sixty (60) days written notice and will be limited to a percentage increase not
to exceed the percentage increase in the Consumer Price Index, All Urban
Consumers, for the group 1,200,000 or more population, ("CPI-U") for the most
recent twelve month period for which the CPI-U Statistics are available. Fee
increases to take effect upon commencement of a renewal term shall be made with
not less than one hundred twenty (120) days written notice. Future costs savings
realized by NPC as a result of the implementation of new technology (such as
imaging) shall accrue to NPC up to and including a profit margin of ten percent
(10%) after tax-return on revenue. Cost savings above the ten percent (10%)
after tax-return on revenue shall be passed through to National City and
reflected in the Pricing Schedule upon the annual modification thereof by NPC
(with no adjustment for savings in the interim period between implementation of
the new technology and the annual modification of the Pricing Schedule). Any
increase in costs or expenses caused by National City's acts or omissions shall
be added to the monthly invoice sent by NPC to National City, and all such
additional costs or expenses shall be paid by National City.
4. NPC shall send National City monthly a statement of volumes, prices
and charges for all services rendered pursuant to this Agreement during the
preceding calendar month. National City shall pay invoices for all fees and
charges hereunder within thirty (30) days of invoicing. A late charge of one and
one-half percent (1.5%) will be added to the amount owing for each thirty-day
billing period for which NPC does not receive payment from National City.
5. The initial term of this Agreement shall expire at midnight,
December 31, 1999, and shall be automatically renewed for successive three-year
terms unless terminated by either party upon written notice at least ninety (90)
days prior to the expiration of the initial term or any renewal term, such
termination to be effective upon such expiration. If either party shall default
in the performance of its obligations under this Agreement and shall fail or
refuse to remedy such default within thirty (30) calendar days after written
notice, the other party may terminate this Agreement with an additional fifteen
(15) days written notice. If either party shall become insolvent, be placed
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<PAGE> 3
in receivership, make an assignment for the benefit of creditors, or seek
relief or have a petition filed against it under any provision of the federal
bankruptcy code, any such petition not being dismissed within sixty (60) days,
the other party may terminate this Agreement immediately upon written notice.
Termination of this Agreement shall not affect the rights or obligations of
either party which may have arisen or accrued prior to termination.
6. Either party to this Agreement shall be released from liability
hereunder for failure to perform any of its obligations herein (other than
payment of amounts due) where and to the extent that such failure to perform
occurs by reason of any act of God, fire, flood, earthquake, tidal wave,
sabotage, war, military operation, national emergency, civil commotion, strike,
utility or computer failure, or the order, requisition, request or
recommendation of any governmental agency or acting governmental authority, or
either party's compliance therewith, or governmental proration, regulation or
priority, or any other cause beyond either party's reasonable control whether
similar or dissimilar to such causes.
7. Any notice permitted or required hereunder shall be deemed given
when deposited in the United States mail, with postage prepaid, and addressed as
follows:
NPC: National Processing Company
1231 Durrett Lane
Louisville, Kentucky 40285-0001
Attn: Lockbox Product Manager
National City: [Address of Bank Subsidiary]
8. Neither party will disclose any information not of a public nature
concerning any terms of the Agreement, the business, business plans, trade
secrets or other properties of the other party which it learns as a result of
negotiating or implementing this Agreement, except to the extent disclosure is
required by applicable law or agreed to by the parties. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Kentucky, without giving effect to the conflict of laws provisions thereof. This
Agreement shall bind the parties, their respective successors, legal
representatives and assigns. This Agreement shall not be assignable by either
party hereto without the prior consent of the other party, which consent shall
not be unreasonably withheld or delayed; provided that, performance of some or
all of the services to be performed by NPC hereunder may be delegated by NPC to
any other affiliate or subsidiary of National City Corporation.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement 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 Agreement, duly authorized by all
necessary and appropriate action to execute this Agreement.
NATIONAL PROCESSING [Name of Bank Subsidiary]
COMPANY
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
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<PAGE> 1
EXHIBIT 10.7
INTERCOMPANY ADMINISTRATIVE SUPPORT SERVICES AGREEMENT
This INTERCOMPANY ADMINISTRATIVE SUPPORT SERVICES AGREEMENT
("Agreement") is made this 3rd day of July, 1996, by and between STORED VALUE
SYSTEMS, INC., 101 Bullitt Lane, Suite 305, Louisville, Kentucky 40222, ("SVS")
and NATIONAL PROCESSING COMPANY, 1231 Durrett Lane, Louisville, Kentucky 40285
("NPC").
WHEREAS, SVS and NPC are both currently wholly-owned subsidiaries of
National City Corporation, and NPC is currently considering an initial public
offering of common shares; and
WHEREAS, SVS, previously a division of NPC and now a separate legal
entity, wishes to continue to receive certain administrative support services
from NPC; and
WHEREAS, NPC is willing to provide certain administrative support
services to SVS pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and agreements set forth herein, the parties hereto agree as follows:
1. ADMINISTRATIVE SUPPORT SERVICES. NPC shall provide to SVS, in
accordance with the terms and conditions of this Agreement, certain
administrative support services ("Services"). The Services provided as of the
execution of this Agreement shall include without limitation human resources
(including recruiting), mail and delivery, purchasing (including furniture,
equipment and office supplies), facilities (including lease administration),
accounting services (including journal entry preparation and keying, general
ledger maintenance with account analysis, accounts payable processing with
settlement, and billing support with receivables aging), and call and data
center operations, as reflected on Schedule A-1 attached hereto. From time to
time, SVS may request and NPC may provide, in its sole discretion,
administrative support services in addition to those set forth in Schedule A-1
("Additional Services"). Such Additional Services shall be reflected on
additional consecutively numbered Schedules (beginning with Schedule A-2)
executed by both parties hereto, which Schedules shall set forth the fees to be
paid by SVS for the Additional Services. The terms of this Agreement shall
govern all such additional Schedules. NPC shall use good faith efforts to
provide the Services and any Additional Services in a good, workmanlike and
professional manner.
2. FEES. SVS shall pay NPC the fees set forth on the Schedules. Such
fees shall be determined by NPC and shall be based upon a mutually agreeable
hourly rate or cost plus calculation, for the Services and Additional Services.
NPC may increase its fees upon renewal with ninety (90) days written notice to
SVS. SVS shall pay fees to NPC in accordance with the attached Schedules on a
quarterly basis, in arrears, commencing on September 30, 1996, and at the end of
each subsequent fiscal quarter for as long as this Agreement remains in effect.
Any amounts not paid within thirty (30) days of the date of an invoice from NPC
shall incur late fees of one and one-half percent (1-1/2%) per month.
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<PAGE> 2
3. TERMINATION. This Agreement shall continue in effect until
terminated by either party upon ninety (90) days written notice to the other
party. If either party shall default in the performance of any of its
obligations under this Agreement and shall fail or refuse to remedy such default
to the reasonable satisfaction of the other party within ten (10) calendar days
after receipt of written notice, the non-breaching party may terminate this
Agreement upon an additional ten (10) days written notice. If any party shall
become insolvent, be placed in receivership, make an assignment for the benefit
of creditors or seek relief or have a petition filed against it under federal
bankruptcy law, the other party may terminate this Agreement immediately upon
written notice. All duties and obligations regarding confidential information
under this Agreement shall survive any termination hereof.
4. INDEMNIFICATION. Either party shall hold harmless and indemnify the
other party from and against any claims or liabilities which may arise in
connection with the Services and/or Additional Services, unless such claims or
liabilities arise directly out of the gross negligence or willful misconduct of
the indemnified party.
5. RELATIONSHIP. Nothing in this Agreement shall be deemed to create a
partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
6. CONFIDENTIALITY. Neither party shall disclose the terms of this
Agreement, including without limitation pricing, directly or indirectly to any
third-party for any reason, except to the extent that disclosure is required by
applicable law or agreed to by the parties.
7. EXCUSABLE DELAY OR FAILURE IN PERFORMANCE. No party to this
Agreement shall be liable for failure to perform any of its obligations under
this Agreement during any time such party is unable to perform due to any act of
God, sabotage, military operation, national emergency, civil commotion, labor
disturbance, utility or computer failure, or the order, requisition, request or
recommendation of any government agency or acting government authority, or any
party's compliance therewith, or government proration, regulation, or priority,
or any change in laws or regulations which prevent any party from providing
services required by this Agreement, or any other cause beyond any party's
reasonable control whether similar or dissimilar to the foregoing causes. This
paragraph does not apply to the amounts owed or owing to any party on or before
the date of the occurrence of any force majeure.
8. Notices. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail,
return receipt requested, postage prepaid, or by overnight delivery by a
nationally recognized courier and addressed as follows: if to NPC, to Richard
Alston, Executive Vice President, at the address shown in the first paragraph of
this Agreement and, if to SVS, to Delroy Hayunga, President and CEO, at the
address shown in the first paragraph of this Agreement. Actual receipt of notice
or other communication shall overcome any deficiency in manner of delivery
thereof.
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<PAGE> 3
9. Miscellaneous. This Agreement shall be governed by the laws of the
Commonwealth of Kentucky, without giving effect to the conflict of laws
provisions thereof. Any legal action with respect to this Agreement shall be
brought in the courts of the Commonwealth of Kentucky or in the United States
District Court for the Western District of Kentucky and the parties hereby
consent to the exclusive jurisdiction of such courts for the purpose of any such
legal action. This Agreement constitutes the entire agreement, and supersedes
all prior agreements, between the parties with respect to the subject matter
hereof and any modification hereof must be in a writing signed by both parties.
Any provision of this Agreement that is found by a court of competent
jurisdiction to violate applicable law shall be limited or nullified only to the
extent necessary to bring the Agreement within the requirements of such law.
This Agreement shall be binding upon, and inure to the benefit of, the
successors and assigns of the parties hereto. If either party institutes a legal
action to enforce any provision of this Agreement or otherwise in connection
with this Agreement, the prevailing party shall be entitled to recover from the
other its reasonable attorney fees and costs in connection with such proceeding.
This Agreement may be executed in counterparts and each such counterpart shall
be deemed an original hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement 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 Agreement, duly authorized by all
necessary and appropriate action to execute this Agreement.
STORED VALUE SYSTEMS, INC. NATIONAL PROCESSING COMPANY
By: /s/ Delroy R. Hayunga By: /s/ Richard Alston
------------------------------ --------------------------------
Name: Delroy R. Hayunga Name: Richard Alston
---------------------------- ------------------------------
Title: President & CEO Title: Executive Vice President
--------------------------- -----------------------------
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<PAGE> 1
EXHIBIT 10.8
SERVICE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this ___________ day of
____, by and among __________________ (BANK) and NATIONAL PROCESSING COMPANY
(NPC).
WITNESSETH:
-----------
WHEREAS, BANK has authorized NPC to perform certain processing services
related to the acceptance of Cards by Merchants.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, BANK and NPC agree
as follows:
1. DEFINITIONS.
------------
(a) "Association Rules" mean the rules, regulations, releases and
interpretations of any applicable Association.
(b) "Associations" mean Visa, MasterCard, and, if and to the
extent so provided hereafter in another appropriate addendum
to this Agreement, the issuers of any Cards specified on such
other addendum.
(c) "Authorization" means a function which examines individual
transactions to determine whether the Card or account of a
Cardholder initiating such purchase is in conformity with
usage criteria established by issuer(s).
(d) "Authorization Center" means a data service providing current
information as to whether or not transactions are authorized.
(e) "Card" means (i) a valid credit or debit card bearing the
service mark of Visa or MasterCard and (ii) if and to the
extent so provided hereafter in another appropriate addendum
to this Agreement a card issued by any of the other card
issuers specified on such other addendum.
(f) "Cardholder" means the person or persons in whose name a Card
is maintained and who is presenting the Card for payment, or
an authorized user or users whose signature appears thereon.
(g) "Cash Advance" means currency paid out in accordance with the
Association Rules to a holder of a valid Visa or MasterCard
card, except for any such currency paid out through an
automated teller machine.
(h) "Credit Voucher" means a document or an electronic record
submitted to BANK by a Merchant evidencing any refund or price
adjustment to be credited to a Cardholder account.
(i) "Data Capture" means a computerized function whereby BANK's
Merchants electronically collect and record certain Card
information which is required by Associations to accept,
process and pay Merchants for Card transactions accepted by
Merchants for merchandise sold or services rendered to
Cardholder(s).
<PAGE> 2
(j) "Depository Account" means an account maintained by BANK, at
the BANK, or at any other depository institution designated by
BANK and located in the United States to which BANK funds will
be credited and chargebacks, processing fees and adjustments
will be debited on a daily basis.
(k) "Floor Limit" means the dollar limitation mutually agreed upon
from time to time in writing by NPC and BANK above which the
total amount of any single sales transaction by Merchant
through the use of a Card requires Authorization. NPC and BANK
mutually agree to a Floor Limit of zero dollars as of the
effective date.
(1) "Interchange" means the electronic transmission system of
Visa, MasterCard and any other applicable Card issuer for the
exchange of debit and credit transaction data.
(m) "MasterCard" means MasterCard International, Inc.
(n) "Merchant" means a business entity which accepts Cards as
payment for products and services and with which BANK has
contracted to provide collection of such payments from the
Card issuer.
(o) "Merchant Acquiring Business" shall mean (i) the entering into
agreements with Merchants for the provision of Credit Card
Processing Services and (ii) the disbursement of currency in a
Cash Advance. Such definition shall not include the issuance
of credit cards.
(p) "Procedures Manual" shall mean a manual which NPC shall supply
to BANK and may amend and supplement from time to time to
specify procedures to be followed in performing this
Agreement.
(q) "Sales Draft" means an electronic record arising from the use
of a Card which evidences an obligation on the part of the
Cardholder to pay money to the Card issuer.
(r) "Terminal" means a communication device used to enter
transaction data into a system and/or Authorize Card
transactions.
(s) "Visa" means Visa U.S.A., Inc. and Visa International.
2. NPC'S RESPONSIBILITIES.
-----------------------
Except as otherwise provided herein, during the term of this
Agreement NPC (or its designees) shall be the sole provider of, and shall
satisfy all of BANK's requirements for, the services necessary to authorize,
process and settle through the applicable interchange systems, all card
transactions effected by BANK's Merchants and the services specified on
Attachment A or other appropriate addendum to this Agreement with respect to
transactions effected by BANK's Merchants involving any other credit cards
covered hereby. Such services include, but are not limited to, the following
with respect to Visa and MasterCard Card transactions and such of the following
as may hereafter be specified with respect to other types of Card transactions:
(a) AUTHORIZATION OF ALL CARD TRANSACTIONS;
(b) DATA CAPTURE OF CARD TRANSACTIONS;
(c) COLLECTION OF FUNDS DUE FROM CARD TRANSACTIONS FROM CARD
ISSUERS;
(d) SETTLEMENT OF INTERCHANGE EXPENSES;
<PAGE> 3
(e) OTHER BANKCARD PROCESSING SERVICES; NPC will provide other
back end processing services including, but not limited to,
merchant billing and statementing.
(f) MERCHANT IMPLEMENTATION. NPC will receive and process new
merchant set up's and routine account maintenance via the
"mini fact sheet" process. This process will include the
keying of data into the NPC processing system and the
verification of each new merchant against the Visa and
MasterCard terminated merchant file database.
(g) PROCESSING OF CHARGEBACKS AND RETRIEVALS.
(h) CUSTOMER SERVICE. Where applicable, NPC will provide customer
service to BANK's merchants, via written and/or telephonic
communication with the BANK, and will provide adequate
resources and facilities to maintain customer service
standards;
(i) MANAGEMENT REPORTING. NPC will provide the BANK's management
accurate statistical and performance reporting. Attachment B
is a list of the reports to be provided initially with a brief
description and reporting frequency;
(j) MARKETING/PRODUCT DEVELOPMENT. NPC will support BANK and its
product managers on a continuous basis by either introducing
and advocating promotional services and materials available
and/or by being responsive to the BANK's requests for
assistance;
(k) OPERATIONS AND ADJUSTMENT CONTROL. NPC will provide efficient
and accurate support in each area of service provided for in
Attachment A;
(l) PROCESSING STANDARDS AND SERVICE LEVELS. The processing
standards and service levels identified in Attachment C will
be used to evaluate the quality and timeliness of the
functions performed by NPC on the behalf of BANK. NPC will
comply with the standards and service levels set forth in
Attachment C. NPC's performance against the agreed upon
Service Levels will be reported to BANK on a quarterly basis.
(m) RELATIONSHIP MANAGEMENT. NPC will assign a Member Bank
Representative, "Representative", who will be responsible for
the day to day relationship between NPC and BANK. All
processing issues and processing concerns will be communicated
to the assigned Representative for resolution. The
Representative will also be responsible for monitoring NPC's
performance against the Service Levels and reporting to BANK.
Regular performance reviews will be scheduled with the
management of BANK.
(n) PROBLEM RESOLUTION. Any service level problems or quality of
service issues should be communicated to the Representative.
NPC will respond to the management of BANK, in writing, on all
reported problems and issues.
(o) OTHER SERVICES. Other services may be provided by NPC as
agreed to from time to time by BANK and NPC.
NPC's status as sole provider will apply for any and all services
with respect to this Section 2 except with respect to (i) Authorization and Data
Capture services being provided to Merchants, as of the effective date using
third party Authorization and Data Capture Processing services, provided however
that if such Merchant converts to the Authorization and Data Capture services
provided by NPC, NPC shall be the exclusive provider of such Authorization and
Data Capture services (ii) the BANK's use of third party providers of
Authorization and Data Capture services for which NPC does not offer similar
features.
<PAGE> 4
3. BANK'S RESPONSIBILITIES.
------------------------
(a) BANK shall promptly apply (to the extent such action has not
already been taken) for membership in Visa International, Inc.
and MasterCard as a sponsored member with respect to BANK's
Merchant Acquiring Business, authorized to perform the
functions contemplated by this Agreement, and BANK shall
maintain such membership for the duration of this Agreement.
BANK shall not take any action to solicit contracts with
merchants for authorization, processing and settlement of
their Visa or MasterCard card transactions or to make Cash
Advances to holders of Visa or MasterCard cards unless and
until BANK is a member of Visa International, Inc. and
MasterCard, authorized to conduct the Merchant Acquiring
Business.
(b) BANK shall be responsible for the following aspects of
Merchant service: (i) contracting directly with each Merchant
using a contract which complies with rules and regulations of
the Associations; (ii) establishing pricing or discounts for
Merchants; (iii) establishing such Merchant by the proper
execution of procedures or completion of forms, which include
but are not limited to: completing a Merchant application (to
enter into the account processing system); performing Merchant
site certification; and reviewing Merchant credit history.
(c) By written agreement BANK will require Merchants of BANK to
comply with all Association Rules and regulations. Merchants'
agreements with BANK will include at least the following:
(1) Merchant shall honor any valid Visa or MasterCard card
properly tendered for use.
(2) Merchant shall not engage in acceptance practices or
procedures that discriminate or discourage the use of
MasterCard cards in favor of any other competing card
brand that Merchant also accepts.
(3) Merchant shall adequately display the MasterCard, Visa
and other Card marks or logo types on promotional
materials.
(4) Merchant shall not require any Cardholder to pay any
part of BANK's discount charged to the Merchant.
Merchant shall not require a minimum or maximum
transaction amount and shall not post signs requiring a
minimum or maximum transaction amount.
(5) Merchant shall not effect a Card transaction when only a
part of the amount due is included on a single Sales
Draft, except when the balance of the amount due is
concurrently paid by the Cardholder in cash or by check,
or both.
(6) Merchant shall not process for payment into Interchange
any transaction(s) representing the refinancing of an
existing obligation of a Cardholder including, but not
limited to, obligations (i) previously owed to the
Merchant (except where the refinancing results from a
conversion of the Merchant's existing credit program to
a Card program), (ii) arising from the dishonor of a
Cardholder's personal check, and/or (iii) representing
the collection of any other pre-existing indebtedness.
(7) Merchant shall not present for processing or entry into
Interchange, directly or indirectly: any transaction
which was not originated as a result of an act between
the Cardholder and such Merchant, or (ii) any
transaction representing payment for a product or
service other than a product or service identified on
the Merchant application form.
<PAGE> 5
(8) Merchant shall not refuse a Card sale because a
Cardholder refuses to provide supplementary information
(i.e., address, telephone number) or identification
(i.e., drivers license, other credit cards, etc.) when a
valid Card is presented unless such information is
required as specified in the Association Rules.
(9) If the total amount of the Sales Draft, or the total
amount of consecutive Sales Drafts arising out of sales
transactions at the same location charged to the same
Card, is in excess of the Floor Limit, then clearance
must be obtained by Merchant from the Authorization
Center provided for such purpose and the fact of such
clearance noted on the Sales Draft in the space
provided.
(10) All Card transactions will receive Authorization (either
by voice telephone authorization from the Authorization
Center, or through an electronic terminal capable of
accessing the Authorization Center).
(11) Except with respect to Mail Order Telephone Order, all
Sales Drafts will be completed to include either a
physical imprint or an electronic printing resulting
from the utilization of a magnetic stripe reader
consisting of the name of the Cardholder, the Cardholder
account number, the expiration date, and any embossed
initial date of validity; the signature of the
authorized user as it appears on the appropriate space
on the Card; the name, address and unit number of
Merchant; the transaction date; the description of the
product sold or service rendered; the total selling
price; and the Authorization number, if required.
Merchant shall compare the signature on the Sales Draft
or Credit Voucher with the signature of the authorized
user as it appears on the appropriate space on the Card.
If Merchant accepts telephone or mail orders or
recurring sales or other preauthorized orders or sales,
each such card transaction must be authorized regardless
of the face amount, and Merchant must write "TO", "MO",
"Recurring Transaction" (for Visa and other
non-MasterCard card transactions) or "PO" (for
MasterCard card transactions) as applicable, on the
Sales Record in lieu of the Cardholder's signature.
(12) Merchant shall deliver to the Cardholder a true and
complete copy of the Sales Draft(s), or transaction
record(s), or suitable receipt(s) evidencing a
transaction involving the use of a Card. Such copy shall
be delivered at the time the Sales Draft, transaction
record, or suitable receipt is executed by the
Cardholder, or promptly after the delivery of the goods
or performance of the services covered thereby,
whichever is earlier.
(13) Merchant shall not receive any payments from a
Cardholder with respect to charges for goods or services
which are included on a Sales Draft resulting from the
use of a Card.
(14) If Merchant agrees to accept a recurring transaction
from a Cardholder for the purchase of goods or services
which are delivered or performed periodically, the
Cardholder shall complete and deliver to the Merchant a
written request for such goods or services to be charged
to the Cardholder's account. The Cardholder's
authorization must be (i) retained for the duration of
the recurring charges; (ii) provided in response to an
issuer's request for original paper; and (iii) used no
further upon receiving a notice of cancellation.
(15) Merchant shall not, with regard to the exchange, return
or adjustment of any goods or services, discriminate
against any Cardholder. Merchant may establish its own
policy concerning refunds and Merchant will give
Cardholder proper disclosure of this policy at the time
of any Card transaction. Such disclosure must be made on
each Sales Draft, transaction record, or suitable
receipt provided to a Cardholder and must be in close
proximity to the space provided for the Cardholder's
signature. If with respect to any
<PAGE> 6
Card transaction any merchandise is accepted for return,
any services terminated or canceled, or any price
adjustment is allowed, Merchant shall not make any cash
refund to Cardholder but shall deliver promptly to BANK
a Credit Voucher evidencing such refund or adjustment.
Merchant shall deliver to Cardholder a true copy of each
applicable Credit Voucher or suitable receipt therefor,
completed so as to show the date of transaction and the
amount of the credit granted.
(16) Merchant, or its designee(s), shall to the best of its
ability, forward to BANK copies or electronic equivalent
of the Sales Drafts and Credit Vouchers on a daily
basis. Merchant must agree to comply with NPC' standard
formats for Authorization and settlement functions.
4. CASH ADVANCES.
--------------
(a) GENERAL REQUIREMENTS. BANK shall make Cash Advances in
accordance with this Section 4. BANK must obtain authorization
through NPC for each Cash Advance made by BANK at any of its
offices. Each Cash Advance transaction by BANK shall be
evidenced by a Cash Advance draft completed in accordance with
the Association Rules or shall be data captured by NPC.
(b) SUBMISSION OF DRAFTS. BANK shall collect all Cash Advance
drafts evidencing indebtedness arising from Cash Advance
transactions by BANK under this Agreement and deliver data by
capturing and transmitting to NPC, by the third banking day
after which the respective Cash Advance transaction occurred,
in accordance with instructions from NPC. BANK shall comply
with instructions issued by NPC regarding the retention and
retrieval of Cash Advance slips and paper records of data
captured Cash Advances.
5. PRESENTMENT AND SETTLEMENT OF CARD TRANSACTIONS.
------------------------------------------------
(a) BANK shall electronically deliver to NPC or NPC's designated
processing facility Sales Drafts or other transaction records
for all Card transactions to be processed and settled
hereunder. BANK shall produce and maintain duplicates of Sales
Drafts and other transaction records submitted to NPC for
processing or, at BANK's option, shall assume the risk of loss
or damage which might result from BANK's failure to maintain
such duplicates.
(b) NPC shall settle to BANK's Depository Account or distribute to
merchants as directed by the BANKS, settlement funds paid by
Visa and MasterCard with respect to applicable transactions no
later than the banking day following the day NPC receives
payment from the applicable Association.
6. CHARGEBACKS.
------------
NPC may charge back to BANK any transaction amount (commonly
referred to as a "chargeback") within the time frames permitted by the then
current Association Rules or pursuant to applicable law.
(a) Should BANK request that chargeback protests be submitted to
the applicable Association for arbitration and compliance,
BANK agrees to pay all fees and filing costs and any other
costs assessed pursuant thereto.
(b) If, with respect to any Sales Draft:
(1) The applicable Card issuer initiates a chargeback with
respect to a Sales Draft;
(2) BANK has delivered to NPC a Credit Voucher with respect
to any transactions; or
<PAGE> 7
(3) BANK fails to forward to NPC a copy of a requested Sales
Draft following receipt of a retrieval request; then
BANK shall be obligated to pay to NPC the disputed
amount of the Sales Drafts, the amount of the Credit
Voucher or the disputed amount of the missing Sales
Draft.
(c) Upon receipt of payment from BANK of any amount due and
payable with respect to any Sales Draft or Credit Voucher in
Section 6(b) above, NPC shall provide BANK with any
information possessed by or otherwise reasonably available to
NPC which may enable BANK to recover from others for any such
Sales Draft or Credit Voucher.
7. SETTLEMENT OF CARD TRANSACTIONS; RIGHT TO DEBIT/CREDIT.
-------------------------------------------------------
(a) BANK shall maintain a Depository Account into which settlement
amounts received by NPC from the applicable Associations and
due to BANK pursuant to this Agreement with respect to Sales
Drafts and Cash Advances processed and settled by NPC for BANK
(and BANK Merchants) shall be deposited. Such Depository
Account may be maintained at BANK or at any other depository
institution in the United States specified by BANK. All
settlement funds deposited to BANK's Depository Account are
subject to NPC's final audit and checking, and BANK agrees
that NPC may debit the BANK's Depository Account on a daily
basis for any and all fees and amounts owed NPC, and may debit
or credit BANK's Depository Account on a daily basis for any
deficiencies and overages. Credits to BANK's Depository
Account are provisional until the expiration of the time
period for chargebacks under the Association Rules.
(b) Upon termination of this Agreement, BANK's Depository Account
shall remain open for a period of at least 280 days thereafter
for the debiting of any chargebacks which may remain valid
under the Association Rules. Sufficient funds shall be held
therein which are sufficient (together with the funds in any
escrow account) to cover such chargebacks. If a BANK Merchant
has engaged in an activity which may result in chargebacks for
a period of time longer than 280 days, BANK's Depository
Account shall remain open until the chargeback period shall
become expired.
(c) In addition to any other rights NPC has pursuant to this
Agreement, BANK authorizes NPC to debit BANK's Depository
Account for, or deduct from amounts otherwise due to BANK, any
amounts which NPC is entitled to collect or hold in escrow
pursuant to this Agreement.
8. ADJUSTMENTS.
------------
If BANK believes any adjustments are needed with respect to any
debits or credits effected by NPC with respect to BANK's Depository Account for
any amounts due to or due from BANK, BANK shall notify NPC in writing within 45
days after such debit or credit is effected. If BANK fails to notify NPC within
such timeframe, NPC shall not be responsible for investigating or effecting any
required adjustments, absent NPC's gross negligence or their employees' fraud or
misconduct. If BANK notifies NPC after such time period that it believes
adjustments are needed, NPC may, in their discretion, assist BANK in
investigating whether any adjustments are appropriate and whether any amounts
are due to or from other parties, but NPC shall not have any liability to effect
any such adjustments absent NPC's gross negligence or their employees' fraud or
misconduct. Any voluntary efforts by NPC to assist BANK in investigating such
matters shall not create any obligation to continue such investigation or assist
with any investigation in response to any future notices of possible adjustments
that are not timely submitted.
9. FEES AND PAYMENTS.
------------------
(a) PROCESSING FEES. NPC shall debit BANK's Depository Account on
a daily basis for the fees set forth in Attachment D-1 and
D-2. NPC, at its option, may elect to debit the BANK's
<PAGE> 8
Depository Account on a less frequent basis than daily for
certain fees. Any such election at any time by NPC to debit
the BANK's Depository Account for certain NPC fees on a less
frequent basis than daily, will not be taken or held as a
waiver of NPC's rights to debit for fees on a daily basis at
any time thereafter.
(b) THIRD PARTY CHARGES. The fees set forth in Attachment D-1 and
D-2 shall be subject to adjustments to accommodate the
imposition of new or amended fees by third parties including
additional unforeseen processing costs arising from any
requirements imposed by third parties beyond the normal
processing contemplated hereunder, or from the imposition of
new or amended regulations declared by the Associations or
governmental requirements, and will be immediately effective
upon the effective date of such adjustment.
(c) PENALTY CHARGES. BANK shall be responsible for penalty
charges, including excessive chargeback handling fees levied
by the Associations attributable to any of BANK's Merchants,
but excluding penalty charges, if any, attributable to any
error, omission or other fault or failure by NPC.
(d) EXCESS ACTIVITY. If current exception processing volumes
including, but not limited to, Chargebacks and Retrievals, or
if current merchant call volumes increase disproportionally to
increases in BANK portfolio dimensions, NPC reserves the right
to request corrective action from the bank to correct the
situation or charge additional fees to compensate for
increased volume.
10. SALES AND USE TAXES.
--------------------
From time to time, BANK will provide to NPC evidence of its proper
and timely payment of any applicable taxes on services or equipment provided by
and under this Agreement (including, if applicable, evidence of resale
certificates and evidence of the jurisdictions in which it pays any such taxes).
BANK assumes all liability for the proper and timely payment of any such taxes.
11. COLLECTIONS.
------------
NPC shall have the sole right to receive payments on all sales
drafts for which NPC has given BANK credit unless and until charged back to
BANK, in which latter event BANK may enforce collection thereof.
12. REPRESENTATIONS.
----------------
BANK unconditionally represents and warrants to NPC that all Sales
Drafts submitted to NPC hereunder will represent the indebtedness of a
Cardholder in amounts set forth therein for goods sold or services rendered
only, shall not involve any element of credit for any other purpose, and shall
not be subject to any defense, dispute, offset or counterclaim which may be
raised by a Cardholder under the Association Rules, the Consumer Credit
Protection Act (15 USC 1601), or other relevant statutes or regulations or any
jurisdiction.
13. SERVICE MARKS AND TRADEMARKS.
-----------------------------
BANK shall adequately display the MasterCard and Visa marks or
logotypes on promotional material. BANK may use such promotional materials as
may be supplied to it by NPC and which contain the trademarks and service marks
owned by NPC or the Associations, and BANK may utilize such trademarks and
service marks in its own promotional and advertising materials without specific
authorization, in each case so long as the colors, sizes and designs of such
marks conform to the specifications of Association Rules and so long as such
trademarks and service marks are footnoted as to registration. BANK shall obtain
the prior written consent of NPC for any other display, show or use of such
trademarks or service marks. BANK and NPC acknowledge that neither will acquire
any right, title or interest in or to the other's, or the Associations'
trademarks, service marks or company names. Trademarks, service marks and
company names shall remain the exclusive property of the respective
<PAGE> 9
owners and upon termination of this Agreement, the parties hereto will
discontinue all reference to and display of the trademarks, service marks and
company names hereunder.
14. COMPLIANCE.
-----------
(a) LAWS, CARD ASSOCIATION RULES, ETC. NPC and BANK each agrees to
comply with applicable laws and regulations and the
Association Rules in performing this Agreement and in dealing
with all of BANK's Merchants. Changes in the performance of
the obligations of BANK or NPC under this Agreement
necessitated by a change in applicable law or regulation, the
Association Rules or any interpretation thereof shall not
constitute a breach of this Agreement, but this shall not be
construed to relieve any such party from liability hereunder
for any failure to comply with applicable laws, regulations,
Association Rules or the interpretations thereof. In the event
that the Association Rules are modified such that some or all
of the activities contemplated by this Agreement are
prohibited, then all of the parties hereto shall negotiate in
good faith to make any amendments to this Agreement or to
enter into a new Agreement to provide for the continued future
cooperative relationship of NPC and BANK on terms as similar
as possible to those contemplated by this Agreement, provided
that no party shall be obligated to agree to any terms that
are unreasonable or unduly burdensome to it.
(b) PROCEDURES, ETC. BANK shall also comply with the procedures
and specific methods of operation that NPC may issue from time
to time.
(c) BOOKS AND RECORDS. NPC and BANK each agrees to maintain books
and records of all transactions and investigations which such
party performs hereunder and to make such books and records
available for inspection by the other party, and to the extent
required by applicable Card Association Rules, to the Card
Associations, at reasonable hours and upon reasonable prior
notice. Without in any way limiting the foregoing, BANK agrees
to retain for the periods required by the Card Association
Rules and to make available for inspection and copying by NPC
(and by the applicable Card Association, if required by
applicable Card Association Rules) records evidencing the
on-site visits and credit investigations of merchants
performed on behalf of itself or NPC.
15. TERM: TERMINATION.
------------------
(a) This Agreement shall have an initial term of 5 years
commencing on the date hereof, and unless terminated, shall be
renewed for successive one year terms thereafter.
(b) This Agreement may be terminated as follows:
(i) NPC or BANK may terminate this Agreement by giving
written notice to the other party or parties at least 60
days prior to the end of the original term or any
renewal term; such termination to take effect at the end
of such term.
(ii) If at any time during the term hereunder the practices
hereunder are declared unlawful by federal or state
authorities or by a judicial body, or upon any deadline
imposed by MasterCard or Visa for complying with any
Association Rule which precludes the continued
performance by NPC or BANK of their obligations
hereunder, any party may terminate this Agreement
immediately;
(iii) If any party shall materially default in the performance
of its obligations hereunder and shall fail or refuse to
remedy such default within 30 days after written notice,
the other party or parties may terminate this Agreement
on 7 days written notice.
<PAGE> 10
(iv) At any time after the filing of any petition in
bankruptcy or for reorganization or debt consolidation
under the federal bankruptcy laws or receivership, or
under any comparable law by or against a party hereto,
or upon a party making an assignment of its assets for
the benefit of creditors, or upon a party's application
for the appointment of a receiver or trustee of a
party's assets, or upon an involuntary petition in
bankruptcy being filed against a party if such petition
is not dismissed within 30 days after it is filed, or
upon the initiation by governmental authorities of any
receivership or assisted acquisition transaction, the
other party or parties may terminate this Agreement.
(v) BANK may terminate pursuant to its rights provided in
Section 19.
(c) No termination hereunder shall affect the rights or
obligations of any party which may have arisen or accrued
prior to such termination.
16. ASSIGNABILITY; SUCCESSORS AND ASSIGNS.
--------------------------------------
This Agreement may not be assigned be either party, except as
provided herein, without the written consent of the other, which consent shall
not be unreasonably withheld. This Agreement may be assigned by either party to
a successor corporation, without the other's consent, provided such successor
corporation fully assumes the rights and liabilities of the assigning party
under this Agreement. The assigning party shall promptly notify the other of any
such assignment. Subject to the foregoing, all of the terms and provisions
hereof shall be binding upon, and shall inure to the benefit of, the successors
and assigns of the parties hereto.
17. ENTIRE AGREEMENT, AMENDMENT.
----------------------------
This Agreement, including all schedules and documents referenced
herein as a part of this Agreement, constitutes the entire agreement between the
parties and supersedes all prior agreements, negotiations and communications on
the subject matter of this Agreement. Except as otherwise provided herein,
neither this Agreement nor any of its provisions shall be amended or modified
except by an agreement in writing of all parties that expressly refers to this
Agreement and provides that it is intended to modify this Agreement.
18. NOTICES.
--------
Any notice or other communication hereunder must be given in writing
and either (a) delivered in person or by courier service, (b) transmitted by
telecopy mechanism, provided that any notice so given is also sent for delivery
as provided in clause (a) or mailed as provided in clause (c), or (c) mailed by
certified or registered mail postage prepaid, as follows:
NPC: Mr. Louis C. Parker III
General Counsel
National Processing Company
1231 Durrett Lane
Louisville, KY 40285
Telephone: (502)364-2109
Telecopier: (502)364-2284
BANK: ___________________________
___________________________
___________________________
___________________________
<PAGE> 11
19. ENHANCED ACCOUNT PROCESSING PLATFORM.
-------------------------------------
(a) NPC agrees to install and have fully operational, on or before
January 1, 1997 a processing platform that will provide
features and functionality substantially similar to those
provided by Total System Services, Inc. Should NPC not make
such a platform operational by such date, BANK may provide NPC
60 days written notice of termination, provided such notice is
received by NPC no later than February 1, 1997.
(b) NPC will utilize good faith efforts to develop and implement a
conversion plan for the BANK's Merchants movement to the new
platform.
(c) BANK agrees to utilize good faith efforts to provide adequate
resources, including, but not limited to, personnel, to
effectuate a timely conversion of its Merchants to the new
processing platform.
20. INDEMNITIES.
------------
Each will indemnify, defend and hold the other harmless from and
against all losses, liabilities, damages and expenses (including reasonable
attorneys' fees) resulting from any breach of any covenant or any
misrepresentation by the indemnifying party under this Agreement or arising out
of its or its agent's, representative's, or employee's gross negligence or
willful misconduct in connection with this Agreement.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR FOR ANY REASON
WHATSOEVER REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, BREACH
OF WARRANTY OR OTHERWISE EVEN IF IT HAS BEEN NOTIFIED OF THE POSSIBILITIES
THEREOF. Except for liability arising from gross negligence or willful
misconduct, the total cumulative liability of NPC for damages arising from any
breach of this Agreement or any other claims under this Agreement, including
claims for indemnity, shall not exceed an amount equal to six (6) months average
Backroom and Settlement fees.
21. CERTAIN MATTERS RELATING TO VISA.
---------------------------------
The parties acknowledge that the Visa Association Rules give Visa
certain rights to terminate or limit this Agreement with respect to transactions
involving Visa cards and the Visa card system.
22. FORCE MAJEURE.
--------------
Either party to this Agreement shall be released from liability
hereunder for failure to perform any of the obligations herein where such
failure to perform occurs by reason of any act of God, fire, flood, storm,
earthquake, tidal wave, communications failure, sabotage, war, military
operation, national emergency, mechanical or electrical breakdown, civil
commotion, strikes, or the order, requisition, request or recommendation of any
governmental agency or acting governmental authority, or either party's
compliance therewith or government proration, regulation, or priority, or any
other cause beyond either party's reasonable control whether similar or
dissimilar to such causes.
23. INFORMATION CONFIDENTIAL.
-------------------------
(a) BANK shall not, without the Cardholder's consent, sell,
purchase, provide or exchange account number information in
the form of imprinted Sales Drafts, carbon copies of imprinted
Sales Drafts, mailing lists, tapes or other media obtained by
reason of a Card transaction to any third party, other than to
NPC, to BANK's agents for the purpose of assisting BANK in its
business, to the financial institution where BANK maintains
its Depository Account, to Visa or MasterCard, or pursuant to
an official request.
<PAGE> 12
(b) All parties agree that each will reveal Confidential
Information only to those of its directors, officers, or
employees with a need to know. Each party agrees not to use
Confidential Information nor to disclose Confidential
Information to any third party, except as may be necessary for
that party to perform its obligations pursuant to this
Agreement, unless otherwise agreed upon by the parties or
required by law. If any party should disclose Confidential
Information to a third party, such party will cause the third
party to agree to the confidentiality provisions set forth in
this Section. The provisions of this Section will survive the
termination of this Agreement.
24. SECTION HEADINGS.
-----------------
The Section headings contained in this Agreement are for convenient
reference only, and shall not in any way affect the meaning or interpretation of
this Agreement.
25. GOVERNING LAW; SUBMISSION TO JURISDICTION; ETC.
-----------------------------------------------
This Agreement, and the rights and duties of the parties hereto,
shall be governed by and construed in accordance with the laws of the
Commonwealth of Kentucky except that Section 26 shall be governed by the Federal
Arbitration Act. Each party hereby submits to the nonexclusive jurisdiction of
the United States District Court for the Louisville District of Kentucky for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. Each party irrevocably waives, to the
fullest extent permitted by applicable law, any objection which it may now or
hereafter have to the laying of venue of any such proceeding brought in such
court and any claim that any such proceeding brought in such court has been
brought in an inconvenient forum.
26. DISPUTE RESOLUTION AND ARBITRATION.
-----------------------------------
If the parties disagree as to any matter governed by this Agreement,
the parties shall promptly consult with one another in an effort to resolve the
disagreement. Initially, the individuals designated by BANK and NPC to receive
notices under this Agreement shall negotiate in good faith in an effort to
settle the disagreement. If such effort is unsuccessful, any controversy or
claim arising out of or relating to this Agreement, or the breach thereof, shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA") (subject to the provisions stated
below), and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. The arbitrators shall have the right
to employ experts to assist them in any arbitration proceeding under this
Section and shall have the right to render equitable, as well as other, awards
and relief. Before submitting a list of potential arbitrators to the parties for
their consideration, the AAA shall consult with each party to discuss the
applicable qualifications for the proposed arbitrators. Upon request by either
party as to any particular controversy or claim under this Agreement, the AAA
shall select a panel of at least three arbitrators, but if no such request is
made by the time the parties comment on any proposed list of arbitrators, the
AAA may select a single arbitrator unless the AAA determines that a greater
number of arbitrators is appropriate. Notwithstanding any choice of law
provision in Section 25, any arbitration hereunder shall be governed by the
Federal Arbitration Act.
27. AUTHORITY.
----------
Each party to this Agreement hereby represents and warrants to the
other that it has the full right, power and authority to enter into and perform
this Agreement in accordance with all terms and conditions hereof.
28. WAIVER.
-------
The waiver of any provision or failure to enforce or require
performance of any provision of this Agreement, at any time, shall in no way
affect the full right of NPC to require subsequent performance at any time
<PAGE> 13
thereafter, nor shall it be taken or held to be a waiver of any succeeding
breach of such provision nor as a waiver of the provision itself.
29. COUNTERPARTS; FACSIMILE DELIVERY.
---------------------------------
This Agreement and any other agreement or document delivered
pursuant hereto may be executed in one or more counterparts and by different
parties in separate counterparts. All of such counterparts shall constitute one
and the same agreement or document and shall become effective when one or more
counterparts of this Agreement have been signed by each party and delivered to
the other party. Any party may deliver an executed copy of this Agreement and an
executed copy of any other agreements or documents contemplated hereby by
facsimile transmission to another party, and such delivery shall have the same
force and effect as any other delivery of a manually signed copy of this
Agreement or such other document.
IN WITNESS WHEREOF, the parties by their duly authorized officers have executed
and delivered this Agreement.
NATIONAL CITY BANK
BY:_______________________________
NAME:____________________________
TITLE:____________________________
NATIONAL PROCESSING COMPANY
BY:________________________________
NAME:_____________________________
TITLE:_____________________________
<PAGE> 1
EXHIBIT 10.9
TAX SHARING AGREEMENT
dated as of July 17, 1996
by and among
National City Corporation
and
National Processing, Inc.
and
its Affiliated Corporations
<PAGE> 2
TAX SHARING AGREEMENT
This tax sharing agreement, dated as of July 17, 1996 (this "Agreement"),
is made and entered into by and among National City Corporation (NCC) as common
parent and National Processing, Inc. and its affiliated corporations (NPC).
RECITALS
A. Each party hereto consents to the filing of a consolidated return for the
group beginning with its first taxable year.
B. Certain state and local combined or unitary income or franchise tax
returns will be filed for various members or for the group; and
C. The parties hereto wish to provide for the sharing of the federal income
tax liability and the state and local income and franchise tax liabilities
relating to such consolidated, combined, or unitary returns.
Now, therefore, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS-In addition to the terms defined elsewhere herein, the
following terms have the following meanings when used herein with
initial capital letters:
a. "Affiliated Group" has the meaning attributed to that term in
Section 1504 (a) of the Code.
b. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
c. "Common Parent" has the meaning of that term as it is used in
the Consolidated Return Regulations and initially means NCC
and thereafter any other corporation that replaces NCC (or any
such other corporation) as successor common parent of the
affiliated group.
d. "Completion" for any taxable year of the group, means the date
on which the consolidated return of the group for such taxable
year is completed.
e. "Consolidated Return" for any taxable year of the group, means
a consolidated U.S. corporation income tax return filed
pursuant to Section 1501 of the Code by the common parent for
such taxable year.
f. "Consolidated Return Regulations" means income tax regulations
sections 1.1502-1 through 1.1502-100 (26 C.F.R.), as amended
from time to time.
1
<PAGE> 3
g. "Consolidated Tax Liability" means the consolidated U.S.
corporation income tax liability of the Group for any taxable
year for which the Group files a consolidated return.
h. "Consolidated Taxable Income", for any taxable year of the
group, means the consolidated U.S. corporation taxable income
of the group for such taxable year, determined in the manner
provided in the Code and in the consolidated return
regulations.
i. "Effective Date" means July 17, 1996.
j. "Former Member", as of any given date, means any corporation
(including any successor in interest to such corporation)
which as of such date is not a member of the Group, but which
at any time during one or more taxable years of the Group was
a member; provided, however, that no member that ceases to
exist as a member hereunder solely as a result of a
transaction to which Section 381 of the Code applies will for
purposes of this agreement be considered to be a former member
if the surviving or resulting corporation to such transaction
is a member of the group.
k. "Group", as of any particular date, means the common parent
and each member of the affiliated group which is an includible
corporation as of such date.
l. "Includible Corporation" has the meaning attributed to that
term in Section 1504 (b) of the Code.
m. "Income Tax Regulations" means the regulations (26 C.F.R.), as
amended from time to time, promulgated pursuant to the Code.
n. "IRS" means the Internal Revenue Service.
o. "Loss Item", in the case of any member, for any taxable year
of the group means such member's excess credits against
federal income tax, net operating loss, or net capital loss
for such taxable year which result from the determination of
such member's separate return tax liability for such taxable
year.
p. "Member", for any taxable year of the group, means any
corporation (or any predecessor or successor in interest to
such corporation under Section 381 of the Code which was or is
an includible corporation) which at any time during such
taxable year is an includible corporation that is included in
the affiliated group and includes any such corporation which
at any time during such taxable year is the common parent.
q. "Separate Return Tax Liability", in the case of any member,
for any taxable year of the group means the liability of such
member hereunder for federal income tax for such taxable year
computed as if such member had filed a separate federal income
tax return for such taxable year and for all prior taxable
years or periods and
2
<PAGE> 4
subsequent taxable years, after taking into account all
carryovers and carrybacks of losses and credits as if such
member had filed a separate federal income tax return for all
such taxable years or periods, except that, in making such
computation for any such taxable year, such liability will be
determined:
xix. on the basis of the highest rate of corporate tax in
effect for such taxable year under Section 11 of the
Code (and, if applicable, Section 15 of the Code), as
though such rate were the only income tax rate in effect
for such taxable year;
xx. on the assumption that the "exemption amount" specified
in Section 55 of the Code which is applicable to such
member for such taxable year is zero;
xxi. on the further assumption that the amount specified in
Section 59A (a) (2) of the Code which is applicable to
such member for such taxable year is zero.
r. "Separate Return Year" means a taxable year of a member for
which it filed or files a separate return or for which it
joined or joins in the filing of a consolidated return by
another group.
s. "Taxable Year" means any (i) period of 12 consecutive months
or (ii) period of less than 12 consecutive months, for which a
consolidated return is or will be filed by the group.
2. ALLOCATION OF CONSOLIDATED TAX LIABILITY FOR PURPOSES OF DETERMINING
EARNING AND PROFITS-The consolidated tax liability of the group for each
taxable year of the group will, for purposes of determining the earnings
and profits of each member, be allocated among the members in accordance
with the methods prescribed in Section 1.1552-1 (a) (2) of the income tax
regulations and section 1.1502-33 (d) (2) (ii) of the consolidated return
regulations. The fixed percentage to be used for purposes of Section
1.1502-33 (d) (2) (ii) of the consolidated return regulations will be 100
percent.
3. PAYMENTS BY MEMBERS OF SEPARATE RETURN TAX LIABILITY -- For each taxable
year of the group, each member will make the payments specified in this
Section 3 at the time or times and in the manner herein provided:
a. In the case of any such member whose estimated separate return tax
liability for such taxable year is greater than zero, such member
will make quarterly payments to the Common Parent of its estimated
separate return tax liability for such taxable year. The amount of
each such quarterly payment will be determined by such member, and
such determination will be made no later than ten days prior to the
date on which payment of the respective quarterly estimate of the
group's consolidated tax liability for such taxable year must be
made to the IRS. The amount of each such quarterly payment
determined by such member will equal the amount which such member
would be required under Section 6655 (d)(2) of the Code (or under
any successor section of the Code) to pay to the IRS for such
quarter were such member to make installment payments of its
estimated separate return tax liability for such
3
<PAGE> 5
taxable year in accordance with the provisions of such section. NCC
can require additional payments if the separate return tax liability
is estimated to be greater than the amount required to be paid
pursuant to this Section 3 (a).
b. If the actual separate return tax liability of any such member for
such taxable year exceeds the total estimated payments, if any,
which such member made pursuant to Section 3 (a) for such taxable
year, such member will pay an amount equal to the difference between
its actual separate return tax liability for such taxable year and
the sum of the estimated payments, if any, that such member made
pursuant to Section 3(a) for such taxable year.
c. In the case of any member, each of the quarterly payments required
to be made by such member pursuant to Section 3 (a) will be made in
the manner provided in Section 6 (a) on or before the due date for
the payment of the respective quarterly estimate of the group's
consolidated tax liability for such taxable year. Any amount
required to be paid by such member for such taxable year pursuant to
Section 3 (b) will be paid by such member in the manner provided in
Section 6 (a), as follows: (A) on the fourteenth day of the third
month after the end of such taxable year such member will pay an
amount equal to such member's best estimate, as determined by such
member, of the amount, if any, that such member owes pursuant to
Section 3 (b) for such taxable year, and (B) on the thirtieth day
after completion for such taxable year an amount equal to the
difference, if any, between (x) the amount determined for such
taxable year as the amount payable by such member pursuant to
Section 3 (b) for such taxable year and (y) the amount, if any, paid
by such member for such taxable year pursuant to clause (A) above,
together with interest thereon on such amount at the rate specified
in Section 6 (b) from the date on which the payment referred to in
clause (A) above was made to such thirtieth day following
completion.
4. PAYMENTS TO MEMBERS
a. For each taxable year of the group, the payments specified in this
Section 4 will, if applicable, be made to each member at the time or
times and in the manner herein provided.
i. If the payments made by any such member pursuant to Section
3(a) of its estimated separate return tax liability for such
taxable year exceed its actual separate return tax liability
for such taxable year, such member will be paid an amount
equal to the difference between (A) the payments that such
member made pursuant to Section 3(a) for such taxable year and
(B) the amount of its actual separate return tax liability for
such taxable year.
ii. If any member for a taxable year has a loss item that such
member on a separate return tax basis would be entitled under
the applicable provisions of the Code to carry back to a prior
taxable year or taxable years, such member will be paid an
amount equal to the refund in federal income tax that such
member would have received if it had filed a separate federal
income tax return for such prior taxable year or taxable
years. A member will not be entitled to receive any payment
pursuant to this Section 4 (a) (ii), with respect to a loss
item to the extent such loss item is eligible to be carried
back by such member to a separate return year.
4
<PAGE> 6
b. In the case of any member, any payment that such member may be
entitled to received for such taxable year pursuant to Section 4 (a)
(i) or Section 4 (a) (ii) will be paid to such member in the manner
provided in Section 6 (a) on or before the later of (i) the
fifteenth day of the third month after the end of such taxable year
or (ii) 30 calendar days after the filing of the consolidated
return.
c. Any member that receives a payment pursuant to Section 4 (b) on
account of a loss item, as provided in Section 4 (a) (ii), will
repay such payment in the event such member ceases (other than as a
result of a transaction to which Section 381 of the Code applies and
in which the surviving or resulting corporation is also a member) to
be a member before the common parent has utilized in full such loss
item in determining the group's consolidated taxable income or
consolidated tax liability for any taxable year or taxable years of
the group. If, as of the end of the last taxable year of the group
in which such member is a member, the common parent will have
partially utilized such loss item in determining the group's
consolidated taxable income or consolidated tax liability for any
taxable year or taxable years of the group, such former member will
repay a proportionate part of such payment, determined by
multiplying the amount of such payment by a fraction, the numerator
of which will be equal to the amount of such loss item which the
common parent has not so utilized and the denominator of which will
be equal to the aggregate amount of such loss item. For purposes of
the two preceding sentences, the extent, if any, to which any such
loss items has been utilized by the common parent in determining the
group's consolidated taxable income or consolidated tax liability
for the taxable year or taxable years of the group referred to in
such sentences will be determined in accordance with the provisions
of Section 1.1502-79 of the consolidated return regulations. Any
payment due from a former member pursuant to this Section 4 (c) will
be made in the manner provided in Section 6 (a) by such former
member within 15 days of the date on which such former member
receives written notice of the amount payable by such former member
pursuant to this Section 4 (c).
5. ADDITIONAL OBLIGATIONS OF MEMBERS
a. If:
i. a member generates for any taxable year a loss item which such
member is unable in whole or in part to carry back pursuant to
Section 4 (a) (ii);
ii. is able subsequently to utilize (to the extent not so carried
back) all or any part of such loss item in determining for any
subsequent taxable year or taxable years its separate return
tax liability for such taxable year or taxable years; and
iii. ceases for any reason (other than as a result of a transaction
to which Section 381 of the Code applies and in which the
surviving or resulting corporation is also a member) to be a
member before the common parent has been able to utilize in
full the amount of such loss item (to the extent not so
carried back), so utilized by such member, in determining the
group's consolidated taxable income or consolidated tax
liability for any taxable year or taxable years of the group,
then, in such event, such
5
<PAGE> 7
member or former member will with respect to such loss item
pay as herein provided an amount equal to the amount
determined pursuant to Section 5 (c).
b. If.
i. in the case of any member, such member in determining its
separate return tax liability for a taxable year utilizes (A)
any loss or credit carryover which did not arise in a taxable
year or (B) any deduction the utilization of which by the
common parent for any taxable year is subject to Section
1.1502-15 of the consolidated return regulations; and
ii. before the common parent has been able to utilize in full the
amount of such loss or credit carryover or deduction, so
utilized by such member, in determining for any taxable year
or taxable years the consolidated taxable income or
consolidated tax liability of the group either (A) such member
ceases for any reason (other than as a result of a transaction
to which Section 381 of the Code applies and in which the
surviving or resulting corporation is also a member) to be a
member of the group or (B) all or any part of such loss or
credit carryover or deduction expires under the provisions of
the Code, then, in such event, such member or former member
will with respect to such loss or credit carryover or
deduction pay as herein provided an amount equal to the amount
determined pursuant to Section 5 (d).
c. If Section 5 (a) is applicable to a member or a former member, such
member or former member will pay in the manner provided in Section 5
(d) an amount equal to the difference between (i) the separate
return tax liability of such member for the taxable year or taxable
years involved computed without regard to the loss item, credit, or
deduction referred to in Sections 5 (a) minus the separate return
tax liability of such member for such taxable year or taxable years
and (ii) the amount, if any, of the total reduction in consolidated
tax liability for the then current and all prior taxable years of
the group attributable to the common parent's utilization on behalf
of the group of such loss item, credit, or deduction in determining
the group's consolidated taxable income and consolidated tax
liability for such taxable year or taxable years.
d. If Section 5 (b) is applicable to a member or a former member, such
member or former member will pay at the time and in the manner
provided in Section 5 (f) an amount equal to the difference between
(i) the separate return tax liability of such member for the taxable
year or taxable years involved computed without regard to the loss
or credit carryover or deduction referred to in Section 5 (b) above,
minus the separate return tax liability of such member for such
taxable year or taxable years and (ii) the amount, if any, equal to
the total reduction in consolidated tax liability for the then
current taxable year of the group attributable to the common
parent's utilization on behalf of the group of such loss or credit
carryover or deduction in determining the group's consolidated
taxable income or consolidated tax liability for such taxable year
or taxable years.
e. Any payment due from a member or former member pursuant to Section 5
(c) will be made in the manner provided in Section 6 (a) by such
member or former member. All payments will be made within 15 days of
the date on which any such member or former member
6
<PAGE> 8
receives written notice of the amount payable by such member or
former member pursuant to this Section 5.
f. Any payment due pursuant to Section 5 (d) from a member or former
member will, in any case in which a member ceases to be a member of
the group, be made within 15 days of the date on which the member or
former member receives written notice of the amount payable by it
pursuant to Section 5 (d), or, in any case in which a loss or credit
carryover or deduction expires unused by made on or before the
fifteenth day of the third month following the close of the taxable
year in which the loss or credit carryover or deduction referred to
in Section 5 (d), expires unused. Any payment due pursuant to this
Section 5 (f) from a member or former member will be made by such
member or former member in the manner provided in Section 6 (a).
g. If a member at any time acquires the assets and properties of
another member pursuant to a transaction to which Section 381 of the
Code applies, the acquiring member will, from and after the date of
such acquisition, be responsible for all of the undertakings and
obligations of such other member hereunder and will, from and after
such date, be entitled to receive any and all payments that such
other member would be entitled to receive hereunder. Provided such
other member ceases to exist solely as a result of such transaction,
such event will not, except as expressly provided herein, in any way
result in any acceleration of the time at which any payments
hereunder are due to or from such other member, and, except as
expressly provided herein to the contrary, all such payments will be
made to or by the acquiring member at the same time or times that
such payments would be payable to or by such other member had such
other member continued to exist as a member hereunder.
6. REMITTANCES BY AND TO MEMBERS
a Until such time, if ever, as the common parent notifies each other
member of the group in writing to the contrary, any and all payments
that each such other member agrees to make hereunder will be made
and remitted by each such member directly to the common parent. The
common parent will be responsible for making all payments required
to be made hereunder to members.
b. Any payment required to be made pursuant to Section 6 (a) by a
member or the common parent which is not made on or before the date
on which such payment is due under the terms of this agreement will
bear interest at the rate specified from time to time pursuant to
Section 6621 (a) (2) of the Code, and any member to whom such
payment is due will be entitled to receive interest computed at such
rate upon the late payment of any such amount which is required at
any time to be paid hereunder.
7. SUBSEQUENT ADJUSTMENTS-If any adjustment is made to any item of income,
gain, loss, deduction, expense or credit of any member of the group for a
taxable year during which such member is a member of the group by reason
of the filing of an amended consolidated return, a claim for refund with
respect to such taxable year or an audit with respect to such taxable year
by the IRS, the amounts, if any, due to or from such member under this
agreement will be
7
<PAGE> 9
redetermined by taking into account any such adjustment. If, as a result
of such redetermination, any amounts due to or from a member under this
agreement differ from the amounts previously paid, then except as herein
provided, payment of such difference will be made to such member or by
such member in the manner provided in Section 6 (a) as follows: (a) in the
case of an adjustment resulting in a credit or refund of tax, within ten
calendar days of the date on which such refund or notice of such credit is
received by the common parent or such member with respect to such
adjustment, or (b) in the case of an adjustment resulting in the
assessment of a deficiency in tax, within ten calendar days of the date on
which such deficiency is paid. Any amounts due under this Section 7 will
include any interest attributable thereto under Sections 6601 or 6611 of
the Code and any penalties or additional amounts which may be imposed. Any
amount due pursuant to this Section 7 from a former member will
nevertheless be paid by such former member at the time indicated above and
in the manner provided in Section 6 (a) unless the common parent has
agreed in writing prior to the date on which any such payment would be due
to release such former member from such obligation. In the event the
redetermination referred to in this section results in a former member
being entitled to receive a payment pursuant to this section, such former
member will not be entitled to receive any amount pursuant to this Section
7 unless the common parent has agreed in writing prior to the date on
which any such payment would be due to permit such former member to
receive such payment.
8. CARRYBACKS FROM SEPARATE RETURN YEARS-If, for any taxable year in the
future of a former member, such former member has a net operating loss, a
net capital loss, or is entitled to credits against tax which such former
member, under applicable provisions of the Code or the consolidated return
regulations, may carry back to a taxable year or taxable years of the
group during which such former member was a member of the group, the
common parent will have the obligation to pay to such former member the
amount of any refund or credit of federal income tax that the common
parent may receive as a result of the carryback by such former member of
any such losses or credits; provided, however, that such former member
shall not be entitled to receive an amount which is in excess of that
amount which otherwise would have been received had such former member
filed a separate federal income tax return for such prior taxable year or
taxable years.
9. DETERMINATIONS AND COMPUTATIONS
a. At the request of the common parent, all determinations and
computations required to be made hereunder, including without
limitation all computations of:
i. consolidated taxable income and consolidated tax liability for
each taxable year of the group and
ii. the separate return tax liability for each such taxable year
of each member will be reviewed by the independent public
accountants regularly employed by the common parent at the
time that any such determination or computation is made. The
results of any such review by such independent public
accountants will be binding and conclusive upon the parties
hereto for all purposes hereof.
b. The purpose of this agreement is to ascertain in a reasonable and
equitable manner the income tax liability or refund of each member.
If a fact pattern arises in the administration of this agreement
which requires a calculation or determination that is not dealt with
in the
8
<PAGE> 10
specific provisions hereof, the independent public accountants
regularly employed by the common parent will be responsible for
performing such calculations or making such determinations. In
making any such calculation or determination, such independent
public accountants will attempt to follow as closely as possible the
general concepts set forth in this agreement by analogizing to the
specific provisions hereof. The results of any such determination or
computation so made by such independent public accounts will be
binding and conclusive upon each of the parties hereto for all
purposes hereof.
c. For each taxable year of the group, each member of the group will
compute its separate return tax liability in the manner most
beneficial to such member notwithstanding that, in connection with
the preparation of the group's consolidated return for such taxable
year, the common parent may make contrary tax elections, etc. with
respect to items of income, gain, loss, expense, deduction, or
credit incurred of such member for such taxable year in order to
minimize the group's consolidated tax liability for such taxable
year. All such elections, etc. will be binding for the separate
return tax liability calculation of any member for such taxable
year.
10. PROCEDURAL MATTERS
a. The common parent will be solely responsible for making any
estimated or final payments to the IRS in satisfaction of the
federal income tax liability (including additions to tax, penalties,
and interest) of the group and each of its members for each taxable
year of the group.
b. The common parent will prepare and file, or will cause the
independent public accountants that it regularly employs on behalf
of the group to prepare and on its behalf file, the consolidated
return and any other returns, documents or statements required to be
filed with the IRS which pertain to the determination of the
consolidated tax liability of the group for each taxable year of the
group. In its sole and absolute discretion, the common parent will
have the right with respect to any consolidated return that it or
such independence public accountants has filed or will file: (i) to
determine (A) the manner in which such consolidated return, as well
as any other documents or statements incidental or related thereto,
will be prepared and filed, including without limitation the manner
in which any item of income, gain, loss, deduction, expense, or
credit of any member will be reported therein or thereon, (B)
whether any extensions with respect to any such consolidated return
will be requested, and (C) the elections that will be made in any
such consolidated return by any member; (ii) to contest, compromise,
or settle any adjustment or deficiency proposed, asserted, or
assessed as a result of any audit of such consolidated return by the
IRS; (iii) to file an amended consolidated return and to prosecute,
compromise or settle any claim for refund set forth therein; and
(iv) to determine whether any refunds to which the group may be
entitled will be paid by way of cash refund or credited against the
consolidated tax liability of the group for any taxable year or
taxable years of the group. Each member hereby irrevocably appoints
the common parent as its agent and attorney-in-fact to take any
action (including the execution of documents) as the common parent
may deem appropriate to effect the foregoing.
9
<PAGE> 11
c. The common parent will prepare, or will cause the independent public
accountants that it regularly employs on behalf of the group to
prepare, on behalf of each member any and all Corporation
Applications for Tentative Refund (Form 1139), Amended U.S.
Corporation Income Tax Returns (Forms 1120X), or Claims for Refund
(Form 843) that such member is eligible to file with the IRS with
respect to any prior taxable year or taxable years of such member.
The common parent will deliver, or will cause such independent
public accountants to deliver, to such member any such completed
form as soon as practicable after such form has been completed, and
such member will, within ten days of receiving such form, sign such
form and file the same with the appropriate office of the IRS If any
such member fails to file any such form with the IRS within such
10-day period, such member will, as hereinafter provided, pay an
amount equal to the amount of interest that such member would have
received from the IRS had such member filed such form with the IRS
within such 10-day period but which such member fails to receive as
a consequence of its delinquency in the filing of such form;
provided, however, that if any such delay in the filing of such form
causes the claim for refund of tax made by such form to be
disallowed by the IRS on the ground that the period of limitations
prescribed in Section 6511 of the Code for claiming such refund has
expired as of the date such form actually was filed with the IRS,
such member will, in lieu of making the above-described payment, pay
as hereinafter provided an amount equal to the sum of (i) the amount
of the refund of tax claimed on such form, plus (ii) an amount equal
to the amount of interest that such member would have received from
the IRS had the claim for refund of tax evidenced by such form been
allowed by the IRS on the day before the date on which the period of
limitations for claiming such refund expired. Any payment due
pursuant to this Section 10 (c) from a member will be made in the
manner provided in Section 6 (a) within ten days of the date on
which such member receives written notice from the common parent
that such member is required to make a payment pursuant to this
Section 10 (c). Any amount payable pursuant to this Section 10 (c)
by a former member which, on the date on which any form referred to
in this Section 10 (c) was delivered to such former member was a
member of the group, will be paid by such former member at the time
and in the manner indicated above unless the common parent has
agreed in writing prior to the date on which such payment would be
due to release such former member from the obligations imposed on it
under this Section 10 (c).
d. Each member which at any time makes a determination pursuant to
Section 3 (a) of its estimated separate return tax liability for any
taxable year will, immediately after making any such determination,
send a copy of such determination to the common parent and, at the
request of the common parent, to the independent public accountants
that it regularly employs on behalf of the group.
11. UTILIZATION OF MEMBER TAX ATTRIBUTES, ETC. IN DETERMINING CONSOLIDATED TAX
LIABILITY-In determining the consolidated taxable income and consolidated
tax liability and in preparing the consolidated return of the group for
any taxable year of the group, the common parent will be entitled, and
hereby is authorized, to utilize on behalf of the group all of the tax
attributes and other items of income, gain, loss, deduction, expense,
credit, etc. of each such member arising in such taxable year or which
arose in another taxable year or taxable years (or other period or
periods) and which properly may be carried back or carried forward to such
10
<PAGE> 12
taxable year. The common parent on behalf of the group will be entitled to
utilize each and all of such attributes and items of each member of the
group, without regard to whether such attributes and items are
concurrently being, have previously been, or may subsequently be utilized
in determining for any taxable year or taxable years, in the case of any
member, its separate return tax liability. Except as expressly provided
for herein, no member of the group will in any manner be entitled to
receive any form of compensation by reason of the common parent's
utilization of such member's tax attributes and items of income, gain,
loss, deduction, expense, credit, etc. on behalf of the group in
determining for any taxable year or taxable years the group's consolidated
taxable income and consolidated tax liability for such taxable year or
taxable years, irrespective of which such member has or has not itself
previously utilized, or is not itself concurrently utilizing, any of such
attributes or items in determining for any taxable year or taxable years,
its separate return tax liability. In the event any member ceases for any
reason to be a member either (a) after any of its tax attributes or items
of income, gain, loss, deduction, expense, credit, etc. have been utilized
by the common parent on behalf of the group in determining the group's
consolidated taxable income or consolidated tax liability for any taxable
year or taxable years of the group or (b) during the taxable year of the
group in which any of such attributes or items is being utilized by the
common parent on behalf of the group to determine the group's consolidated
taxable income or consolidated tax liability for such taxable year, but in
either such case before such member has itself utilized such attribute or
item (in whole or in part) in determining for any taxable year or taxable
years, its separate return tax liability, the common parent, except as
expressly provided for herein, will not in any such circumstance be
obligated or required to compensate such member in any manner for any
amount as a result of the occurrence of such event and the group's prior
or concurrent utilization of such attribute or item, notwithstanding that
no portion of such attribute or item may be apportioned to such member
under the consolidated return regulations as a consequence of its ceasing
to be a member of the group.
12. ADDITIONS BY NPC-If NPC will at any time organize or acquire any other
corporation, provided that such corporation becomes a member of the group,
the member of the group that organizes such corporation or consummates
such acquisition will obtain the agreement of such newly organized or
acquired corporation to join in this agreement and to be bound by all of
the terms hereof and will cause such corporation to execute a written
consent evidencing its agreement to join in this agreement and to be bound
by the terms hereof. Each of the parties hereto, and each corporation that
subsequently becomes a party to this agreement, consents to such
corporation joining in this agreement.
13. STATE INCOME/FRANCHISE AND LOCAL INCOME TAXES
a. Each member agrees that upon the request of the common parent it
will join with such other members as are designated by the common
parent in any consolidated, combined, or unitary state or local
income or franchise tax return or report for any taxable year.
b. For any taxable year for which such a return is filed that includes
a member, this agreement will be applied to all matters relating to
the taxes relating to such return in a manner similar to and
consistent with its application to federal income tax matters.
Accordingly, a member generally will not be liable for any such
taxes in an amount greater
11
<PAGE> 13
than the amount that would be due (computed, to the extent possible,
under the assumptions and principles set forth above) if such taxes
were not computed on a consolidated, combined or unitary basis with
any member of the group.
14. EFFECTIVE DATE-This agreement will be effective for all taxable years of
the group beginning on or after the effective date.
15. AMENDMENT AND WAIVER-This agreement may be amended, modified, waived,
discharged, or terminated only by an instrument in writing signed by each
of the parties hereto.
16. SUCCESSORS AND ASSIGNS-This agreement will be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by any party
without the prior written consent of each other party. In the absence of
such prior written consent, any purported assignment or delegation of any
right or obligation hereunder will be null and void.
17. RIGHTS OF THE PARTIES-Except as provided in Section 16, nothing expressed
or implied in this agreement is intended or will be construed to confer
upon or give any person or entity other than the parties hereto any rights
or remedies under or by reason of this agreement or any transaction
contemplated hereby.
18. EXPENSES-Except as otherwise provided in this agreement, each of the
parties to this agreement will bear their own expenses incurred in
connection with this agreement and the transactions contemplated hereby.
19. TITLES AND HEADINGS-Titles and headings to Sections herein are inserted
for convenience of reference only, and are not intended to be a part of or
to affect the meaning or interpretation of this agreement.
20. ENTIRE AGREEMENT-This agreement, together with its attachment, constitutes
the entire agreement among the parties hereto with respect to the subject
matter hereof, and there are no agreements among the parties hereto with
respect thereto except as expressly set forth herein.
21. SEVERABILITY-In case any provision contained in this agreement is invalid,
illegal, or unenforceable, the validity, legality, and enforceability of
the remaining provisions will not in any way be affected or impaired
thereby.
22. GOVERNING LAW-This agreement will 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.
23. COUNTERPARTS-This agreement may be executed in any number of counterparts,
each of which so executed will be deemed to be an original; such
counterparts will together constitute but one agreement.
12
<PAGE> 14
IN WITNESS WHEREOF, the parties to this agreement have executed this agreement
as of the date first above written.
NATIONAL CITY CORPORATION
/s/ Carlton E. Langer
----------------------------
By: Carlton E. Langer
-------------------------
Its: Vice President
------------------------
National Processing, Inc.
/s/ Richard A. Alston
-----------------------------
Richard A. Alston
Executive Vice President
Finance and Corporate Development
13
<PAGE> 1
Exhibit 10.10
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
AGREEMENT BETWEEN
-----------------
AIRLINES REPORTING CORPORATION
AND
FIRST NATIONAL BANK OF LOUISVILLE
AND
NATIONAL PROCESSING COMPANY, INC.
FOR
AREA SETTLEMENT PLAN PROCESSING SERVICES
1. AGREEMENT AND TERM
------------------
1.1. Definition of Service
---------------------
Airlines Reporting Corporation (ARC) maintains and operates a program
known as the Travel Agents' Standard Ticket and Area Settlement Plan (ASP)
whereby ARC listed travel agents (agents) report the sale of transportation and
services related thereto on standard form accountable documents and remit funds
for such sales to ARC on behalf of its participating carriers (carriers).
First National Bank of Louisville and National Processing Company, Inc.
(hereinafter collectively referred to as NPC), currently serve the ARC/ASP
system by providing electronic data processing and related services for the
purpose of clearing, settling, and accounting for such sales and funds related
thereto between the aforementioned agents and the ARC carriers. The services to
be performed by NPC in this Agreement will be accomplished at NPC's locations in
Louisville or Phoenix or other locations as may be
<PAGE> 2
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
mutually agreed upon in writing by NPC and ARC. Such service shall be referred
to as the Area Settlement Plan Processing Service (ASPPS), and may be revised
upon the written consent of the parties.
1.2. Terms and Amendments
--------------------
This agreement, which supersedes all previous agreements between the
parties relating to ASPPS, shall be for a period of five (5) years commencing
with the period ending January 4, 1987 and ending with the period ending
December 29, 1991, and shall be automatically extended from year to year for
five (5) additional one (1) year periods; provided, however, ARC may, upon not
less that one (1) year's advance written notice to NPC, elect to terminate this
Agreement at the end of the initial term or at the end of any extension period.
This Agreement, including any extension thereof, may be terminated by NPC or ARC
pursuant to the terms and conditions set forth in Section 7.2. If ARC or NPC
terminates this Agreement under Section 7.2, a mutually agreed upon phasing out
of agents will occur in order that the performance standards set forth in
Schedules A and B may be attained by the new provider of services to ARC. During
the phase out period, all terms and conditions of this Agreement will remain in
effect except as modified by the actual phasing out itself. In no event shall
the phase out period exceed one hundred eighty (180) days from the date of
termination of this Agreement unless otherwise mutually agreed upon in writing
by the parties. The one hundred eighty (180) day phase out period shall commence
on the day following the date of such notice. In addition, if ARC terminates
this Agreement under Section 7.2, NPC agrees to assist the new provider, as
specified in Section' 7.3. This Agreement may be amended, extended, or
superseded only by agreement of the parties in writing.
<PAGE> 3
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
1.3. Coverage
--------
NPC will provide the services set forth in Section 1.1 for all ASP work
from all agents. States will be assigned to specific NPC processing centers upon
the written consent of the parties.
2. ASPPS SYSTEM AND RIGHTS THEREIN
-------------------------------
2.1. Definitions
-----------
a. "ASPPS System" shall mean the electronic data processing system and
services provided thereby including all computer programs (all processing and
data entry software) written and/or developed by NPC and all associated data
entry and clerical procedures developed by NPC to perform the functions
specified in the ARC Area Settlement Plan Processing Service Manual. and as
otherwise agreed upon in writing between the parties.
b. "Data files" and "data" shall mean all physical documents processed
by NPC, including current and historical computer files.
c. The term "billable item" shall mean one of the following documents:
i.) Auditor's Coupon of ticket (including Miscellaneous Charges
Order, Prepaid Ticket Advice, and Tour Order).
ii.) Cash Sale Refund Notice or Credit Card Refund Notice.
iii.) Credit card charge form.
iv.) Adjustment forms: ticket transmission recap, debit memo, credit
memo, recall commission statement, agent automated deduction
form.
v.) Any other form as may be mutually agreed upon by NPC and ARC.
<PAGE> 4
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
2.2. Rights to the ASPPS System
--------------------------
The ASPPS System shall remain the exclusive property of ARC. NPC shall
maintain in a current state data processing system documentation for the ASPPS
System as operated by NPC, including any changes or modifications, made
pursuant to Section 4.2 of this Agreement, and shall deliver the same to ARC
immediately upon termination (for any reason whatsoever) of this Agreement, or
at any other reasonable time ARC shall so demand. Should any Governmental action
occur whereby ARC or any carrier owned organization is unable or unwilling to
continue to operate the Area Settlement Plan, or a generally similar operation,
NPC will be granted the right of first refusal to purchase or lease the ASPPS
system.
3. SAFEGUARDING ARC DATA, CONFIDENTIALITY AND AUDIT RIGHTS
-------------------------------------------------------
3.1. Safeguarding ARC Data
---------------------
NPC will establish and maintain reasonable safeguards in accordance with
current industry standards against the destruction, loss, or alteration of the
data files and data of ARC, the carriers, and the agents which may be in the
possession of NPC. These safeguards shall be prudent and consistent with NPC
measures designed to protect its own properties. NPC shall have no proprietary
right or interest in the data or data files. NPC's right to the data and data
files shall be for the sole purpose of providing services hereunder, and NPC
shall not disclose, sell, assign, lease, or otherwise dispose of such data or
data files. NPC shall immediately return such data and data files upon
termination (for whatever cause) of this Agreement or with respect to any
particular data files and data, on such earlier date that the same are no longer
required by NPC to render services hereunder.
4
<PAGE> 5
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
3.2. Confidentiality of ARC Data
---------------------------
NPC shall receive all information communicated to it by ARC, the
carriers, the agents, and any other third party designated by ARC, in strict
confidence, and shall use such information only for the performance of the
services contemplated by this Agreement, and shall disclose such data only to
ARC or to such other persons as ARC has otherwise designated. Measures designed
to maintain this confidentiality shall be consistent with those designed to
maintain the confidentiality of NPC information. It is understood that NPC's
procedures and operations will be periodically reviewed by examiners from
applicable federal and state regulatory authorities and by NPC's external
auditors.
3.3. Audit Rights
------------
ARC will, from time to time, notify NPC, in advance, of those persons
who are to have the right to audit the NPC services performed hereunder. All
such persons will have reasonable access to all documentation and systems
utilized for work performed for ARC hereunder, for the limited purpose of
performing the necessary observance and verification in connection with any
reasonable audit of the ASPPS, including the services required in the ASPPS
Manual.
4. OPERATIONS TO BE PERFORMED BY NPC
---------------------------------
4.1. Area Settlement Plan Processing Service
---------------------------------------
NPC will operate the ASPPS and provide the services specified in the
ASPPS Manual, maintain quality control, and timeliness standards as speci-
5
<PAGE> 6
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
fied in Section 7 of this Agreement, and correct within a reasonable time all
ASPPS system errors for which it is responsible.
4.2. ASPPS Changes and Modifications
-------------------------------
NPC shall make, within a period mutually agreed to in writing by the
parties, such modifications and changes to the ASPPS operated by NPC and
corresponding modifications to the ASPPS Manual as ARC may from time to time
require of NPC. NPC will not be required to make such modifications or changes
unless ARC and NPC shall mutually agree, in advance and in writing, on the
allocation and appropriation of costs and adjustments of item processing fees
for such changes. At no charge to ARC, NPC will provide one man-month per month
of system engineering development. NPC will correct at no expense to ARC any
programming errors. NPC will report to ARC in writing, prior to commencing any
project, the estimated number of man hours needed to complete each project and
the remaining number of cost-free man hours to which ARC is entitled and the
date on which such project will be completed. ARC can elect to use the cost-free
man hours on any and all projects up to the aggregate total of one man-month per
month for the duration of this Agreement. Such changes and/or modifications
shall become and remain the exclusive property of ARC.
5. ARC OBLIGATIONS
---------------
In connection with the ASPPS provided by NPC and in addition to its
other obligations hereunder) ARC will on its own, or will cause the carriers,
agents, and designated third parties as appropriate, to on a timely basis:
6
<PAGE> 7
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
a. Furnish to NPC and keep current a list of all agents required to
report to NPC, and the location of each such agent's principal office, designate
a particular bank account for each such agent against which to draw drafts for
such agent's sales and authorize NPC to draw such drafts.
b. Supply NPC all required source data specified in the ASPPS Manual in
the form prescribed by ARC or in such form as ARC may reasonably prescribe.
c. Review reports prepared by NPC and notify NPC of any problems
therewith in a timely manner.
d. Maintain and publish procedures and instructions for agents for the
preparation of input and utilization of output for the ASPPS.
e. Provide NPC, as may be required, with management decisions and
personnel in order that the work of NPC contemplated herein may be properly
accomplished and communicated, as may be required, with appropriate agents
concerning incorrect or erroneous practices or procedures on the part of such
agents.
6. PAYMENTS TO NPC
---------------
6.1. a. Processing Fees
---------------
i. Item Processing Fee
-------------------
As compensation for the services set forth in this Agreement,
ARC shall pay or cause to be paid a fee for each item processed based on the
item processing fee schedule set forth below:
7
<PAGE> 8
ITEM PROCESSING FEE SCHEDULE
<TABLE>
<CAPTION>
AVERAGE WEEKLY VOLUME FEE PER ITEM
--------------------- ------------
<S> <C>
0 - 1,100,000 16.23 cents
1,100,001 - 1,200,000 16.11 cents
1,200,001 - 1,400,000 16.01 cents
1,400,001 - 1,500,000 15.80 cents
1,500,001 - 1,700,000 15.69 cents
1,700,001 - 1,900,000 15.58 cents
1,900,001 - 2,000,000 15.48 cents
2,000,001 - 2,200,000 15.35 cents
2,200,001 - 2,400,000 15.26 cents
2,400,001 - 2,500,000 15.08 cents
2,500,001 - 2,700,000 14.94 cents
2,700,001 - 2,900,000 14.77 cents
2,900,001 - 3,000,000 14.62 cents
3,000,001 - 3,200,000 14.46 cents
3,200,001 - 3,400,000 14.31 cents
3,400,001 - 3,500,000 14.15 cents
3,500,001 - 3,700,000 13.99 cents
3,700,001 - 3,900,000 13.84 cents
3,900,001 - 4,000,000 13.68 cents
4,000,001 - 4,200,000 13.51 cents
4,200,001 + 13.36 cents
January 1991
</TABLE>
8
<PAGE> 9
The above fees will be effective for the Period Ending January 4, 1987.
Such fees will be subject to the fee adjustment provided for in Subsection
6.1. c. hereof. In addition to the foregoing, NPC shall be further compensated
for the services provided under this Agreement from earnings, if any, NPC shall
receive from the use of funds collected from agents and held until Wednesday
disbursement of the carriers, except for earnings on the funds which are
collected in advance of normal draft dates from daily reporting agents.
ii. Effective Rate
--------------
It is understood that the processing fee of the ASPPS will be based
on a Wednesday disbursement of funds.
6.1. b. Other Charges
-------------
i. The carriers will be charged for all postage, transportation,
transmission, ARC related telephone , and other expenses incurred by NPC in
distributing the reports, documents, and other output described in the ASPPS
Manual.
ii. A carrier requesting generation of a weekly magnetic tape
containing individual carrier report data as prescribed in the ASPPS Manual
will be charged $50.00 per tape, per week per processing center. There will be
an additional charge of $30.00 per tape not returned by the carrier to NPC
within sixty (60) days.
iii. A carrier requesting the mailing of magnetic tapes to its credit
card contractor will be charged a start-up fee of $360.00 for twelve (12) tapes
at each of NPC's processing centers.
iv. A carrier requesting direct transmission to its credit card
contractor will be charged $10.00 for each transmission for each center.
v. A carrier requesting the microfiche containing individual
9
<PAGE> 10
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
carrier report data as prescribed in the ASPPS Manual will be charged $3.00
per sheet of microfiche at each of NPC's processing centers.
vi. A carrier requesting NPC to capture itinerary data from
items processed by NPC pursuant to this Agreement will be charged NPC's fee for
this service consisting of a per item transaction charge of $.075. This fee will
be subject to the fee adjustments provided for in Section 6.1.c. Performance
shall commence on a date to be agreed upon in writing by NPC and the carrier.
This service shall remain in force unless terminated by either party upon
ninety (90) days advance written notice, or until termination of this
Agreement.
vii. The carriers will be charged a fee on the average daily
total of outstanding returned drafts each month. The fee will be calculated at
First National Bank of Louisville's "prime" rate as of the first day of the
month for which the fee applies.
6.1. c. Fee Adjustments
---------------
i. If, during the term of this Agreement, the average of the Consumer
Price Index for Urban Wage Earners and Clerical Workers for the classes of
cities within the United States wherein NPC shall provide ASPPS services as
published by the Bureau of Labor Statistics of the Department of Labor (or in
the event that the Bureau shall have stopped publishing such index or shall have
substantially changed the context or format thereof, any other comparable
measure published by a mutually agreeable source) shall on the yearly
anniversary of the effective date of this Agreement (the Current Index) exceed
such Consumer Price Index for Urban Wage Earners and Clerical Workers on the
same date the previous year (the "Base Index") the fees payable to NPC pursuant
to Subsections 6.1.a.i., and
10
<PAGE> 11
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
6.1.b.vi. shall be increased by an amount equal to seventy percent (70%) of
the percentage that the Current Index increased over the Base Index.
ii. ARC and NPC agree to adjust fees reasonably, should the percentage
of control number files (TCN files) currently being received by NPC become a
lesser or greater percentage of billable items than exists now as certified by
NPC, provided that the percent of change is at least 10% and continues for four
or more weeks. NPC will certify the current percentage to ARC, in writing,
within thirty (30) days of the execution of this Agreement and will, on a
quarterly basis, certify to ARC, in writing, changes in the percentage, if any.
iii. ARC and NPC agree to adjust fees reasonably should the prices
charged for obtaining and using TCN files increase from current price levels as
certified by NPC. NPC will certify the current price levels to ARC, in writing,
within thirty (30) days of the execution of this Agreement and will, on a
quarterly basis, certify to ARC, in writing, changes in the price, if any.
iv. ARC and NPC agree to adjust fees reasonably, should the method of
collecting funds from agents change significantly by the use of Electronic Funds
Transfer through the Automated Clearing House.
6.2. Payment of Amounts Due to NPC
-----------------------------
Notwithstanding the fact that ARC is obligated to make all payments to
NPC hereunder, NPC is authorized to deduct all normal charges related to Area
Settlement Plan Processing from carrier disbursements from each of its
processing centers on a monthly basis. Such charges shall be for the four (4) or
five (5) processing weeks contained within a calendar month. Monthly billing
invoices supporting such expenses will be prepared in accordance with
specifications set forth in the ASPPS Manual.
11
<PAGE> 12
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
7.1. PERFORMANCE
-----------
a. Quality
-------
NPC will maintain a quality control program to be reviewed and
approved by ARC. The program is designed to identify problem areas associated
with data entry and other clerical functions. Performance will be independently
monitored by ARC and NPC personnel. Failure to consistently maintain such
standards, as confirmed through statistically accurate samplings of the items
processed, will result in financial penalties and may also be deemed cause for
termination of this Agreement. The performance standards and the appropriate
financial penalties are set forth in Schedule A. Performance standards contained
in Schedule A shall be reviewed in good faith by ARC and NPC at least annually
to ensure the on-going appropriateness of such standards, which may be revised
upon the mutual written consent of ARC and NPC.
b. Timeliness
----------
All reasonable efforts will be made to develop and mail/wire
transmit certain reports, including but not limited to billings to credit card
companies, disbursement of funds to carriers, issuance of shortage notices to
agents and notification to ARC of agent reports not received or agent checks
returned due to insufficient funds. The schedule for release of such reports or
information is contained within the ASPPS Manual. Schedule B of this Agreement
states what is considered reasonable adherence to the schedule. Failure to
comply with Schedule B will permit ARC to seek financial penalties, as defined
in Schedule B exclusively, from NPC and may also be considered good cause for
termination of this Agreement. Standards and penalties associated with Schedule
B should be reviewed by ARC and NPC on at least an annual basis to ensure their
continuing appropriateness.
12
<PAGE> 13
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
NPC will subscribe to the holiday schedule as contained in the ASPPS as
appropriate. The schedule may be revised as necessary upon the mutual written
consent of ARC and NPC.
c. Issuance of Funds
-----------------
ARC recognizes that in order to fulfill properly this Agreement,
NPC is required to issue checks to agents who are subject to the operations of
the Area Settlement Plan. NPC shall not issue any check in excess of $500.00 to
an agent without prior written authorization from ARC. Such checks are to be
made payable to agents. The funds are to be drawn from the account of various
carrier participants in the Area Settlement Plan. In recognition of its
obligation to issue such checks, NPC agrees to be fully responsible for any
check in excess of $500.00 issued by it to an agent without prior written
authorization from ARC, and to reimburse ARC fully for such funds should NPC's
and ARC's efforts to obtain a refund of such funds from the affected agent not
be successful within a period of forty-five (45) days from the date ARC is
advised of the erroneous payment. NPC shall not be responsible for any check
issued by it to an agent in accordance with this Agreement should it receive
prior written authorization from ARC to issue the check. ARC acknowledges that
it has reviewed and found the ASPPS Program to meet the agreed specifications as
prescribed in the ASPPS Manual and authorizes NPC to utilize such program to
process such transactions. ARC will not hold NPC liable for any checks issued by
reason of an error in such program, except with regard to any check in excess of
$500.00 which was issued by NPC without prior written authorization by ARC.
d. Performance Review and Disputes
-------------------------------
i. A designated representative of NPC and a designated
representative of ARC will meet as often as requested by either party to review
the performance of NPC and ARC under this Agreement. Any dispute,
<PAGE> 14
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
7.1. c. Issuance of Funds
-----------------
ARC recognizes that in order to fulfill properly this Agreement,
NPC is required to issue checks to agents who are subject to the operations of
the Area Settlement Plan. NPC shall not issue TO ANY AGENT A [any] check in
excess of [$500.00] $1,000.00 WITHOUT PRIOR WRITTEN AUTHORIZATION FROM ARC.
UNLESS ALL OF THE CONDITIONS AND REQUIREMENTS SET FORTH IN SCHEDULE C -
AUTOMATED OVERAGE APPROVAL - ARE SATISFIED. Such checks are to be made payable
to agents. The funds are to be drawn from the account of various carrier
participants in the Area Settlement Plan. In recognition of its obligation to
issue such checks, NPC agrees to be fully responsible for any check in excess of
[$500.00] $1,000.00 issued by it to an agent without prior written authorization
from ARC WHICH DOES NOT SATISFY EACH AND EVERY CONDITION AND REQUIREMENT SET
FORTH IN SCHEDULE C, AND to reimburse ARC fully for such funds should NPC's and
ARC's efforts to obtain a refund of such funds from the affected agent not be
successful within a period of forty-five days from the date ARC is advised of
the erroneous payment. NPC shall not be responsible for any check issued by it
to an agent in accordance with this Agreement should it receive prior written
authorization from ARC to issue the check. ARC acknowledges that it has reviewed
and found the ASPPS Program to meet the agreed specifications as prescribed in
the ASPPS Manual and authorizes NPC to utilize such program to process such
transactions. ARC will not hold NPC liable for any checks issued by reason of an
error in such program, except with regard to any check ISSUED in excess of
[$500] $1,000.00 which was issued by NPC without prior written authorization by
ARC WHICH DID NOT SATISFY EACH AND EVERY CONDITION AND REQUIREMENT SET FORTH IN
SCHEDULE C.
<PAGE> 15
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
controversy, claim or disagreement between the parties hereto arising under this
Agreement, or with respect to the interpretation of any provision of this
Agreement, shall be resolved or settled as provided herein.
ii. Each of the parties will appoint a designated representative
whose task it will be to meet for the purpose of endeavoring to resolve such
dispute, controversy, claim or disagreement. The designated representatives will
meet as often as the parties reasonably deem necessary in order to gather and
furnish to each other all information with respect to the matter in issue which
the parties believe to be appropriate and germane in connection with its
resolution. Such representatives will discuss any such problem and/or negotiate
in good faith in an effort to resolve such dispute, controversy, claim or
disagreement, or renegotiate the applicable section or provision of this
Agreement. During the course of such negotiation, all reasonable requests made
by one party to the other for information will be honored in order that each of
the parties may be fully advised in the premises. The specific format for such
discussion will be left to the discretion of the designated representatives but
may include the preparation of agreed upon statements of fact or written
statements of position furnished to the other party.
iii. Both parties agree that no litigation over a dispute,
controversy) claim or disagreement shall be initiated until the procedures in
Sections 7.1.d.i. and 7.l.d.ii above, have been completed.
7.2. Termination for Cause
---------------------
In the event that ARC or NPC materially or repeatedly defaults in the
performance of any of its duties, obligations, or performance requirements as
set forth in this Agreement, and, upon written notice, does not correct
<PAGE> 16
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
this situation within a sixty (60) day period, this Agreement may be
terminated by the aggrieved party, such termination to be effective the one
hundred eightieth (180) day succeeding the date of such notice, or as otherwise
mutually agreed to in writing between ARC and NPC.
7.3. Termination Responsibilities
----------------------------
In the event that it becomes necessary for ARC to terminate this
Agreement for cause, NPC agrees to:
a. Make available to the new provider any NPC facility which is used
exclusively for ASPPS processing, at fair market value.
b. Make available to the new provider any management or clerical
employees solely dedicated to ASPPS processing, upon mutual agreement of the new
provider, and the NPC employee.
c. Make available to the new provider, at NPC's net book value at the
time of termination, all data processing equipment, office furnishings, and
miscellaneous supplies on hand which are used exclusively for ASPPS processing.
d. Make available to the new provider detailed work flow charts and
documented clerical procedures.
e. Make available to the new provider all current systems procedures and
documentation.
f. Furnish two (2) man-years of Systems programming assistance at no
cost to the new provider.
g. Train up to twenty-five (25) key personnel of the new provider. The
training will be performed at NPC's locations during the phase out period
provided for in Section 1.2 of this agreement. NPC will bear the costs of its
trainers; the new provider will bear the costs of its key personnel.
15
<PAGE> 17
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
7.4. Force Majeure
-------------
a. NPC or ARC will be excused hereunder, for any period it is prevented
from performing any services or obligations pursuant hereto in whole or in part
as a result of an Act of God, War, Civil Disturbance, Court Order, Labor
Problem, Severe Weather, Mechanical Equipment Failure, or other occasional cause
beyond its reasonable control, to include shortages, fluctuations, and/or
interruptions in electrical power, heat, light, or air conditioning, and such
non-performance shall not be a ground for termination or penalty; provided,
however, should any such period of interrupted performance by NPC attributable
to a single cause continue for more than thirty (30) consecutive days, ARC may
without violating or terminating this Agreement, obtain the ASPPS services which
have been interrupted from other providers for the remainder of such period of
interruption. Further, should any such period of interrupted performance
attributable to a single cause continue for ninety (90) days or more during any
contract year, ARC may obtain the ASPPS services which have been interrupted
from other providers for a period not to exceed one hundred eighty (180) days.
NPC agrees to cooperate with such other providers as necessary to insure that
ARC may have the services performed as efficiently as possible. Further, should
a period of interrupted service attributable to a single cause continue for a
period of one hundred eighty (180) consecutive days or more, ARC may deem such
interrupted service as cause for termination under Section 7.2.
b. If, during the terms of this Agreement, NPC's work force should
become unionized, ARC and NPC agree to review the adequacy of this provision,
particularly with respect to contingency plans in the event of work stoppages.
16
<PAGE> 18
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
7.5. Termination for Other Reasons
-----------------------------
Should ARC and NPC mutually agree to terminate this Agreement prior to
its expiration, NPC will use its best efforts to assist ARC in transferring all
computer programs, associated data entry and clerical procedures, and data to
the new provider, and to provide such reasonable assistance as may be required
by ARC in establishing services with the new provider. "Reasonable assistance"
includes, but is not limited to, a commitment by NPC to:
a. Furnish two (2) man-years of systems programming assistance to the
new provider, at NPC's Louisville, Kentucky location, at the new
provider's expense.
b. Train up to twenty-five (25) key personnel of the new provider at
NPC's locations, at the new provider's expense.
7.6. Assignment
----------
This Agreement may be assigned by NPC upon the written consent of ARC
which shall not be unreasonably withheld. This Agreement may be assigned by NPC
to a Successor corporation provided such successor corporation fully assumes the
rights and liabilities of NPC under this Agreement. This Agreement may be
similarly assigned by ARC to any carrier owned organization without the consent
of NPC provided such organization fully assumes the rights and liabilities of
ARC under this Agreement.
7.7. Confidentiality
---------------
ARC and NPC agree to keep the negotiations and substance of this
Agreement confidential from other present or potential providers of ASPPS
services.
17
<PAGE> 19
NATIONAL PROCESSING COMPANY, INC.
An Affiliate of First National Bank of Louisville
IN WITNESS WHEREOF, ARC and NPC have executed and delivered this
Agreement, containing eighteen (18) pages, as of this 16TH day October, 1986.
First National Bank of Louisville Airlines Reporting Corporation
By /s/ A. Green Miles By /s/ Jack B. Hempstead
-------------------------------- ------------------------------
Title Chairman Title President
----------------------------- ---------------------------
National Processing Company, Inc.
By /s/ Delroy R. Hayunga
-------------------------------
Title President
----------------------------
18
<PAGE> 1
Exhibit 10.23
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7, 1996,
by and between National Processing, Inc., an Ohio corporation (the "Company")
and Tony G. Holcombe (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most companies,
the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as
in effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof, the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft
in connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company or any
Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive Activity;
and any such act shall have been harmful to the Company. For purposes of this
Agreement, no act or failure to act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be
done by the Executive not in good faith and without reasonable belief that
his/her action or omission was in the best interest of the Company. Nothing
herein will limit the right of the Executive or his/her beneficiaries to
contest the validity or propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of either of
the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or substantially all
of its assets or the Company causes or permits the sale or transfer of all or
substantially all of the assets of any Subsidiary that has assets equal to or
greater than eighty percent of the total assets of the Company, as reported on
a consolidated basis, 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.
(d) "Competitive Activity" means the Executive's participation, without the
written consent of an officer of the Company, in the management of any business
enterprise if such enterprise engages in competition with the Company.
"Competitive Activity" will not include (i) the mere ownership of securities in
any such enterprise and the exercise of rights appurtenant thereto, (ii)
participation in the management of any such enterprise other than in connection
with the competitive operations of such enterprise or (iii) participation in the
management of any such enterprise which has been authorized by the Board of
Directors of the Company.
2
<PAGE> 3
(e) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement income
and welfare benefit policies, plans, programs or arrangements in which
Executive is entitled to participate, including without limitation any stock
option, stock purchase, stock appreciation savings, pension, supplemental
executive retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health
medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter, providing perquisites,
benefits and service credit for benefits at least as great in the aggregate as
are payable thereunder prior to a Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than the
highest aggregate annual bonus, incentive or other payments of cash
compensation (including, without limitation, payments made pursuant to
Company's long-term incentive plan and short-term incentive plan, if any), in
addition to Base Pay, 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 occurred pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement, policy,
plan, program or arrangement (whether or not funded), or any successor thereto
providing benefits at least as great as the benefits payable thereunder prior
to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation that
as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the date
of an occurrence of a Change in Control and continuing until the earliest of
(i) the third anniversary of the occurrence of the Change in Control (ii) the
Executive's death, or (iii) the Executive's attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999, or (ii)
the expiration of the Severance Period; provided, however, that (A) commencing
on January 1, 1997 and each January 1 thereafter, the term of this Agreement
will automatically be extended for an additional year unless, not later than
September 30 of the immediately preceding year, the Company or the Executive
shall have given notice that it or the Executive, as the case may be, does not
wish to have the Term extended and (B) except as otherwise provided in the last
sentence of Section 7, if, prior to a Change in Control, the Executive ceases
for any reason to be an employee of the Company or any Subsidiary, thereupon
without further action the Term shall be deemed to have expired and this
Agreement will
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immediately terminate and be of no further effect. For purposes of this
Section 1(j), the Executive shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among
any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities
entitled to vote generally in the election of directors of the Company.
2. Operation of Agreement: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. Termination Following a Change in Control: (a) In the event
the Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; provided, however,
that the Executive shall not be entitled to the severance compensation provided
by Section 4 hereof only upon the occurrence of one or more of the following
events:
(i) The Executive's death occurring prior to
termination of his/her employment;
(ii) Prior to the termination of his/her employment,
the Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in
Control,the Executive may terminate employment with the Company and any
Subsidiary during the Severance Period with the right to severance
compensation as provided in Section 4 upon the occurrence of one or more
of the following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a substantially
equivalent or higher level office or position, of or with the Company
and/or a Subsidiary, as the case may be, which the Executive held
immediately prior to a Change in Control, or the removal of the
Executive as a Director of the Company (or any successor thereto) if the
Executive shall have been a Director of the Company immediately prior to
the Change in Control;
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(ii) (I) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company and any Subsidiary which the Executive held
immediately prior to the Change in Control; (II) a reduction in the aggregate
of the Executive's Base Pay and the formula for determining Incentive Pay
received from the Company and any Subsidiary; or (III) the termination or
denial of the Executive's rights to Employee Benefits or a reduction in the
scope or value thereof, which situation is not remedied within 10 calendar days
after written notice to the Company from the Executive;
(iii) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been made in
good faith and in all events will be presumed to have been made in good faith
unless otherwise shown by the Company by clear and convincing evidence) that a
change in circumstances has occurred following a Change in Control, including,
without limitation, a change in the scope of the business or other activities
for which the Executive was responsible immediately prior to the Change in
Control, which has rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused Executive to
suffer a substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the Executive
immediately prior to the Change in Control, which situation is not remedied
within 10 calendar days after written notice to the Company from the Executive
of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or any Subsidiary by which Executive is employed
or transfer of all or substantially all of its business and/or assets,unless
the successor or successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (directly or by operation of law)
assumed all duties and obligations of the Company under this Agreement pursuant
to Section 9(a);
(v) The Company or any Subsidiary by which Executive is employed
relocates its principal executive offices, or requires the Executive to have
his/her principal location of work changed, to any location which is in excess
of 25 miles from the location thereof immediately prior to the Change of
Control, or requires the Executive to travel away from his/her office in the
course of discharging his/her responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year) than was
required to Executive in any of the three full years immediately prior to the
Change in Control without, in either case, his/her prior written consent; or
(vi) Without limiting the generality or effect of the foregoing,any
material breach of this Agreement by the Company or any successor thereto.
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(c) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) will not affect any rights which
the Executive may have pursuant to any agreement, policy, plan, program
or arrangement of the Company providing Employee Benefits, which rights
shall be governed by the terms thereof.
4. Severance Compensation: (a) If, following the occurrence of a Change
in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to
Section 3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an
amount equal to three (3) times the sum of (A) Base Pay (at the highest
rate in effect for any period prior to the Termination Date), plus (B)
Incentive Pay (determined in accordance with the standards set forth in
Section 1(f)) less the sum of (A) any and all payments received by the
Executive from the Company, any Subsidiary, NCC, a Successor or an
affiliate of NCC or a Successor following the occurrence of a Change in
Control plus (B) any future payments to be made to the Executive in
accordance with any employment agreements or contracts between the
Company, a Subsidiary, NCC or its affiliates, or a Successor and the
Executive (specifically excluding payments from any deferred
compensation plan).
(ii) (A) For thirty-six (36) months (the "Continuation
Period") following the occurrence of a Change in Control, the Company
will arrange to provide the Executive with Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar to
those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and (B)
such continuation Period will be considered service with the Company,
assuming the amount of Base Pay and Incentive Pay payable to the
Executive during the calendar year immediately preceding the year in
which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under the
Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the Termination
Date. If beneficiaries and to the extent that any benefit described in
subsections (A) and (B) of this Section 4(a)(ii) is not or cannot be
paid or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will
itself pay or provide for the payment to the Executive, his/her
dependents and beneficiaries, of such Employee Benefits. Without
otherwise limiting the purposes or effect of Section 5, Employee
Benefits otherwise receivable by the Executive pursuant to the
subsection (A) of this Section 4(a)(ii) will be reduced to the extent
comparable
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welfare benefits are actually received by the Executive from another
employer during the Continuation Period, and any such benefits received by
the Executive shall be reported by the Executive to the Company.
(b) There will be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement, except as expressly provided in
the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to
be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest
equal to the so-called composite "prime rate" as quoted from time to time
during the relevant period in the Midwest Edition of THE WALL STREET
JOURNAL. Such interest will be payable as it accrues on demand. Any change
in such prime rate will be effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under Section 6
will survive any termination or expiration of this Agreement following a
Change in Control or the termination of the Executive's employment
following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits provided by
Section 4(a)(i) and Section 4(a)(ii), then the Executive may, by notice to
the Company as provided by Section 10 that is received by the Company
within two days after the Termination Date, be released from any covenant
not-to-compete with the Company that the Executive has theretofore
undertaken; provided, however, that if the Executive gives such notice for
relief from a covenant not-to-compete, than the benefits provided by
Section 4(a)(i) shall be reduced by an amount equal to the sum of (A)
Executive's Base Pay (at the highest rate in effect for any period prior to
the Termination Date) plus (B) Incentive Pay (determined in accordance with
the standards set forth in Section 1(f)) and the benefits provided by
Section 4(a)(ii) shall be reduced by twelve (12) months; and provided
further, however, that if Executive shall have received payment of the
benefit provided by Section 4(a)(i) prior to receipt by the Company of the
notice contemplated by this Section 4(e), then the Executive shall have
waived his/her right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated by
this Section 4(e) shall not include any covenant by Executive to maintain
and not misapply any of the Company's confidential business information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it will
be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. In addition, the Company acknowledges that its severance
pay plans applicable in general to its salaries employees do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in
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accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive 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 or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in control.
Any termination of employment of the executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the Company is
required to withhold pursuant to any law or government regulation or ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place.
This Agreement will be binding upon and inure to the benefit of the Company and
any successor to the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 9(a) and 9(b) hereof. Without limiting the
generality or effect of the foregoing, the Executive's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by Executive's will or by the last of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 9(c), the Company shall have no liability to pay
an amount so attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his/her principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kentucky, without giving effect to the
principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior to subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to sections are to references to sections of this
Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ David R. Zook
---------------------------
David R. Zook
Executive Vice President
/s/ Tony G. Holcombe
- --------------------------------
Tony G. Holcombe
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Exhibit 10.24
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7, 1996, by
and between National Processing, Inc., an Ohio corporation (the "Company"), and
Richard A. Alston (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
----------
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most companies, the
possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and future
continuity of management and desires to establish certain minimum severance
benefits for certain of its senior executive officers and other key employees,
including the Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives and other
key employees are not practically disabled from discharging their duties in
respect of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate not
less than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in Control or
such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to Section
3(a) hereof, the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in connection
with his/her duties or in the course of his/her employment with the Company
or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company or any
Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive Activity;
and any such act shall have been harmful to the Company. For purposes of
this Agreement, no act or failure to act on the part of the Executive shall
be deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be
done by the Executive not in good faith and without reasonable belief that
his/her action or omission was in the best interest of the Company. Nothing
herein will limit the right of the Executive or his/her beneficiaries to
contest the validity or propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of either
of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or substantially
all of its assets or the Company causes or permits the sale or transfer of
all or substantially all of the assets of any Subsidiary that has assets
equal to or greater than eighty percent of the total assets of the Company,
as reported on a consolidated basis, 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.
(d) "Competitive Activity" means the Executive's participation, without
the written consent of an officer of the Company, in the management of any
business enterprise if such enterprise engages in competition with the
Company. "Competitive Activity" will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights appurtenant
thereto, (ii) participation in the management of any such enterprise other
than in connection with the competitive operations of such enterprise or
(iii) participation in the management of any such enterprise which has been
authorized by the Board of Directors of the Company.
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(e) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or arrangements in
which Executive is entitled to participate, including without limitation
any stock option, stock purchase, stock appreciation savings, pension,
supplemental executive retirement, or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or other
life, health medical/hospital or other insurance (whether funded by actual
insurance or self-insured by the Company), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans, programs
or arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter, providing
perquisites, benefits and service credit for benefits at least as great in
the aggregate as are payable thereunder prior to a Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than the
highest aggregate annual bonus, incentive or other payments of cash
compensation (including, without limitation, payments made pursuant to
Company's long-term incentive plan and short-term incentive plan, if any),
in addition to Base Pay, 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 occurred pursuant to any bonus,
incentive, profit-sharing, performance, discretionary pay or similar
agreement, policy, plan, program or arrangement (whether or not funded), or
any successor thereto providing benefits at least as great as the benefits
payable thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation that
as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the date
of an occurrence of a Change in Control and continuing until the earliest
of (i) the third anniversary of the occurrence of the Change in Control,
(ii) the Executive's death, or (iii) the Executive's attainment of age 65:
(i) "Subsidiary" means an entity in which Company directly or indirectly
beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999, or
(ii) the expiration of the Severance Period; provided, however, that (A)
commencing on January 1, 1997 and each January 1 hereafter, the term of
this Agreement will automatically be extended for an additional year
unless, not later than September 30 of the immediately preceding year, the
Company or the Executive shall have given notice that it or the Executive,
as the case may be, does not wish to have the Term extended and (B) except
as otherwise provided in the last sentence of Section 7, if, prior to a
Change in Control, the Executive ceases for any reason to be an employee of
the Company or any Subsidiary, thereupon without further action the Term
shall be deemed to have expired and this Agreement will
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immediately terminate and be of no further effect. For purposes of this
Section 1(j), the Executive shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among
any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities
entitled to vote generally in the election of directors of the Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs, whereupon without further action this
Agreement shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event
the Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; PROVIDED,
HOWEVER, that the Executive shall not be entitled to the severance compensation
provided by Section 4 hereof only upon the occurrence of one or more of the
following events:
(i) The Executive's death occurring prior to
termination of his/her employment;
(ii) Prior to the termination of his/her employment,
the Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control,
the Executive may terminate employment with the Company and any
Subsidiary during the Severance Period with the right to severance
compensation as provided in Section 4 upon the occurrence of one or more
of the following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a substantially
equivalent higher level office or position, of or with the Company
and/or a Subsidiary, as the case may be, which the Executive held
immediately prior to a Change in Control, or the removal of the
Executive as a Director of the Company (or any successor thereto) if the
Executive shall have been a Director of the Company immediately prior to
the Change in Control;
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(ii) (I) A significant adverse change in the nature
or scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Company and any Subsidiary
which the Executive held immediately prior to the Change in Control;
(II) a reduction in the aggregate of the Executive's Base Pay and the
formula for determining Incentive Pay received from the Company and any
Subsidiary; or (III) the termination or denial of the Executive's rights
to Employee Benefits or a reduction in the scope or value thereof, which
situation is not remedied within 10 calendar days after written notice
to the Company from the Executive;
(iii) A determination by the Executive (which
determination will be conclusive and bind upon the parties hereto
provided it has been made in good faith and in all events will be
presumed to have been made in good faith unless otherwise shown by the
Company by clear and convincing evidence), that a change in
circumstances has occurred following a Change in Control, including,
without limitation, a change in the scope of the business or other
activities for which the Executive was responsible immediately prior to
the Change in Control, which has rendered the Executive substantially
unable to carry out, has substantially hindered Executive's performance
of, or has caused Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities or duties attached
to the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or any Subsidiary by
which Executive is employed or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 9(a);
(v) The Company or any Subsidiary by which Executive
is employed relocates its principal executive offices, or requires the
Executive to have his/her principal location of work changed, to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or requires the Executive to
travel away from his/her office in the course of discharging his/her
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required to Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his/her prior written
consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
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<PAGE> 6
(c) A termination by the Company pursuant to Section
3(a) or by the Executive pursuant to Section 3(b) will not affect any
rights which the Executive may have pursuant to any agreement, policy,
plan, program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If, following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to
Section 3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in
an amount equal to three (3) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards set
forth in Section 1(f)) less the sum of (A) any and all payments received
by the Executive from the Company, any Subsidiary, NCC, a Successor or
an affiliate of NCC or a Successor following the occurrence of a Change
in Control plus (B) any future payments to be made to the Executive in
accordance with any employment agreements or contracts between the
Company, a Subsidiary, NCC or its affiliates, or a Successor and the
Executive (specifically excluding payments from any deferred
compensation plan).
(ii) (A) For thirty-six (36) months (the
"Continuation Period") following the occurrence of a Change in Control,
the Company will arrange to provide the Executive with Employee Benefits
that are welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar to
those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and (B)
such continuation Period will be considered service with the Company,
assuming the amount of Base Pay and Incentive Pay payable to the
Executive during the calendar year immediately preceding the year in
which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under the
Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the Termination
Date. If beneficiaries and to the extent that any benefit described in
subsections (A) and (B) of this Section 4(a)(ii) is not or cannot be
paid or provided under any policy, plan, program or arrangement of the
Company or any Subsidiary, as the case may be, then the Company will
itself pay or provide for the payment to the Executive, his/her
dependents and beneficiaries, of such Employee Benefits. Without
otherwise limiting the purposes or effect of Section 5, Employee
Benefits otherwise receivable by the Executive pursuant to the
subsection (A) of this Section 4(a)(ii) will be reduced to the extent
comparable
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welfare benefits are actually received by the Executive from another
employer during the Continuation Period, and any such benefits
received by the Executive shall be reported by the Executive to the
Company.
(b) There will be no right of set-off or counterclaim in respect
of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination of the Executive's employment
following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
than the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executives's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(f)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find
reasonably comparable employment following the Termination Date, and (b) to
measure the amount of damages which Executive may suffer as a result of
termination of employment hereunder. In addition, the Company acknowledges that
its severance pay plans applicable in general to its salaries employees do not
provide for mitigation, offset or reduction of any severance payment received
thereunder. Accordingly, the payment of the severance compensation by the
Company to the Executive in
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<PAGE> 8
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it should appear to the
Executive 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
or threatens to take any action to declare this Agreement void or unenforceable,
or institutes any litigation or other action or proceeding designed to deny, or
to recover from, the Executive the benefits provided or intended to be provided
to the Executive hereunder, the company irrevocably authorizes the Executive
from time to time to retain counsel of Executive's choice, at the expense of
the company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the
part of the Company or the Executive to have the Executive remain in the
employment of the Company or any Subsidiary prior to or following any Change in
Control. Any termination of employment of the executive or the removal of the
Executive from the office or position in the Company following the commencement
of any discussion with a third person that ultimately results in a Change in
Control shall be deemed to be a termination or removal of the Executive after
a Change in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place.
This agreement will be binding upon and inure to the benefit of the
Company and any successor to the Company, including without limitation any
persons aquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefits of and be enforceable by
the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 9(a) and 9(b) hereof. Without limiting the
generality or effect of the foregoing, the Executive's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by Executive's will or by the last of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 9(c), the Company shall have no liability to pay
an amount so attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt hereof orally confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at his/her
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kentucky, without giving effect to the
principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior to subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to sections are to references to sections of this
Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
---------------------------
Tony G. Holcombe
President and Chief Executive Officer
/s/ Richard A. Alston
- --------------------------------
Richard A. Alston
<PAGE> 1
Exhibit 10.25
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7,
1996, by and between National Processing, Inc., an Ohio corporation (the
"Company"), and Robert E. Johnson (the "Executive"). This Agreement supersedes
any other Severance Agreement between the Company and the Executive.
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company
and/or a Subsidiary (as defined below) and has made and is expected to continue
to make major contributions to the profitability, growth and financial strength
of the Company;
WHEREAS, the Company recognizes that, as is the case of most
companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives
and other key employees are not practically disabled from discharging their
duties in respect of a proposed or actual transaction involving a Change in
Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof, the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any
Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity; and any such act shall have been harmful to the Company.
For purposes of this Agreement, no act or failure to act on the part
of the Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Executive
not in good faith and without reasonable belief that his/her action
or omission was in the best interest of the Company. Nothing herein
will limit the right of the Executive or his/her beneficiaries to
contest the validity or propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term
of either of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or
substantially all of its assets or the Company causes or permits the
sale or transfer of all or substantially all of the assets of any
Subsidiary that has assets equal to or greater than eighty percent of
the total assets of the Company, as reported on a consolidated basis,
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.
(d) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in
competition with the Company. "Competitive Activity" will not include
(i) the mere ownership of securities in any such enterprise and the
exercise of rights appurtenant thereto, (ii) participation in the
management of any such enterprise other than in connection with the
competitive operations of such enterprise or (iii) participation in
the management of any such enterprise which has been authorized by the
Board of Directors of the Company.
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(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter,
providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a
Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than
the highest aggregate annual bonus, incentive or other payments of
cash compensation (including, without limitation, payments made
pursuant to Company's long-term incentive plan and short-term
incentive plan, if any), in addition to Base Pay, 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 occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded), or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation
that as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change
in Control (ii) the Executive's death, or (iii) the Executive's
attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999,
or (ii) the expiration of the Severance Period; PROVIDED, HOWEVER,
that (A) commencing on January 1, 1997 and each January 1 thereafter,
the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately
preceding year, the Company or the Executive shall have given notice
that it or the Executive, as the case may be, does not wish to have
the Term extended and (B) except as otherwise provided in the last
sentence of Section 7, if; prior to a Change in Control, the Executive
ceases for any reason to be an employee of the Company or any
Subsidiary, thereupon without further action the Term shall be deemed
to have expired and this Agreement will
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immediately terminate and be of no further effect. For purposes
of this Section 1(j), the Executive shall not be deemed to have ceased
to be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities entitled
to vote generally in the election of directors of the Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event
the Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period. the Executive will be
entitled to the severance compensation provided by Section 4; PROVIDED, HOWEVER,
that the Executive shall not be entitled to the severance compensation provided
by Section 4 hereof only upon the occurrence of one or more of the following
events:
(i) The Executive's death occurring prior to termination of
his/her employment;
(ii) Prior to the termination of his/her employment, the
Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation
as provided in Section 4 upon the occurrence of one or more of the
following events (regardless of whether any other reason for such
termination exists or has occurred. including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
or higher level office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
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(ii) (I) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which the
Executive held immediately prior to the Change in Control; (II) a
reduction in the aggregate of the Executive's Base Pay and the formula
for determining Incentive Pay received from the Company and any
Subsidiary; or (III) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof; which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has been
made in good faith and in all events will be presumed to have been
made in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out,
has substantially hindered Executive's performance of; or has caused
Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to
the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or any Subsidiary by which Executive is
employed or transfer of all or substantially all of its business
and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section
9(a);
(v) The Company or any Subsidiary by which Executive is employed
relocates its principal executive offices, or requires the Executive
to have his/her principal location of work changed, to any location
which is in excess of 25 miles from the location thereof immediately
prior to the Change of Control, or requires the Executive to travel
away from his/her office in the course of discharging his/her
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required to Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his/her prior
written consent; or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto.
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(c) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) will not affect any rights
which the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If, following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to Section
3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an
amount equal to three (3) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards
set forth in Section 1(f)) less the sum of (A) any and all payments
received by the Executive from the Company, any Subsidiary, NCC, a
Successor or an affiliate of NCC or a Successor following the
occurrence of a Change in Control plus (B) any future payments to be
made to the Executive in accordance with any employment agreements or
contracts between the Company, a Subsidiary, NCC or its affiliates,
or a Successor and the Executive (specifically excluding payments
from any deferred compensation plan).
(ii) (A) For thirty-six (36) months (the "Continuation
Period") following the occurrence of a Change in Control, the Company
will arrange to provide the Executive with Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar
to those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and
(B) such continuation Period will be considered service with the
Company, assuming the amount of Base Pay and Incentive Pay payable to
the Executive during the calendar year immediately preceding the year
in which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under
the Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the
Termination Date. If beneficiaries and to the extent that any benefit
described in subsections (A) and (B) of this Section 4(a)(ii) is not
or cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be,
then the Company will itself pay or provide for the payment to the
Executive, his/her dependents and beneficiaries, of such Employee
Benefits. Without otherwise limiting the purposes or effect of
Section 5, Employee Benefits otherwise receivable by the Executive
pursuant to the subsection (A) of this Section 4(a)(ii) will be
reduced to the extent comparable
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welfare benefits are actually received by the Executive from
another employer during the Continuation Period, and any such benefits
received by the Executive shall be reported by the Executive to the
Company.
(b) There will be no right of set-off or counterclaim in respect
of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
than the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executive's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(1)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. In addition, the Company acknowledges that its severance
pay plans applicable in general to its salaries employees do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in
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<PAGE> 8
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that
the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive 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 or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS: TERMINATION PRIOR TO CHANGE IN CONTROL:
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any Subsidiary prior to or following any Change in
control. Any termination of employment of the executive or the removal of the
Executive from the office or position in the Company following the commencement
of any discussion with a third person that ultimately results in a Change in
Control shall be deemed to be a termination or removal of the Executive after a
Change in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other
taxes as the Company is required to withhold pursuant to any law or governnient
regulation or ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b)
hereof. Without limiting the generality or effect of the foregoing,
the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest, or otherwise, other than by a transfer by
Executive's will or by the last of descent and distribution and, in
the event of any attempted assignment or transfer contrary to this
Section 9(c), the Company shall have no liability to pay an amount so
attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals,
required or permitted to be given herder will be in writing and will be deemed
to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed), or five business
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid, or three business days after having
been sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his/her principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Kentucky, without giving
effect to the principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior to subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to sections are to references to
sections of this Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or
more counterparts. each of which shall be deemed to be an original but all
of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
---------------------------
Tony G. Holcombe
President and Chief Executive Officer
/s/ Robert E. Johnson
- -----------------------------
Robert E. Johnson
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Exhibit 10.26
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7, 1996,
by and between National Processing, Inc., an Ohio corporation (the "Company"),
and Kurt S. Knipp (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most
companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof; the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company
or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional"
only if done or omitted to be done by the Executive not in good faith
and without reasonable belief that his/her action or omission was in
the best interest of the Company. Nothing herein will limit the right
of the Executive or his/her beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of
either of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or
substantially all of its assets or the Company causes or permits the
sale or transfer of all or substantially all of the assets of any
Subsidiary that has assets equal to or greater than eighty percent of
the total assets of the Company, as reported on a consolidated basis,
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.
(d) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in
competition with the Company. "Competitive Activity" will not include
(i) the mere ownership of securities in any such enterprise and the
exercise of rights appurtenant thereto, (ii) participation in the
management of any such enterprise other than in connection with the
competitive operations of such enterprise or (iii) participation in
the management of any such enterprise which has been authorized by the
Board of Directors of the Company.
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(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit. deferred compensation,
incentive compensation, group or other life, health medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter,
providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a
Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than
the highest aggregate annual bonus, incentive or other payments of
cash compensation (including, without limitation, payments made
pursuant to Company's long-term incentive plan and short-term
incentive plan, if any), in addition to Base Pay, 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 occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded), or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation
that as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change
in Control (ii) the Executive's death, or (iii) the Executive's
attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999,
or (ii) the expiration of the Severance Period; PROVIDED, HOWEVER,
that (A) commencing on January 1, 1997 and each January 1 thereafter,
the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately
preceding year, the Company or the Executive shall have given notice
that it or the Executive, as the case may be, does not wish to have
the Term extended and (B) except as otherwise provided in the last
sentence of Section 7, if; prior to a Change in Control, the Executive
ceases for any reason to be an employee of the Company or any
Subsidiary, thereupon without further action the Term shall be deemed
to have expired and this Agreement will
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<PAGE> 4
immediately terminate and be of no further effect. For purposes of
this Section 1(j), the Executive shall not be deemed to have ceased to
be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities entitled
to vote generally in the election of directors of the Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event the
Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; provided, however,
that the Executive shall not be entitled to the severance compensation provided
by Section 4 hereof only upon the occurrence of one or more of the following
events:
(i) The Executive's death occurring prior to termination of
his/her employment;
(ii) Prior to the termination of his/her employment, the
Executive becomes permanently disabled within the meaning of; and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation
as provided in Section 4 upon the occurrence of one or more of the
following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
or higher level office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
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<PAGE> 5
(ii) (I) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which the
Executive held immediately prior to the Change in Control; (II) a
reduction in the aggregate of the Executive's Base Pay and the formula
for determining Incentive Pay received from the Company and any
Subsidiary; or (III) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof; which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive:
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by clear
and convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out,
has substantially hindered Executive's performance of; or has caused
Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to
the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or any Subsidiary by which Executive is
employed or transfer of all or substantially all of its business
and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section
9(a);
(v) The Company or any Subsidiary by which Executive is
employed relocates its principal executive offices, or requires the
Executive to have his/her principal location of work changed, to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or requires the Executive
to travel away from his/her office in the course of discharging
his/her responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year)
than was required to Executive in any of the three full years
immediately prior to the Change in Control without, in either case,
his/her prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
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<PAGE> 6
(c) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) will not affect any rights
which the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If; following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to Section
3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an
amount equal to three (3) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards
set forth in Section 1(f)) less the sum of (A) any and all payments
received by the Executive from the Company, any Subsidiary, NCC, a
Successor or an affiliate of NCC or a Successor following the
occurrence of a Change in Control plus (B) any future payments to be
made to the Executive in accordance with any employment agreements or
contracts between the Company, a Subsidiary, NCC or its affiliates, or
a Successor and the Executive (specifically excluding payments from
any deferred compensation plan).
(ii) (A) For thirty-six (36) months (the "Continuation
Period") following the occurrence of a Change in Control, the Company
will arrange to provide the Executive with Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar
to those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and
(B) such continuation Period will be considered service with the
Company, assuming the amount of Base Pay and Incentive Pay payable to
the Executive during the calendar year immediately preceding the year
in which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under
the Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the
Termination Date. If beneficiaries and to the extent that any benefit
described in subsections (A) and (B) of this Section 4(a)(ii) is not
or cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the
Executive, his/her dependents and beneficiaries, of such Employee
Benefits. Without otherwise limiting the purposes or effect of Section
5, Employee Benefits otherwise receivable by the Executive pursuant to
the subsection (A) of this Section 4(a)(ii) will be reduced to the
extent comparable
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<PAGE> 7
welfare benefits are actually received by the Executive from another
employer during the Continuation Period, and any such benefits
received by the Executive shall be reported by the Executive to the
Company.
(b) There will be no right of set-off or counterclaim in respect
of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof; the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
than the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executive's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(f)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. In addition, the Company acknowledges that its severance
pay plans applicable in general to its salaries employees do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in
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accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive 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 or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS: TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in control.
Any termination of employment of the executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b)
hereof. Without limiting the generality or effect of the foregoing,
the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest, or otherwise, other than by a transfer by
Executive's will or by the last of descent and distribution and, in
the event of any attempted assignment or transfer contrary to this
Section 9(c), the Company shall have no liability to pay an amount so
attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given herder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his/her principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kentucky, without giving effect to the
principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior to subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to sections are to references to
sections of this Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
---------------------------
Tony G. Holcombe
President and Chief Executive Officer
/s/ Kurt S. Knipp
- ---------------------------
Kurt S. Knipp
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Exhibit 10.27
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7, 1996,
by and between National Processing, Inc., an Ohio corporation (the "Company"),
and Thomas A. Wimsett (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most
companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof; the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company
or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional"
only if done or omitted to be done by the Executive not in good faith
and without reasonable belief that his/her action or omission was in
the best interest of the Company. Nothing herein will limit the right
of the Executive or his/her beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of
either of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or
substantially all of its assets or the Company causes or permits the
sale or transfer of all or substantially all of the assets of any
Subsidiary that has assets equal to or greater than eighty percent of
the total assets of the Company, as reported on a consolidated basis,
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.
(d) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in
competition with the Company. "Competitive Activity" will not include
(i) the mere ownership of securities in any such enterprise and the
exercise of rights appurtenant thereto, (ii) participation in the
management of any such enterprise other than in connection with the
competitive operations of such enterprise or (iii) participation in
the management of any such enterprise which has been authorized by the
Board of Directors of the Company.
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(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter,
providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a
Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than
the highest aggregate annual bonus, incentive or other payments of
cash compensation (including, without limitation, payments made
pursuant to Company's long-term incentive plan and short-term
incentive plan, if any), in addition to Base Pay, 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 occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded), or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation
that as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change
in Control (ii) the Executive's death, or (iii) the Executive's
attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999,
or (ii) the expiration of the Severance Period; PROVIDED, HOWEVER,
that (A) commencing on January 1, 1997 and each January 1 thereafter,
the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately
preceding year, the Company or the Executive shall have given notice
that it or the Executive, as the case may be, does not wish to have
the Term extended and (B) except as otherwise provided in the last
sentence of Section 7, if; prior to a Change in Control, the Executive
ceases for any reason to be an employee of the Company or any
Subsidiary, thereupon without further action the Term shall be deemed
to have expired and this Agreement will
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immediately terminate and be of no further effect. For purposes of
this Section 1(j), the Executive shall not be deemed to have ceased to
be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities entitled
to vote generally in the election of directors of the Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event the
Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; PROVIDED, HOWEVER,
that the Executive shall not be entitled to the severance compensation provided
by Section 4 hereof only upon the occurrence of one or more of the following
events:
(i) The Executive's death occurring prior to termination of
his/her employment;
(ii) Prior to the termination of his/her employment, the
Executive becomes permanently disabled within the meaning of; and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation
as provided in Section 4 upon the occurrence of one or more of the
following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
or higher level office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
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(ii) (I) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which the
Executive held immediately prior to the Change in Control; (II) a
reduction in the aggregate of the Executive's Base Pay and the formula
for determining Incentive Pay received from the Company and any
Subsidiary; or (III) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof; which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by clear
and convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out,
has substantially hindered Executive's performance of; or has caused
Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to
the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or any Subsidiary by which Executive is
employed or transfer of all or substantially all of its business
and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section
9(a);
(v) The Company or any Subsidiary by which Executive is
employed relocates its principal executive offices, or requires the
Executive to have his/her principal location of work changed, to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or requires the Executive
to travel away from his/her office in the course of discharging
his/her responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year)
than was required to Executive in any of the three full years
immediately prior to the Change in Control without, in either case,
his/her prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
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(c) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) will not affect any rights
which the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If; following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to Section
3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an
amount equal to three (3) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards
set forth in Section 1(f)) less the sum of (A) any and all payments
received by the Executive from the Company, any Subsidiary, NCC, a
Successor or an affiliate of NCC or a Successor following the
occurrence of a Change in Control plus (B) any future payments to be
made to the Executive in accordance with any employment agreements or
contracts between the Company, a Subsidiary, NCC or its affiliates, or
a Successor and the Executive (specifically excluding payments from
any deferred compensation plan).
(ii) (A) For thirty-six (36) months (the "Continuation
Period") following the occurrence of a Change in Control, the Company
will arrange to provide the Executive with Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar
to those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and
(B) such continuation Period will be considered service with the
Company, assuming the amount of Base Pay and Incentive Pay payable to
the Executive during the calendar year immediately preceding the year
in which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under
the Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the
Termination Date. If beneficiaries and to the extent that any benefit
described in subsections (A) and (B) of this Section 4(a)(ii) is not
or cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the
Executive, his/her dependents and beneficiaries, of such Employee
Benefits. Without otherwise limiting the purposes or effect of Section
5, Employee Benefits otherwise receivable by the Executive pursuant to
the subsection (A) of this Section 4(a)(ii) will be reduced to the
extent comparable
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welfare benefits are actually received by the Executive from another
employer during the Continuation Period, and any such benefits
received by the Executive shall be reported by the Executive to the
Company.
(b) There will be no right of set-off or counterclaim in respect
of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof; the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
than the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executive's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(f)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. In addition, the Company acknowledges that its severance
pay plans applicable in general to its salaries employees do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in
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accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits.
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive 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 or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in control.
Any termination of employment of the executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b)
hereof. Without limiting the generality or effect of the foregoing,
the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest, or otherwise, other than by a transfer by
Executive's will or by the last of descent and distribution and, in
the event of any attempted assignment or transfer contrary to this
Section 9(c), the Company shall have no liability to pay an amount so
attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given herder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his/her principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kentucky, without giving effect to the
principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior to subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to sections are to references to
sections of this Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
---------------------------
Tony G. Holcombe
President and Chief Executive Officer
/s/ Thomas A. Wimsett
- ---------------------------
Thomas A. Wimsett
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Exhibit 10.28
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of June 7, 1996,
by and between National Processing, Inc., an Ohio corporation (the "Company"),
and David R. Zook (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
-----------
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most
companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change
in Control or such higher rate as may be in effect from time to time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof; the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
<PAGE> 2
(ii) intentional wrongful damage to property of the Company
or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional"
only if done or omitted to be done by the Executive not in good faith
and without reasonable belief that his/her action or omission was in
the best interest of the Company. Nothing herein will limit the right
of the Executive or his/her beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of
either of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or
substantially all of its assets or the Company causes or permits the
sale or transfer of all or substantially all of the assets of any
Subsidiary that has assets equal to or greater than eighty percent of
the total assets of the Company, as reported on a consolidated basis,
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.
(d) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in
competition with the Company. "Competitive Activity" will not include
(i) the mere ownership of securities in any such enterprise and the
exercise of rights appurtenant thereto, (ii) participation in the
management of any such enterprise other than in connection with the
competitive operations of such enterprise or (iii) participation in
the management of any such enterprise which has been authorized by the
Board of Directors of the Company.
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(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter,
providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a
Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less than
the highest aggregate annual bonus, incentive or other payments of
cash compensation (including, without limitation, payments made
pursuant to Company's long-term incentive plan and short-term
incentive plan, if any), in addition to Base Pay, 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 occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded), or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware corporation
that as of the date of this Agreement owns 100% of the Voting Stock.
(h) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change
in Control (ii) the Executive's death, or (iii) the Executive's
attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on June 7, 1999,
or (ii) the expiration of the Severance Period; PROVIDED, HOWEVER,
that (A) commencing on January 1, 1997 and each January 1 thereafter,
the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately
preceding year, the Company or the Executive shall have given notice
that it or the Executive, as the case may be, does not wish to have
the Term extended and (B) except as otherwise provided in the last
sentence of Section 7, if, prior to a Change in Control, the Executive
ceases for any reason to be an employee of the Company or any
Subsidiary, thereupon without further action the Term shall be deemed
to have expired and this Agreement will
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<PAGE> 4
immediately terminate and be of no further effect. For purposes of
this Section 1(j), the Executive shall not be deemed to have ceased to
be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(k) "Voting Stock" means the ten outstanding securities entitled
to vote generally in the election of directors of the Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event the
Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; PROVIDED, HOWEVER,
that the Executive shall not be entitled to the severance compensation provided
by Section 4 hereof only upon the occurrence of one or more of the following
events:
(i) The Executive's death occurring prior to termination of
his/her employment;
(ii) Prior to the termination of his/her employment, the
Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation
as provided in Section 4 upon the occurrence of one or more of the
following events (regardless of whether any other reason for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
or higher level office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
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<PAGE> 5
(ii) (I) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which the
Executive held immediately prior to the Change in Control; (II) a
reduction in the aggregate of the Executive's Base Pay and the formula
for determining Incentive Pay received from the Company and any
Subsidiary; or (III) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof; which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by clear
and convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out,
has substantially hindered Executive's performance of, or has caused
Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to
the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or any Subsidiary by which Executive is
employed or transfer of all or substantially all of its business
and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have been
transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section
9(a);
(v) The Company or any Subsidiary by which Executive is
employed relocates its principal executive offices, or requires the
Executive to have his/her principal location of work changed, to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or requires the Executive
to travel away from his/her office in the course of discharging
his/her responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year)
than was required to Executive in any of the three full years
immediately prior to the Change in Control without, in either case,
his/her prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto.
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<PAGE> 6
(c) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) will not affect any rights
which the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If, following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to Section
3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an
amount equal to three (3) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards
set forth in Section 1(f)) less the sum of (A) any and all payments
received by the Executive from the Company, any Subsidiary, NCC, a
Successor or an affiliate of NCC or a Successor following the
occurrence of a Change in Control plus (B) any future payments to be
made to the Executive in accordance with any employment agreements or
contracts between the Company, a Subsidiary, NCC or its affiliates, or
a Successor and the Executive (specifically excluding payments from
any deferred compensation plan).
(ii) (A) For thirty-six (36) months (the "Continuation
Period") following the occurrence of a Change in Control, the Company
will arrange to provide the Executive with Employee Benefits that are
welfare benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially similar
to those which the Executive was receiving or entitled to receive
immediately prior to the occurrence of a Change in Control Date, and
(B) such continuation Period will be considered service with the
Company, assuming the amount of Base Pay and Incentive Pay payable to
the Executive during the calendar year immediately preceding the year
in which the Termination Date occurs, for the purpose of determining
service credits and benefits due and payable to the Executive under
the Company's retirement, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his/her
dependents or his/her beneficiaries immediately prior to the
Termination Date. If beneficiaries and to the extent that any benefit
described in subsections (A) and (B) of this Section 4(a)(ii) is not
or cannot be paid or provided under any policy, plan, program or
arrangement of the Company or any Subsidiary, as the case may be, then
the Company will itself pay or provide for the payment to the
Executive, his/her dependents and beneficiaries, of such Employee
Benefits. Without otherwise limiting the purposes or effect of Section
5, Employee Benefits otherwise receivable by the Executive pursuant to
the subsection (A) of this Section 4(a)(ii) will be reduced to the
extent comparable
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welfare benefits are actually received by the Executive from another
employer during the Continuation Period, and any such benefits
received by the Executive shall be reported by the Executive to the
Company.
(b) There will be no right of set-off or counterclaim in respect
of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly
provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of THE WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
than the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executive's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(f)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. In addition, the Company acknowledges that its severance
pay plans applicable in general to its salaries employees do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in
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accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive 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 or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
7. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in control.
Any termination of employment of the executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a Change in Control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to
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all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b)
hereof. Without limiting the generality or effect of the foregoing,
the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest, or otherwise, other than by a transfer by
Executive's will or by the last of descent and distribution and, in
the event of any attempted assignment or transfer contrary to this
Section 9(c), the Company shall have no liability to pay an amount so
attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given herder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his/her principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kentucky, without giving effect to the
principles of conflict of laws of such State.
12. VALIDITY: 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 any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or
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otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior to subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to sections are to references to
sections of this Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: /s/ Tony G. Holcombe
---------------------------
Tony G. Holcombe
President and Chief Executive Officer
/s/ David R. Zook
- -------------------------
David R. Zook
10
<PAGE> 1
EXHIBIT 10.29
NATIONAL PROCESSING COMPANY
1996 STOCK OPTION PLAN
1. PURPOSES. The purpose of this 1996 Stock Option Plan is to provide
employment incentives and to encourage capital accumulation and stock ownership
by Eligible Employees of National Processing, Inc. (the "Company") or of any of
its Subsidiaries, and to provide to designated Optionees under stock options
granted pursuant to any stock option plan of the Company or of any of its
Subsidiaries an alternative method of realizing the benefits provided by such
stock options.
2. DEFINITIONS. As used in this Plan,
(a) "Additional Option" means an Option Right granted to an
Optionee to purchase a number of shares of Common Stock equal to the number of
shares of already owned Common Stock delivered by the Optionee as payment of the
exercise price upon exercise of an Option Right and/or the number of shares of
Common Stock tendered or relinquished as payment of the amount to be withheld
under applicable federal, state and local income tax laws in connection with the
exercise of an option as described in Section 5.
(b) "Additional Option Feature" means a feature of an Option
that provides for the automatic grant of an Additional Option in accordance with
the provisions described in Section 5.
(c) The term "Appreciation Right" means a right granted
pursuant to Section 6 of this Plan.
(d) The term "Board" means the Board of Directors of the
Company.
(e) The term "Common Stock" means Common Stock, without par
value, of the Company or any security into which such Common Stock may be
changed by reason of any transaction or event of the type described in Section 8
of this Plan.
(f) The term "Eligible Employees" means persons who are at the
time the officers (including officers who are members of the Board) and other
key employees of the Company or of any of its Subsidiaries.
(g) The term "Market Value per Share" means, at any date, the
closing price, per share, of the shares of Common Stock, on the New York Stock
Exchange on that date as reported by The Wall Street Journal (Midwest Edition)
or, if the Common Stock shall be primarily traded in another market, as
determined in a manner specified by the Board using quotations in such other
market, and prior to or within 10 days after the commencement of any such
trading, the fair market value per share of the Common Stock as determined by
the Board in its discretion.
<PAGE> 2
(h) The term "Optionee" shall mean the optionee named in an
agreement evidencing an Outstanding Option.
(i) The term "Option Right" means the right to purchase a
share of Common Stock upon exercise of an Outstanding Option.
(j) The term "Outstanding Option" means, at any time, an
option to purchase shares of Common Stock granted by the Company or any of its
Subsidiaries pursuant to this Plan or any other stock option plan of the Company
or any such Subsidiary 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 by action of its Board, assumed the obligations of such corporation
under such stock option plan, all whether or not such option is at the time
exercisable, to the extent that such option at such time has not been exercised
and has not terminated.
(k) The term "Spread" means the excess of the Market Value per
Share of Common Stock on the date when an Appreciation Right is exercised over
the option price provided for in the related Option Right.
(l) The term "Subsidiary" shall mean any corporation in which
at the time the Company owns or controls, directly or indirectly, not less than
50% of the total combined voting power represented by all classes of stock
issued by such corporation.
(m) The term "Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended from time to time.
(n) The term "Incentive Stock Option" means an Option Right
granted by the Company to an eligible employee, which Option Right is intended
to qualify as an "Incentive Stock Option" as that term is used in Section 422
of the Internal Revenue Code.
3. SHARES AVAILABLE UNDER PLAN.
(a) The shares of Common Stock which may be made the subject
of Option Rights and Appreciation Rights pursuant to this Plan may be treasury
shares or shares of original issue or a combination of the foregoing.
(b) Subject to adjustments in accordance with Section 8 of
this Plan, the maximum number of shares of Common Stock which may be sold upon
the exercise of Option Rights granted pursuant to this Plan shall be 4,000,000
shares of Common Stock which are made available for sale by virtue of this
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<PAGE> 3
Plan. For purposes of determining the number of shares that may be sold under
the Plan, such number shall increase by the number of shares surrendered by an
optionee or relinquished to the Company (a) in connection with the exercise of
a Stock Option or (b) in payment of federal, state and local income tax
withholding liabilities upon exercise of an Option Right, provided, however,
that the number of shares of Common Stock actually issued or transferred by the
Company upon the exercise of Incentive Stock Options shall not exceed the
number of shares of Common Stock specified in the first sentence of this
Paragraph 3(b), subject to adjustment as herein provided.
(c) Subject to adjustments in accordance with Section 8 of
this Plan, the maximum number of shares of Common Stock which may be delivered
upon the exercise of Appreciation Rights granted pursuant to this Plan shall not
exceed 4,000,000.
(d) Shares covered by Option Rights cancelled upon exercise of
Appreciation Rights shall not be available for the granting of further Option
Rights under this Plan or under any other stock option plan of the Company or of
any of its Subsidiaries, anything in this Plan or such other stock option plan
to the contrary notwithstanding.
4. GRANTS OF OPTION RIGHTS. The Board may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Eligible Employees of Option Rights. Each such grant may utilize any or all of
the authorizations, and shall be subject to all of the limitations, contained in
the following provisions:
(a) Each grant shall specify the number of shares of Common
Stock to which it pertains.
(b) Each grant shall specify an option price per share not
less than the Market Value per Share on the date of grant.
(c) Successive grants may be made to the same Eligible
Employee whether or not any Option Rights previously granted to such Eligible
Employee remain unexercised. No Eligible Employee may, however, be granted under
this plan, in the aggregate, more than 400,000 Option Rights, subject to
adjustment pursuant to Section 8 of this Plan.
(d) Option Rights granted under this Plan may be (i) options
which are intended to qualify under particular provisions of the Internal
Revenue Code, as in effect from time to time, (ii) options which are not
intended so to qualify, or (iii) combinations of the foregoing.
(e) The date of grant of each Option Right shall be the date
of its authorization by the Board, except that the date of grant of an
Additional Option shall be the date of exercise of the underlying Option Right.
No Option Right shall be exercisable more than 10 years from such date of grant.
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<PAGE> 4
(f) Upon exercise of an Option Right, the option price shall
be payable (i) in cash, (ii) by the transfer to the Company by the Optionee of
shares of Common Stock with a value (Market Value per Share times the number of
shares) equal to the total option price, (iii) at the discretion of the Board,
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, or (iv) by any
combination of such methods of payment.
(g) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by any officer designated by the
Board for this purpose and delivered to and accepted by the Eligible Employee
and shall contain such terms and provisions, consistent with this Plan, as the
Board may approve.
5. ADDITIONAL OPTION.
(a) The Board may, at or after the date of grant of Option
Rights, grant Additional Options. Additional Options may be granted with
respect to any Outstanding Option.
(b) If an Optionee exercises an Outstanding Option that has an
Additional Option Feature by delivering already owned shares of Common Stock
and/or when shares of Common Stock are tendered or relinquished as payment of
the amount to be withheld under applicable federal, state and local income tax
laws (at withholding rates not to exceed the Optionee's applicable marginal tax
rates) in connection with the exercise of an option, the Optionee shall
automatically be granted an Additional Option. The Additional Option shall be
subject to the following provisions:
(1) The Additional Option shall cover the number
of shares of Common Stock equal to the sum of (A) the number of shares of
Common Stock delivered as consideration upon the exercise of the previously
granted Outstanding Option to which such Additional Option Feature relates and
(B) the number of shares of Common Stock tendered or relinquished as payment
of the amount to be withheld under applicable federal, state and local income
tax laws in connection with the exercise of the option to which such
Additional Option Feature relates;
(2) The Additional Option will not have an Additional
Option Feature unless the Board directs otherwise;
(3) The Additional Option option price shall be 100%
of the Market Value per Share on the date the employee delivers shares of
Common Stock to exercise the Option that has the Additional Option Feature
and/or delivers or forfeits shares of Common Stock in payment of income tax
withholding on the exercise of an Option that has the Additional Option Feature;
(4) The Additional Option shall not be exercised
within the first six months after it is granted; provided that this
restriction shall not apply if the Optionee becomes disabled or dies during
the six-month period; and
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<PAGE> 5
(5) The Additional Option shall have the same termination date
and other termination provisions as the underlying Option that had the
Additional Option Feature.
6. GRANTS OF APPRECIATION RIGHTS. The Board may from time to time
authorize the granting of Appreciation Rights in respect of any or all of the
Option Rights under any Outstanding Option (including Options Rights
simultaneously granted) to the Optionee thereunder. An Appreciation Right shall
be a right in the Optionee to receive from the Company an amount which shall be
determined by the Board and shall be expressed as a percentage of the Spread
(not exceeding 100%) at the time of exercise. To the extent such Optionee elects
to exercise such Appreciation Right instead of the related Option Right, the
related Option Right shall be cancelled, and vice versa. Each such grant may
utilize any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
(a) Any grant may permit the exercise of an Appreciation Right
with respect to the value of shares of Common Stock covered by the related
Option Rights.
(b) Any grant may specify that the amount payable on exercise
of an Appreciation Right may be paid by the Company in cash, in shares of Common
Stock or in any combination thereof, and may either grant to the Optionee or
retain in the Board the right to elect among those alternatives.
(c) Each grant shall provide that the maximum number of shares
of Common Stock deliverable upon exercise of an Appreciation Right may not
exceed the number of shares of Common Stock purchasable upon exercise of the
related Option Rights.
(d) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods. No Appreciation Right shall be
exercisable except at a time when the related Option Right is also exercisable.
(e) Each grant of an Appreciation Right shall be evidenced by
an agreement executed on behalf of the Company by any officer designated by the
Board for this purpose and delivered to and accepted by the Optionee, which
agreement shall describe such Appreciation Right, identify the related Option
Rights, state that such Appreciation Right is subject to all the terms and
conditions of this Plan, including the right of the Board to amend, suspend or
terminate such Appreciation Right as set forth in Paragraph 11 of this Plan, and
contain such other terms and provisions, consistent with this Plan, as the Board
may approve.
7. TRANSFERABILITY. No Option Right including any related Appreciation
Right shall be transferable by an Optionee other than by will or the laws of
descent and distribution. Option Rights and Appreciation Rights shall be
exercisable during the Optionee's lifetime only by the Optionee or by the
Optionee's guardian or legal representative.
8. ADJUSTMENTS. The Board may make or provide for such adjustments in
the maximum numbers of shares of Common Stock specified in Paragraphs 3(b) and
(c) and 4(c) of this Plan, in the numbers of shares of Common Stock covered by
Option Rights and Appreciation Rights granted hereunder, and in the prices per
share applicable under such Option Rights and Appreciation Rights, as the Board
in its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of Optionees that
otherwise would 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.
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<PAGE> 6
9. FRACTIONAL SHARES. The Company shall not be required to issue
any fractional share of Common Stock pursuant to this Plan. The Board may
provide for the elimination of fractions or for the settlement of fractions in
cash.
10. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board who may from
time to time delegate all or any part of its authority under the Plan to a
committee of not less than three Directors appointed by the Board. Moreover,
except as the Board may otherwise determine, so long as all of the Company's
outstanding shares are owned by National City Corporation, all matters relating
to the award of Option Rights under Paragraphs 4 and 5 of the Plan shall be, and
are hereby delegated to the Compensation and Organization Committee of National
City Corporation. To the extent of such delegation, references in the Plan to
the Board shall also refer to the appropriate committee.
(b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement evidencing the grant of Option Rights
or Appreciation Rights and any determination by the Board pursuant to any
provision of this Plan or of any such agreement shall be final and conclusive.
No member of the Board shall be liable for any such action or determination made
in good faith.
11. AMENDMENTS OR TERMINATION OF THE PLAN. The Board may, at any time,
suspend or discontinue the 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 Securities Exchange Act of 1934, as amended, or by
any comparable or successor exemption under which the Board believes it is
appropriate for the Plan to qualify, if and to the extent required under
Section 422 of the Internal Revenue Code (if and to the extent that the Board
deems it appropriate to comply with Section 422) and if and to the extent
required to treat some or all of the Option Right and Appreciation Right grants
as "performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code (if and to the extent that the Board deems it appropriate
to meet such requirements), no amendment shall be effective without the
approval of the shareholders of the Company, that (i) except as provided in
Section 8 hereof, increases the number of shares of Common Stock with respect
to which Awards of Option Rights and Appreciation Rights may be issued under
the Plan, (ii) materially increases the benefits accruing to Optionees pursuant
to the Plan or (iii) materially modifies the
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<PAGE> 7
definition of "Eligible Employees". No action under this Section 11 may,
without the consent of the Optionee, reduce an Optionee's rights under any
previously granted and outstanding Option Right.
12. ASSUMPTIONS. In the event that a corporation is merged into the
Company, and the Company is the survivor of such merger, the Board may elect, in
its sole discretion, to assume under this Plan any or all outstanding options
granted by such corporation to its officers and employees under any stock option
plan adopted by it prior to such merger. Such assumptions shall be on such terms
and conditions as the Board may determine in its sole discretion, provided,
however, that the options as assumed do not provide or contain any terms,
conditions or rights which an Option Right may not provide or contain under
Sections 2 through 11 hereunder.
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<PAGE> 8
NATIONAL PROCESSING, INC.
STOCK OPTION AGREEMENT - NON-INCENTIVE STOCK OPTION
1996 PLAN
WHEREAS, the individual identified as Optionee ("Optionee") on the
cover sheet that is attached hereto and hereby made a part hereof ("Cover
Sheet") is an officer or other key employee of National Processing, Inc.
(hereinunder called the "Corporation") or of a Subsidiary; and
WHEREAS, the execution of a Stock Option Agreement in the form hereof
has been duly authorized pursuant to the Corporation's 1996 Stock Option Plan
hereinafter called the "Plan" effective on the date listed on the Cover Sheet as
"Grant Date";
NOW, THEREFORE, the Corporation hereby grants to the Optionee, pursuant
to the Plan, (i) an Option (hereinafter called the "Option") to purchase the
number of shares of its common stock, without par value ("Common Stock"), listed
on the Cover Sheet as "Shares Granted", at the per share exercise price set
forth on the Cover Sheet as the "Option Price" and (ii) Additional Options
("Additional Options") to purchase the number of shares of it's Common Stock
equal to the number of shares of already owned Common Stock delivered by the
Optionee as payment of the exercise price upon exercise of the Option or portion
thereof and/or the number of shares of Common Stock tendered or relinquished as
payment of the amount to be withheld under applicable federal, state and local
tax laws (at withholding rates not to exceed the Optionee's applicable marginal
tax rates) in connection with the exercise of the Option or portion thereof at a
per share exercise price ("Additional Option Price") equal to the Market Value
per Share on the date the Optionee delivers shares of Common Stock to exercise
the Option or portion thereof or delivers or forfeits shares of Common Stock in
payment of income tax withholding on the exercise of the Option or portion
thereof and agrees to cause certificates for any shares purchased hereunder to
<PAGE> 9
be delivered to the Optionee upon receipt of payment of the Option Price, all
subject, however, to the terms and conditions hereafter set forth.
1. The Option (until terminated as hereinafter provided) shall be
exercisable only to the extent of one-third of the Shares Granted after the
Optionee shall have been in the continuous employ of the Corporation or any
Subsidiary for one full year from the Grant Date, a second one-third of the
Shares Granted after the Optionee shall have been in the continuous employ of
the Corporation or any Subsidiary for two full years from the Grant Date and
shall be fully exercisable after the Optionee shall have been in the continuous
employ of the Corporation or any Subsidiary for three full years from the Grant
Date; provided, however, that the Option (until terminated as hereinafter
provided) shall become immediately fully exercisable upon the occurrence of any
of the following but in no event sooner than six months after the Grant Date:
(a) in the event of a Change in Control as defined in
Section 10 of this Stock Option Agreement;
(b) the Optionee voluntarily terminates his employment (a) at
or after age 62 with at least 20 years of continuous services as an employee
with the Corporation or any of its affiliates or (b) at or after age 65 with at
least 5 years of continuous service as an employee with the Corporation or any
of its affiliates, ("Retirement"); or
(c) the Board, in its sole discretion, accelerates the time
or times at which the Option or any portion hereof will become exercisable.
To the extent exercisable, the Option may be exercised in whole or in part from
time to time.
2. The Option shall terminate on the earliest of the following dates:
(a) one year after the death of the Optionee;
(b) one year after the Optionee's permanent disability;
(c) ten years from the Grant Date, in the event that
a change in Control occurs prior to the Option terminating;
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<PAGE> 10
(d) 90 days after the option holder ceases to be employed by
the Corporation or one of its affiliates by reason of either Retirement or under
circumstances determined by the Board to be for the convenience of the
Corporation;
(e) immediately, upon the termination of employment
of the Optionee with the Corporation or any Subsidiary, if such termination
arises prior to the occurrence of 2(a), (b), (c) or (d) above;
(f) ten years from the Grant Date; or
(g) in the event the Optionee shall intentionally commit an
act materially inimical to the interests of the Corporation or any Subsidiary,
and the Board shall so find, the Option shall terminate at the time of such act,
notwithstanding any other provision of this Agreement.
3. Each Additional Option (until terminated as hereinafter provided)
shall be first exercisable six months following the exercise of the underlying
Option or portion thereof; provided, however, that each Additional Option (until
terminated as hereinafter provided) shall become immediately fully exercisable
upon the Optionee's death.
To the extent exercisable, the Additional Option may be exercised in
whole or in part from time to time. The Corporation shall not, however, be
required to sell any fractional shares.
4. Each Additional Option shall terminate on the earliest of the
following dates:
(a) the earliest applicable termination date of the
underlying Option as set forth in Section 2 hereof;
(b) immediately upon the termination of employment of the
Optionee with the Corporation or any Subsidiary, if such termination occurs
prior to the exercise of any part of the underlying Option.
5. Nothing contained in this Agreement shall limit whatever right the
Corporation or any Subsidiary might otherwise have to terminate the employment
of the Optionee.
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<PAGE> 11
6. Neither the Option nor the Additional Option is transferable by the
Optionee otherwise than by will or the laws of descent and distribution, and is
exercisable during the lifetime of the Optionee only by the Optionee or by the
Optionee's guardian or legal representative.
7. (a) In connection with each exercise of the Option or
the Additional Option, arrangements satisfactory to the Corporation shall
be made by the Optionee for the payment of any withholdings required by
federal, state or local income tax laws.
(b) Subject to the restrictions set forth below, the Optionee
is hereby granted the right to elect to satisfy, in whole or in part, the
Optionee's withholding obligations as required by federal, state or local income
tax laws by (i) having the Corporation withhold shares of Common Stock subject
to the Option or Additional Option having a value equal to or less than the
amount required to be withheld and/or (ii) delivering to the Corporation shares
of Common Stock owned by the Optionee having a value equal to or less than the
amount required to be withheld (the "Election"). For purposes of this subsection
7(b), the value of shares of Common Stock to be withheld or delivered by the
Optionee shall be based upon the Market Value per Share on the date that the
amount of the tax or taxes to be withheld is determined. Except as set forth
herein, shares of Common Stock withheld pursuant to clause 7(b)(i) will not
thereafter be available for exercise under the Option.
(c) To exercise the Election, the Optionee (i) must make the
Election to have shares withheld or to deliver already owned shares on or prior
to the date that the Optionee exercises the Option or Additional Option and (ii)
must make the Election in writing on a form provided by the Corporation. The
Election is irrevocable by the Optionee and is subject to the disapproval by the
Committee. Additionally, if the Optionee is subject to Section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") the Election is subject to
the following additional restrictions:
(1) no Election may be made within six (6)
months of the purchase of Common Stock other than through the exercise of a
stock option that is exempted from the
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<PAGE> 12
restrictions of Section 16(b) of the Exchange Act by Rule 16(b)(3) of the
Securities and Exchange Commission; and
(2) the Election must be made either (a) six
months prior to the date as of which the amount of tax to be withheld is to be
determined or (b) during the period beginning on the third business day
following the date of each release by the Corporation for publication of a
regular quarterly or annual release of earnings and ending on the twelfth
business day following the date of such release.
8. The Option Price or Additional Option Price shall be payable:
(a) in cash or by check acceptable to the Corporation;
(b) by exchanging previously acquired shares of Common Stock
of equivalent Market Value on the date of exercise with the total Option Price
or Additional Option Price for the portion of the Option or Additional Option
exercised;
(c) 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; or
(d) by any combination of (a), (b) or (c).
9. The Board may make such adjustments in the number and kind of shares
subject to the Option or the Additional Option and the Option Price or
Additional Option Price as the Board in its sole discretion, exercised in good
faith, may determine is equitably required to prevent dilution or enlargement of
the rights of the Optionee that otherwise would result from any stock dividend,
stock split, combination of shares, recapitalization or other change in the
capital structure of the Corporation, 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. No adjustment provided for in this
Section shall require the Corporation or any Subsidiary to sell a fractional
share.
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<PAGE> 13
10. "Change in Control" shall mean the occurrence of any of the
following events:
(a) The Corporation is merged, consolidated or
reorganized into or with another corporation or other legal person other
than National City Corporation ("National City"), a successor of National City
(direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) ("Successor"), or an affiliate of National City 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
National City, a Successor, or an affiliate of National City or of a Successor;
or
(b) The Corporation sells or otherwise transfers all or
substantially all of its assets or the Corporation causes or permits the sale
or transfer of all or substantially all of the assets of any subsidiary of the
Corporation that has assets equal to or greater than eighty percent of the
total assets of the Corporation, as reported on a consolidated basis, 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 National City, a Successor or an affiliate of
National City or of a Successor provided, however, that a Change in Control of
National City determined by the standards set forth herein or otherwise shall
not constitute a Change in Control of the Corporation.
11. For purposes of this Agreement, the continuous employ of the
Optionee with the Corporation or any Subsidiary shall not be deemed interrupted,
and the Optionee shall not be deemed to have ceased to be an employee of the
Corporation or any Subsidiary by reason of the transfer of his employment among
the Corporation and the Subsidiaries. Also a leave of absence approved by the
Board for illness, military or governmental service or other cause shall be
considered as employment.
12. Delivery by the Corporation or any Subsidiary of a certificate or
certificates for shares of Common Stock may be deferred for such reasonable time
after payment for such shares as shall be necessary to conform to any applicable
law or governmental regulation relating to the Option or Additional Option or to
the issuance or delivery of Common Stock on exercise hereof.
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<PAGE> 14
13. Any contrary provision hereof notwithstanding, neither the Option
nor Additional Option shall be exercisable by, and the Corporation shall not be
obligated to sell or deliver any Common Stock subject thereto unless and until
such Common Stock and the sale thereof pursuant to the Option or the Additional
Option have been registered or otherwise qualified under applicable state and
federal laws or regulations or confirmation of exemption from such state or
federal laws or regulations shall have been obtained and such registration or
qualification or exemption shall continue to be effective, all as the
Corporation shall, in its sole discretion, determine to be necessary or
advisable. The Corporation shall use its best efforts to maintain registration
and applicable qualification of such Common Stock and the sale thereof with the
Securities and Exchange Commission and applicable state regulatory agencies;
provided, however, that the Corporation shall have no obligation to register or
qualify such Common Stock under the laws of any non-United States of America
jurisdiction.
14. Terms used in this Agreement which are defined in the Plan are
used herein as so defined.
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<PAGE> 1
EXHIBIT 10.30
NATIONAL PROCESSING, INC.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of the National Processing, Inc. Nonemployee
Directors Stock Option Plan (the "Plan") is to attract, retain and compensate
highly qualified individuals who are not current employees of National
Processing, Inc. (the "Company") as members of the Board of Directors and to
enable them to increase their ownership of shares of common stock, without par
value, of the Company ("Common Stock"). The 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 the ownership of Common
Stock, in addition to underscoring their common interest and identification with
stockholders in increasing the value of Common Stock.
2. SHARES SUBJECT TO PLAN. The total number of shares of Common Stock
with respect to which options may be granted under the Plan shall not exceed
200,000 (as adjusted pursuant to Section 7 hereof). Shares issued upon exercise
of options granted under the Plan may be either authorized and unissued shares,
treasury shares, or any combination thereof. In the event that any option
granted under the Plan shall terminate, expire or, with the consent of the
optionee, be cancelled as to any shares of Common Stock, without having been
exercised in full, new options may be granted with respect to such shares
without again being charged against the maximum share limitations set forth
above in this Section 2.
3. ADMINISTRATION. The Plan shall be administered by the Board of
Directors (the "Board") who may from time to time delegate all or any part of
its authority under the Plan to a committee of not less than three Directors
appointed by the Board. To the extent of such delegation, references in the Plan
to the Board shall also refer to the appropriate committee.
The Board, from time to time, may adopt rules and regulations for
carrying out the provisions and purposes of the Plan. The interpretation and
construction by the Board of any provisions of, and the determination of any
questions arising under, the Plan, any such rule or regulation, or any agreement
evidencing options under the Plan, shall be final, binding and conclusive on all
persons interested in the Plan. The Secretary of the Company shall be authorized
to implement the Plan in accordance with its terms and to take such actions of a
ministerial nature as shall be necessary to effectuate the intent and purposes
hereof. The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of Ohio without regard to its conflicts of law principles.
<PAGE> 2
4. ELIGIBILITY. All members of the Company's Board who are not current
employees of the Company, any of its subsidiaries, or any of its affiliates
except for former employees of the Company at the time of option award
("Nonemployee Directors") are eligible to participate in the Plan.
5. TYPES OF OPTIONS. All options granted under the Plan shall be
non-statutory options not intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Each option granted under the
Plan shall provide that such option will not be treated as an "incentive stock
option," as that term is defined in Section 422 of the Code.
(a) Formula Awards. Options to purchase 25,000 shares of
Common Stock (as adjusted pursuant to Section 7 hereof) shall be
granted to each Nonemployee Director who neither is an employee of
National City Corporation or any of its affiliates nor has been
previously employed by the Company ("Nonaffiliated Director") upon
election to the Company's Board ("Automatic Initial Awards"). Any
Nonaffiliated Director who is so elected within ten days following
consummation of the Offering will receive Automatic Initial Awards to
purchase Common Stock at the initial public offering price ("IPO
Price"), and Nonaffiliated Directors elected after such ten-day period
will receive such awards at the Fair Market Value (as defined below)
per share of the Common Stock. Options to purchase 2,500 shares of
Common Stock shall be granted automatically to each Nonaffiliated
Director on the first Friday following each of the Company's Annual
Meetings of Shareholders ("Automatic Annual Awards"). The Automatic
Initial Awards and the Automatic Annual Awards are collectively
referred to herein as the "Formula Awards." No Nonemployee Director
who previously has been employed by the Company shall be eligible to
receive Formula Awards under the Plan.
(b) Discretionary Awards. The Board, in its sole discretion,
shall determine the Nonemployee Directors who previously have been
employed by the Company or any of its subsidiaries to whom options
(other than Formula Awards) shall be granted, the time or times when
they shall be granted and the number of shares to be covered by each
option so granted (hereinafter referred to as "Discretionary Awards").
No Nonemployee Director who is eligible to receive Formula Awards shall
be eligible to receive Discretionary Awards under the Plan.
6. TERMS AND CONDITIONS OF OPTIONS. All options approved by the Board
under the Plan shall be evidenced by stock option agreements in writing
(hereinafter referenced to as "Option Agreements"), in such form as the Board
may from time to time approve, executed on behalf of the Company by the Chairman
of the Board or President of the Company. Each Option Agreement shall be subject
to the Plan, and, in addition to such other terms and conditions as the Board
may deem desirable, shall provide in substance as follows:
(a) Purchase Price. The purchase price per share of Common
Stock for which each option is exercisable shall be equal to 100% of
the fair market value of a share of Common Stock as of the
- 2 -
<PAGE> 3
date such option is granted ("Fair Market Value"), except for options
granted prior to or within ten days following consummation of the
Company's initial public offering of Common Stock, which will be at an
option price per share equal to the IPO Price. Such Fair Market Value
shall be the last sale price of Common Stock on the date next
preceding such date as reported on the New York Stock Exchange
Composite Tape or, in the event that no sale shall have taken place on
the New York Stock Exchange on such next preceding day, the last sale
price of Common Stock on the next preceding day on which there was a
sale as reported on the New York Stock Exchange Composite Tape, or if
the Common Stock is no longer traded on the New York Stock Exchange,
the fair market value on such date as determined by the Board in
accordance with applicable law and regulations. The option price shall
be subject to adjustment as provided in Section 7 hereof.
(b) Exercisability and Term of Options. Subject to Section
6(c) hereof, each option granted under the Plan shall be exercisable to
the extent of one-third of the shares covered thereby on each of the
first through third anniversaries of the date of grant. Each option
granted under the Plan shall expire 10 years from the date of grant and
shall be subject to earlier termination as hereinafter provided. If a
Nonemployee Director subsequently becomes an employee of the Company
while remaining a member of the Board, any options held under the Plan
by such individual at the time of such commencement of employment shall
not be affected thereby.
(c) Cessation of Services. Except as hereinafter set forth, no
option shall be exercisable after the date of cessation of an
optionee's service as a director of the Company. Upon the death of an
optionee at any time or upon cessation of service six months or more
after the date of grant, all of the then outstanding Formula Award
options of such optionee shall become immediately exercisable. If an
optionee's service ceases for any reason, such exercisable Formula
Award options may be exercised by the optionee within three months
after such cessation of service. If an optionee shall die within such
three-month period, or if cessation of his or her service shall have
been due to such optionee's death, such Formula Award options may be
exercised at any time within one year after such death by the
optionee's executor or administrator or by his or her distributee to
whom such Formula Award options may have been transferred by will or by
the laws of descent and distribution. The effects of cessation of an
optionee's service as a director on the exercisability of a
Discretionary Award option shall be determined by the Board, in its
sole discretion, and shall be set forth in the option agreement
evidencing such Discretionary Award option; provided, however, that the
cessation of service terms with respect to any Discretionary Award
option shall be no more favorable than those set forth herein with
respect to Formula Award options. The foregoing provisions shall not
extend the period during which an option may be exercised beyond the
date it expires by its terms.
(d) Manner of Exercise. Each Option Agreement shall
provide that any option therein granted shall be exercisable only by
giving in each case written notice of exercise, accompanied by full
- 3 -
<PAGE> 4
payment of the purchase price either (i) in cash (including check,
bank draft or money order, or wire or other transfer of funds, or
advice of credit to the Company); (ii) in shares of Common Stock with
a Fair Market Value equal to the purchase price of a combination of
cash and shares of Common Stock which in the aggregate are equal in
value to such purchase 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) Nontransferability. Each Option Agreement shall provide
that any option therein granted is not transferable by the optionee
other than by will or by the laws of descent and distribution and that,
during the lifetime of the optionee, such option may be exercised only
by the optionee or such optionee's legal representative.
7. ADJUSTMENT UPON CHANGES IN STOCK. The Board shall make or provide
for such adjustments in the option price and in the number or kind of shares or
other securities covered by outstanding options as the Board in its sole
discretion, exercised in good faith, shall determine is equitably required to
prevent dilution or enlargement of rights of optionees that would otherwise
result from (a) any stock dividend, stock split, combination of shares, issuance
of rights or warrants to purchase stock, recapitalization or other changes in
the capital structure of the Company, (b) any merger, consolidation,
reorganization or partial or complete liquidation, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing. The Board
also shall make or provide for such adjustments in the number or kind of shares
of the Company's Common Stock or other securities which may be acquired pursuant
to options granted under this Plan and the number of such securities to be
awarded to each optionee as the Board in its sole discretion, exercised in good
faith, shall determine is appropriate to reflect any transaction or event
described in the preceding sentence. The determination of the Board as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
8. FRACTIONAL SHARES. No fractional shares shall be issued
pursuant to options granted hereunder, the any fractional share resulting from
an adjustment pursuant to Section 7 hereof shall be eliminated.
9. GOVERNMENT REGULATIONS. The Plan, the grant and exercise of options
hereunder, and the Company's obligation to sell and deliver shares of Common
Stock pursuant to any such exercise, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any regulatory or
government agency as shall be required. The Company shall not be required to
issue or deliver any certificate or certificates for shares of its Common Stock
prior to (a) the admission of such shares to listing on any stock exchange or
national market system on which the stock shall then be listed or quoted and
- 4 -
<PAGE> 5
(b) the completion of any registration or other qualification of such shares
under any state or federal law or rulings or regulations of any government
body, which the Company shall, in its sole discretion, determine to be
necessary or advisable.
10. TERM OF THE PLAN. The Plan shall become effective immediately
following approval by the sole shareholder of the Company. The period during
which option grants shall be made under the Plan shall terminate within 10 years
from the effective date. Termination of the Plan, however, shall not affect
outstanding options which have been granted prior to such termination, and all
unexpired options shall continue in full force and operation after termination
of the Plan, except as they shall lapse or terminate by their own terms and
conditions, and the terms of the Plan shall continue to apply to such options.
11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board at any
time and from time to time may suspend or terminate the Plan or revise or amend
the Plan in any respect whatsoever; provided, however, that if and to the extent
required by Rule 16b-3 promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or by any comparable or
successor exemption under which the Board believes it is appropriate for the
Plan to qualify, no amendment shall be effective without the approval of the
shareholders of the Company, that (i) except as described in Section 7
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 Plan, (iii) materially modifies the requirements as to
eligibility for participation in the 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
believes it is appropriate for the Plan to qualify, the provisions of the Plan
may not be amended more than once every six months, other than to comply with
changes in the Code, the Employee 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.
12. COMPLIANCE WITH RULE 16b-3. The Plan is initially intended to
comply with Rule 16b-3 as in effect on and after May 1, 1991. Unless otherwise
determined by the Board or otherwise required by applicable law, Rule 16b-3 as
promulgated in Release No. 34-37260 dated May 31, 1996 shall apply to the Plan
on and after August 15, 1996.
13. NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that a director has a right to continue as a director for any period of time, or
at any particular rate of compensation.
- 5 -
<PAGE> 6
NATIONAL PROCESSING, INC.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
STOCK OPTION AGREEMENT
WHEREAS, the individual identified as optionee ("Optionee") on
the cover sheet that is attached hereto and hereby made a part hereof ("Cover
Sheet") is a director of National Processing, Inc. (the "Corporation"); and
WHEREAS, the execution of a Stock Option Agreement in the form
hereof has been duly authorized pursuant to the Corporation's Nonemployee
Directors Stock Option Plan (hereinafter called the "Plan") effective on the
date listed on the Cover Sheet as "Grant Date";
NOW, THEREFORE, the Corporation hereby grants to the Optionee,
pursuant to the Plan, an option (the "Option") to purchase the number of shares
of its common stock, without par value ("Common Stock"), listed on the Cover
Sheet as "Shares Granted", at the per share exercise price set forth on the
Cover Sheet as the "Option Price" subject to the terms and conditions
hereinafter set forth.
1. The Option (until terminated as hereinafter provided) shall be
exercisable to the extent of one-third of the shares covered thereby on each of
the first through third anniversaries of the date of grant; provided, however,
that the Option (until terminated as hereinafter provided) shall become
immediately fully exercisable, but in no event sooner than six months after the
Grant Date, upon the Optionee's cessation of service as a director of the
Company; provided further, however, that the Option (until terminated as
hereinafter provided) shall become immediately fully exercisable upon the death
of the Optionee at any time. To the extent exercisable, the Option may be
exercised in whole or in part from time to time.
2. The Option shall terminate on the earliest of the following dates:
(a) one year after the death of the Optionee;
(b) 3 months after the option holder ceases to serve as
a director of the Corporation for any reason other
than death; or
(c) ten years from the Grant Date.
<PAGE> 7
3. Nothing contained in this Agreement shall constitute or be evidence
of any agreement or understanding expressed or implied, that a director has a
right to continue as a director for any period of time, or at any particular
rate of compensation.
4. The Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable during the
lifetime of the Optionee only by the Optionee or by the Optionee's guardian or
legal representative.
5. The Option Price shall be payable:
(a) in cash (including check, bank draft or money order,
or wire or other transfer of funds or advice of
credit to the Corporation);
(b) in shares of Common Stock with a fair market value
equal to the purchase price;
(c) 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; or
(d) by any combination of (a), (b) or (c).
6. The Board may make such adjustments in the number and kind of shares
subject to the Option and the Option Price as the Board in its sole discretion
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of the Optionee that otherwise would result from
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Corporation, 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. No adjustment provided for in
this Section shall require the Corporation to sell a fractional share.
7. Delivery by the Corporation or any Subsidiary of a certificate or
certificates for shares of Common Stock may be deferred for such reasonable time
after payment for such shares as shall be necessary to conform to any applicable
law or governmental regulation relating to the Option or to the issuance or
delivery of Common Stock on exercise hereof.
2
<PAGE> 8
8. Any contrary provision hereof notwithstanding the Option shall not
be exercisable by, and the Corporation shall not be obligated to sell or deliver
any Common Stock subject thereto unless and until such shares of Common Stock
and the sale thereof pursuant to the Option have been registered or otherwise
qualified under applicable state and federal laws or regulations or confirmation
of exemption from such state or federal laws or regulations shall have been
obtained and such registration or qualification or exemption shall continue to
be effective, all as the Corporation shall, in its sole discretion, determine to
be necessary or advisable. The Corporation shall use its best efforts to
maintain registration and applicable qualification of such Common Stock and the
sale thereof with the Securities and Exchange Commission and applicable state
regulatory agencies, provided, however, the Corporation shall have no obligation
to register or qualify such Common Stock under the laws of any non-United
States of America jurisdiction.
9. Terms used in this Agreement which are defined in the Plan are
used herein as so defined.
3
<PAGE> 1
EXHIBIT 10.31
NATIONAL CITY PROCESSING COMPANY
SHORT-TERM INCENTIVE COMPENSATION PLAN
FOR SENIOR OFFICERS
Effective January 1, 1995
-------------------------
ARTICLE 1. THE PLAN AND ITS PURPOSE
-----------------------------------
1.1 ESTABLISHMENT OF THE PLAN. This Plan is effective on and after January
1, 1995, to provide for the operation of the National City Processing Company
Short-Term Incentive Compensation Plan for Senior Officers ("Plan") on and after
such date and to govern the treatment, on and after such date, of all deferrals
made under this Plan.
1.2 PURPOSE. The purpose of the Plan is to maximize the Corporation's
profitability and operating success by providing an incentive to Senior Officers
to achieve superior results. The Plan is designed to promote teamwork to achieve
overall corporate success and to motivate individual excellence.
1.3 OPERATION OF THE PLAN. The Plan shall be administered by the Committee.
The Plan operates on a calendar year basis and is subject to the review,
interpretation, and alteration by the Committee. The Plan is intended to serve
only as a guide to the Corporation in determining eligibility for and amounts of
incentive compensation to be awarded under the Plan. With respect to any award
made under the Plan, however, the Plan shall serve as a non-qualified plan
providing for and governing the treatment of deferred compensation at the
election of the Participant and/or the Committee, or as required by the Plan, as
provided herein.
<PAGE> 2
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.
(a) "Award" shall mean the payment earned by a Participant based on an
evaluation of the individual's achievements, the Corporation's performance and,
where applicable, National City Corporation's performance. As such, the amount
of any Award under this Plan is determined by decision of and in the discretion
of the Corporation acting through the Committee as hereinafter provided.
(b) "Base Salary" shall mean the annual salary as of the close of the
Plan Cycle, exclusive of any bonuses, incentive pay, special awards, or stock
options.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Change in Control" see Section 11.3.
(e) "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.
(f) "Corporation" shall mean National City Processing Company.
(g) "Disability" shall mean permanent disability as defined in the
provisions of the National City Corporation Long Term Disability Plan.
(h) "Early Retirement" shall mean early retirement as defined in the
provisions of the National City Corporation Non-Contributory Retirement Plan.
(i) "Effective Date" see Section 11.4.
(j) "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.
(k) "Employee" shall mean an individual employed by an Employer on a
regular active and full-time salaried basis.
-2-
<PAGE> 3
(l) "Employer" shall mean the Corporation or any corporation,
organization or entity controlled by the Corporation.
(m) "Funds" shall mean the Funds provided for in Section 9.4 hereof
(n) "Implementation Date" see Section 11.5.
(o) "Normal Retirement" shall have the same meaning as in the National
City Non-Contributory Retirement Plan.
(p) "Participant" shall mean an Eligible Employee who is approved by
the Committee for participation in the Plan. Such approval shall be on a Plan
Cycle basis and shall be reviewed with respect to each new Plan Cycle.
(q) "Plan" see Section 1.1.
(r) "Plan Cycle" shall mean a period of a calendar year.
(s) "SIP" shall mean the National City Savings and Investment Plan.
(t) "Successor" see Section 11.3(a).
(u) "Vesting Event" shall mean the earliest to occur of the following
dates;
(1) the date any benefit is payable under the Plan,
(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 has a Disability, or
(5) the date of a Participant's death.
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 said Vesting Event, subject to the
forfeiture provisions of Article 10.
(v) "Voting Stock" means the then outstanding securities entitled to
vote generally in the election of directors of the Corporation.
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.
-3-
<PAGE> 4
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
----------------------------------------
3.1 ELIGIBILITY. Eligibility for participation in the Plan will be limited
to those officers of the Corporation and its subsidiaries who, by the nature and
scope of their position, play a key role in the management, growth and success
of the Corporation, as determined by the Committee.
3.2 PARTICIPATION. Participation in the Plan (including a Participant's
Category) shall be determined by the Committee with respect to each Plan Cycle
prior to the commencement of the Plan Cycle, except as otherwise provided
herein. The Committee may base its approval upon the recommendation of the Chief
Executive Officer of the Corporation. The Committee may classify Senior Officers
for the purposes of the Plan into the following categories:
<TABLE>
<CAPTION>
Category Persons Included
-------- ----------------
<S> <C>
Category I President of the Corporation
Category II Executive vice presidents of the Corporation, and similar officers
Category III Senior vice presidents of the Corporation and similar officers
Category IV Vice presidents of the Corporation and executive officers of major
subsidiaries, and similar officers
</TABLE>
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.
3.3 PARTICIPATION 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 prorated 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
-4-
<PAGE> 5
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 prorated 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 PORTIONS OF PLAN CYCLES-SETTING OF INDIVIDUAL OBJECTIVES.
Notwithstanding Sections 3.3 and 3.4, except with respect to Category I
employees, no portion of a Plan Cycle with respect to a Participant shall be
considered to be a separate portion of participation for a Participant unless,
prior thereto, individual achievement objectives are set for such Participant
for such portion of a Plan Cycle pursuant to Article 4, or are waived by the
Committee, in its discretion.
3.6 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. PERFORMANCE MEASUREMENT
----------------------------------
4.1 PERFORMANCE CRITERIA. Performance, for purposes of this Plan, will be
measured in three ways: Corporate Results, the participant's individual
contribution, and in some cases National City Corporation's financial results
(a) Corporate results will be measured by comparing Corporate
performance with respect to key financial ratios with pre-established goals.
Prior to the beginning of each Plan Cycle, the Committee shall establish the key
financial ratio goals and the levels of comparative performance at which the
presumed, Threshold, Target and Maximum Awards for Corporate Results may be
provided under the Plan.
(b) Individual contribution will be measured by comparing actual
individual achievements during the Plan Cycle to established objectives for the
Plan Cycle. Prior to the beginning of the Plan Cycle each Participant shall
establish objectives for the Plan Cycle. Such objectives shall be broad in
nature, may be quantitative or qualitative and will typically be five in
-5-
<PAGE> 6
number. The objectives for Senior Officers other than those in Category I shall
be subject to the review, revision and approval of their superiors up to and
including the Chief Executive Officer of National City Corporation.
(c) National City Corporation's financial results will be measured by
comparing National City Corporation's performance with respect to Key Financial
Ratios to that of the Peer Group as established under the National City
Corporation Annual Corporate Performance Incentive Plan. The levels of
comparative performance at which the presumed Threshold, Target and Maximum
Awards for Corporate Results may be provided under the Plan will be those set
under the National City Corporation Annual Corporate Performance Incentive Plan.
(d) The weight given to Corporate Results versus Individual
Contribution results may vary based on the corporate position of the
Participant, but will normally be as follows:
<TABLE>
<CAPTION>
Percent Percent
Percent Division National City Corporation
Category(ies) Corporate Individual Financial Results
------------- --------- ---------- -----------------
<S> <C> <C> <C>
I 60% 0% 40%
II 40% 60% 0
III 25% 75% 0
IV 20% 80% 0
</TABLE>
4.2 AWARD POTENTIAL. The amount of incentive compensation that may be
awarded to a Senior Officer under this Plan shall be expressed as a percentage
of Base Salary. Such percentage shall normally fall within the range set forth
in the following table:
<TABLE>
<CAPTION>
Percent of Base Compensation
----------------------------
Category Threshold Target Maximum
-------- --------- ------ -------
<S> <C> <C> <C>
I 0% 45% 70%
II 0% 35% 55%
III 0% 25% 40%
IV 0% 10% 20%
</TABLE>
-6-
<PAGE> 7
4.3 AWARD CALCULATION AND APPROVAL. A composite evaluation for each
Participant for each Plan Cycle will be determined as of the December 31 on
which the Plan Cycle ends by applying the foregoing provisions of this Article 4
to the Individual Contribution Corporate results and where applicable, National
City Corporation results for such Plan Cycle. Based on the composite evaluation,
the Chief Executive Officer of the Corporation shall recommend to the Committee
for approval an appropriate incentive compensation Award for each of the Senior
Officers in Categories II, III and IV. The Committee shall determine an
appropriate incentive compensation Award for the Chief Executive Officer of the
Corporation.
All such Awards may, for Convenience purposes, be normally expressed as
a percentage of Base Salary. Upon the approval of the Committee the amounts of
Awards hereunder for a Plan Cycle shall be final.
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 5.2, 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 if such Participant fails to
continue to be an Employee.
5.2 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT, DISABILITY OR DEATH. In
the event a Participant's employment is terminated during a Plan Cycle by reason
of Normal Retirement, Disability or Death, the Participant shall be eligible to
receive a pro-rated Award based on individual contribution during the
Participant's participation in the Plan Cycle, provided however, that the
Participant must have been a Participant in the Plan for at least three months
of the Plan Cycle to be eligible to receive any Award hereunder. Such Awards
will be paid within ninety (90) days following the end of the Plan Cycle. In the
event of death, the Award will be paid to the Participant's estate.
-7-
<PAGE> 8
5.3 TERMINATION OF EMPLOYMENT DUE TO EARLY RETIREMENT. The Committee may
elect, in its discretion, to pay a pro-rated Award to a Participant who
terminates employment by means of an Early Retirement; in the absence of such
favorable discretionary action by the Committee, no such pro-rated Award shall
be paid.
5.4 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.
5.5 REQUEST TO DEFER PAYMENT; DEFERRED PAYMENTS. The Committee may
determine that one or more Participants should be eligible to 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 by an eligible Participant 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 9.
ARTICLE 6. RIGHTS OF PARTICIPANTS
---------------------------------
6.1 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
Employer.
6.2 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 7. ADMINISTRATION
-------------------------
7.1 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
-8-
<PAGE> 9
Committee. The procedures, standards and provisions of this Plan for determining
eligibility for and amounts of Awards are intended only as a guide and in
themselves confer no rights, duties or privileges upon Participants nor place
any obligation upon the Committee or the Corporation. Accordingly, the Committee
may, in making its 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, 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 may be assigned by the Committee.
No member of the Board, the 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 willful misconduct or lack of good faith.
ARTICLE 8. REQUIREMENTS OF LAW
------------------------------
8.1 LAWS GOVERNING. This Plan shall be construed in accordance with and
governed by the laws of the State of Ohio.
8.2 WITHHOLDING TAXES. The Corporation shall have the right to deduct from
all payments under this Plan any federal, state or local taxes required by the
law to be withheld with respect to such payments.
8.3 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 9. DEFERRAL OF AWARDS
-----------------------------
9.1 ELECTION TO REQUEST DEFERRAL OF AWARD; DEFERRAL PERCENTAGE. Prior to
each Plan Cycle, the Committee shall determine which Participants, if any, shall
be eligible to make deferral
-9-
<PAGE> 10
elections under this Plan. Each Participant who is therefore eligible to elect
to request deferral of a portion or all of his or her Award for such Plan Cycle,
shall be given the opportunity prior to such Plan Cycle, to make such request.
Such election and the percentage of Award requested to be deferred shall be
irrevocable and fixed with respect to such Participant and such Plan Cycle from
and after the December 31 of the year prior to the Plan Cycle.
The request and determination of the portion of the Award to be
deferred shall be made in terms of 10% increments of the Award.
Participants becoming Participants during a Plan Cycle shall, if
determined to be eligible to do so, make any such deferral request to defer
prior to the commencement of their participation and the same shall become
irrevocable and fixed as of the day prior to the commencement of their
participation.
Promotion or demotion during a Plan Cycle shall not affect the fixed
and irrevocable nature of a deferral request made prior to such Plan Cycle for
such Plan Cycle.
9.2 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 9.1 above, and not withstanding the Committee's
prior determination as to the eligibility of any Participant to defer a portion
or all of any Award hereunder, the Committee shall make the decision, in the
case of each Participant, whether or not to defer any portion or all of any
Participant's Award with respect to any Plan Cycle. Such decision shall be made
in the discretion of the Committee, which extends to the percentage of any Award
to be deferred, except as otherwise provided in Section 9.3.
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 9.
9.3 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
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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"; (i) the "Foreign Equity Fund"; such
sub-accounts jointly are herein called the "Funds".
9.4 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 9 shall be credited to such Participant's Account, and shall
correspondingly be credited to the Fund or Fund selected by the Participant.
9.5 FUNDS. The nine Funds hereunder are designed to reflect investment
funds 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 fund corresponding to one of the
Parallel Funds, the amounts which would have been deemed invested in such
Parallel Fund except for this provision shall be deemed to be invested in the
Money Market Fund or if the Money Market Fund no longer exists its successor
money market fund if any or a money market bond named by the Committee.
9.6 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 December
1 of the Plan Cycle for which the Award is to be made in advance of 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
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<PAGE> 12
his or her Award nevertheless has a portion thereof deferred by decision of the
Committee, or otherwise, then in such event, such participant shall immediately
be given an election period of 10 days to determine appropriate investments,
such period running from the date of his or her notification of his or her right
to make such selection.
9.7 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.
9.8 VESTING OF DEFERRED AMOUNTS. Amounts of Awards made and deferred under
the Plan, and earnings and gains thereon, are always 100% vested.
9.9 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 March 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 March 1sts.
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 9.10 shall continue to be
credited with appropriate income, gains and losses as
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<PAGE> 13
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.
9.10 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 six months prior to the
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 March 1st based on
the Participant's Account balances as of the December 31st 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 March 1 after such death.
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.
9.11 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
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<PAGE> 14
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.
9.12 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 fund 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 Participant or beneficiary shall have any title to or
beneficial ownership in any assets which the Corporation may earmark to pay
benefits hereunder.
9.13 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
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<PAGE> 15
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.
9.14 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.
9.15 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 10. FORFEITURES
-----------------------
Notwithstanding any provision in this Plan to the contrary excepting only
the provisions of Article 11, 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 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 under
this Plan has been convicted of a crime as a result of which it becomes illegal
for his or her 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 11 CHANGE IN CONTROL
----------------------------
11.1 TREATMENT OF AWARDS. In the event of a Change in Control, the
Corporation shall pay to each Participant who is participating in a Plan Cycle
on the Effective Date of such Change in Control, a lump sum cash payment equal
to the amount hereinafter determined. Such payment
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<PAGE> 16
shall be paid 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 Participant for the Plan Cycle, and such Plan Cycle shall be deemed
terminated by operation of this Article 11. 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.
11.2 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 which could be paid hereunder to each Participant
pro-rated, however, to reflect late commencement of participation in a Plan
Cycle and/or promotions or Category changes in a Plan Cycle, consistent with
Sections 3.4 and 3.5 of the Plan.
11.3 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
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<PAGE> 17
(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.
11.4 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 of a Change in Control
shall be the Implementation Date of such Change in Control.
11.5 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 11.3. As used herein, the Implementation Date of Change in Control
shall be the last date of the then current Plan Cycle.
11.6 EFFECT OF CHANGE IN CONTROL. In addition to other vesting under the
Plan, the opportunity of a Participant to participate to the end of the current
Plan Cycle is vested in such Participant in the event of a Change in Control, as
of the Effective Date of such Change in Control.
ARTICLE 12. 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.
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<PAGE> 18
ARTICLE 13. 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 if such a change is deemed necessary or desirable. 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 Board 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 date of such amendment or discontinuance.
Executed this 4 day of August, 1995 at Louisville, Kentucky.
--- ------
NATIONAL CITY PROCESSING COMPANY
By: /s/ Tony Holcombe
-------------------------------
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<PAGE> 1
EXHIBIT 10.36
AMENDMENT TO BUILDING LEASE
This Amendment to Building Lease is made as of July 3, 1996, between
National City Bank of Kentucky, formerly known as First National Bank of
Louisville, a national banking association with principal offices at 101 South
Fifth Street, Louisville, Kentucky 40202 ("Lessor") and National Processing
Company, formerly known as NPC of Arizona, Inc., a Kentucky corporation having
its principal place of business at 1231 Durrett Lane, Louisville, Jefferson
County, Kentucky ("Lessee").
WHEREAS, the parties entered into a certain Building Lease dated
September 1, 1984 (herein "Lease") regarding premises located at 1231 Durrett
Lane, Louisville, Jefferson County, Kentucky (the "Premises"); and
WHEREAS, the parties desire to amend the Lease as set forth
hereinbelow;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties agree as follow:
1. Paragraph 2(a) of the Lease is hereby amended by changing the
ending date from August 31, 2019 to February 28, 2019.
2. Paragraph 2(b) regarding termination by Lessor is hereby
deleted.
3. Paragraph 8(a) of the Lease is hereby deleted and the following
is substituted in its place:
Lessee shall not, without the prior written consent of Lessor,
make any structural alterations or additions to any existing improvement or
construct new improvements in or upon the Premises except such as are necessary
to the conduct of Lessee's normal business operations. Provided, Lessee shall
give Lessor written notice regarding any such additions, alterations or
improvements made by Lessee for use in its normal business operations. Lessee
agrees to hold Lessor and Lessor's agents and employees forever harmless
against all claims and liabilities of every kind, nature and description which
may arise out of or in any way be connected with such work. Lessee shall pay
the cost of all such work. All such work shall comply with all insurance
requirements set forth in the Lease and with all laws, ordinances, rules and
regulations of all government authorities. Upon completion of such work, Lessee
shall furnish Lessor with materialmen's and mechanics' receipted bills covering
all labor and materials involved therewith unless disputed. Lessee will inform
all contractors and suppliers that no liens may be placed against the Premises
and that all contracts must provide that no lien may be placed against the
Premises and that any and all payments due under such contracts will be the
personal liability of Lessee.
4. All other terms of the Building Lease not modified herein shall
remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused this instrument to be
duly executed as of the date first written above.
Lessor: Lessee:
NATIONAL CITY BANK OF KENTUCKY NATIONAL PROCESSING COMPANY
By: /s/ William A. Dunn By: /s/ Richard Alston
-------------------------------- ----------------------------
CF1848
07/01/96
<PAGE> 1
EXHIBIT 10.37
The Company has the following Form of Severance Agreement with the individuals
listed below:
Louis C. Parker III
Howard Reelfs
Gene Skiles
Eric Turille
Thomas J. Williams IV
Judy Balint
Christopher O'Hara
Joseph P. Cabrelli
Wayne A. Chatham
James Colbert
Nicholas P. Jarsulic
Karl T. Sammons
Marsha Y. Lindholm
James A. Lloyd
John F. McAteer
Michael McEvoy
Steven T. Pedersen
Glenn D. Rhodes
Jack A. Roettinger
John Scallan
Michael J. Sciortino
Brent A. Summers
Caryn E. Thompson
Genevieve Kane
<PAGE> 2
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of ______, 19___,
by and between National Processing, Inc., an Ohio corporation (the "Company"),
and ___________________ (the "Executive"). This Agreement supersedes any other
Severance Agreement between the Company and the Executive.
WITNESSETH:
----------
WHEREAS, the Executive is a senior executive of the Company and/or a
Subsidiary (as defined below) and has made and is expected to continue to make
major contributions to the profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case of most
companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation
as in effect for Executive immediately prior to the occurrence of a
Change in Control or such higher rate as may be in effect from time to
time.
(b) "Cause" means that, prior to any termination pursuant to
Section 3(a) hereof, the Executive shall have committed:
<PAGE> 3
(i) an intentional act of fraud, embezzlement or theft in
connection with his/her duties or in the course of his/her employment
with the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the Company or
any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional"
only if done or omitted to be done by the Executive not in good faith
and without reasonable belief that his/her action or omission was in
the best interest of the Company. Nothing herein will limit the right
of the Executive or his/her beneficiaries to contest the validity or
propriety of any such determination.
(c) "Change in Control" means the occurrence during the Term of
either of the following events:
(i) 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
(ii) The Company sells or otherwise transfers all or
substantially all of its assets or the Company causes or permits the
sale or transfer of all or substantially all of the assets of any
Subsidiary that has assets equal to or greater than eighty percent of
the total assets of the Company, as reported on a consolidated basis,
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.
(d) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the
Company, in the management of any business enterprise if such
enterprise engages in competition with the Company. "Competitive
Activity" will not include (i) the mere ownership of securities in any
such enterprise and the exercise of rights appurtenant thereto, (ii)
participation in the management of any
2
<PAGE> 4
such enterprise other than in connection with the competitive
operations of such enterprise or (iii) participation in the management
of any such enterprise which has been authorized by the Board of
Directors of the Company.
(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, stock purchase, stock
appreciation savings, pension, supplemental executive retirement, or
other retirement income or welfare benefit, deferred compensation,
incentive compensation, group or other life, health medical/hospital
or other insurance (whether funded by actual insurance or self-insured
by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies,
plans, programs or arrangements that may be adopted hereafter,
providing perquisites, benefits and service credit for benefits at
least as great in the aggregate as are payable thereunder prior to a
Change in Control.
(f) "Incentive Pay" means an annual amount equal to not less
than the highest aggregate annual bonus, incentive or other payments
of cash compensation (including, without limitation, payments made
pursuant to Company's long-term incentive plan and short-term
incentive plan, if any), in addition to Base Pay, 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 occurred pursuant to any bonus, incentive, profit-sharing,
performance, discretionary pay or similar agreement, policy, plan,
program or arrangement (whether or not funded), or any successor
thereto providing benefits at least as great as the benefits payable
thereunder prior to a Change in Control.
(g) "NCC" means National City Corporation, a Delaware
corporation that as of the date of this Agreement owns 100% of the
Voting Stock.
(h) "Severance Period" means the period of time commencing on
the date of an occurrence of a Change in Control and continuing until
the earliest of (i) the third anniversary of the occurrence of the
Change in Control (ii) the Executive's death, or (iii) the Executive's
attainment of age 65;
(i) "Subsidiary" means an entity in which Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on ______,
19__, or (ii) the expiration of the Severance Period; PROVIDED,
HOWEVER, that (A) commencing on _________, 19__ and each _________
thereafter, the Term of this Agreement will automatically be extended
for an additional year unless, not later than ____________ of the
immediately preceding year, the Company or the Executive shall have
given notice that it or the Executive, as the case
3
<PAGE> 5
may be, does not wish to have the Term extended and (B) except as
otherwise provided in the last sentence of Section 7, if, prior to a
Change in Control, the Executive ceases for any reason to be an
employee of the Company or any Subsidiary, thereupon without further
action the Term shall be deemed to have expired and this Agreement
will immediately terminate and be of no further effect. For purposes
of this Section 1(j), the Executive shall not be deemed to have ceased
to be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any
Subsidiary, or among any Subsidiaries.
(k) "Voting Stock" means the then outstanding securities
entitled to vote generally in the election of directors of the
Company.
2. OPERATION OF AGREEMENT: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL: (a) In the event the
Company, a Subsidiary or a successor of the Company (direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) terminates the
Executive's employment during the Severance Period, the Executive will be
entitled to the severance compensation provided by Section 4; PROVIDED,
HOWEVER, that the Executive shall not be entitled to the severance compensation
provided by Section 4 hereof only upon the occurrence of one or more of the
following events:
(i) The Executive's death occurring prior to
termination of his/her employment;
(ii) Prior to the termination of his/her employment,
the Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) In the event of the occurrence of a Change in Control,
the Executive may terminate employment with the Company and any
Subsidiary during the Severance Period with the right to severance
compensation as provided in Section 4 upon the occurrence of one or
more of the following events (regardless of whether any other reason
for such termination exists or has occurred, including without
limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent or higher level office or position, of or
with the Company and/or a Subsidiary, as the case may be, which the
Executive
4
<PAGE> 6
held immediately prior to a Change in Control, or the removal of the
Executive as a Director of the Company (or any successor thereto) if
the Executive shall have been a Director of the Company immediately
prior to the Change in Control;
(ii) (I) A significant adverse change in the nature
or scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Company and any Subsidiary
which the Executive held immediately prior to the Change in Control;
(II) a reduction in the aggregate of the Executive's Base Pay and the
formula for determining Incentive Pay received from the Company and
any Subsidiary; or (III) the termination or denial of the Executive's
rights to Employee Benefits or a reduction in the scope or value
thereof, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties hereto
provided it has been made in good faith and in all events will be
presumed to have been made in good faith unless otherwise shown by the
Company by clear and convincing evidence) that a change in
circumstances has occurred following a Change in Control, including,
without limitation, a change in the scope of the business or other
activities for which the Executive was responsible immediately prior
to the Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the
Executive immediately prior to the Change in Control, which situation
is not remedied within 10 calendar days after written notice to the
Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or any Subsidiary by
which Executive is employed or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of law) assumed
all duties and obligations of the Company under this Agreement
pursuant to Section 9(a);
(v) The Company or any Subsidiary by which Executive
is employed relocates its principal executive offices, or requires the
Executive to have his/her principal location of work changed, to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Change of Control, or requires the Executive
to travel away from his/her office in the course of discharging
his/her responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any calendar
quarter when annualized for purposes of comparison to any prior year)
than was required of Executive in any of the three full years
immediately prior to the Change in Control without, in either case,
his/her prior written consent; or
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<PAGE> 7
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by the Company or
any successor thereto.
(c) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) will not affect any rights
which the Executive may have pursuant to any agreement, policy, plan,
program or arrangement of the Company providing Employee Benefits,
which rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION: (a) If, following the occurrence of a
Change in Control, the Company or any Subsidiary by which Executive is employed
terminates the Executive's employment during the Severance Period other than
pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his/her employment pursuant to Section 3(b), the Company will pay to
the Executive the following amounts within five business days after the date
(the "Termination Date") that the Executive's employment is terminated (the
effective date of which shall be the date of termination, or such other date
that may be specified by the Executive if the termination is pursuant to
Section 3(b)) and continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in
an amount equal to two (2) times the sum of (A) Base Pay (at the
highest rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the standards
set forth in Section 1(f)) less the sum of (A) any and all payments
received by the Executive from the Company, any Subsidiary, NCC, a
Successor or an affiliate of NCC or a Successor following the
occurrence of a Change in Control plus (B) any future payments to be
made to the Executive in accordance with any employment agreements or
contracts between the Company, a Subsidiary, NCC or its affiliates, or
a Successor and the Executive (specifically excluding payments from
any deferred compensation plan).
(ii) (A) For twenty-four (24) months (the
"Continuation Period") following the occurrence of a Change in
Control, the Company will arrange to provide the Executive with
Employee Benefits that are welfare benefits (but not stock option,
stock purchase, stock appreciation or similar compensatory benefits)
substantially similar to those which the Executive was receiving or
entitled to receive immediately prior to the occurrence of a Change in
Control Date, and (B) such continuation Period will be considered
service with the Company, assuming the amount of Base Pay and
Incentive Pay payable to the Executive during the calendar year
immediately preceding the year in which the Termination Date occurs,
for the purpose of determining service credits and benefits due and
payable to the Executive under the Company's retirement, supplemental
executive retirement and other benefit plans of the Company applicable
to the Executive, his/her dependents or his/her beneficiaries
immediately prior to the Termination Date. If beneficiaries and to the
extent that any benefit described in subsections (A) and (B) of this
Section 4(a)(ii) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any Subsidiary,
as the case may be, then the Company
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<PAGE> 8
will itself pay or provide for the payment to the Executive, his/her
dependents and beneficiaries, of such Employee Benefits. Without
otherwise limiting the purposes or effect of Section 5, Employee
Benefits otherwise receivable by the Executive pursuant to the
subsection (A) of this Section 4(a)(ii) will be reduced to the extent
comparable welfare benefits are actually received by the Executive
from another employer during the Continuation Period, and any such
benefits received by the Executive shall be reported by the Executive
to the Company.
(b) There will be no right of set-off or counterclaim in
respect of any claim, debt or obligation against any payment to or
benefit for the Executive provided for in this Agreement, except as
expressly provided in the last sentence of Section 4(a)(ii).
(c) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any
benefit required to be made or provided hereunder on a timely basis,
the Company will pay interest on the amount or value thereof at an
annualized rate of interest equal to the so-called composite "prime
rate" as quoted from time to time during the relevant period in the
Midwest Edition of The WALL STREET JOURNAL. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(d) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under
Section 6 will survive any termination or expiration of this Agreement
following a Change in Control or the termination of the Executive's
employment following a Change in Control for any reason whatsoever.
(e) If the Executive shall become entitled to the benefits
provided by Section 4(a)(i) and Section 4(a)(ii), then the Executive
may, by notice to the Company as provided by Section 10 that is
received by the Company within two days after the Termination Date, be
released from any covenant not-to-compete with the Company that the
Executive has theretofore undertaken; provided, however, that if the
Executive gives such notice for relief from a covenant not-to-compete,
then the benefits provided by Section 4(a)(i) shall be reduced by an
amount equal to the sum of (A) Executive's Base Pay (at the highest
rate in effect for any period prior to the Termination Date) plus (B)
Incentive Pay (determined in accordance with the standards set forth
in Section 1(f)) and the benefits provided by Section 4(a)(ii) shall
be reduced by twelve (12) months; and provided further, however, that
if Executive shall have received payment of the benefit provided by
Section 4(a)(i) prior to receipt by the Company of the notice
contemplated by this Section 4(e), then the Executive shall have
waived his/her right to such notice and relief from any covenant
not-to-compete. The waiver of any covenant not-to-compete contemplated
by this Section 4(e) shall not include any covenant by Executive to
maintain and not misapply any of the Company's confidential business
information.
5. NO MITIGATION OBLIGATION: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find
reasonably comparable employment
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<PAGE> 9
following the Termination Date, and (b) to measure the amount of damages which
Executive may suffer as a result of termination of employment hereunder. In
addition, the Company acknowledges that its severance pay plans applicable in
general to its salaried employees do not provide for mitigation, offset or
reduction of any severance payment received thereunder. Accordingly, the
payment of the severance compensation by the Company to the Executive in
accordance with the terms of this Agreement is hereby acknowledged by the
Company to be reasonable and will be liquidated damages, and the Executive will
not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it should appear to the
Executive 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
or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Executive the benefits provided or
intended to be provided to the Executive hereunder, the company irrevocably
authorizes the Executive from time to time to retain counsel of Executive's
choice, at the expense of the company as hereafter provided, to advise and
represent the Executive in connection with any such interpretation, enforcement
or defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
Director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
7. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CHANGE IN CONTROL: Nothing
expressed or implied in this Agreement will create any right or duty on the
part of the Company or the Executive to have the Executive remain in the
employment of the Company or any Subsidiary prior to or following any Change in
Control. Any termination of employment of the executive or the removal of the
Executive from the office or position in the Company following the commencement
of any discussion with a third person that ultimately results in a Change in
Control shall be deemed to be a termination or removal of the Executive after a
Change in Control for purposes of this Agreement.
8
<PAGE> 10
8. WITHHOLDING OF TAXES: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
9. SUCCESSORS AND BINDING AGREEMENT: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this Agreement), but
will not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 9(a) and 9(b)
hereof. Without limiting the generality or effect of the foregoing,
the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of
a security interest, or otherwise, other than by a transfer by
Executive's will or by the last of descent and distribution and, in
the event of any attempted assignment or transfer contrary to this
Section 9(c), the Company shall have no liability to pay an amount so
attempted to be assigned, transferred or delegated.
10. NOTICES: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to
have been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the
Executive at his/her principal residence, or to such other address as any party
may have furnished to the other in writing and in accordance herewith, except
that notices of changes of address shall be effective only upon receipt.
11. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the
9
<PAGE> 11
Commonwealth of Kentucky, without giving effect to the principles of conflict
of laws of such Commonwealth.
12. VALIDITY: 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 any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
13. MISCELLANEOUS: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior to subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to sections are to references to
sections of this Agreement.
14. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
NATIONAL PROCESSING, INC.
By: ___________________________
Tony Holcombe
President and Chief Executive Officer
___________________________
[Signature]
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<PAGE> 1
EXHIBIT 10.38
NATIONAL CITY BANK OF KENTUCKY/NATIONAL PROCESSING COMPANY
CHECK PROCESSING SERVICES AGREEMENT
This Agreement by and between National City Bank of Kentucky, a national
banking association (hereinafter, "National City") and National Processing
Company, a Kentucky corporation (hereinafter, "NPC") is entered into this ____
day of _______________, 1996.
WHEREAS, National City is a commercial bank which, among other things, serves
as a depository and collecting bank of checks, drafts and other negotiable
items; and
WHEREAS, NPC is in the business, among other things, of providing remittance
processing services for customers, in connection with which NPC utilizes check
depository and check collection (collectively, "check processing") services;
and
WHEREAS, National City desires to provide to NPC and NPC desires to receive
from National City certain check processing and related services as described
hereunder;
NOW, THEREFORE, in consideration of the above premises and the mutual
promises and undertaking of the parties set forth below, the parties, intending
to be legally bound, do hereby agree as follows:
1. DESCRIPTION OF SERVICES. National City agrees to provide and NPC agrees
to accept, in accordance with the terms and conditions stated herein, those
check processing and related services as set forth in the Schedule A attached
hereto and incorporated herein (the "Services"). National City will use good
faith efforts to provide the Services in a good, workmanlike and professional
manner.
From time to time, National City may provide, and NPC may accept, additional
or new Services ("New Services"). Fees that NPC shall pay National City for
New Services shall be determined in accordance to Section 3 of this Agreement
and shall be governed by this Agreement.
To the extent not inconsistent with the provisions of this Agreement, all
Services and New Services provided hereunder shall be subject to the terms and
conditions generally applicable to National City's customary business deposit
accounts from time to time.
2. TERM. Subject to the right of termination as provided herein, this
Agreement shall have an initial term commencing on the date hereof and ending
at midnight, December 31, 1997, and shall automatically renew for successive
one-year terms thereafter.
3. FEES. National City shall charge NPC for the Services as set forth on
Schedule B and for New Services based on mutually agreeable, market-competitive
pricing. NPC shall pay fees to National City in accordance with the attached
Schedule B on a monthly basis, in arrears. Payment not made within thirty (30)
days of the invoice date will have interest assessed at the annualized rate of
15% of the unpaid amount.
<PAGE> 2
The parties acknowledge that the fees set forth on Schedule B are based on
current volumes, mix of items, and processing requirements. Should one or more
such elements change in a manner as to demonstrably increase National City's
cost of providing its services hereunder, National City may, on thirty (30)
days' written notice, increase its fees to fairly reflect such increase in
costs.
4. FEE ADJUSTMENTS. The fees set forth on Schedule B shall remain fixed
through December 31, 1996. On or before October 1, 1996 and each succeeding
October 1, National City may revise its fees to be applicable during the
succeeding calendar year, by giving written notice thereof to NPC.
5. TERMINATION. This Agreement may be terminated at any time by either party
upon ninety (90) days' written notice. In addition, following receipt from
National City of written notice of a fee increase, NPC may terminate this
Agreement upon sixty (60) days' written notice.
6. INDEMNITY. NPC agrees to indemnify and hold National City harmless
against claims and liabilities which may arise in connection with providing of
Services by National City hereunder except in the case of gross negligence by
or willful misconduct of National City.
7. MISCELLANEOUS.
(a) APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Kentucky.
(b) ENTIRE AGREEMENT. This Agreement represents the entire understanding
between the parties with respect to the matters contained herein and, except as
otherwise provided herein, may be amended only by an instrument in writing
signed by the parties hereto. There are no representations or warranties,
expressed or implied, other than those contained herein.
(c) WAIVERS. No delay or omission by either party hereto to exercise any
right or power under this Agreement shall impair such right or be construed to
be a waiver thereof. A waiver by any of the parties hereto of any of the
covenants to be performed by the other party or of any breach thereof shall not
be construed to be a waiver of any succeeding breach thereof or of any other
covenant contained in this Agreement.
(d) NOTICE. Any notice required or permitted hereunder shall be in
writing and may be given by personal service, by certified or registered mail,
return receipt requested, postage prepaid, or by overnight delivery by a
nationally recognized courier to the addresses of the parties as they appear
below or as changed through written notice to the other party. Delivery shall
be deemed to have occurred upon receipt by the party to whom the notice is
addressed.
To NPC: National Processing Company
1231 Durrett Lane
Louisville, Kentucky 40285-0001
Attn: Richard Alston
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To National City: National City Bank of Kentucky
101 South Fifth Street
Louisville, Kentucky 40202
Attn: Manager, Deposit Services
(e) ASSIGNMENT. Neither party may assign or transfer
this Agreement, except as provided herein, without the prior written consent of
the other party, which consent shall not be withheld, conditioned or delayed
unreasonably. This Agreement may be assigned by either party to a successor
corporation, without the other's consent, provided such successor corporation
fully assumes the rights and liabilities of the assigning party under this
Agreement. The assigning party shall promptly notify the other of any such
assignment.
(f) BINDING EFFECT. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors and
assigns.
(g) VALIDITY. In the event that any of the terms of this
Agreement are in conflict with any rule of law, statutory provisions or policy,
or otherwise unenforceable under the laws or regulations of any applicable
jurisdiction within the United States of America, or any governmental
subdivision or agency thereof, such terms shall be deemed stricken from this
Agreement, but such invalidity or unenforceability shall not invalidate any of
the other terms of this Agreement and this Agreement shall continue in force
and effect.
(h) RELATIONSHIP OF THE PARTIES. Nothing contained in
this Agreement shall be deemed as construed by the parties hereto or by any
third party to create the relationship of, principal and agent or of
partnership or of joint venture between the parties hereto.
(i) AUTHORITY OF PARTIES. Each party hereto warrants
that its is authorized to enter into this Agreement, that the person signing on
its behalf is duly authorized to execute this Agreement, and that no other
signatures are necessary.
NATIONAL CITY BANK OF KENTUCKY NATIONAL PROCESSING COMPANY
By: __________________________________ By:_______________________
Name: ________________________________ Name:_____________________
Title: _______________________________ Title:____________________
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<PAGE> 1
SUNTRUST BANK, NASHVILLE, N.A. EXHIBIT 10.39
Post Office Box 305110
Nashville, TN 37230-5110
- -------------------------------------------------------------------------------
[SUNTRUST LOGO]
July 16, 1996
Mr. Richard Alston
Executive Vice President
National Processing Company, Inc.
1231 Durrett lane
Louisville, KY 40285-0001
Dear Dick:
On behalf of SunTrust Bank, Nashville ("STBN"), we are pleased to
advise you of the commitment by SunTrust Bank, Nashville, subject to the terms
and conditions set forth in this letter, to provide up to $75,000,000 of the
$75,000,000 Line of Credit and Revolving Credit Facilities (the "Facilities")
to National Processing, Inc. ("the Company"). Attached to this letter is a term
sheet (the "Term Sheet") setting forth the principal terms and conditions on
and subject to which STBN is willing to make the Facilities available.
We are pleased you have requested STBN to act as Agent for a syndicate
of financial institutions (together with STBN, the "Banks") which will provide
the Facilities. STBN will act as the sole agent for the Facilities, and no
additional agents or co-agents will be appointed. In addition, SunTrust
Capital Markets, Inc. will act as arranger to complete the syndication of the
financial institutions. As we have discussed, STBN and SunTrust Capital
Markets, Inc. will, on a best efforts basis, seek the commitments of
NationsBank and First Tennessee as participants in the Facilities.
FEES
The Company will pay to SunTrust Capital Markets at closing a
non-refundable fee of $15,000. An additional non-refundable fee of $10,000
will be payable to SunTrust Capital Markets if they must locate banks other
than NationsBank and/or First Tennessee. The banks located by SunTrust
Capital Markets must be approved by the Company. In addition, beginning on the
closing date of the Facilities and on each anniversary date thereafter while
the Facilities are outstanding, the Company will pay a fee of $10,000 to STBN
for administrative duties as Agent under the Facilities.
CERTAIN AGREEMENTS, REPRESENTATIONS, AND WARRANTIES
You agree to assist SunTrust Capital Markets and STBN in forming such
syndicate and to provide SunTrust Capital Markets and STBN and the other Banks,
promptly upon request, with all information deemed necessary by them to
complete the syndication successfully, including, but not limited to, an
information package for delivery to potential syndicate members and
participants. You agree to coordinate any other financing by the Company or
any of its affiliates, excluding borrowings under existing arrangements, with
the syndication effort of the Banks and to refrain from any such financing
during such syndication process unless otherwise agreed to by SunTrust Capital
Markets and STBN. You further agree to make appropriate officers and
representatives of the Company and its subsidiaries available to
<PAGE> 2
participate in information meetings for potential syndicate members and
participants at such times and places as SunTrust Capital Markets and STBN
may reasonably request.
You represent and warrant that information made available to SunTrust
Capital Markets and STBN by you or any of your representatives in connection
with the transactions contemplated hereby is as of such date complete and
correct in all material respects and does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not materially misleading in light of the
circumstances under which such statements were made. In arranging the
Facilities, SunTrust Capital Markets and STBN will be using and relying on such
information without independent verification thereof.
The commitment of STBN hereunder is subject to the condition, among
others, that after the date hereof there shall not have occurred, in the
opinion of STBN, any materially adverse change in or disruption of financial or
capital market conditions. In addition, the commitment of STBN is subject to
the final negotiation, execution, and delivery prior to August 15, 1996, of
definitive documentation with respect to the Facilities satisfactory to STBN
and its counsel. Such documentation shall contain the terms and conditions set
forth in the Term Sheet and such other indemnities, covenants, representations
and warranties, events of default, conditions precedent, and other terms and
conditions as shall be satisfactory in all respects to STBN. While the material
terms, conditions, and conditions precedent to the commitment of STBN hereunder
and of the Facilities are generally limited to those set forth herein and in
the Term Sheet, other matters not directly covered by the provisions of this
letter and the Term Sheet may require the further agreement of STBN and the
Company.
COSTS AND EXPENSES
The costs and expenses (including, without limitation, the reasonable
fees and expenses of counsel to STBN) and syndication and other out-of-pocket
expenses of SunTrust Capital Markets and STBN arising in connection with the
preparation, execution, and delivery of this letter and the definitive financing
agreements shall be for your account, provided, however, that such expenses do
not exceed $20,000. The Company agrees to pay a one time break-up fee of $7,500
if STBN's commitment is accepted and the Company closes on financing with
another lender for the same purpose.
INDEMNIFICATION
You further agree to indemnify and hold harmless SunTrust Capital
Markets and each Bank (including STBN) and each director, officer, employee,
affiliate, and agent thereof (each, an "indemnified person") against, and to
reimburse each indemnified person, upon its demand, for any losses, claims,
damages, liabilities or other expenses ("Losses") incurred by such indemnified
person insofar as such Losses arise out of or in any way relate to or result
from this letter or the financing contemplated hereby, including, without
limitation, Losses participating in any legal proceeding relating to any of the
foregoing (whether or not such indemnified person is a party thereto); PROVIDED
that the foregoing will not apply to any Losses to the extent that such losses
result from the gross negligence or willful misconduct of such indemnified
person. Your obligations under this paragraph shall remain effective whether or
not definitive financing documentation is executed and notwithstanding any
termination of this letter. Neither SunTrust Capital Markets and STBN nor any
other indemnified person shall be responsible or liable to any other person for
consequential damages which may be alleged as a result of this letter or the
financing contemplated hereby.
This letter shall be governed by the laws of the State of Tennessee.
This letter may not be amended or modified except in writing and shall be
governed by the internal laws (and not by laws of conflicts) of
<PAGE> 3
the State of Tennessee. The obligations of STBN and SunTrust Capital Markets
under this letter are enforceable solely by the Company's signing this letter
and may not be relied upon by any other person.
SPECIAL DISCLOSURE
SunTrust Capital Markets, Inc. is a wholly owned subsidiary of SunTrust
Banks, Inc. and an affiliate of STBN. SunTrust Capital Markets is a
broker/dealer registered with the Securities and Exchange Commission (SEC) and
a member of the National Association of Securities Dealers, Inc. (NASD) and the
Securities Investor Protection Corporation (SIPC). Although it is a subsidiary
of SunTrust Banks, Inc., SunTrust Capital Markets is not a bank and is separate
from any affiliated SunTrust Bank. SunTrust Capital Markets is solely
responsible for its contractual obligations and commitments.
Securities and financial instruments sold, offered, or recommended by
SunTrust Capital Markets are not bank deposits, are not insured by the Federal
Deposit Insurance Corporation (FDIC), or the SIPC, or any government agency and
are not obligations of or endorsed or guaranteed in any way by any bank
affiliated with SunTrust Capital Markets or any other bank unless otherwise
stated.
You authorize SunTrust Capital Markets and its affiliates, including
STBN and any other SunTrust affiliated bank, to share with each other credit
and other confidential or non-public information regarding you and your
accounts provided, however, that no such non-public information be shared with
anyone within SunTrust Capital Markets, STBN, or any affiliates which trades
equity Securities. It is the policy of STBN, SunTrust Capital Markets, and all
other SunTrust affiliates to strictly protect confidential client information.
Therefore, any information shared by us will be on a limited basis and only to
people within our organization who are part of our relationship team, except as
otherwise provided in this letter.
If you are in agreement with the foregoing, please sign and return the
enclosed copies of this letter to STBN no later than 5:00 P.M., CST, on July
19, 1996. This offer shall terminate at such time unless prior thereto we shall
have received signed copies of such letters.
We look forward to working with you on this transaction.
Very truly yours,
SUNTRUST BANK, NASHVILLE
By: /s/ Scott Corley
-----------------------------
Title: AVP
By: /s/ M. Woody
-----------------------------
Title: SVP
<PAGE> 4
SUNTRUST CAPITAL MARKETS, INC.
/s/ Susan O. Graham
---------------------------------
By: Susan O. Graham
Title: Vice President
/s/ Paul White
---------------------------------
By: Paul White
Title: Managing Director
ACCEPTED AND AGREED:
/s/ Richard A. Alston
- ---------------------------------------
By: Richard A. Alston
-----------------------------------
Title: Executive Vice President
---------------------------------
Date: July 17, 1996
----------------------------------
<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 Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-05507) and related Prospectus of
National Processing, Inc., for the registration of 6,900,000 shares of its
Common Stock.
ERNST & YOUNG LLP
Cleveland, Ohio
July 18, 1996
