<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER: 1-11905
NATIONAL PROCESSING, INC.
(Exact name of registrant as specified in its charter)
OHIO
(State or other jurisdiction of 61-1303983
incorporation or organization) (I.R.S. Employer Identification No.)
One Oxmoor Place
101 Bullitt Lane, Suite 450 40222
Louisville, Kentucky (Zip Code)
(Address of principal executive offices)
(502) 326-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
The number of shares outstanding of the Registrant's Common Stock as of
November 13, 1997 was 50,575,000.
<PAGE> 2
NATIONAL PROCESSING, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (unaudited).
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three
and Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows - Nine 5
Months Ended Septmber 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
NATIONAL PROCESSING, INC
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30 December 31
1997 1996
------------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $18,737 $3,330
Securities available for sale 109,408 122,402
Accounts receivable-trade 68,739 91,239
Check inventory 5,101 6,423
Restricted deposits-client funds 113,338 50,029
Other current assets 7,243 2,477
------------------- --------------
Total current assets 322,566 275,900
Property and Equipment:
Furniture and equipment 92,783 80,702
Building and leasehold improvements 15,655 15,376
Software 17,265 12,455
Property leased from affiliate 4,173 4,173
Land and improvements 855 855
------------------- --------------
130,731 113,561
Accumulated depreciation and amortization 65,638 56,554
------------------- --------------
65,093 57,007
Other assets:
Goodwill, net of accumulated amortization of $9,624 in 1997
and $7,955 in 1996 97,144 70,631
Deferred contract costs, net 14,186 12,535
Other assets 3,887 1,231
------------------- --------------
Total other assets 115,217 84,397
------------------- --------------
Total assets $502,876 $417,304
=================== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Restricted deposits-client funds $113,338 $50,029
Accounts payable-trade 3,825 8,089
Merchant payable- check services 4,939 6,466
Accrued bankcard assessments 16,889 17,218
Income tax payable to NCC 3,951 2,605
Other accrued liabilities 21,931 14,672
------------------- --------------
Total current liabilities 164,873 99,079
Obligation under property leased from affiliate 2,421 2,527
Long-term debt 4,000 -
Other long-term liabilities 720 -
------------------- --------------
Total liabilities 172,014 101,606
Shareholders' equity:
Preferred stock, without par value; 5,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, without par value; 95,000,0000 shares authorized;
50,575,000 shares issued and outstanding 1 1
Contributed capital 175,215 175,215
Retained earnings 155,646 140,482
------------------- --------------
Total shareholders' equity 330,862 315,698
------------------- --------------
Total liabilities and shareholders' equity $502,876 $417,304
=================== ==============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
NATIONAL PROCESSING, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $100,780 $97,069 $284,169 $272,773
Operating expenses 47,929 46,491 136,543 131,966
Wages and other personnel expenses 24,702 21,763 70,639 60,648
General and administrative expenses:
Recurring 12,856 13,726 38,625 36,129
Restructuring charge - - 6,340 -
Depreciation and amortization 4,194 3,079 12,171 9,447
-------------- -------------- ------------- ------------
OPERATING PROFIT 11,099 12,010 19,851 34,583
Net interest income 1,214 908 3,527 1,461
-------------- -------------- ------------- ------------
Income before income taxes 12,313 12,918 23,378 36,044
Provision for income taxes 4,676 5,314 8,214 15,229
-------------- -------------- ------------- ------------
NET INCOME $7,637 $7,604 $15,164 $20,815
============== ============== ============= ============
NET INCOME PER SHARE $0.15 $0.16 $0.30 $0.47
============== ============== ============= ============
Shares used in computation 50,575 47,597 50,575 44,610
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
<TABLE>
<CAPTION>
NATIONAL PROCESSING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Nine Months Ended
September 30
1997 1996
------------ ------------
<S> <C> <C>
Net cash provided by operating activities 50,600 34,224
------------ ------------
INVESTING ACTIVITIES
Capital expenditures (17,773) (21,264)
Purchases of securities available for sale (423,958) (37,900)
Proceeds from sales and maturities of securities
available for sale 436,987 -
Acquisitions, net of cash acquired (30,343) -
------------ ------------
Net cash (used) for investing activities (35,087) (59,164)
------------ ------------
FINANCING ACTIVITIES
Principal payments under property leased from affiliate (106) (108)
Net cash proceeds from initial public offering of common stock - 111,316
------------ ------------
Net cash provided (used) by financing activities (106) 111,208
------------ ------------
Net increase in cash and cash equivalents 15,407 86,268
Cash and cash equivalents, beginning of period 3,330 22,618
------------ ------------
Cash and cash equivalents, end of period $18,737 $108,886
============ ============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
NATIONAL PROCESSING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim information and with the instructions to Form 10-Q and
Article 10 of regulation S-X. Accordingly, although the balance sheet at
December 31, 1996 has been derived from the audited consolidated financial
statements at that date, the accompanying condensed consolidated financial
statements do not include all the information and footnotes required by
generally accepted accounting principles. These financial statements should be
read in conjunction with National Processing, Inc.'s (the "Company") audited
consolidated financial statements for the year ended December 31, 1996 which
include full disclosure of relevant financial policies and information.
In the opinion of management, the accompanying condensed
consolidated financial statements have been prepared on a basis consistent with
accounting principles applied in the prior periods and include all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation of the financial position, results of operations and cash flows
for the interim periods presented. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected for
the full year or any other interim period.
2. RESTRUCTURING CHARGE
During the three month period ended March 31, 1997, the Company
recorded non-recurring expenses of $6,340,000 for severance pay and other costs
related to organizational restructuring. These charges decreased net income and
earnings per share by approximately $3,867,000 and $.08, respectively. At
September 30, 1997, other accrued liabilities and other long-term liabilities
include $2.3 million and $.7 million, respectively, related to the restructuring
charge.
3. RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
6
<PAGE> 7
4. ACQUISITIONS
On February 4, 1997, the Company acquired all of the outstanding
shares of NTA, Inc. a freight payment processing company. On June 18, 1997, the
Company acquired the operating assets and liabilities of Intracon, Inc., a
freight payment processing company. On June 20, 1997, the Company acquired the
operating assets and liabilities of MRS Jamaica, Inc., a healthcare form
processing company. On September 30, 1997, the Company acquired all of the
outstanding shares of Caribbean Data Services, Ltd., a data processing company.
The combined purchase price of these acquisitions was $29.5 million in cash and
$4.0 million in notes payable. The notes, plus accrued interest at 5.125% which
are due and payable in February 1999, are subject to increases based upon the
market price of the Company's common stock and decreases based upon the acquired
company's pre-tax income. The MRS Jamaica, Inc. purchase price is subject to
increase by as much as $3.25 million based upon the earnings of the acquired
company during its initial twelve months of operations. The acquisitions
increased the Company's goodwill by $27.6 million which is being amortized over
40 years.
The combined pro forma effect of these transactions was not material
to previously reported periods.
Supplemental cash flow information related to the acquisitions is as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Net assets other than cash acquired ($6,769)
Purchase price in excess of net assets acquired (27,574)
Notes issued 4,000
---------------
Net cash used for acquisitions ($30,343)
===============
</TABLE>
5. SUBSEQUENT EVENTS
On October 24, 1997, the Company acquired 80% of the outstanding
common stock of FA Holdings, Inc., the sole owner of Financial Alliance
Processing Services, Inc. ("Financial Alliance"), for $67.2 million. Financial
Alliance is an independent sales organization specializing in selling credit and
debit card processing services to smaller merchants. Under the purchase
agreement, the Company will acquire, subject to certain conditions, the
remaining 20% of the common stock for $26.8 million in January 1998. The
acquisition will be accounted for as a purchase.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL STATEMENT
National Processing, Inc. (The "Company") provides 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 is an Ohio corporation that was formerly a wholly owned
subsidiary of National City Corporation, an Ohio-headquartered bank holding
company. Following the Company's initial public offering in August 1996,
National City Corporation continued to own 85% of the Company's outstanding
common stock. In May 1997, National City Corporation purchased 1,265,000 shares
of the Company's common stock in the open market and currently owns
approximately 88% of the Company's outstanding common stock.
COMPONENTS OF REVENUE AND EXPENSES
Revenues. The Company's revenues are generated from a variety of
sources through the Company's wholly owned subsidiary National Processing
Company. Merchant Services revenues are primarily derived from fees paid by
merchants for the authorization, processing, and settlement of credit and debit
card transactions, exclusive of interchange fees, and for the authorization
and collection of checks accepted at merchant locations. Merchant fees
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 depend
primarily 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.
Expenses. Operating expenses include all direct costs of providing
services to customers, excluding hourly labor. 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 forty
years. Amortization of other costs associated with the purchase of contracts or
other business assets is recognized over varying periods from three to fifteen
years based upon the contract period and projected revenue stream.
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results as a
percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------- ----------- ------------- -------------
1997 1996 1997 1996
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses 47.5 47.9 48.0 48.4
Wages & other personnel expenses 24.5 22.4 24.9 22.2
General & administrative expenses:
Recurring 12.8 14.1 13.6 13.2
Restructure charge - - 2.2 -
Depreciation & amortization 4.2 3.2 4.3 3.4
------------- ----------- ------------- -------------
Operating profit 11.0 12.4 7.0 12.7
Net interest income 1.2 .9 1.2 .5
------------- ----------- ------------- -------------
Income before income taxes 12.2 13.3 8.2 13.2
Provision for income taxes 4.6 5.5 2.9 5.6
------------- ----------- ------------- -------------
Net income 7.6% 7.8% 5.3% 7.6%
============= =========== ============= =============
</TABLE>
8
<PAGE> 9
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Consolidated revenue increased $3.7 million, or 3.8%, to
$100.8 million for the quarter ended September 30, 1997, from $97.1 million for
the comparable 1996 period. The increase was primarily due to revenue gains in
Corporate Services offset by revenue reductions in Travel Services. Corporate
Services revenue growth of $6.4 million or 25.2% was attributable to increased
volumes at the Company's payables, electronic imaging solutions, and freight
operations. Revenue increases at payables and imaging solutions operations
resulted principally from volume increases in their core operations while
increases at the freight operations resulted principally from acquisitions.
Costs and Expenses. Consolidated costs and expenses increased $4.6
million, or 5.4%, to $89.7 million for the quarter ended September 30, 1997 from
$85.1 million during the comparable 1996 period.
Operating expenses increased $1.4 million, or 3.1%, to $47.9 million
for the quarter ended September 30, 1997 from $46.5 in 1996. The increase was
primarily due to increases in costs associated with technology enhancements and
purchased services at Merchant Services and Corporate Services. These increases
were partially offset by lower operating expenses at Travel Services and lower
uncollectible check expense at Merchant Services.
Wages and other personnel expenses increased $2.9 million, or 13.5%,
to $24.7 million for the quarter ended September 30, 1997, from $21.8 million
in 1996, primarily due to higher costs in Corporate Services as a result of
1997 acquisitions.
General and administrative expenses decreased $.9 million, or 6.3%,
to $12.9 million for the quarter ended September 30, 1997 from $13.7 million in
1996. The decrease was primarily due to decreases in support functions resulting
from the Company's first quarter 1997 restructuring.
Depreciation and amortization for the quarter ended September 30,
1997 was $4.2 million, up from $3.1 million for the same period in 1996. This
increase was primarily due to 1997 acquisitions and greater expenditures on
fixed assets relating to technology improvements and initiatives.
Net Interest Income. Net interest income increased to $1.2 million
for the third quarter of 1997 from $.9 million last year. The increase is the
result of interest income generated from the initial public offering proceeds
received in August 1996.
Tax Provision. Income tax expense for the quarter ended September 30,
1997 was $4.7 million compared to $5.3 million in 1996. The decrease results
from the reduction of pre-tax income, non-taxable interest income of $.8 million
in the 1997 period and a lower state tax burden.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Consolidated revenue increased $11.4 million, or 4.2%, to
$284.2 million for the nine month period ended September 30, 1997 from $272.8
million for the comparable 1996 period. The increase was primarily due to gains
in Corporate Services and Merchant Services offset by reductions in Travel
Services. Corporate Services revenue growth of $15.4 million or 21.5% was
attributable to increases at the Company's remittance, payables, electronic
imaging and freight operations. Revenue increases at remittance and payables
operations resulted from volume increases at their core operations, increases
at the freight operations resulted principally from acquisitions and increases
at electronic imaging solutions resulted from volume increases and an
acquisition. Merchant Services revenues increased $3.6 million or 2.3% in 1997,
compared to 1996, resulting from small increases in revenue per transaction in
Merchant Card, due to a shift in mix toward smaller volume customers.
Costs and Expenses. Consolidated costs and expenses increased $26.1
million, or 11.0%, to $264.3 million for the nine month period ended September
30, 1997 from $238.2 million during the comparable 1996 period. The largest
item included in this increase was $6.3 million of non-recurring general and
administrative expense for severance pay and other costs related to
organizational restructuring recorded during the first quarter of 1997. The
expense increases unrelated to the restructuring of approximately $19.8
million, are primarily the result of volume from new business and 1997
acquisitions as further described in the paragraphs below.
Operating expenses increased $4.6 million, or 3.5%, to $136.5 million
for the nine month period ended September 30, 1997 from $132.0 million in 1996.
The increase was primarily due to increases in purchased services and software
development expenses at Merchant Services and Corporate Services and higher
uncollectible check expense as a result of guarantee volume and guarantee mix
changes. These increases were partially offset by lower operating expenses at
Travel Services.
Wages and other personnel expenses increased $10.0 million, or 16.5%
to $70.6 million for the nine month period ended September 30, 1997 from $60.6
million in 1996, primarily due to higher costs in Corporate Services as a
result of new business volume and 1997 acquisitions.
9
<PAGE> 10
General and administrative expenses increased $8.8 million, or 24.5%,
to $45.0 million for the nine month period ended September 30, 1997 from $36.1
million in 1996. The increase was primarily due to non-recurring general and
administrative expenses of $6.3 million recorded in the first quarter 1997 for
severance pay and other costs related to organizational restructuring. In
addition, recurring general and administrative expenses increased approximately
$2.5 million as a result of increases in support functions resulting from
revenue increases, increased marketing efforts, and additional overhead
expenses associated with operating as a public company.
Depreciation and amortization for the nine month period ended
September 30, 1997 was $12.2 million, up from $9.5 million for the same period
in 1996. This increase was primarily due to 1997 acquisitions and greater
expenditures on fixed assets relating to technology improvements and
initiatives.
Net Interest Income. Net interest income increased to $3.5 million
for the first nine months of 1997 from $1.5 million last year. The increase is
the result of interest income generated from the initial public offering
proceeds received in August 1996.
Tax Provision. Income tax expense for the nine month period ended
September 30, 1997 was $8.2 million compared to $15.2 million in 1996. The
decrease results from the reduction of pre-tax income by $12.7 million to $23.4
million for the period ended September 30, 1997, from $36.0 million in 1996,
non-taxable interest income of $3.3 million in the 1997 period, and a lower
state tax burden.
LINE OF BUSINESS REVIEW
The composition of the Company's statements of income by line of
business follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Merchant Corporate Travel
Services Services Services Corporate
---------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
---------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $57,210 $57,381 $31,984 $25,550 $11,586 $14,138 - -
Costs and expenses 49,436 48,355 26,490 21,419 8,568 10,602 - -
--------- -------- --------- -------- -------- -------- --------- --------
Operating profit before
indirect expenses 7,774 9,026 5,494 4,131 3,018 3,536 - -
Indirect general &
administrative expenses 2,283 2,122 1,939 1,603 965 958 - -
--------- -------- --------- -------- -------- -------- --------- --------
Operating profit 5,491 6,904 3,555 2,528 2,053 2,578 - -
Net interest income 76 120 32 43 34 73 1,072 672
Provision for
income taxes 2,349 3,052 1,367 1,095 823 1,093 137 74
--------- -------- --------- -------- -------- -------- --------- --------
Net income $3,218 $3,972 $2,220 $1,476 $1,264 $1,558 $ 935 $598
--------- -------- --------- -------- -------- -------- --------- --------
<CAPTION>
-----------------------------------------------------
Consolidated
-----------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $100,780 $97,069
Costs and expenses 84,494 80,376
------------- --------
Operating profit before
indirect expenses 16,286 16,693
Indirect general &
administrative expense 5,187 4,683
------------- --------
Operating profit 11,099 12,010
Net interest income 1,214 908
Provision for
income taxes 4,676 5,314
------------- --------
Net income $7,637 $7,604
------------- --------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $162,605 $158,944 $87,294 $71,845 $34,270 $41,984 - -
Costs and expenses 143,152 135,172 73,017 58,542 25,462 31,414 57 -
------------ ----------- ----------- ----------- --------- ---------- ----------- ---------
Operating profit before
indirect expenses 19,453 23,772 14,277 13,303 8,808 10,569 (57) -
Indirect general &
administrative expenses 7,448 6,009 5,846 4,175 2,996 2,878 6,340 -
------------- ----------- ----------- ----------- --------- ---------- ----------- ---------
Operating profit 12,005 17,762 8,431 9,128 5,812 7,692 (6,397) -
Net interest income 153 401 57 150 73 238 3,244 672
Provision (benefit) for
income taxes 5,173 7,959 3,158 3,930 2,298 3,266 (2,415) 74
------------- ----------- ----------- ----------- --------- ---------- ----------- ---------
Net income $ 6,985 $10,205 $5,330 $5,348 $3,587 $4,664 ($ 738) $598
------------ ----------- ----------- ----------- --------- ---------- ----------- ---------
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------
Consolidated
------------------------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Revenues $284,169 $272,773
Costs and expenses 241,688 225,128
------------------ ------------------
Operating profit before
indirect expenses 42,481 47,644
Indirect general &
administrative expenses 22,630 13,062
------------------ ------------------
Operating profit 19,851 34,582
Net interest income 3,527 1,461
Provision (benefit) for
income taxes 8,214 15,229
------------------ ------------------
Net income $15,164 $20,815
------------------ ------------------
</TABLE>
Indirect general and administrative expenses are allocated to the
lines of business based upon various methods determined by the nature of the
expenses. The Corporate entity reflects interest income and related expenses
from the proceeds of the Company's August 1996 initial public offering, a $6.3
million non-recurring charge during the first quarter of 1997 for severance pay
and other costs related to organizational restructuring, and the related income
tax expenses.
The following is an analysis of the Company's income as derived from
its three lines of business, Merchant Services, Corporate Services and Travel
Services.
10
<PAGE> 11
Merchant Services.
Merchant Services authorizes, processes and settles credit and debit
card transactions and authorizes and collects checks for a variety of merchants.
Historically, the Company has derived a substantial portion of its merchant card
revenues from larger merchants. In this competitive pricing environment, the
Company is continually negotiating customer contracts during which it encounters
both client gains and losses. The ability to successfully renew and obtain
merchant contracts is significant to preserving and growing marginal profit. Net
income was $3.2 million and $7.0 million for the third quarter and first nine
months of 1997, respectively, compared to $4.0 million and $10.2 million for the
comparable 1996 periods. The decreases in net income resulted primarily from
increases in costs associated with technology enhancements, higher uncollectable
check expenses due to changes in guarantee mix, and increases in purchased
services. These decreases in pre-tax income were partially offset by reductions
in income tax expense resulting from lower taxable income and lower state tax
burdens.
Corporate Services.
Corporate Services processes remittances, accounts payable and
freight bills and provides integrated document solutions involving electronic
imaging, archival, processing and payment settlement. Net income was $2.2
million and $5.3 million for the third quarter and first nine months of 1997,
respectively, compared to $1.5 million and $5.3 million for the comparable 1996
periods. The increases in net income resulted primarily from 1997 acquisitions
in the Company's freight and electronic imaging operations. These increases were
partially offset by a one-time vendor settlement which increased pre-tax income
by approximately $1.1 million in the second quarter of 1996 and start-up costs
in 1997 related to the Company's new imaging technologies. Net income in the
1997 periods was also increased by decreases in income tax expense resulting
from decreases in state tax burdens.
Travel Services.
Travel Services principally settles airline ticket purchases made
through travel agents on behalf of airlines and thus derives a substantial
portion of its revenues from an exclusive long-term contract with the Airlines
Reporting Corporation ("ARC"). The Company is compensated on a "cost plus" basis
under this contract which expires in December 2001. Net income was $1.3 million
and $3.6 million for the third quarter and first nine months of 1997,
respectively, compared to $1.6 million and $4.7 million for the comparable 1996
periods. The decreases resulted principally from certain projects, pursuant to
the ARC contract, for which the Company earned revenues and profit bonuses in
the past three years that are no longer available. These developments decreased
net income approximately $.1 million and $.7 million for the third quarter and
first nine months of 1997, respectively, from the comparable 1996 periods. The
Company expects that the loss of these bonuses and the reduction in labor costs
will reduce net income associated with the ARC contract by approximately an
additional $.6 million for the remainder of 1997 and that additional cost
reductions will reduce net income associated with the ARC contract by an
additional $.5 million in each subsequent year through the end of the current
contract term. Start-up costs associated with the Company's new Commission
Express product also contributed to the decrease in net income for both the
third quarter and first nine months of 1997. These decreases in pre-tax income
were partially offset by decreases in income tax expense resulting from lower
taxable income and decreases in state tax burdens.
SEASONALITY
The Company experiences seasonality in its businesses, particularly
in its Merchant Services and Travel Services businesses. 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 includes
acquisitions, capital expenditures and working capital. Future business
acquisitions may be funded through current liquidity, borrowed funds, and/or
issuances of common stock.
The Company's capital expenditures include amounts for computer
systems hardware and software as well as scanning and other document processing
equipment. During the nine month period ended September 30, 1997, the Company's
capital expenditures totaled $17.8 million. Such expenditures were principally
financed from operating cash flow, which totaled approximately $50.6 million.
Operating cash flow during the nine month period ended September 30, 1996
totaled $34.2 million and capital expenditures were $21.3 million. The Company
expects capital expenditures for the remainder of 1997 to be approximately $9.5
million, principally to enhance processing capabilities in its Merchant Services
and Corporate Services operations. It is anticipated that these expenditures
will be funded with operating cash flows.
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 current cash and investment balances.
11
<PAGE> 12
The Company maintains restricted 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 $113.3 million and $50.0 million as of September 30, 1997 and
December 31, 1996, respectively.
RECENT DEVLOPMENTS AND OTHER
On October 24, 1997, the Company acquired 80% of the outstanding
common stock of FA Holdings, Inc., the sole owner of Financial Alliance
Processing Services, Inc. ("Financial Alliance"), for $67.2 million.
Financial Alliance is an independent sales organization that specializes in
selling credit and debit card processing services to smaller merchants.
Under the purchase agreement, the Company will acquire, subject to certain
conditions, the additional 20% of the common stock for $26.8 million in
January, 1998.
Certain matters discussed in this report on Form 10-Q are
forward-looking statements involving risks and uncertainties that could cause
actual results to differ materially from such statements, including the
Company's ability to attract and retain profitable customer accounts; its
ability to execute its growth strategy by consummating mergers and
acquisitions, as well as its ability to integrate and manage new businesses;
competitive factors generally, in particular price competition; and other
risks detailed from time to time in the Registrant's SEC reports,
including its Registration Statement of Form S-1, filed on August 7, 1996.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K:
a. EXHIBITS
2.1 Stock Purchase Agreement By and Among All of the Shareholders
of FA Holdings Inc., FA Holdings, Inc. and National
Processing, Inc.
11 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule.
b. REPORTS ON FORM 8-K
August 26, 1997: On August 19, 1997, National Processing,
Inc. announced that it had reached a definitive agreement to purchase one
hundred percent of the outstanding capital stock of FA Holdings, Inc.
National Processing, Inc. will, subject to certain conditions, purchase
approximately eighty percent of the stock in late 1997 and the remaining
shares of FA Holdings in early 1998.
FA Holdings, Inc. is the sole owner of Financial Alliance
Processing Services Inc., an independent sales organization that specializes
in selling credit and debit card processing services to smaller merchants.
November 10, 1997: On October 24, 1997, National Processing,
Inc. completed the initial stage of its acquisition of FA Holdings, Inc. (FA).
The initial stage involved the acquisition of 68.3% of the then issued and
outstanding common stock of FA for $37,219,244 and the purchase of 60,001 newly
issued shares of common stock directly from FA for $30,000,000. As a result,
National Processing, Inc. owns 79.6% of the total shares of common stock of FA.
The financial statements of the business acquired and related
pro forma financial information will be provided by amendment to Form 8-K no
later than January 9, 1998.
FA Holdings, Inc. is the sole owner of Financial Alliance
Processing Services, Inc. an independent sales organization that specializes in
selling credit and debit card processing services to smaller merchants.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL PROCESSING, INC.
Date: November 14, 1997 By:
Jim W. Cate
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
By:
Danny L. McDaniel
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 1
Exhibit 2.1
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S T O C K P U R C H A S E A G R E E M E N T
by and among
All of the Shareholders (each a "Selling Shareholder")
of FA Holdings, Inc.
and
FA Holdings, Inc. ("Company")
and
National Processing Company ("Purchaser")
August 18, 1997
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<PAGE> 2
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This Agreement is made as of August 18, 1997 by and among each of the Persons
named in SCHEDULE 5A.04 to this Agreement (each such Person a "SELLING
SHAREHOLDER", and all of those Persons, collectively, "SELLING Shareholders");
FA Holdings, Inc. ("COMPANY"), a Delaware corporation, and National Processing
Company ("PURCHASER"), a Kentucky corporation:
INTRODUCTION:
WHEREAS, A. Selling Shareholders and Company have advised Purchaser
that Selling Shareholders own all of Company's issued and outstanding Common
Stock, par value $0.01 per share (the "COMPANY VOTING STOCK");
B. Selling Shareholders have advised Purchaser that
Selling Shareholders own all of Company's issued and outstanding Class A
non-voting Common Stock, par value $0.01 per share (the "COMPANY NON-VOTING
STOCK");
C. Company desires to issue to Purchaser, and
Purchaser desires to purchase from Company, shares of the authorized Company
Voting Stock; and
D. Selling Shareholders desire to sell to Purchaser,
and Purchaser desires to purchase from Selling Shareholders, all of the issued
and outstanding Company Voting Stock held by Selling Shareholders;
THEREFORE, in consideration of the premises, in consideration of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable considerations, the adequacy and receipt of which are hereby
acknowledged by each of the parties to this Agreement, the parties hereby agree
as follows:
1. CROSS REFERENCE. Certain terms are defined in section 9.
2A. ISSUANCE AND SALE OF COMPANY STOCK. In consideration of the cash to be paid
pursuant to section 2B, Selling Shareholders and Company agree to perform and
observe such of the following provisions that are on their respective parts to
be complied with, namely:
2A.01 ISSUANCE OF COMPANY VOTING STOCK ON INITIAL CLOSING DATE. Subject
to the satisfaction of the conditions precedent set forth in section
4A, Company will, on the Initial Closing Date, issue to Purchaser
60,001 shares of the authorized Company Voting
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<PAGE> 3
Stock, free from and clear of any and all assignments, attachments,
mortgages, security interests, and other liens, and free from and clear
of any and all other claims, equities, options, rights, and interests
of any kind.
2A.02 SALE OF COMPANY STOCK ON INITIAL CLOSING DATE. Subject to the
satisfaction of the conditions precedent set forth in section 4A, each
Initial Selling Shareholder will, on the Initial Closing Date, assign,
convey, sell, and transfer to Purchaser all right, title, and interest
in and to the Initial Number of shares of Company Stock owned by that
Selling Shareholder, in each case free from and clear of any and all
assignments, attachments, mortgages, security interests, and other
liens, and free from and clear of any and all other claims, equities,
options, rights, and interests of any kind.
2A.03 SALE OF COMPANY STOCK ON SECONDARY CLOSING DATE. Subject to the
satisfaction of the conditions precedent set forth in section 4C, each
Secondary Selling Shareholder will, on the Secondary Closing Date,
assign, convey, sell, and transfer to Purchaser all right, title, and
interest in and to the Secondary Number of shares of Company Stock
owned by that Selling Shareholder, in each case free from and clear of
any and all assignments, attachments, mortgages, security interests,
and other liens, and free from and clear of any and all other claims,
equities, options, rights, and interests of any kind.
2B. CONSIDERATION FOR COMPANY STOCK. In consideration of the Company's issuance
of shares of Company Voting Stock pursuant to subsection 2A.01, and in
consideration of Selling Shareholders' assignment, conveyance, sale, and
transfer of all of their Company Stock pursuant to section 2A.02, Purchaser
agrees to perform and observe each of the following, namely:
2B.01 CONSIDERATION: INITIAL CLOSING. Purchaser agrees that, subject to
the satisfaction of the conditions precedent set forth in section 4B,
Purchaser will, on the Initial Closing Date,
(a) pay to Company, by wire transfer in immediately available
funds, an amount equal to thirty million dollars
($30,000,000),
(b) pay to each Initial Selling Shareholder, by wire transfer
in immediately available funds, an amount equal to the
difference of (i) that Selling Shareholder's Ratable Share of
sixty-four million dollars ($64,000,000) less (ii) that
Selling Shareholder's Ratable Indemnification Share of the
Indemnification Amount, and
(c) deposit into the "Indemnification Account", as defined in
the Escrow Agreement, an amount by wire transfer in
immediately available funds equal to each Initial Selling
Shareholder's Ratable Indemnification Share of the
Indemnification Amount.
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<PAGE> 4
2B.02 CONSIDERATION: SECONDARY CLOSING. Purchaser agrees that, subject
to the satisfaction of the conditions precedent set forth in section
4D, Purchaser will, on the Secondary Closing Date,
(a) pay to each Secondary Selling Shareholder, by wire
transfer in immediately available funds, an amount equal to
the difference of (i) the sum of (A) that Selling
Shareholder's Ratable Share of sixty-four million dollars
($64,000,000) plus (B) that Selling Shareholder's Ratable Net
Income Share of the Net Income Cash Consideration less (ii) an
amount equal to that Selling Shareholder's Ratable
Indemnification Share of the Indemnification Amount and
(b) deposit into the "Indemnification Account", as defined in
the Escrow Agreement, an amount by wire transfer in
immediately available funds equal to each Secondary Selling
Shareholder's Ratable Indemnification Share of the
Indemnification Amount.
The " NET INCOME CASH CONSIDERATION" shall be an amount equal to the
product of (a) the Pre-Charge Estimated Net Income (which, in the event
of a loss, shall be expressed as a negative number) of Company for the
period commencing on, and including, the Initial Closing Date and
concluding on, but excluding, the Secondary Closing Date, multiplied by
(b) a fraction, the numerator of which is the number of shares of
Company Voting Stock held by the Secondary Selling Shareholders
immediately after the Initial Closing, and the denominator of which is
the number of shares of Company Voting Stock outstanding immediately
after the Initial Closing.
2C. POST-SECONDARY CLOSING ADJUSTMENT. Each of the Secondary Selling
Shareholders hereby agrees with Purchaser that
(a) if Pre-Charge Net Income for the period commencing on, and
including, the Initial Closing Date and concluding on, but excluding,
the Secondary Closing Date, shall have exceeded Pre-Charge Estimated
Net Income for the same period, then, on or before March 31, 1998,
Purchaser shall pay to each Secondary Selling Shareholder, by wire
transfer in immediately available funds, an amount equal to that
Selling Shareholder's Ratable Net Income Share of the product of (i)
the excess multiplied by (ii) a fraction, the numerator of which is the
number of shares of Company Voting Stock held by the Secondary Selling
Shareholders immediately after the Initial Closing, and the denominator
of which is the number of shares of Company Voting Stock outstanding
immediately after the Initial Closing and
(b) if Pre-Charge Estimated Net Income for the period commencing on,
and including, the Initial Closing Date and concluding on, but
excluding, the Secondary Closing Date, shall have exceeded Pre-Charge
Net Income for the same period, then, on or before
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<PAGE> 5
March 31, 1998, each Secondary Selling Shareholder shall pay to
Purchaser, by wire transfer in immediately available funds, an amount
equal to that Selling Shareholder's Ratable Net Income Share of the
product of (i) the excess multiplied by (ii) a fraction, the numerator
of which is the number of shares of Company Voting Stock held by the
Secondary Selling Shareholders immediately after the Initial Closing,
and the denominator of which is the number of shares of Company Voting
Stock outstanding immediately after the Initial Closing.
2C.01. DETERMINATION OF PRE-CHARGE NET INCOME. On or before March 31,
1998, Purchaser will deliver to each Secondary Selling Shareholder a
certificate (the "PRE-CHARGE NET INCOME CERTIFICATE") of Purchaser
setting forth Purchaser's calculation of the Pre-Charge Net Income of
Company for the period commencing on, and including, the Initial
Closing Date and concluding on, but excluding, the Secondary Closing
Date. The Pre-Charge Net Income Amount set forth in the Pre-Charge Net
Income Certificate, as well as Purchaser's calculation thereof as set
forth therein, shall be final, conclusive, and binding on all parties
to this Agreement except that, in the event that a firm ("SELLING
SHAREHOLDERS' ACCOUNTING Firm") of independent certified public
accountants of nationally recognized standing having been retained by
one or more Secondary Selling Shareholders, at their own expense,
shall, within thirty (30) days after the date of delivery of the
Pre-Charge Net Income Certificate, give written notice to Purchaser
stating that Purchaser's calculation of the Pre-Charge Net Income as
set forth in the Pre-Charge Net Income Certificate does not comport
with the definition of Pre-Charge Net Income as set forth in this
Agreement, and specifying in reasonable detail the manner in which such
calculation does not so comport, then Selling Shareholders' Accounting
Firm and a firm ("PURCHASER'S ACCOUNTING FIRM") of independent
certified public accountants of nationally recognized standing having
been retained by Purchaser, at its own expense, shall attempt to agree
upon the amount of Pre-Charge Net Income. In the event that Selling
Shareholders' Accounting Firm and Purchaser's Accounting Firm agree in
writing upon the amount of the Pre-Charge Net Income within the period
of thirty (30) consecutive days following the giving of such notice,
then the agreement of Selling Shareholder's Accounting Firm and
Purchaser's Accounting Firm shall be final, conclusive, and binding on
all parties to this Agreement. If Selling Shareholders' Accounting Firm
and Purchaser's Accounting Firm do not so agree within such period,
then Selling Shareholders' Accounting Firm and Purchaser's Accounting
Firm shall select a third firm (the "THIRD ACCOUNTING FIRM") of
independent certified public accountants of nationally recognized
standing to issue a report setting forth in reasonable detail the
calculation of Pre-Charge Net Income for the period commencing on, and
including, the Initial Closing Date and concluding on, but excluding,
the Secondary Closing Date such report to be final, conclusive, and
binding on all parties to this Agreement.
2C.02 FEES OF THIRD ACCOUNTING FIRM. Secondary Selling Shareholders
jointly and severally agree to pay, when and as due, fifty percent
(50%) of all charges, costs,
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<PAGE> 6
expenses, and fees of the Third Accounting Firm in connection with the
report referred to in subsection 2C.01, and Purchaser agrees to pay,
when and as due, the remaining fifty percent (50%) of all such charges,
costs, expenses, and fees in connection with that report.
2D. BREAK-UP FEE. If this Agreement is terminated pursuant to subsection 10B.03,
and any Controlled Company or any of Selling Shareholders enter into an
agreement to engage in an Acquisition Transaction with any Person other than
Purchaser within twelve (12) months of the termination of this Agreement,
Company will, without notice, demand, or protest, all of which are hereby
waived, pay to Purchaser a fee in the amount of fifteen million dollars
($15,000,000) within five (5) days after any agreement to any Acquisition
Transaction. All obligations of Company under this section 2D are absolute and
unconditional, and Company will make the payment required pursuant to this
section 2D without any counterclaim, recoupment, setoff, or other deduction of
any kind therefrom or thereagainst.
3A. INITIAL CLOSING. The execution (where applicable) and delivery of the
writings referred to in this section and in sections 3B and 3C, and consummation
of the transactions contemplated by subsection 2A.01 and subsection 2B.01 (such
execution, delivery, and consummation, collectively, the "INITIAL CLOSING")
shall occur at the offices of Purchaser, One Oxmoor Place, 101 Bullitt Lane,
Suite 450, Louisville, Kentucky 40222, on October 31, 1997 (the "INITIAL CLOSING
DATE", provided, that if the parties shall mutually agree upon an earlier date,
then such earlier date shall be the Initial Closing Date), subject, in any
event, to the approval of the Board of Governors of the Federal Reserve System
and any other federal or state agency or authority, pursuant to any applicable
federal or state law, rule, or regulation described in SCHEDULE 5A.05 or
SCHEDULE 5C.02.
3A.01 COMPANY STOCK. On the Initial Closing Date, at the place of the
Initial Closing, and concurrently with the performance by Purchaser of
the agreements contained in subsection 3A.02, but subject to the
satisfaction of the conditions precedent set forth in section 4A,
(a) Company will deliver to Purchaser (i) certificates having
been issued in the name of Purchaser and representing 60,001
shares of Company Voting Stock and (ii) a receipt whereby
Company shall have acknowledged its receipt of the
consideration described in clause (a) of subsection 2B.01,
(b) each Initial Selling Shareholder will deliver to Purchaser
certificates representing the Initial Number of shares of
Company Stock owned by that Selling Shareholder, together
with, for each certificate so delivered, a stock power having
been duly executed in blank by each Person who appears on the
face of that certificate as the owner thereof, with the
signature of that Person having been guaranteed by a member of
or participant in a medallion signature guarantee
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<PAGE> 7
program recognized by the Securities Transfer Association,
Inc. such as a bank or securities dealer, and
(c) each Initial Selling Shareholder shall have executed and
delivered to Purchaser all such other writings, if any, and
shall have undertaken all such other acts, as Purchaser shall
reasonably request in order to transfer beneficial and record
ownership of the Initial Number of shares of outstanding
Company Stock owned by that Selling Shareholder to Purchaser.
3A.02 INITIAL CLOSING CONSIDERATION. On the Initial Closing Date, at
the place of the Initial Closing, and concurrently with the performance
by Company of the agreements contained in subsection 3A.01, but subject
to the satisfaction of the conditions precedent set forth in section
4B, Purchaser will
(a) pay to Company the amount required to be paid pursuant to
clause (a) of subsection 2B.01,
(b) pay to each Initial Selling Shareholder the amount
required to be paid to that Selling Shareholder pursuant to
clause (b) of subsection 2B.01, and
(c) deposit with a mutually agreed upon escrow agent, under
the Escrow Agreement (that escrow agent, the "ESCROW AGENT",
the amount required pursuant to clause (c) of subsection
2B.01.
(d) Purchaser shall have caused each of John J. Leehy III and
James C. Comis III to be elected to the board of directors of
Company.
3B. INITIAL CLOSING DELIVERIES: COMPANY. On or before the Initial Closing Date,
Company shall have complied with or caused compliance with each of the
following:
3B.01 CONSTITUENT DOCUMENTS. Company shall have delivered to Purchaser
a true and complete copy of each Constituent Document.
3B.02 LEGAL OPINION. Kirkland & Ellis, in their capacity as legal
counsel to each Controlled Company, shall have rendered their written
legal opinion, substantially in the form and substance of EXHIBIT A to
this Agreement, to Purchaser.
3B.03 FINANCIAL STATEMENTS: COMPANY. Company shall have furnished to
Purchaser at least one true and complete copy of the following:
(a) the (i) consolidated balance sheet of FA Holdings, Inc.,
and its Subsidiary as December 31, 1996 and the related
consolidated statements of stockholders'
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<PAGE> 8
equity and cash flows for the acquisition closing period ended
December 31, 1996, with the accompanying independent auditors'
report thereon; (ii) balance sheet of Financial Alliance
Processing Services, Inc. as of December 31, 1996
(post-acquisition), and the related statements of operations,
stockholders' equity, and cash flows for the pre-acquisition
period from January 1, 1996 to December 31, 1996, with the
accompanying independent auditors' report thereon; and (iii)
unaudited consolidated balance sheet of Company as of June 30,
1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six months ended
June 30, 1997; and
(b) a balance sheet (the "INITIAL CLOSING DATE BALANCE SHEET")
of the Company, prepared on a consolidated basis, as of the
last day of the last month to end prior to the Initial Closing
Date; provided, however, that if the Initial Closing shall
occur in the first twenty (20) days of any month, the Initial
Closing Date Balance Sheet shall be prepared on a consolidated
basis as of the last day of the month that is two (2) months
prior to the month in which the Initial Closing occurs.
3B.04 NOTICES, APPROVALS, AND CONSENTS. Company shall have given all
notices, if any, undertaken all registrations, if any, and obtained all
approvals and consents, if any, described in SCHEDULE 5A.05 to this
Agreement, and Company shall have furnished Purchaser with at least one
true and complete copy of each such notice, approval, or consent, as
the case may be. For purposes of this Agreement, any approval or
consent referred to in this subsection shall be deemed not to have been
obtained if that approval or consent, as the case may be, is (a) not in
full force and effect at all times on and after the date of this
Agreement or (b) granted subject to any condition or requirement which
would so materially adversely impact the economic or business benefits
of the transactions contemplated by this Agreement so as to render
inadvisable, in the good faith reasonable judgment of Company,
Purchaser, or both, the consummation of the transactions contemplated
by this Agreement.
3B.05 EMPLOYMENT, NON-COMPETITION, AND NON-SOLICITATION AGREEMENTS.
Each of the Key Employees shall have entered into an employment
agreement with Company, containing, among other things, such
non-competition provisions, non-solicitation provisions, provisions
making Purchaser an intended beneficiary thereof, and other provisions,
representations, and warranties as Purchaser shall in each case
require, all in form and substance satisfactory to Purchaser,
Purchaser's execution and delivery of any such agreement to be
conclusive evidence of Purchaser's approval of the form and substance
thereof.
3B.06 ESCROW AGREEMENT. Company shall have executed and delivered to
Purchaser and Escrow Agent an escrow agreement (the "ESCROW AGREEMENT")
substantially in the form and substance of EXHIBIT B to this Agreement.
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<PAGE> 9
3B.08 NO EXERCISE OF OPTIONS. No Person holding any option to acquire
any capital stock or other security of the Company shall have exercised
that option or purchased any of the capital stock and other securities
subject thereto.
3B09 OTHER ACTS. Company shall have executed and delivered to Purchaser
and caused to be filed in such public offices as Purchaser shall deem
advisable, such other writings, each in form and substance satisfactory
to Purchaser, as Purchaser shall reasonably request and shall, at
Company's expense, have made and done, or caused to be made and done
all such other and further acts and things as Purchaser shall
reasonably request.
3C. INITIAL CLOSING DELIVERIES: PURCHASER. On or before the Initial Closing
Date, Purchaser shall have complied with or caused compliance with each of the
following:
3C.01 RESOLUTIONS/INCUMBENCY . The secretary or assistant secretary of
Purchaser shall have certified to Selling Shareholders and Company (a)
a copy of resolutions duly adopted by the board of directors of
Purchaser in respect of this Agreement and (b) the names and true
signatures of officers of Purchaser authorized to execute and deliver
this Agreement on behalf of Purchaser.
3C.02 NOTICES, APPROVALS, AND CONSENTS. Purchaser shall have given all
notices, if any, undertaken all registrations, if any, and obtained all
approvals and consents, if any, described in SCHEDULE 5C.02 to this
Agreement, and Purchaser shall have furnished the Selling Shareholder
Representative and Company with at least one true and complete copy of
each such notice, approval, or consent, as the case may be. For
purposes of this Agreement, any approval or consent referred to in this
subsection shall be deemed not to have been obtained if that approval
or consent, as the case may be, is (a) not in full force and effect at
all times on and after the date of this Agreement or (b) granted
subject to any condition or requirement which would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement so as to render inadvisable, in the good
faith reasonable judgment of Company, Purchaser, or both, the
consummation of the transactions contemplated by this Agreement.
3D. SECONDARY CLOSING. The execution (where applicable) and delivery of the
writings referred to in this section and consummation of the transactions
contemplated by subsection 2A.02 and subsection 2B.02 (such execution, delivery,
and consummation, collectively, the "SECONDARY CLOSING") shall occur at the
offices of Purchaser, One Oxmoor Place, 101 Bullitt Lane, Suite 450, Louisville,
Kentucky 40222, on January 2, 1998 (or if all consents and approvals described
in SCHEDULE 5A.05 and SCHEDULE 5C.02 shall not have been obtained, or if all
applicable waiting periods shall not have lapsed, such later date upon which all
such consents and approvals shall have been obtained and all such waiting
periods shall have
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<PAGE> 10
lapsed) (the "SECONDARY CLOSING DATE"), unless the parties to this Agreement
shall agree upon a later date, in which case such later date shall be the
Secondary Closing Date.
3D.01 COMPANY STOCK. On the Secondary Closing Date, at the place of the
Secondary Closing, and concurrently with the performance by Purchaser
of the agreements contained in subsection 3D.02, but subject to the
satisfaction of the conditions precedent set forth in section 4C,
(a) each Secondary Selling Shareholder will deliver to
Purchaser certificates representing the Secondary Number of
shares of issued and outstanding Company Stock owned by that
Selling Shareholder, together with, for each certificate so
delivered, a stock power having been duly executed in blank by
each Person (or on behalf of each Person by a duly authorized
attorney-in-fact of each Person) who appears on the face of
that certificate as the owner thereof, with the signature of
that Person having been guaranteed by a member of or
participant in a medallion signature guarantee program
recognized by the Securities Transfer Association, Inc., such
as a bank or securities dealer and
(b) each Secondary Selling Shareholder shall have executed and
delivered to Purchaser all such other writings, if any, and
shall have undertaken all such other acts, as Purchaser shall
request in order to transfer beneficial and record ownership
of the Secondary Number of shares of outstanding Company Stock
owned by that Selling Shareholder to Purchaser.
3D.02 SECONDARY CLOSING CONSIDERATION. On the Secondary Date, at the
place of the Secondary Closing, and concurrently with the performance
by Selling Shareholders of the agreements contained in subsection
3A.01, but subject to the satisfaction of the conditions precedent set
forth in section 4D, Purchaser will
(a) pay to each Secondary Selling Shareholder the amount
required to be paid to that Selling Shareholder pursuant to
clause (a) of subsection 2B.02 and
(b) deposit with Escrow Agent the amount required pursuant to
clause (b) of subsection 2B.02.
3D.03 OPTIONS, On the Secondary Date all Persons holding any option to
acquire any capital stock or other security of the Company shall
exercise that option to purchase such capital stock or other securities
subject thereto.
4A. CONDITIONS PRECEDENT TO INITIAL CLOSING: COMPANY. It is a condition
precedent to the obligation of Company to consummate the transactions
contemplated by subsection 3A.01 that,
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<PAGE> 11
on or before the Initial Closing Date, Purchaser shall have complied with or
caused compliance with each of the following:
4A.01 INITIAL CLOSING DELIVERIES: PURCHASER. Purchaser shall have
complied with or caused compliance with all provisions of section 3C.
4A.02 CERTIFICATE OF PURCHASER AS OF INITIAL CLOSING DATE. Purchaser
shall have executed and delivered to Selling Shareholders a
certificate, dated as of the Initial Closing Date, and stating that (a)
each and every representation or warranty made in section 5C would, if
made as of the Closing Date, be true and complete on that date, unless
any such representation or warranty shall have been expressly made as
of a specific date, in which case such representation or warranty shall
have been true and complete as of that specific date, and (b) Purchaser
has performed and observed all agreements contained in section 6B, and
(c) each approval or consent referred to in subsection 5C.02 is in full
force and effect on that date. Each statement made in the certificate
delivered pursuant to this subsection shall be true and complete on and
as of the Initial Closing Date.
4B. CONDITIONS PRECEDENT TO INITIAL CLOSING: PURCHASER. It is a condition
precedent to the obligation of Purchaser to consummate the transactions
contemplated by subsection 3A.02 that, on or before the Initial Closing Date,
Company shall have complied with or caused compliance with each of the
following:
4B.01 INITIAL CLOSING DELIVERIES: COMPANY. Company shall have complied
with or caused compliance with all provisions of section 3B.
4B.02 CERTIFICATE OF COMPANY AS OF INITIAL CLOSING DATE. Company shall
have executed and delivered to Purchaser a certificate, dated as of the
Initial Closing Date, and stating that (a) each and every
representation or warranty made in section 5A would, if made as of the
Initial Closing Date, be true and complete on that date, unless any
such representation or warranty shall have been expressly made as of a
specific date, in which case such representation or warranty shall have
been true and complete as of that specific date, (b) Company has
performed and observed all agreements contained in section 6A, and (c)
each approval or consent referred to in subsection 5A.05 is in full
force and effect on that date. Each statement made in the certificate
delivered pursuant to this subsection shall be true and complete on and
as of the Initial Closing Date.
4B.03 EMMONS AGREEMENT WITH COMPANY. Company shall have caused R.
Emmons to have entered into an agreement, in form and substance
reasonably satisfactory to Purchaser, with Company, pursuant to which
(a) R. Emmons shall have waived, and shall have released Company, its
shareholders, directors, officers, employees, and agents, from any
liability arising out of or in connection with, any cause of action,
claim, counterclaim, or crossclaim, whether at law or in equity,
whether sounding in tort, contract, or otherwise, but only if and to
the extent such action, claim,
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counterclaim, or crossclaim arises out of any action or inaction
occurring prior to the Initial Closing Date and (b) Company shall have
agreed to pay R. Emmons an amount equal to eight hundred twenty
thousand dollars ($820,000) on the Secondary Closing Date, and an
amount equal to the product of (i) a fraction the numerator of which is
equal to the amount paid out of the escrow to the Selling Shareholders
upon the termination of the escrow agreement and the denominator of
which is $14,700,000, multiplied by three hundred thousand dollars
($300,000) payable at the time the Selling Shareholders receive their
funds from the Escrow Account at the termination of the Escrow
Agreement..
4C. CONDITIONS PRECEDENT TO SECONDARY CLOSING: SELLING SHAREHOLDERS. It is a
condition precedent to the obligation of Selling Shareholders to consummate the
transactions contemplated by subsection 3D.01 that on the Secondary Closing
Date, Purchaser shall have executed and delivered to Selling Shareholders a
certificate, dated as of the Secondary Closing Date, and stating that (a) each
and every representation or warranty made in section 5C would, if made as of the
Secondary Closing Date, be true and complete on that date, unless any such
representation or warranty shall have been expressly made as of a specific date,
in which case such representation or warranty shall have been true and complete
as of that specific date and (b) each approval or consent referred to in
subsection 5C.02 is in full force and effect on that date. Each statement made
in the certificate delivered pursuant to this subsection shall be true and
complete on and as of the Secondary Closing Date.
4D. CONDITIONS PRECEDENT TO SECONDARY CLOSING: PURCHASER. It is a
condition precedent to the obligation of Purchaser to consummate the
transactions contemplated by subsection 3D.02 that there shall not have
occurred any material adverse change in the financial condition,
properties or business operations of any Controlled Company since the
Initial Closing Date.
5A. REPRESENTATIONS AND WARRANTIES: COMPANY. Company represents and warrants to
Purchaser as follows:
5A.01 EXISTENCE. Company is a duly organized and validly existing
Delaware corporation in good standing. SCHEDULE 5A.01 to this Agreement
sets forth the name of each of Company's Subsidiaries, the address of
its executive offices and the jurisdiction in which it is incorporated.
Except for Company, no Person owns or has any interest, beneficially or
of record, or has any right to acquire any security issued by any
Subsidiary of Company. Each such Subsidiary is a duly organized and
validly existing corporation in good standing where incorporated, and
all of its outstanding stock is fully paid and non-assessable and owned
by Company free from any security interest (except any identified in
SCHEDULE 5A.01 to this Agreement), option, equity or other right of any
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kind. Neither Company nor any Subsidiary of Company is qualified to do
business as a foreign corporation in any jurisdiction except for those
jurisdictions identified in SCHEDULE 5A.01 to this Agreement, which
schedule identifies all jurisdictions in which Company or any such
Subsidiary is so qualified. Company and each Subsidiary of Company is
duly qualified to transact business in each state or other jurisdiction
in which it owns or leases any real property or in which the nature of
the its business makes such qualification necessary or, if not so
qualified, such failure to qualify will not have a material adverse
effect on the upon the financial condition, properties or business
operations of Company or any Subsidiary of Company.
5A.02 NATURE OF BUSINESS. The principal business of each Controlled
Company is described in SCHEDULE 5A.02.
5A.03 CAPITALIZATION. The authorized capital stock of Company consists
of two (2) classes of common shares, namely one class of Class A
non-voting common shares, par value $0.01 per share, of which 9,731.981
shares are issued and outstanding on the date of this Agreement, and
one class of voting common shares, par value $0.01 per share, of which
70,268.646 shares (exclusive of any shares issued after the Initial
Closing Date upon the exercise of options set forth in Schedule 5A.03,
and exclusive of any shares into which any of Company's non-voting
common shares outstanding on the date of this Agreement are converted)
are issued and outstanding. Other than the aforementioned common stock,
Company has no authorized capital stock, and, except as set forth in
SCHEDULE 5A.03, there are no agreements, conversion or exchange rights,
options, warrants, subscriptions, or other commitments of any kind
obligating any Selling Shareholder or any Controlled Company to issue
or sell, redeem, purchase, or otherwise acquire, directly or
indirectly, any shares of capital stock. Nor are there, except as set
forth in SCHEDULE 5A.03, any outstanding restrictions, agreements or
commitments of any kind by which any Selling Shareholder or any
Controlled Company is bound which relate to or restrict in any way the
issuance or sale, or purchase, redemption or other acquisition, of any
shares of the capital stock. Except as set forth in SCHEDULE 5A.03, no
Controlled Company has any obligations or liabilities to former
shareholders of that Controlled Company in their respective capacities
as such. Except as set forth in SCHEDULE 5A.03, all of Company's
outstanding capital stock is fully paid and non-assessable and is owned
(except for any Company Non-Voting Stock issued to Purchaser)
beneficially and of record by Selling Shareholders free from any
security interest, option, equity or other right of any kind. None of
Company's capital stock is subject to any preemptive or other right in
favor of any shareholder of Company.
5A.04 SHAREHOLDERS. SCHEDULE 5A.04 to this Agreement sets forth the
name of each Selling Shareholder, and, to the right of that Selling
Shareholder's name, respectively, the number of shares of Company
Voting Stock and Company Non-Voting Stock owned beneficially and of
record by that Selling Shareholder, and the Selling Shareholder's
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Ratable Share, Selling Shareholder's Ratable Indemnification Share, and
Selling Shareholder's Net Income Share, for that Selling Shareholder.
5A.05 NO NOTICES, APPROVALS, OR CONSENTS REQUIRED: SELLING SHAREHOLDERS
AND COMPANY. Except for any identified in SCHEDULE 5A.05 to this
Agreement, no notice to, registration with, or approval of any Person,
including, without limitation, any governmental agency of any kind, is
or was required on the part of Selling Shareholders and Company or any
of them for the due execution and delivery of this Agreement or any
agreement or other writing to be executed by any of them pursuant to
this Agreement, or for the performance of the respective provisions
thereof that are on any of their respective parts to be complied with,
or for the consummation of any transaction contemplated by this
Agreement, (including, without limitation, the transfer of any and all
of the Company Stock) or any agreement or writing to be executed by any
of them pursuant to this Agreement.
5A.06 AUTHORITY. Company has requisite power and authority to enter
into this Agreement and each agreement or other writing to be executed
by Company pursuant to this Agreement, to issue Company Non-Voting
Stock in accordance with this Agreement, and to perform all of the
agreements contained in this Agreement and each agreement or other
writing to be executed by Company pursuant to this Agreement that are
on Company's part to be complied with. The officer executing and
delivering this Agreement and each agreement or other writing to be
executed by Company pursuant to this Agreement on behalf of Company has
been duly authorized to do so. Except as set forth in SCHEDULE 5A.03,
each Selling Shareholder has requisite power and authority to enter
into this Agreement to transfer Company Voting Stock in accordance with
this Agreement, and to perform all of the agreements contained in this
Agreement that are on that Selling Shareholder's part to be complied
with.
5A.07 NO CONFLICT. None of
(a) the execution, delivery, or performance and observance of
this Agreement or of any agreement or other writing to be
executed by Selling Shareholders and Company or any of them
pursuant to this Agreement, and
(b) the consummation of any transaction contemplated by this
Agreement, (including, without limitation, the transfer of the
Company Stock) or any agreement or writing to be executed by
Selling Shareholders and Company or any of them pursuant to
this Agreement
will at any time
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<PAGE> 15
(i) result in the creation, attachment, or imposition of any
assignment, attachment, mortgage, security interest, other
lien, claim, equity, option, right, or interest of any kind
upon any of the Company Stock or upon any property (whether
real or personal, tangible or intangible, or mixed) of any
Selling Shareholder or any Controlled Company,
(ii) except as disclosed in SCHEDULE 5A.07, result in the
acceleration of all or any part of any obligation of any
Selling Shareholder or any Controlled Company, or any increase
in the amount of any such obligation,
(iii) conflict with, violate, constitute a default under (or
an event which would, with the giving of notice, the lapse of
time, or both, constitute a default under), or result in or
give any Person the right to effect the cancellation or
termination of, any Material Contract or Material Permit,
(iv) except as disclosed in SCHEDULE 5A.07, conflict with or
violate any assignment, attachment, mortgage, security
interest, other lien, claim, equity, option, right, or
interest of any kind upon any of the Company Stock or upon any
property (whether real or personal, tangible or intangible, or
mixed) of any Selling Shareholder or any Controlled Company,
(v) result in any Person having the right (conditional or
otherwise) to acquire any interest in all or any part of the
property (whether real or personal, tangible or intangible, or
mixed) of any Selling Shareholder or any Controlled Company,
(vi) conflict with or violate any law, rule, regulation, or
order by which any Selling Shareholder or any Controlled
Company is bound or by which any property of any Selling
Shareholder or any Controlled Company is bound, or
(vii) actuate, conflict with, or violate any provision of any
Constituent Document.
5A.08 LITIGATION. Except as set forth in SCHEDULE 5A.08 to this
Agreement, (a) there is no Action pending against or directly involving
any Key Selling Shareholder or any Controlled Company or the business
of any Controlled Company, nor, to the best knowledge of Key Selling
Shareholders and Company, after due inquiry, is any such Action
threatened and (b) there is no pending investigation by any
governmental agency or authority of any Key Selling Shareholder or any
Controlled Company. Except as set forth in SCHEDULE 5A.08 to this
Agreement, there is no award, charge, decree, injunction, judgment,
order, ruling, or writ of any kind to which any Selling Shareholder or
any Controlled Company is subject or to which any property of any
Selling Shareholder or any Controlled Company is subject. In any event,
none of the matters disclosed in SCHEDULE 5A.08 seeks to enjoin or
restrain any transaction contemplated by this Agreement,
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<PAGE> 16
and none of those matters will, either alone or in the aggregate with
all such other matters, have a material adverse effect upon the
financial condition, properties or business operations of any
Controlled Company.
5A.09 TAXES. Company is not, and has not at any time been, exempt from
federal income taxation pursuant to 26 USC 1363(a). Except as set forth
in SCHEDULE 5A.09 to this Agreement, each Controlled Company has filed
all federal, state, local, and foreign information returns, tax
returns, and statements (each such information return, tax return, or
statement, as the case may be, a "TAX RETURN") which are required to be
filed by that Controlled Company, and has, except as set forth in
Schedule 5A.09, paid, on or before the due date thereof all taxes due
as shown thereon. Except as set forth in SCHEDULE 5A.09 to this
Agreement, no Controlled Company has requested or obtained any
extension of the time in which to file any Tax Return or pay any Tax.
Except as set forth in SCHEDULE 5A.09 to this Agreement, there are no
agreements or waivers by, or with respect to, any Controlled Company
that extend the statutory period of limitations applicable to any Tax
Return or Tax. Except as set forth in SCHEDULE 5A.09 to this Agreement,
as of the time of filing thereof, all of the information contained in
each Tax Return was true and complete, including, without limitation,
information regarding each Controlled Company's activities, assets,
business, credits, deductions, expenses, income, tax liabilities, tax
refunds, and status. Except as set forth in SCHEDULE 5A.09 to this
Agreement, each Controlled Company has withheld and paid over to the
appropriate taxing authority all taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee or
independent contractor, creditor, or other Person, except where the
failure to withhold and pay over any such tax would not be reasonably
likely to have a material adverse effect upon the financial condition,
properties or business operations of any Controlled Company. Each
Controlled Company has preserved and retained all Tax Returns,
schedules, work papers, and other such documents that relate to any
Tax, claim, audit or other proceedings with respect to that Controlled
Company for which the statutory period of limitations (as waived or
extended) has not expired for the respective taxable periods to which
such documents relate, except where the failure to preserve or retain
such Tax Returns, schedules, work papers, and other documents would not
have a material adverse effect on the ability of any Controlled Company
to prepare and file Tax Returns on and after the date of this Agreement
in compliance with applicable laws. The IRS has not audited the tax
returns of any Controlled Company. Except as set forth in SCHEDULE
5A.09 to this Agreement, no federal, state, local, of foreign taxing
authority has alleged, and there does not exist, any default by any
Controlled Company in the payment of any tax or, to the knowledge of
any Controlled Company, after commercially reasonable inquiry,
threatened to make any assessment in respect thereof. Except as set
forth on SCHEDULE 5A.09 to this Agreement, there are no pending Tax
claims, audits, proceedings or controversies involving any Controlled
Company. In any event, none of the matters disclosed in SCHEDULE 5A.09
to this
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<PAGE> 17
Agreement will, have a material adverse effect upon the financial
condition, properties or business operations of any Controlled Company.
5A.10 TITLE. Except as set forth in SCHEDULE 5A.09 to this Agreement,
each Controlled Company has good and marketable title to all assets
reflected in the Most Recent Financial Statements except for changes
resulting from transactions in the Ordinary Course of Business. All
such assets are in good working order and are clear of any mortgage,
security interest or other lien of any kind other than Permitted Liens.
5A.11 FRANCHISES, LICENSES, AND INTELLECTUAL PROPERTY. Except as set
forth in SCHEDULE 5A.11 to this Agreement, each Controlled Company has,
to the knowledge of that Controlled Company, after commercially
reasonable inquiry, legal title or ownership of, or the right to use
pursuant to valid and enforceable agreements, all copyrights, formulas,
franchises, licenses, patents, service marks, trademarks, trade names,
trade secrets, and other intellectual property used in the business of
that Controlled Company, in each case without conflict with,
infringement of, or violation of the rights of others. There has not
occurred any dilution, diminution in value, infringement,
misappropriation, and unauthorized use of any copyright, formula,
franchise, license, patent, service mark, trademark, trade names trade
secret, or other intellectual property used in the business of any
Controlled Company, except for any such dilution, diminution in value,
infringement, misappropriation, or unauthorized use which would not be
reasonably likely to have a material adverse effect upon the financial
condition, properties or business operations of any Controlled Company.
In any event, none of the matters disclosed in SCHEDULE 5A.11 will,
either alone or in the aggregate with all such other matters, have a
material adverse effect upon the financial condition, properties or
business operations of any Controlled Company.
5A.12 MATERIAL CONTRACTS. SCHEDULE 5A.12 to this Agreement sets forth a
true and complete list of all Material Contracts, showing the parties,
subject matter and term thereof, except for that Financial Alliance
Processing Services, Inc. Service Agreement made as of December 23,
1996 by and among Financial Alliance Processing Services, Inc.,
National Processing Company, and National City Bank of Kentucky, as
amended, which contract the parties acknowledge has been purposefully
omitted from the Schedule 5A.12. Company has delivered to Purchaser a
true and complete copy of each Material Contract. Each Material
Contract has been duly authorized, executed and delivered by all
parties thereto, has not, except as set forth in SCHEDULE 5A.12 to this
Agreement, been amended or otherwise modified, is in full force and
effect and is binding upon and enforceable against all parties thereto
in accordance with its terms (subject to limitations imposed by general
principles of equity (regardless whether such enforceability is
considered in a proceeding at law or in equity) and the effect of
applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws of general application relating to or affecting creditors'
rights). There has not occurred or
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commenced to exist any event or condition which constitutes (or which
would, with the giving of notice or lapse of time or both, constitute)
a default under or which is reasonably likely to give rise to the
amendment, cancellation, modification, rescission, revocation,
termination, or non-renewal, of any Material Contract, other than any
such default which would not be reasonably likely to have a material
adverse effect upon the financial condition, properties or business
operations of any Controlled Company. Moreover, no Controlled Company
is on notice to the effect that any such event or condition has
occurred, or that any Person who is a party to any Material Contract
intends to amend, cancel, modify, rescind, revoke, or terminate, or not
renew the same. "MATERIAL CONTRACT" means (a) any agreement, contract
or commitment, whether written or oral, relating to the employment of
any Person by any Controlled Company, or any bonus, deferred
compensation, pension, profit sharing, stock option, employee stock
purchase, retirement, insurance, health, welfare or other employee
benefit plan requiring future contributions or payments in excess of
one hundred thousand dollars ($100,000) in the aggregate, (b) any loan
or advance to, or investment in, any other Person, which loan, advance,
or investment exceeds an amount equal to twenty thousand dollars
($20,000), or any agreement, contract or commitment requiring future
payments in excess of twenty dollars ($20,000) in the aggregate,
whether written or oral, relating to the making of any loan, advance or
investment, (c) any indemnity, or any guarantee or other contingent
liability, whether written or oral, in respect of any indebtedness or
obligation of any other Person (other than the endorsement of
negotiable instruments for collection in the Ordinary Course of
Business) in excess of five thousand dollars ($5,000), (d) any
agreement, contract or commitment, whether written or oral, limiting
the freedom of any Controlled Company to engage in any line of business
or to compete with any other Person, (e) any contract requiring future
payments in excess of twenty-five thousand dollars ($25,000), (f) any
agreement to acquire all or any material part of the assets of any
Person or to acquire any security issued by any Person, or (g) any
other material agreement, contract, lease, arrangement, commitment,
warranty or instrument, whether written or oral, express or implied,
requiring payments in excess of twenty-five thousand dollars ($25,000).
5A.13 MATERIAL PERMITS. SCHEDULE 5A.13 to this Agreement sets forth a
true and complete list of all Material Permits, showing the name of the
Persons who shall have granted or issued each such permit and subject
matter and term thereof. Company has delivered to Purchaser a true and
complete copy of each Material Permit. Each such Material Permit has
been duly granted or issued by the Person who shall have granted or
issued the same, as the case may be, has not, except as set forth in
SCHEDULE 5A.13 to this Agreement, been amended or otherwise modified,
and is in full force and effect. There has not occurred or commenced to
exist any event, condition or other thing which is reasonably likely to
give rise to the amendment, cancellation, modification, rescission,
revocation, termination, or non-renewal, of any Material Permit.
Moreover, no Controlled Company is on notice to the effect that any
such event, condition, or thing has
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occurred, or that the Person who shall have issued any Material Permit
intends to amend, cancel, modify, rescind, revoke, or terminate, or not
renew the same.
5A.14 REAL PROPERTY. Except for leasehold interests, no Controlled
Company has any legal or beneficial interest in any real estate.
SCHEDULE 5A.14 to this Agreement sets forth the street address of each
real property in which any each Controlled Company has any leasehold
interest, if any such interest is of public record, all applicable
recording information with respect thereto, the date and term of the
lease and the name of the lessor thereunder. Company has delivered to
Purchaser a true and complete copy of each lease of any real property
in which any Controlled Company has a legal or beneficial interest. To
each Controlled Company's knowledge, after commercially reasonable
inquiry, each such lease has been duly authorized, executed and
delivered by all parties thereto, has not been amended or otherwise
modified, is in full force and effect and is binding upon and
enforceable against all parties thereto in accordance with its terms
(subject to limitations imposed by general principles of equity
(regardless whether such enforceability is considered in a proceeding
at law or in equity) and the effect of applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting creditors' rights). To each
Controlled Company's knowledge, after commercially reasonable inquiry,
there has not occurred or commenced to exist any event or condition
which constitutes (or which would, with the giving of notice or lapse
of time or both, constitute) a default under or which is reasonably
likely to give rise to the amendment, cancellation, modification,
rescission, revocation, termination, or non-renewal, of any such lease.
No Controlled Company is, to the knowledge of any Controlled Company
after commercially reasonable inquiry, on notice to the effect that any
such event, condition, or thing has occurred, or that any Person who is
a party to any such lease intends to amend, cancel, modify, rescind,
revoke, or terminate, or not renew the same.
5A.15 280G. Except as set forth in SCHEDULE 5A.15, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment, transfer
of property, or any acceleration right which will constitute a
non-deductible "excess parachute payment" within the meaning of Section
280G of the Code.
5A.16 BANK ACCOUNTS. SCHEDULE 5A.16 sets forth for each Controlled
Company (a) the name and address of each depository institution at
which that Controlled Company has any deposit or other account, the
number of each such account or safe deposit box, and the name of each
Person authorized to draw thereon or have access thereto, as the case
may be, and (b) the name of each Person holding a power of attorney to
act on behalf of that Controlled Company.
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5A.17 INSURANCE. SCHEDULE 5A.17 sets forth a true and complete list and
brief description (including applicable premiums and deductibles) of
all policies of, and binders evidencing, life, fire, workmens'
compensation, product liability, general liability and other forms of
insurance, including title insurance, owned or maintained by each
Controlled Company. Such policies are in full force and effect, and
Company is not in default under any of them, other than any default
which would not entitle the issuer of any such policy to deny payment
thereunder in the event of any insured loss, unless the denial would
not, either alone in the aggregate with all such other denials, be
reasonably likely to have a material adverse effect upon the financial
condition, properties or business operations of any Controlled Company.
5A.18 UNION CONTRACTS, LABOR, AND EMPLOYEES. No Controlled Company has
any contracts, agreements or understandings, whether written or oral,
with any labor union or other labor organization or employee bargaining
group relating to its employees. Nor does any Controlled Company have
any knowledge of any efforts being made on the part of any labor union
or other labor organization or employee bargaining group or any
employee with respect to representation or organization of any of the
employees of any Controlled Company. Each Controlled Company is in
compliance with all laws, rules, regulations, and orders respecting
employment and employment practices, terms and conditions of employment
and wages and hours, except for any non-compliance that would not be
reasonably likely to have a material adverse effect upon the financial
condition, properties or business operations of any Controlled Company.
No Controlled Company has engaged in any unfair labor practice. Other
than as set forth on SCHEDULE 5A.18, there are no controversies pending
or, to the best of the knowledge of each Controlled Company,
threatened, between the respective employees of any Controlled Company
and that Controlled Company. Set forth on SCHEDULE 5A.18 is a list of
all current employees of each Controlled Company.
5A.19 INTERESTS, IN CLIENTS, CUSTOMERS, ETC. Except as disclosed in
SCHEDULE 5A.19, none of the Selling Shareholders and none of the
Controlled Companies has any direct or indirect interest in, or is a
director, officer or employee of, any entity which is a client,
customer, supplier, lessor, lessee, debtor, creditor or competitor or
potential competitor of any Controlled Company.
5A.20 PRODUCT AND SERVICE WARRANTY LIABILITY. There are no product or
service warranty or product or service liability claims pending or, to
the knowledge of Company, threatened against any Controlled Company
and, to the knowledge of each Controlled Company, there is no state of
facts or the occurrence of any event that could reasonably be expected
to form the basis for any such product or service warranty, product or
service liability or other tort claim. Company has provided Purchaser
with a complete and accurate list of all warranty information provided
to or relied upon by the customers of each Controlled Company. To the
knowledge of each Controlled Company, after
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commercially reasonable inquiry, there have been no product and service
warranty or product and service liability claims made against any
Controlled Company within the past three (3) years which would be
reasonably likely, either alone or in the aggregate with all such other
claims, have a material adverse effect upon the financial condition,
properties or business operations of any Controlled Company.
5A.21 FINANCIAL STATEMENTS. Each of the financial statements delivered
pursuant to this Agreement by Company has been prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with those used by Company during its then next preceding
full fiscal year and fairly presents in all material respects (subject
to routine year-end audit adjustments in the case of the unaudited
financial statements and footnotes) the financial condition of the
Company on a consolidated basis as of the date thereof and the
consolidated results of its operations, if any, for the fiscal period
then ending. SCHEDULE 5A.21 to this Agreement sets forth, for each
Controlled Company, all liabilities of that Company, if any, whether
fixed, contingent, or otherwise, if and to the extent not disclosed in
the financial statements delivered pursuant to this Agreement except
those liabilities which, individually, or in the aggregate, do not
constitute material liabilities. Each Controlled Company has
established and at all times maintained, in accordance with GAAP,
appropriate reserves for federal, state, local, and foreign taxes of
every kind and nature. There has been no material adverse change in the
financial condition, properties, business, or results of operations of
any Controlled Company since the date of the Most Recent Financial
Statements nor any change in the accounting procedures of Company since
January 1, 1996. Since the date of the Most Recent Financial
Statements, no Controlled Company has incurred any material liabilities
other than liabilities incurred in the Ordinary Course of Business.
5A.22 DIVIDENDS. Company has not declared, committed itself to make, or
paid any Dividend since June 30, 1997.
5A.23 LAWFUL OPERATIONS. Except as set forth in SCHEDULE 5A.23, the
operations of each Controlled Company have at all times been and
continue to be in material compliance with all requirements imposed by
law, whether federal, state or local, whether statutory, regulatory or
other, including (without limitation) ERISA, all Environmental Laws and
occupational safety and health laws and all zoning ordinances. In any
event, none of the matters disclosed in SCHEDULE 5A.23 will, either
alone or in the aggregate with all such other matters, have a material
adverse effect upon the financial condition, properties or business
operations of Company.
5A.24 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 5A.24, no
Controlled Company is in violation of, or has any liability, absolute
or contingent, in or under or in connection with any Environmental Law,
except for any violation or liability which would not be reasonably
likely to have a material adverse effect upon the financial
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condition, properties or business operations of any Controlled Company.
Without limiting the generality of the foregoing, no condition exists
at, on or under any facility or other property now or previously owned
by any Controlled Company which would give rise to any liability on the
part of any Controlled Company or Purchaser under any Environmental
Law, except for any violation or liability which would not, either
alone or in the aggregate with all such other liabilities and
violations, be reasonably likely to have a material adverse effect upon
the financial condition, properties or business operations of any
Controlled Company; and no Controlled Company has received any notice
from any governmental agency, court or other Person it is a potentially
responsible party for the clean-up of any environmental waste site, is
in violation of any environmental permit or law or has been placed on
any registry of solid or hazardous waste disposal site. There are no
actions, suits, demands, notices, claims, investigations, or
proceedings pending or, to the knowledge of any Controlled Company,
threatened relating to any properties including, without limitation any
notices, demand letters, or requests for information from any Person
relating to any liability under, or any violation of, any Environmental
Law that would impose a liability on any Controlled Company or
Purchaser pursuant to any Environmental Law, except for any such
liability which, either alone or in the aggregate with all such other
liabilities, would not be reasonably likely to have a material adverse
effect upon the financial condition, properties or business operations
of any Controlled Company or Purchaser. In any event, none of the
matters disclosed in SCHEDULE 5A.24 will, either alone or in the
aggregate with all such other matters, have a material adverse effect
upon the financial condition, properties or business operations of
Company.
5A.25 EMPLOYEE PLANS; WARN ACT. Except for the Employee Plans disclosed
on SCHEDULE 5A.25, no Controlled Company maintains, contributes to, or
has, to its knowledge, after commercially reasonable inquiry, an
obligation to contribute to, any Employee Plan, or any other severance,
bonus, stock option, stock appreciation, stock purchase, retirement,
insurance, health, welfare, vacation, pension, profit-sharing or
deferred compensation plan, agreement or arrangement providing benefits
for employees or former employees of any Controlled Company, nor has
any Controlled Company or any officer or director of any Controlled
Company taken any action directly or indirectly to obligate Controlled
Company to institute any such Employee Plan. No Controlled Company has,
to its knowledge, after commercially reasonable inquiry, any liability
with respect to any plans, arrangements or practices of the type
described in the next preceding sentence previously maintained by or
contributed to by any Controlled Company, or to which any Controlled
Company previously had an obligation to contribute, that would be
reasonably likely to have a material adverse effect upon the assets and
properties, operations, condition (financial or otherwise) or business
of any Controlled Company.
(a) Company has delivered to Purchaser a true and complete
copy of each of the Employee Plans of each Controlled Company,
including, without limitation, all
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amendments thereto. Each Employee Plan of each Controlled
Company has at all times been maintained in full compliance
with all laws, rules, regulations, and orders, including,
without limitation, ERISA and all rules and regulations
promulgated thereunder, except for any non-compliance which
would not be reasonably likely to have a material adverse
effect upon the financial condition, properties or business
operations of any Controlled Company and except for the
matters disclosed on Schedule 5A.25 (none of which disclosed
matters will have a material adverse effect upon the financial
condition, properties or business operations of Company), each
such Employee Plan has been administered in accordance with
the terms of the applicable plan documents in all material
respects.
(b) Except as disclosed on SCHEDULE 5A.25, no Controlled
Company has made any promises or commitments to provide, and
is under no obligation or liability to provide, (i) medical
benefits (including through insurance) to retirees of any
Controlled Company or their dependents or (ii) life insurance
or other death benefits (including through insurance) to
retirees of any Controlled Company or their dependents, except
for any obligation or liability that would not, either alone
or in the aggregate with all such other obligations and
liabilities, be reasonably likely to have a material adverse
effect upon the financial condition, properties or business
operations of any Controlled Company.
(c) No Employee Plan of any Controlled Company is or at any
time was (i) funded through a "welfare benefit fund" as
defined in Section 419(e) of the Code, (ii) subject to Title
IV of ERISA, (iii) is or at any time was subject to the
minimum funding standards of Section 302 of ERISA or Section
412 of the Code, (iv) a "multiemployer plan" within the
meaning of Section 3(37) or 4001(a)(13) of ERISA, or Section
414(f) of the Code, or (v) a "multiple employer plan" within
the meaning of Section 413(c) of the Code.
(d) Except as disclosed on SCHEDULE 5A.25 to this Agreement,
no trade or business is or, at any time within the past six
(6) years, has been, treated, together with any Controlled
Company as a single employer under Section 414 of the Code or
Section 4001 of ERISA. Each Employee Plan of each Controlled
Company intended to be qualified under Section 401(a) of the
Code is so qualified and has heretofore been determined by the
IRS to be so qualified, and each trust created thereunder has
heretofore been determined by the IRS to be exempt from tax
under the provisions of Section 501(a) of the Code.
(e) No Controlled Company has engaged in any prohibited
transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code, excluding any transactions which are
exempt under Section 408 of ERISA or Section 4975 of the Code,
under an applicable regulation, or under a prohibited
transaction exemption issued to that Controlled Company by the
Department of Labor, other than any prohibited transaction
exemption which is subject to any unsatisfied condition or
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which, according to any notice published in the Federal
Register by the Department of Labor, is being reconsidered)
with respect to any Employee Plan.
(f) Except as disclosed on SCHEDULE 5A.25 to this Agreement,
each Employee Plan of each Controlled Company has made a
timely filing of Form 5500 for each year that such Employee
Plan has been in existence.
(g) Each Employee Plan of each Controlled Company has had
prepared and distributed to all participants and beneficiaries
a summary plan description that complies with Department of
Labor Reg. Sections 2520.102-2 and 2520.102-3 and that
summarizes the current terms of such Employee Plan in all
material respects.
(h) Each group health plan (as such term is defined in Section
5000(b)(1) of the Code) maintained or contributed to,
currently or in the past, by any Controlled Company (or any
other corporation or trade or business the employees of which,
together with the employees, are required by the Code to be
treated as if they were employed by a single employer) has
been operated in full compliance with the continuation
coverage requirement of Part 6 of Subtitle B of Title I of
ERISA and Section 4980B of the Code.
(i) With respect to any insurance policy that has, or does,
provide funding for benefits under any Employee Plan, (i)
there is no liability on the part of any Controlled Company in
the nature of a retroactive or retrospective rate adjustment,
loss sharing arrangement, or other actual or contingent
liability, nor would there be any such liability if any such
insurance policy was terminated, except for any such liability
which, either alone or in the aggregate with all such other
liabilities, would not be reasonably likely to have a material
adverse effect upon the financial condition, properties or
business operations of any Controlled Company and (ii) no
insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding and, to the
knowledge of Company, no such proceedings with respect to any
insurer are imminent.
(j) Except as disclosed in SCHEDULE 5A.25, neither the
execution and delivery of this Agreement nor the consummation
of the transactions contemplated thereby will (i) constitute a
stated triggering event under any Employee Plan that will
result in any payment (whether of severance pay or otherwise)
becoming due from any Controlled Company to any present or
former officer, employee, director, shareholder, consultant,
or former employee (or dependents of any thereof) or (ii)
accelerate the time of payment or vesting, or increase the
amount,
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of compensation due to any employee, officer, director,
shareholder, or consultant.
(k) All contributions, payments, and transfers by any
Controlled Company in respect of any Employee Plan have been
timely made and have been or are fully deducted under the Code
or, if not so deducted, is fully deductible under the Code.
(l) No Employee Plan of any Controlled Company provides
benefits to any individual who is not (i) a current or former
employee of that Controlled Company or (ii) a dependent of or
other beneficiaries of any a current or former employee of
that Controlled Company.
(m) Other than routine claims for benefits, there is no
pending or, to the knowledge of any Controlled Company,
threatened assessment, complaint, proceeding or investigation
of any kind in any court or government agency with respect to
any Employee Plan, nor is there, to the knowledge of any
Controlled Company, any reasonable basis for one.
(n) All (i) insurance premiums required to be paid with
respect to, (ii) benefits, expenses and other amounts due and
payable under, and (iii) contributions, transfers or payments
required to be made to, any Employee Plan or Company have been
paid, made, or, accrued.
(o) Each Controlled Company has reserved all rights necessary
to amend or terminate each of the Employee Plans of that
Controlled Company without the consent of any other Person.
(p) SCHEDULE 5A.25 sets forth, for each Controlled Company, a
true and complete list of all employees or former employees of
that Controlled Company who have been suspended, terminated,
laid off, granted any leave of absence, or otherwise placed in
any non-active status during the ninety (90) day period ending
on the date of this Agreement.
(q) Except as set forth on SCHEDULE 5A.25, no Controlled
Company has taken any action that could be construed as a
"plant closing" or "mass layoff" within the meaning of the
WARN Act or any other applicable law.
5A.26 NO BROKERS' OR INSIDERS' FEES. No Person has, or immediately
following the consummation of the transactions contemplated by this
Agreement will have, as a result of any action or inaction on the part
of any Selling Shareholder or any Controlled Company, any claim or
right against any Controlled Company or Purchaser for any commission,
fee, or other compensation as a finder or broker in connection with the
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transactions contemplated by this Agreement. Except as set forth in
SCHEDULE 5A.26, or as expressly provided in this Agreement or any
agreement or other writing executed pursuant to this Agreement, there
are no payments or promises of payment, however characterized, that
have been paid or that are or may become payable in connection with the
transactions contemplated pursuant to this Agreement to any Selling
Shareholder, or to any director, officer, or employee, of any
Controlled Company, or to any Affiliate of any of the foregoing.
5A.27 DISCLOSURE. No representation, warranty, or other written
statement (other than any made by Purchaser) made in or pursuant to
this Agreement contains an untrue statement of a material fact or, to
the knowledge of any Controlled Company, after commercially reasonable
inquiry, omits to state a material fact necessary to make the
representation, warranty, or other statement, as the case may be, in
light of the circumstances under which it was made, not false or
misleading.
5B. REPRESENTATIONS AND WARRANTIES: SELLING SHAREHOLDERS. Each Selling
Shareholder severally, and for itself, represents and warrants to Purchaser as
follows:
5B.01 AUTHORITY TO SELL STOCK. Except as set forth in SCHEDULE 5A.03,
there are no agreements (other than this Agreement) or other
commitments of any kind obligating that Selling Shareholder to sell any
security issued by Company. Except as set forth in SCHEDULE 5A.03,
there are no outstanding restrictions, agreements or commitments of any
kind by which that Selling Shareholder is bound which relate to or
restrict in any way the sale and transfer, pursuant to this Agreement,
of any capital stock of Company owned by that Selling Shareholder.
5B.02 OWNERSHIP OF STOCK. SCHEDULE 5A.04 to this Agreement sets forth
the name of that Selling Shareholder, and, to the right of that Selling
Shareholder's name, respectively, the number of shares of Company
Voting Stock and Company Non-Voting Stock owned beneficially and of
record by that Selling Shareholder and the Selling Shareholder's
Ratable Share, Selling Shareholder's Ratable Indemnification Share, and
Selling Shareholder's Net Income Share, for that Selling Shareholder.
Except as set forth in SCHEDULE 5A.04, all of Company's outstanding
capital stock owned by that Selling Shareholder is owned beneficially
and of record by that Selling Shareholder free from any security
interest, option, equity or other right of any kind.
5B.03 NO NOTICES, APPROVALS, OR CONSENTS REQUIRED: SELLING
SHAREHOLDERS. Except for any notice which shall have been given on or
before the Initial Closing Date, and except for any approval or consent
which shall have been obtained on or before the Initial Closing Date,
no notice to, registration with, or approval of any Person, including,
without limitation, any governmental agency of any kind, is or was
required on the part that Selling Shareholder for the due execution and
delivery of this Agreement or any
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agreement or other writing to be executed by that Selling Shareholder
pursuant to this Agreement, or for the performance of the respective
provisions thereof that are on the part of that Selling Shareholder to
be complied with, or for the sale and transfer of that Shareholder's
Company Stock pursuant to this Agreement.
5B.04 AUTHORITY: SELLING SHAREHOLDERS That Selling Shareholder has
requisite power and authority to enter into this Agreement to transfer
Company Stock in accordance with this Agreement, and to perform all of
the agreements contained in this Agreement that are on that Selling
Shareholder's part to be complied with.
5B.05 NO CONFLICT: SELLING SHAREHOLDERS. None of
(a) the execution, delivery, or performance and observance of
this Agreement or of any agreement or other writing to be
executed by that Selling Shareholder pursuant to this
Agreement, and
(d) the consummation of any transaction contemplated by this
Agreement, (including, without limitation, the transfer of
that Shareholder's Company Stock) or any agreement or writing
to be executed by that Selling Shareholder pursuant to this
Agreement
will at any time
(i) result in the creation, attachment, or imposition of any
assignment, attachment, mortgage, security interest, other
lien, claim, equity, option, right, or interest of any kind
upon any of that Shareholder's Company Stock or upon any
property (whether real or personal, tangible or intangible, or
mixed) of that Selling Shareholder,
(ii) except as disclosed in SCHEDULE 5A.07, result in the
acceleration of all or any part of any obligation of that
Selling Shareholder, or any increase in the amount of any such
obligation,
(iii) conflict with, violate, constitute a default under (or
an event which would, with the giving of notice, the lapse of
time, or both, constitute a default under), or result in or
give any Person the right to effect the cancellation or
termination of, any agreement by which that Selling
Shareholder or any of its property is bound,
(iv) conflict with or violate any assignment, attachment,
mortgage, security interest, other lien, claim, equity,
option, right, or interest of any kind upon any of that
Selling Shareholder's Company Stock or upon any property
(whether real or personal, tangible or intangible, or mixed)
of that Selling Shareholder,
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<PAGE> 28
(v) result in any Person having the right (conditional or
otherwise) to acquire any interest in all or any part of the
property (whether real or personal, tangible or intangible, or
mixed) of that Selling Shareholder, or
(vi) conflict with or violate any law, rule, regulation, or
order by which that Selling Shareholder or any that Selling
Shareholder's property is bound.
5B.06 LITIGATION: SELLING SHAREHOLDERS. Except as set forth in SCHEDULE
5A.08 to this Agreement, (a) there is no Action pending against or
directly involving that Selling Shareholder, nor, to the best knowledge
of that Selling Shareholder, after due inquiry, is any such Action
threatened and (b) there is no pending investigation by any
governmental agency or authority of that Selling Shareholder, in each
case which would have an adverse effect on that Selling Shareholder's
title to or ownership of that Selling Shareholder's Company Stock.
Except as set forth in SCHEDULE 5A.08 to this Agreement, there is no
award, charge, decree, injunction, judgment, order, ruling, or writ of
any kind to which that Selling Shareholder is subject or to which any
property of that Selling Shareholder is subject, in each case which
would have an adverse effect on that Selling Shareholder's title to or
ownership of that Selling Shareholder's Company Stock. In any event,
none of the matters disclosed in SCHEDULE 5A.08 seeks to enjoin or
restrain the sale and transfer of all or any part of that Selling
Shareholder's Company Stock as contemplated by this Agreement, and none
of those matters will, either alone or in the aggregate with all such
other matters, have a material adverse effect upon the rights of
Purchaser in and to that Selling Shareholder's Company Stock.
5B.07 REAFFIRMATION OF STOCK WARRANTIES. Each Selling Shareholder
represents and warrants to Purchaser that each representation or
warranty made by that Selling Shareholder in any of subsections 5B.01
through 5B.06, both inclusive, will be true and complete on the Initial
Closing Date as if made on that date. Each Secondary Selling
Shareholder represents and warrants to Purchaser that each
representation or warranty made by that Selling Shareholder in any of
subsections 5B.01 through 5B.06, both inclusive, will be true and
complete on the Secondary Closing Date as if made on that date.
5C. REPRESENTATIONS AND WARRANTIES: PURCHASER. Purchaser represents and warrants
to Selling Shareholders and Company as follows:
5C.01 EXISTENCE. Purchaser is a duly organized and validly existing
Kentucky corporation in good standing. Purchaser is duly qualified to
transact business in each state or other jurisdiction in which
Purchaser owns or leases any real property or in which the nature of
the business conducted makes such qualification necessary or, if not so
qualified, such failure to qualify will have no material adverse effect
upon the financial condition of Purchaser or on the ability of
Purchaser to transact business.
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<PAGE> 29
5C.02 NO NOTICES, APPROVALS, OR CONSENTS REQUIRED: PURCHASER. Except
for any identified in SCHEDULE 5C.02, no notice to, registration with,
or approval of any Person, including, without limitation, any
governmental agency of any kind, is required on the part of Purchaser
for the due execution and delivery of this Agreement, or any agreement
or other writing to be executed by Purchaser pursuant to this
Agreement, or for the performance of the respective provisions thereof
that are on Purchaser's part to be complied with, or for the
consummation of any transaction contemplated by this Agreement or any
agreement or writing to be executed by Purchaser pursuant to this
Agreement.
5C.03 AUTHORITY. Purchaser has requisite power and authority to enter
into this Agreement and each agreement or other writing to be executed
by Purchaser pursuant to this Agreement, and to perform all of the
agreements contained in this Agreement and each agreement or other
writing to be executed by Purchaser pursuant to this Agreement that are
on Purchaser's part to be complied with. The officer executing and
delivering this Agreement and each agreement or other writing to be
executed by Purchaser pursuant to this Agreement on behalf of Purchaser
has been duly authorized to do so.
5C.04 NO CONFLICT. Neither of
(a) the execution, delivery, or performance and observance of
this Agreement or of any agreement or other writing to be
executed by Purchaser pursuant to this Agreement nor
(b) the consummation of any transaction contemplated by this
Agreement, or any agreement or writing to be executed by any
of them pursuant to this Agreement
will
(i) result in the creation, attachment, or imposition of any
assignment, attachment, mortgage, security interest, other
lien, claim, equity, option, right, or interest of any kind
upon any property (whether real or personal, tangible or
intangible, or mixed) of Purchaser,
(ii) result in the acceleration of all or any part of any
obligation of Purchaser, or any increase in the amount of any
such obligation,
(iii) conflict with, violate, constitute a default under (or
an event which would, with the giving of notice, the lapse of
time, or both, constitute a default under), or result in or
give any Person the right to effect the cancellation or
termination of any material contract to which Purchaser is a
party,
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<PAGE> 30
(iv) conflict with or violate any assignment, attachment,
mortgage, security interest, other lien, claim, equity,
option, right, or interest of any kind upon any property
(whether real or personal, tangible or intangible, or mixed)
of Purchaser,
(v) result in any Person having the right (conditional or
otherwise) to acquire any interest in all or any part of the
property (whether real or personal, tangible or intangible, or
mixed) of Purchaser,
(vi) conflict with or violate any law, rule, regulation, or
order by which Purchaser or any of Purchaser's properties are
bound, or
(vii) actuate, conflict, or violate any provision of the
respective articles or certificates of incorporation, as the
case may be, or by-laws or corporate regulations of Purchaser.
5C.06 NO BROKERS' OR INSIDERS' FEES. No Person has, or immediately
following the consummation of the transactions contemplated by this
Agreement will have, as a result of any action or inaction on the part
of Purchaser, any claim or right against any Controlled Company or any
Selling Shareholder for any commission, fee, or other compensation as a
finder or broker in connection with the transactions contemplated by
this Agreement. Except as expressly provided in this Agreement or any
agreement or other writing executed pursuant to this Agreement, there
are no payments or promises of payment, however characterized, that
have been paid or that are or may become payable in connection with the
transactions contemplated pursuant to this Agreement to Purchaser , or
to any director, officer, or employee, of Purchaser, or to any
Affiliate of any of the foregoing.
5C.07 SUFFICIENT FUNDS. Purchaser has sufficient funds to perform and
observe all obligations contained in this Agreement that are on
Purchaser's part to be complied with.
6A. COVENANTS OF COMPANY. Company agrees to perform and observe each of the
following:
6A.01 NOTICES, APPROVALS, OR CONSENTS REQUIRED. Unless and until the
Initial Closing shall have occurred, Company will
(a) give or cause to be given each notice, if any, identified
in SCHEDULE 5A.05, which shall not have been given on or
before the date of this Agreement,
(b) undertake or cause to be undertaken each registration, if
any, identified in Schedule 5A.05, which shall not have been
undertaken on or before the date of this Agreement, and
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<PAGE> 31
(c) use commercially reasonable efforts to obtain or cause to
be obtained each approval, if any, identified in SCHEDULE
5A.05, which shall not have been obtained on or before the
date of this Agreement.
6A.02 NO EXTRAORDINARY TRANSACTIONS. Unless and until the Initial
Closing shall have occurred, Company will not, without having first
obtained Purchaser's written consent, which consent shall not be
unreasonably withheld, suffer or permit the occurrence of any of the
following events or conditions, namely:
(a) the creation, attachment, or imposition of any assignment,
attachment, mortgage, security interest, other lien, claim,
equity, option, right, or interest of any kind upon any of the
Company Stock or upon any property (whether real or personal,
tangible or intangible, or mixed) of any Controlled Company,
except, in the case of any property of any Controlled Company,
Permitted Liens created, attaching, or imposed in the Ordinary
Course of Business,
(b) the (i) adoption or amendment (except (A) as required by
law, (B) to effect the payments to R. Emmons as set forth in
SCHEDULE 6A.02, which payments are contemplated by this
Agreement, and (C) for the voluntary compliance resolution
which Company agrees to file with the IRS on or before August
31, 1997, after having given Purchaser an opportunity to
review the same) by any Controlled Company of any bonus,
profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation,
employment, or other employee benefit agreement, trust, plan,
or fund for the benefit or welfare, of any director, officer,
employee, agent, or representative, (ii) increase (except for
normal merit increases in the Ordinary Course of Business, not
to exceed, on an annualized basis, ten thousand dollars
($10,000) for any one Person, and one hundred thousand dollars
($100,000) for all Persons in the aggregate) by any Controlled
Company of the compensation or benefits of any director,
officer, employee, agent, or representative or pay any benefit
not required by any existing plan or arrangement (including,
without limitation, stock options or stock appreciation
rights), (iii) taking of any action or the granting of any
benefit by any Controlled Company not in the Ordinary Course
of Business with respect to any existing bonus, profit
sharing, compensation, severance, termination, stock option,
pension, retirement, deferred compensation, employment, or
other employee benefit agreement, trust, plan, or fund, or
(iv) entering into by any Controlled Company of any contract,
agreement, commitment, or arrangement to do any of the
foregoing,
(c) any change in any Controlled Company's authorized capital
stock, including without limitation any stock split or
reclassification in respect of any Controlled Company's
outstanding capital stock, or any declaration, payment or
setting aside
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<PAGE> 32
for payment of any Dividend, fees, or other distribution in
respect of the capital stock of any Controlled Company,
(d) any capital expenditure by any Controlled Company, or any
agreement to any capital expenditure by any Controlled
Company, if, after giving effect thereto, that aggregate
amount of all capital expenditures made or agreed to on and
after the date of this Agreement by all Controlled Companies
would exceed, in the aggregate, an amount equal to fifty
thousand dollars ($50,000),
(e) any sale, transfer, or other disposition of any assets of
any Controlled Company, except for sales of inventory, if any,
in the Ordinary Course of Business,
(f) the incurrence by any Controlled Company of any obligation
or liability (fixed or contingent), except in the Ordinary
Course of Business;
(g) any compromise of more than ten thousand dollars ($10,000)
of any Account, debt or claim of any Controlled Company, or
any waiver or release of any right of any Controlled Company
that is of value,
(h) any transfer, abandonment, failure to maintain in good
standing, or grant of any rights under or with respect to any
leases, licenses or agreements of any Controlled Company or
any of its property, or any agreement limiting any Controlled
Company's ability to conduct its operations and distribute its
services anywhere in the world or to any Person,
(i) any amendment of any Constituent Document as in effect on
the date of this Agreement, except if and to the extent
necessary to consummate the transactions specifically
contemplated by this Agreement,
(j) except as set forth in Exhibit 5A.04, any (i) issuance or
sale of any shares of capital stock (other than pursuant to
this Agreement or pursuant to stock options outstanding prior
to the date of this Agreement) or any other securities of any
Controlled Company, (ii) issuance or sale of any securities
convertible into or exchangeable for, any options, rights, or
warrants to purchase, any certificates or scrip for, any
participations in, any rights to subscribe for, or any calls
or commitments of any character whatsoever relating to, any
shares of capital stock or any other securities of any
Controlled Company, (iii) entry into any arrangement,
contract, or understanding (other than this Agreement) with
respect to the issuance or sale of any shares of capital stock
(other than pursuant to this Agreement) or any other
securities of any Controlled Company, (iv) recapitalization or
other change in the capital structure of any
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<PAGE> 33
Controlled Company, or (v) grant of any stock options by any
Controlled Company under any stock option plan or otherwise,
(k) any material change with respect to the nature of any
Controlled Company's business as conducted on the date of this
Agreement, or any change in its accounting procedures,
(l) entry into any contract of a kind described in section
5A.12, required to be set forth in SCHEDULE 5A.12, or
purposefully omitted from Schedule 5A.12 by the parties to
this Agreement;
(m) any failure to maintain the material properties and assets
of the business of any Controlled Company, whether owned or
leased, in their current operating condition and repair,
reasonable wear and tear excepted;
(n) any failure to maintain in full force and effect insurance
for the business of any Controlled Company providing coverage
and amounts of coverage in accordance with their current
practice;
(o) any merger or consolidation of any Controlled Company with
any other Person or any acquisition of any stock, business, or
substantial percentage of the property or assets of any other
Person;
(p) any write-up the value of any of any Controlled Company's
assets,
(q) except as set forth in SCHEDULE 5A.12, any loan or advance
to, or any investment in, any Person (including any officer,
director, employee, agent, sales representative or
consultant), except for (A) travel advances to employees,
provided, that the aggregate unpaid principal balance of all
such advances shall not exceed an amount equal to ten thousand
dollars ($10,000) at any one time outstanding and (B) any
existing or future investment in direct obligations of the
United States of America or any agency thereof the obligations
of which are backed by the full faith and credit of the United
States of America, in certificates of deposit fully insured by
the Federal Deposit Insurance Corporation, or in any other
money-market investment if it carries the highest quality
rating of any nationally-recognized rating agency, provided,
that no investment permitted by this clause (B) shall mature
more than ninety (90) days after the date when made,
(r) any deferment of the payment of any Controlled Company's
accounts payable, outside of the Ordinary Course of Business,
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<PAGE> 34
(s) any incurrence by any Controlled Company of any
indebtedness for borrowed money,
(t) any declaration or payment of any Dividend by Company, or
(u) any agreement to do any of the foregoing.
6A.03 FULL ACCESS. Unless and until the Initial Closing shall have
occurred, upon each request of Purchaser, Company shall permit, and
shall cause each of the its Subsidiaries to permit, representatives of
Purchaser to have, during normal business hours, full access to all of
the customers, customer information, suppliers, supplier information,
sub-contractor information, third-party contractors information,
premises, properties, personnel, books, records (including, without
limitation, tax records), contracts and documents of or pertaining to
Company and its Subsidiaries.
6A.04 NOTICE OF DEVELOPMENTS. Unless and until the Initial Closing
shall have occurred, Selling Shareholders will, and will cause each
Controlled Company to, give prompt notice to Purchaser whenever there
shall occur or commence to exist (a) any material development in the
business of any Controlled Company that would be outside the Ordinary
Course of Business or (b) any event or condition that, if occurring or
existing at the date of this Agreement, would have been required to be
set forth or identified in any of the schedules to this Agreement. Each
such notice shall be deemed to amend any schedule to this Agreement,
unless any of the matters set forth in that Schedule, either alone or
in the aggregate with one or more other such matters, set forth in any
such notice, either alone or in the aggregate with one or more others,
would or would be reasonably likely to have (i) a material adverse
effect upon the financial condition, properties or business operations
of any Controlled Company or (ii) a material adverse impact the
economic or business benefits of the transactions contemplated by this
Agreement to Company, Purchaser, or both.
6A.05 EXCLUSIVITY. No Selling Shareholder, Controlled Company, or
director, officer, employee, or shareholder of any Controlled Company
will, directly or indirectly, (a) solicit or initiate any proposals or
offers from any Person relating to any acquisition or purchase of all
or a material amount of the assets of, or any securities of, or any
merger, consolidation or business combination with Company or any of
its Subsidiaries, (b) participate in any discussions or negotiations
regarding, or furnish to any other Persons any information with respect
to any acquisition or purchase of all or a material amount of the
assets of, or any securities of, or any merger, consolidation or
business combination with Company or any of its Subsidiaries, or (c)
suffer or permit any of their respective advisors, agents, consultants,
employees, or other representatives to do anything described in the
foregoing clauses (a) or (b). Each Selling Shareholder, Controlled
Company, and director, officer, employee, and shareholder of any
Controlled Company will, on the date of this Agreement, cease and cause
to be terminated any existing activities, discussions or negotiations
with any Persons conducted heretofore
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with respect to anything described in the foregoing clauses (a) or (b).
Each of Company and Selling Shareholders will give Purchaser immediate
notice if any such inquiries or proposals are received by, any
information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with Company.
6A.06 FURTHER ASSURANCE. Company will, at Company's expense, to make
and do, all such acts and things as Purchaser may from time to time
reasonably require for the better evidencing, perfection, protection,
or validation of, or realization of the benefits of, its interest in
the Company Stock and its rights under this Agreement. Without limiting
the generality of the foregoing, Company will, at Company's expense,
upon each request of Purchaser, (a) comply with, and cause each Selling
Shareholder to comply with, every other requirement deemed reasonably
necessary by Purchaser for the perfection of its interest in the
Company Stock, and (b) execute and deliver such affidavits,
assignments, endorsements of specific items, powers of attorney, and
other writings as Purchaser may from time to time reasonably require,
each in form and substance satisfactory to Purchaser.
6B. COVENANTS OF PURCHASER. Purchaser will perform and observe each of the
following, namely:
6B.01 NOTICES, APPROVALS, OR CONSENTS REQUIRED. Purchaser will, unless
and until the Initial Closing shall have occurred:
(a) give or cause to be given each notice, if any, identified
in SCHEDULE 5C.02, which shall not have been given on or
before the date of this Agreement,
(b) undertake or cause to be undertaken each registration, if
any, identified in Schedule 5C.02, which shall not have been
undertaken on or before the date of this Agreement, and
(c) use commercially reasonable efforts to obtain or cause to
be obtained each approval, if any, identified in SCHEDULE
5C.02, which shall not have been obtained on or before the
date of this Agreement.
6B.02 FINANCIAL STATEMENTS. Unless and until the Secondary Closing
shall have been consummated, Purchaser will, after the consummation of
the Initial Closing, cause Company to furnish to each Secondary
Closing Shareholder
(a) as soon as available, and in any event within twenty (20)
days after the end of each month ending after the Initial
Closing Date, a balance sheet of Company as of the end of that
month, and the statements of cash flow, income and surplus
reconciliation of Company for the fiscal year in which that
month occurs to the
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end of that month, all prepared (but unaudited) on a
consolidated basis, in accordance with GAAP and in form and
detail similar to the Most Recent Financial Statements,
(b) concurrently with each delivery of financial statements
pursuant to clause (a), a certificate having been signed by
Company's chief financial officer, certifying that those
financial statements fairly present in all material respects
the financial condition and results of operations of Company
in accordance with GAAP, and
(c) forthwith upon each Secondary Selling Shareholder's
written request, such other information about the financial
condition, properties and operations of the Controlled
Companies and their respective Employee Plans as that Selling
Shareholder may from time to time request.
6B.03 NO EXTRAORDINARY TRANSACTIONS. Unless and until the Secondary
Closing shall have occurred, Company will not, at any time on or after
the Initial Closing Date, without having first obtained the written
consent of each of John J. Leehy III and James C. Comis III, which
consent shall not be unreasonably withheld, suffer or permit the
occurrence of any of the following events or conditions, namely:
(a) any (i) issuance or sale of any shares of capital stock
(other than pursuant to this Agreement) or any other
securities of any Controlled Company, (ii) issuance or sale of
any securities convertible into or exchangeable for, any
options, rights, or warrants to purchase, any certificates or
scrip for, any participations in, any rights to subscribe for,
or any calls or commitments of any character whatsoever
relating to, any shares of capital stock or any other
securities of any Controlled Company, (iii) entry into any
arrangement, contract, or understanding (other than this
Agreement) with respect to the issuance or sale of any shares
of capital stock (other than pursuant to this Agreement) or
any other securities of any Controlled Company, (iv)
recapitalization or other change in the capital structure of
any Controlled Company, or (v) grant of any stock options by
any Controlled Company under any stock option plan or
otherwise,
(b) any merger or consolidation of any Controlled Company with
any other Person or any acquisition of any stock, business, or
substantial percentage of the property or assets of any other
Person (except as may be necessary to consummate he
transactions contemplated in this Agreement, or
(c) any transaction not in the Ordinary Course of Business
with any Affiliate which has the intent or effect of
negatively affecting the value of the Company Stock owned by
the Secondary Selling Shareholders and benefiting the Company;
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<PAGE> 37
or any agreement not in the Ordinary Course of Business to do
any of the foregoing
7A. INDEMNITY: PURCHASER INDEMNITEES. Subject to section 7D and subsection 8.04,
Selling Shareholders and Company will jointly and severally reimburse and
indemnify each Purchaser Indemnitee, upon that Purchaser Indemnitee's demand,
from and against any and all damages and liabilities and any and all fees,
costs, expenses (including, without limitation, the fees, costs, and reasonable
expenses of accountants, appraisers, attorneys, consultants, and expert
witnesses, court costs, costs of defense, and costs of investigation), and
losses (including, without limitation, but without duplication, any loss in
value of the Shares, any loss in value of any assets of the Company, and any
loss of profit) arising out of or in connection with each of the following (each
a "PURCHASER INDEMNIFIABLE EVENT")
(a) any inaccuracy of any representation, warranty, or other statement
made by or on behalf of Selling Shareholders or any them in or pursuant
to this Agreement
(b) any failure or omission on the part of Selling Shareholders and
Company or any of them to perform or observe any covenant contained in
this Agreement and that is on the part of Selling Shareholders and
Company or any of them to be complied with, or
(c) any liability of any Seller Indemnitee to National Bankcard
Association, Inc., if and to the extent that the liability arises out
of or in connection with any action or inaction (including, without
limitation, any tortious act, breach of contract, or violation of law)
prior to the Initial Closing Date,
provided, that
(i) Neither Company nor any Selling Shareholder shall be obligated to
reimburse or indemnify any Purchaser Indemnitee pursuant to this
section from and against any damages, liabilities, fees, costs, or
expenses arising out of or in connection any Purchaser Indemnifiable
Event (other than any Special Purchaser Indemnifiable Event with
respect to that Selling Shareholder)
(A) if Purchaser shall not have executed and delivered to
Escrow Agent, within the period of one (1) year following the
Initial Closing Date, an Indemnification Claim Certificate in
respect of that Purchaser Indemnifiable Event or
(B) if and to the extent that, after giving effect to such
reimbursement and indemnity, that aggregate of all amounts
which shall have been paid pursuant to this section 7A would
exceed an amount equal to fifteen million dollars
($15,000,000),
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<PAGE> 38
(ii) no Selling Shareholder shall be obligated to reimburse or
indemnify any Purchaser Indemnitee pursuant to this section from and
against any damages, liabilities, fees, costs, or expenses arising out
of or in connection with (A) any inaccuracy of any Stock Warranty made
by any other Selling Shareholder or (B) any failure or omission on the
part of any other Selling Shareholder to perform or observe any
agreement contained in section 2A, subsection 3A.01, or subsection
3D.01 that is on such other Selling Shareholder's part to be complied
with,
(iii) the aggregate amount to be paid, under section 7A or otherwise,
by any Selling Shareholder for any damages, liabilities, fees, costs,
or expenses arising out of or in connection with any inaccuracy of any
one or more Stock Warranties made by that Selling Shareholder shall not
exceed an amount equal to the aggregate consideration which that
Selling Shareholder shall have been paid pursuant to sections 2B, and
2C,
(iv) without diminishing or impairing the joint and several nature of
any Selling Shareholder's obligations therefor, the aggregate amount to
be paid, under section 7A or otherwise, of each Selling Shareholder for
any damages, liabilities, fees, costs, or expenses arising out of or in
connection with any inaccuracy of any one or more Employee Benefit
Warranties shall not exceed an amount equal to the aggregate
consideration which that Selling Shareholder shall have been paid
pursuant to sections 2B, and 2C, and, in any event, Purchaser shall not
be entitled to commence any legal action against any Selling
Shareholder for the breach of any Employee Benefit Warranty unless,
prior to the commencement of that action, the Aggregate Indemnity Claim
Amount (as defined in the Escrow Agreement) shall be greater than or
equal to fifteen million dollars ($15,000,000), and
(v) the aggregate amount to be paid, under section 7A or otherwise, by
any Selling Shareholder for any damages, liabilities, fees, costs, or
expenses arising out of or in connection with any Purchaser
Indemnifiable Event (other than any inaccuracy of any Stock Warranty
made by that Selling Shareholder or any failure or omission on the part
of that Selling Shareholder to perform or observe any agreement
contained in section 2A, subsection 3A.01, or subsection 3D.01 that is
on that Selling Shareholder's part to be complied with) shall not
exceed an amount equal to the Selling Shareholder's Ratable
Indemnification Share.
7B. INDEMNITY: SELLER INDEMNITEES. Subject to section 7D and subsection 8.04,
Purchaser will reimburse and indemnify each Seller Indemnitee, upon that Seller
Indemnitee's demand, from and against any and all damages and liabilities and
any and all fees, costs, and reasonable expenses (including, without limitation,
the fees costs, and expenses of accountants, appraisers, attorneys, consultants,
and expert witnesses, court costs, costs of defense, and costs of investigation)
arising out of or in connection with each of the following (each a "SELLER
INDEMNIFIABLE EVENT")
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<PAGE> 39
(a) any inaccuracy of any representation, warranty, or other statement
made by or on behalf of Purchaser in or pursuant to this Agreement or
(b) any failure or omission on the part of Purchaser to perform or
observe any covenant contained in this Agreement and that is on the
part of Purchaser to be complied with.
7C. DEFENSE OF CLAIMS. If there shall be asserted in writing any Action against
an Indemnitee, and that Indemnitee shall believe in good faith that such
Indemnitee is entitled to reimbursement or indemnity pursuant to this section,
then, and in each such case, that Indemnitee shall give prompt notice of that
Action (in each such case, the "INDEMNIFIABLE ACTION") to the party (in each
such case, the "INDEMNITOR") to this Agreement from whom that Indemnitee so
believes itself to be so entitled, provided, that any failure or delay in the
giving of such notice shall neither (a) diminish or impair any obligation of the
Indemnitor pursuant to this section except if and to the extent that such
failure or delay shall have materially and substantially prejudiced the rights
of the Indemnitor under subsection 7C.01 or (b) result in any liability on the
part of the Indemnitee.
7C.01 INDEMNITOR'S RIGHT TO ASSUME DEFENSE. The Indemnitor shall have
the right, at its option and expense, to assume the defense of the
Indemnifiable Action, provided, that, within the period of twenty (20)
days (or within such shorter period in which an answer or other
responsive action is required by applicable rules of procedure) after
receiving notice of the Indemnifiable Action from the Indemnitee, the
Indemnitor shall have, by notice given to the Indemnitee, elected to
defend the Indemnifiable Claims in the name of the Indemnitee. Any such
election shall be irrevocable. Notwithstanding the foregoing, the
Indemnitor shall not have the right to assume the defense of the
Indemnifiable Action if (i) representation of both the Indemnitee and
the Indemnitor by the same legal counsel would be prohibited by rules
or regulations governing the professional conduct of such counsel, (ii)
the Indemnitee determines in good faith that there is a significant
possibility that the Indemnifiable Action may materially and adversely
affect it or its Affiliates other than as a result of monetary damages,
or (iii) the Indemnitee determines in good faith that the Indemnitor
has insufficient financial resources to satisfy any monetary damages
reasonably likely to result from such Action.
7C.02 EFFECT OF INDEMNITOR'S ELECTION TO ASSUME DEFENSE. If the
Indemnitor shall have assumed the defense of the Indemnifiable Action
in accordance with subsection 7C.01, then the following shall apply:
(a) except as provided in clause (e) of this subsection 7C.02,
the Indemnitee shall have the right to participate and assist
in, but not control, the defense of the Indemnifiable Action
and to employ its own counsel in connection therewith;
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<PAGE> 40
(b) except as provided in clause (e) of this subsection 7C.02,
the Indemnitor shall not be liable to the Indemnitee for the
fees or expenses of the Indemnitee's counsel or other expenses
incurred by the Indemnitee in connection with participating in
the defense of the Indemnifiable Action, except that the
Indemnitor shall be liable for any such fees and expenses
incurred prior to the time at which the Indemnitor shall have
elected to assume the defense of the Indemnifiable Action;
(c) counsel used by the Indemnitor in connection with the
defense of the Indemnifiable Action shall be subject to the
prior approval of the Indemnitee, which approval shall not be
unreasonably withheld or delayed;
(d) except as provided in clause (e) of this subsection, the
Indemnitor shall have no liability with respect to any
compromise or settlement of the Indemnifiable Action effected
without its consent, which consent shall not be unreasonably
withheld or delayed;
(e) if the Indemnitor shall fail or omit to diligently
prosecute the defense of the Indemnifiable Action, then, and
in each such case, (i) the Indemnitee shall have the right, by
giving notice to the Indemnitor, to take over and control the
defense of the Indemnifiable Action, (ii) the Indemnitor shall
be liable to the Indemnitee for any and all liabilities and
any and all fees, costs, expenses (including, without
limitation, the fees costs, and expenses of accountants,
appraisers, attorneys, consultants, and expert witnesses,
court costs, costs of defense, and costs of investigation)
suffered or incurred by the Indemnitee in connection with the
Indemnifiable Action and (iii) the Indemnitor shall be liable
for any settlement of such Action effected by the Indemnitee;
and
(f) subject to the provisions of subsection 7C.04, the
Indemnitor shall have the right to settle or otherwise dispose
of the Indemnifiable Action.
7C.03 EFFECT OF INDEMNITOR'S ELECTION NOT TO ASSUME DEFENSE. If the
Indemnitor shall have assumed the defense of the Indemnifiable Action
in accordance with subsection 7C.01, or shall not have the right to
assume the defense of the Indemnifiable Action, then the following
shall apply:
(a) the Indemnitee shall have the right to control the defense
of the Indemnifiable Action and to employ its own counsel in
connection therewith; and
(b) the Indemnitor shall have the right, at its sole cost and
expense, to participate in, but not control, the defense of
the Indemnifiable Action and to employ its own counsel in
connection therewith.
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<PAGE> 41
7C.04 AUTHORITY TO SETTLE. Any compromise or settlement of the
Indemnifiable Action shall be subject to the consent of the Indemnitee.
If, however, the Indemnitor shall give the Indemnitee notice of the
Indemnitor's desire to accept an offer of settlement (the "OFFERED
MONETARY SETTLEMENT") which is limited strictly to monetary damages and
which includes a full release of the Indemnitee, and the Indemnitee
does not consent to the same, then, and in each such case, the
Indemnitee may continue to pursue compromise or settlement of the
Indemnifiable Action, free of any participation by the Indemnitor, at
the sole expense of the Indemnitee. In any event, the obligation of the
Indemnitor to the Indemnitee in respect of the Indemnifiable Action
shall not exceed an amount equal to the lesser of (a) the amount of the
monetary damages under the terms of the Offered Monetary Settlement
plus, without duplication, the aggregate amount of all liabilities and
all fees, costs, expenses (including, without limitation, the fees,
costs, and expenses of accountants, appraisers, attorneys, consultants,
and expert witnesses, court costs, costs of defense, and costs of
investigation) suffered or incurred by the Indemnitee in connection
with the Indemnifiable Action up to and including the date upon which
the Indemnitor shall have given the Indemnitee notice of the Offered
Monetary Settlement and (b) the aggregate of the amounts actually paid
by the Indemnitee as a result of its continued pursuit of the
settlement or compromise of the Indemnifiable Action, which amounts
will be reimbursed by the Indemnitor on the Indemnitee's demand from
time to time.
7D. MATERIALITY THRESHOLD. Notwithstanding any contrary provision of this
section,
(a) neither Company nor any Selling Shareholder shall have any
obligation to reimburse, indemnify, or defend any Purchaser Indemnitee
pursuant to section 7A unless and until the aggregate amount of all
damages, liabilities, fees, costs, expenses, and losses for which the
Selling Shareholders and Company or any of them would otherwise be
obligated to provide reimbursement or indemnity pursuant to section 7A
shall exceed an amount equal to five hundred thousand dollars
($500,000), in which event Company and each Selling Shareholder shall
be liable as provided in section 7A without regard to the provisions of
this section 7D and
(b) Purchaser shall have no obligation to reimburse, indemnify, or
defend any Seller Indemnitee pursuant to section 7B unless and until
the aggregate amount of all damages, liabilities, fees, costs,
expenses, and losses for which Purchaser would otherwise be obligated
to provide reimbursement or indemnity pursuant to section 7B shall
exceed an amount equal to five hundred thousand dollars ($500,000), in
which event Purchaser shall be liable as provided in section 7B without
regard to the provisions of this section 7D.
7E. CALCULATION OF LIABILITY LIMITS. If Escrow Agent shall pay from the
Indemnification Account (as defined in the Escrow Agreement)
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(a) any amount in respect of any Selling Shareholder's obligation to
reimburse, indemnify, or otherwise make payment to Purchaser for any
damages, liabilities, fees, costs, or expenses arising out of or in
connection with any inaccuracy of any Stock Warranty made by that
Selling Shareholder, then, and in each such case, the amount paid by
that Selling Shareholder for purposes of clause (iii) of section 7A
shall include the amount so paid by Escrow Agent and
(b) any amount in respect of any Selling Shareholder's obligation to
reimburse, indemnify, or otherwise make payment to Purchaser for any
damages, liabilities, fees, costs, or expenses arising out of or in
connection with any inaccuracy of any Employee Benefit Warranty, then,
and in each such case, the amount paid by that Selling Shareholder for
purposes of clause (iv) of section 7A shall include the amount equal to
the product of (i) the amount so paid by Escrow Agent multiplied by
(ii) a fraction the numerator of which is that Selling Shareholder's
Ratable Indemnification Share of fourteen million seven hundred
thousand dollars ($14,700,000) and the denominator of which is fifteen
million dollars ($15,000,000).
7F. COOPERATION. Each party will cooperate with the other party to the fullest
extent reasonable in connection with any Action which the defense of which has
been assumed by the other party pursuant to this section.
8. INTERPRETATION. This Agreement shall be governed by the following provisions:
8.01 WAIVERS. Each party to this Agreement may from time to time in its
discretion grant waivers and consents in respect of this Agreement or
assent to amendments thereof, but no such waiver, consent, or amendment
shall be binding upon that party unless set forth in a writing (which
writing shall be narrowly construed) signed that party. No course of
dealing in respect of, nor any omission or delay in the exercise of,
any right, power, or privilege by any party to this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any further or other exercise thereof or of any other,
as each such right, power, or privilege may be exercised either
independently or concurrently with others and as often and in such
order as the party entitled to exercise that right, power, or
privilege, as the case may be, may deem expedient.
8.02 CUMULATIVE PROVISIONS. Each right, power, or privilege specified
or referred to in this Agreement is in addition to and not in
limitation of any other rights, powers, and privileges that any party
to this Agreement may otherwise have or acquire by operation of law, by
other contract, or otherwise.
8.03 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
bind and benefit each of the parties thereto and each such party's
successors and assigns, if any, provided, that without the prior
written consent of each other party to
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this Agreement, no party to this Agreement shall have the right to
assign any of its rights or delegate any of its duties under this
Agreement, and any assignment or delegation in contravention of this
subsection shall be null and void ab initio. Except for Company,
Selling Shareholders, Purchaser, and their respective successors and
assigns, there are no intended beneficiaries of this Agreement.
8.04 SURVIVAL. Each representation or warranty (other than any Employee
Benefit Warranty or any Stock Warranty) made or deemed made in or
pursuant to this Agreement shall survive the execution and delivery of
this Agreement and shall survive thereafter for a period of one (1)
year following the Initial Closing Date. Each Employee Benefit Warranty
shall survive until the time, if any, at which an applicable statute of
limitations would bar all Persons from maintaining any action (whether
at law or equity) against any Controlled Company or Purchaser (or any
of their respective successors and assigns, if any) arising out of or
in connection with the matters which are the subject of that warranty.
Each Stock Warranty, and each of the respective provisions of sections
2D, 7A, 7B, 7C, 7D, 7E, and 7F shall survive the execution and delivery
of this Agreement and the consummation of the transactions contemplated
by this Agreement Neither Company nor any Selling Shareholder will
assert as a defense to any claim made or action brought by Purchaser
for a breach of any representation or warranty made in or pursuant to
this Agreement that Purchaser did not reasonably rely upon that
representation or warranty, as the case may be, because of any
diligence of, investigation by, or information in the possession of,
Purchaser at any time.
8.05 CAPTIONS. The captions to the sections and subsections of this
Agreement and the table of contents, if any, are inserted for
convenience only and shall be ignored in interpreting the provisions
thereof.
8.06 SUBSECTIONS. Each reference to a section includes a reference to
all subsections thereof (i.e., those having the same character or
characters to the left of the decimal point) except where the context
clearly does not so permit.
8.07 SEVERABILITY. If any provision in this Agreement shall be or
become illegal or unenforceable in any case, then that provision shall
be deemed modified in that case so as to be legal and enforceable to
the maximum extent permitted by law while most nearly preserving its
original intent, and in any case the illegality or unenforceability of
that provision shall affect neither that provision in any other case
nor any other provision.
8.08 ACCOUNTING TERMS. Any accounting term used in Agreement shall have
the meaning ascribed thereto by generally accepted accounting
principles as in effect on the date hereof, subject, however, to such
modification, if any, as may be provided in this Agreement.
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8.09 GOVERNING LAW. This Agreement shall be governed by the law
(excluding conflict of laws rules) of the State of New York.
8.10 INTEGRATION. This Agreement sets forth the entire agreement of the
parties as to the subject matter of this Agreement, and may not be
contradicted by evidence of any agreement or statement unless made in a
writing (which writing shall be narrowly construed) signed by the party
to be charged with having made such agreement or statement, as the case
may be, contemporaneously with or after the execution and delivery of
this Agreement.
8.11 NOTICES AND OTHER COMMUNICATIONS. Each notice, demand, or other
communication to a party pursuant to this Agreement shall be in writing
and shall be deemed received by that party upon the earliest to occur
of
(a) the date of that party's actual receipt thereof,
regardless of the method of delivery,
(b) the fifth (5th) day following the date upon which that
notice, demand, or other communication, as the case may be,
shall have been mailed by certified or registered mail to that
party at the address of that party set opposite that party's
signature below (or any other address of which that party
shall have given notice to each other party after the
execution and delivery of this Agreement), whether or not
actually received by that party.
Without limiting the generality of the foregoing, each, notice, demand,
or other communication to a Selling Shareholder shall be deemed to have
been received by that Selling Shareholder when that notice, demand, or
other communication, as the case may be, is deemed to have been
received by John J. Leehy III ("SELLING SHAREHOLDER REPRESENTATIVE").
Selling Shareholder Representative hereby irrevocably accepts Selling
Shareholder Representative's appointment as each Selling Shareholder's
agent for the purpose of receiving any notice, demand, or other
communication to be given by Purchaser pursuant to this Agreement, and
Selling Shareholder Representative hereby agrees to give each Selling
Shareholder a timely and appropriate copy of any notice, demand, or
other communication that is received by Selling Shareholder
Representative pursuant to or otherwise in connection with this
Agreement. Each Selling Shareholder hereby irrevocably appoints Selling
Shareholder Representative as that Selling Shareholder's agent for the
purpose of receiving any notice, demand, or other communication to be
given by Purchaser to that Selling Shareholder, and each Selling
Shareholder hereby agrees to give Selling Shareholder Representative a
timely and appropriate copy of any notice, demand, or other
communication that is received by that Selling Shareholder pursuant to
or otherwise in connection with this Agreement. Accordingly, Purchaser
shall be entitled to assume that any notice, demand, or other
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<PAGE> 45
communication deemed received pursuant to this Agreement by any Selling
Shareholder has been received by all Selling Shareholders.
8.12 IMMEDIATE U. S. FUNDS. Any reference to money is a reference to
lawful money of the United States of America which, if in the form of
credits, shall be in immediately available funds.
9. DEFINITIONS. As used in this Agreement, except where the context clearly
requires otherwise,
"ACCOUNT" means any right to payment for goods sold or leased or for
services rendered which is not evidenced by an instrument or chattel
paper, whether or not it has been earned by performance, and includes,
without limitation, all rights to payment earned or unearned under a
charter or other contract involving the use or hire of a vessel and all
rights incident to the charter or contract;
"ACQUISITION TRANSACTION" means (a) a merger or consolidation, or
similar transaction, involving a Controlled Company, (b) a purchase,
lease, or other acquisition of all or substantially all of the assets
of any Controlled Company, or (c) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing more than fifty percent (50%) of
the issued and outstanding capital securities or voting power of any
Controlled Company;
"ACTION" means action, claim, counterclaim, crossclaim, proceeding, or
suit, whether at law or in equity, whether sounding in tort, contract,
or otherwise;
"AFFILIATE" means, when used with reference to any Person (the
"subject"), a Person that is in control of, under the control of, or
under common control with, the subject, the term "control" meaning the
possession, directly or indirectly, of the power to direct the
management or policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise;
"AGREEMENT" means this Agreement and includes each amendment, if any,
to this Agreement;
"BANKING DAY" means any day (other than any Saturday, Sunday or legal
holiday) on which the main office of National City Bank of Kentucky at
Louisville, Kentucky is open to the public for carrying on
substantially all of its banking functions;
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and all rule and regulations promulgated thereunder, as in effect
from time to time;
"COMPANY" is defined in the First paragraph of this Agreement;
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"COMPANY STOCK" means, collectively, the Company Non-Voting Stock and
the Company Voting Stock;
"COMPANY NON-VOTING STOCK" is defined in paragraph B of the
introduction of this Agreement;
"COMPANY VOTING STOCK" is defined in paragraph A of the introduction of
this Agreement;
"CONTROLLED COMPANY" means Company or any Subsidiary of Company;
"CONSTITUENT DOCUMENT" means (a) any articles or certificate of
incorporation, articles or certificate of organization, by-laws or code
of regulations, close corporation agreement or any similar document or
agreement, as applicable, relating to the organization of, or
regulation of the internal affairs of, any Controlled Company, (b) all
other agreements or writings relating to the regulation of any aspect
of the internal affairs of any Controlled Company, or the relations of
the shareholders of any Controlled Company among themselves, as each
has been amended from time to time up to and including the date of this
Agreement, and (c) all certificates of fictitious name, registration
applications, certificates of good standing, and other applications,
certificates, registrations, and writings issued by or filed with any
Secretary of State or other governmental official, office, or agency
concerning the status or qualification to do business of any Controlled
Company, as the same has been amended from time to time up to and
including the date of this Agreement;
"DIVIDEND" means a payment made, liability incurred, or other
consideration given by any Person for the purchase, acquisition,
redemption or retirement of any capital stock of that Person or as a
dividend, return of capital, or other distribution in respect of that
Person's capital stock;
"EMPLOYEE PLAN" means any employee benefit plan as defined in Section
3(3) of ERISA or any similar provision of any applicable Law;
"EMPLOYEE BENEFIT WARRANTY" means (a) any representation or warranty
made in the first two sentences of subsection 5A.25, in the second
sentence of clause (d) of subsection 5A.25, or in any of clauses (a),
(e), (f), (g), (h), (i), (k), or, (m) of subsection 5A.25 and (b) any
statement made in the certificate delivered pursuant to subsection
4B.02, to the extent that such statement affirms that any
representation or warranty referred to in the next preceding clause (a)
would, if made as of the Initial Closing Date, be true and complete on
that date;
-45-
<PAGE> 47
"ENVIRONMENTAL LAW" means the Clean Air Act (42 USC 7401 et seq.),
Comprehensive Environmental Response, Compensation, and Liability Act
(42 USC 9601 et seq.), the Hazardous Material Transportation Act (49
USC 1801 et seq.), the Resource Conservation and Recovery Act (42 USC
6901 et seq.), the Federal Water Pollution Control Act (33 USC 1251 et
seq.), the Toxic Substances Control Act (15 USC 2601 et seq.) and the
Occupational Safety and Health Act (29 USC 651 et seq.), as such laws
have been or hereafter may be amended, and the regulations promulgated
pursuant thereto, and any and all similar federal, state, or local laws
and the regulations promulgated pursuant thereto;
"ESCROW AGENT" is defined in subsection 3A.02;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
"ESCROW AGREEMENT" is defined in subsection 3B.06;
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time;
"GAAP means generally accepted accounting principles applied in a
manner consistent with those used in the most recent fiscal year-end
financial statements referred to in subsection 3B.03;
"HAZARDOUS MATERIAL" means any chemical, material, or substance which
could be detrimental to animal health, human health, vegetation, or the
environment, which is, or the disposal, manufacture, Release, storage,
or transport of which is, or exposure to which is, prohibited,
restricted, or otherwise regulated under any Environmental Law;
"INDEMNIFIABLE ACTION" is defined in section 7C;
"INDEMNIFIABLE EVENT" means a Purchaser Indemnifiable Event or a Seller
Indemnifiable Event, as the case may be;
"INDEMNIFICATION AMOUNT" means an amount equal to fourteen million
seven hundred thousand dollars ($14,700,000);
"INDEMNIFICATION CLAIM CERTIFICATE" shall have the meaning ascribed
thereto in the Escrow Agreement;
"INDEMNITEE" means a Purchaser Indemnitee or a Seller Indemnitee, as
the case may be;
"INDEMNITOR" is defined in section 7C;
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<PAGE> 48
"INITIAL CLOSING" is defined in section 3A;
"INITIAL CLOSING DATE" is defined in section 3A;
"INITIAL CLOSING DATE BALANCE SHEET" is defined in subsection 3B.05;
"INITIAL NUMBER" means, with respect to the shares of Company Stock
owned by any Initial Selling Shareholder, that number of shares which,
according to SCHEDULE 5A.04 to this Agreement, will be sold by that
Selling Shareholder on October 31, 1997;
"INITIAL SELLING SHAREHOLDER" means any Selling Shareholder which,
according to SCHEDULE 5A.04 to this Agreement, will sell any shares of
Company Stock on October 31, 1997;
"IRS" means the Internal Revenue Service of the United States of
America;
"KEY EMPLOYEE" means each of John J. Leehy, III and Gregory W.
Sahrmann;
"KEY SELLING SHAREHOLDER" means any Selling Shareholder that is not an
individual, and each of John J. Leehy, III, Gregory W. Sahrmann, and
Bill B. Blakey;
"MATERIAL CONTRACT" is defined in subsection 5A.12;
"MATERIAL PERMIT" means (a) each license referred to in subsection
5A.13 and (b) any permit necessary for the conduct of the business of
any Controlled Company;
"MOST RECENT FINANCIAL STATEMENTS" means the Companies' most recent
financial statements that are referred to in subsection 3B.03;
"OFFERED MONETARY SETTLEMENT" is defined in subsection 7C.04;
"ORDINARY COURSE OF BUSINESS" means, with respect to any Controlled
Company, the ordinary course of business of that Controlled Company,
consistent with its past custom and practice and taking into
consideration, among other factors, amount, frequency, materiality, and
quantity;
"PERMITTED LIEN" means
(i) any tax lien, or any lien securing workers' compensation
or unemployment insurance obligations, or any mechanic's,
carrier's or landlord's lien, or any lien arising under ERISA,
or any security interest arising under article four (Bank
deposits and collections) or five (letters of credit) of the
Uniform Commercial
-47-
<PAGE> 49
Code, or any similar security interest or other lien, except
that this clause (i) shall apply only to security interests
and other liens arising by operation of law (whether statutory
or common law) and in the ordinary course of business and
shall not apply to any security interest or other lien that
secures any indebtedness for borrowed money or any Guaranty
thereof or any obligation that is in material default in any
manner (other than any default contested in good faith by
timely and appropriate proceedings effective to stay
enforcement of the security interest or other lien in
question),
(ii) zoning or deed restrictions, public utility easements,
minor title irregularities and similar matters having no
material adverse effect on the use of any real property as it
is being used by any Controlled Company on the date of this
Agreement, or
(iii) any lien securing or given in lieu of surety, stay,
appeal or performance bonds, or securing performance of
contracts or bids (other than contracts for the payment of
money borrowed), or deposits required by law or governmental
regulations or by any court order, decree, judgment or rule or
as a condition to the transaction of business or the exercise
of any right, privilege or license, except that this clause
(iii) shall not apply to any lien or deposit securing an
obligation that is in material default in any manner (other
than any default contested in good faith by timely and
appropriate proceedings effective to stay enforcement of the
security interest or other lien in question;
"PERSON" means an individual or entity of any kind, including, without
limitation, any association, company, cooperative, corporation,
partnership, trust, governmental body, or any other form or kind of
entity;
"PRE-CHARGE ESTIMATED NET INCOME" means the difference of (a) the
mutually agreed upon estimated net income of Company calculated for the
period from the Initial Closing Date up to and including the day
immediately prior to the Secondary Closing Date, and calculated as
though the transaction contemplated by this Agreement had not occurred,
which will inherently exclude adjustments for items such as purchase
accounting prescribed by Accounting Principles Board Opinion No. 16,
"Business Combinations", and other costs arising out of the change in
control of Company, less (b) amount equal to $500,000;
"PRE-CHARGE NET INCOME" means ACTUAL net income of Company calculated
for the period from the Initial Closing Date up to and including the
day immediately prior to the Secondary Closing Date, and calculated as
though the transaction contemplated by this Agreement had not occurred,
which will inherently exclude adjustments for items such as purchase
accounting prescribed by Accounting Principles Board Opinion No. 16,
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<PAGE> 50
"Business Combinations," and other costs arising out of the change in
control of Company;
"PRE-CHARGE NET INCOME CERTIFICATE" is defined in subsection 2C.01;
"PURCHASER" is defined in the first paragraph of this Agreement;
"PURCHASER INDEMNIFIABLE EVENT" is defined in section 7A;
"PURCHASER INDEMNITEE" means Purchaser, or any shareholder, director,
officer, employee, or agent of Purchaser, or any of the respective
successors or assigns of any of the foregoing;
"PURCHASER'S ACCOUNTING FIRM" is defined in subsection 2C.01;
"RELEASE" means any deposit, discharge, dispersal, disposal, emission,
injection, leaching, leaking, migration, transport, or other movement
through any medium, whether indoor or outdoor, whether ambient air,
ground water, surface water, soil, or subsurface strata;
"SECONDARY NUMBER" means, with respect to the shares of Company Stock
owned by any Secondary Selling Shareholder, that number of shares
which, according to SCHEDULE 5A.04 to this Agreement, will be sold by
that Selling Shareholder on January 2, 1998;
"SECONDARY CLOSING" is defined in section 3D of this Agreement;
"SECONDARY CLOSING DATE" is defined in section 3D of this Agreement;
"SECONDARY SELLING SHAREHOLDER" means any Selling Shareholder which,
according to Schedule 5A.04 to this Agreement, will sell any shares of
Company Stock on January 2, 1998;
"SELLER INDEMNIFIABLE EVENT" is defined in section 7B;
"SELLER INDEMNITEE" means any Selling Shareholder or any of the
successors or assigns of any of that Selling Shareholder;
"SELLING SHAREHOLDER" and "SELLING SHAREHOLDERS" are defined,
respectively, in the first paragraph of this Agreement;
"SELLING SHAREHOLDER REPRESENTATIVE" is defined in subsection 8.11;
-49-
<PAGE> 51
"SELLING SHAREHOLDERS' ACCOUNTING FIRM" is defined in subsection 2C.01;
"SELLING SHAREHOLDER'S RATABLE INDEMNIFICATION SHARE" means, with
respect to Selling Shareholder, on any date, the percentage in effect
on that date, set forth to the right of that Selling Shareholder's name
in the column captioned "Selling Shareholders' Ratable Indemnification
Share" set forth in Schedule 5A.04 to this Agreement;
"SELLING SHAREHOLDER'S RATABLE NET INCOME SHARE" means, with respect to
Selling Shareholder the percentage set forth to the right of that
Selling Shareholder's name in the column captioned "Selling
Shareholders' Ratable Net Income Share" set forth in SCHEDULE 5A.04 to
this Agreement;
"SELLING SHAREHOLDER'S RATABLE SHARE" means, with respect to Selling
Shareholder, on any date, the percentage in effect on that date, set
forth to the right of that Selling Shareholder's name in the column
captioned "Selling Shareholders' Ratable Share" set forth in SCHEDULE
5A.04 to this Agreement;
"SPECIAL PURCHASER INDEMNIFIABLE EVENT" means, with respect to any
Selling Shareholder (a) any inaccuracy of any Stock Warranty with
respect to that Selling Shareholder or any Employee Benefit Warranty
(b) any failure or omission to perform or observe any agreement
contained in section 2A, subsection 3A.01, or subsection 3D.01 that is
on that Selling Shareholder's part to be complied with, or (c) any
Purchaser Indemnifiable Event described in clause (c) of section 7A;
"STOCK WARRANTY" means, with respect to any Selling Shareholder, any
representation or warranty made by that Selling Shareholder in section
5B;
"SUBSIDIARY" means a corporation or other business entity if shares
constituting a majority of its outstanding capital stock (or other form
of ownership) or constituting a majority of the voting power in any
election of directors (or shares constituting both majorities) are (or
upon the exercise of any outstanding warrants, options or other rights
would be) owned directly or indirectly at the time in question by the
corporation in question or another Subsidiary of that corporation or
any combination of the foregoing;
"TAX" means any tax, including, without limitation, any income, gross
receipts, sales, use, ad valorem, transfer, franchise, withholding,
payroll, employment, excise, occupation, premium or property tax,
together with any interest, any penalties, additions to any such tax or
additional amounts imposed by any taxing authority, federal, state,
local, or foreign;
"TAX RETURN" is defined in subsection 5A.09;
-50-
<PAGE> 52
"THIRD ACCOUNTING FIRM" is defined in subsection 2C.01;
"WARN ACT" means the Worker Adjustment and Retraining Notification Act
of 1988, as amended;
and the foregoing definitions shall be applicable to the respective plurals of
the foregoing defined terms.
10A. EXECUTION AND DELIVERY. This Agreement may be executed and delivered in one
or more counterparts, each of which shall be deemed an original, but all of
which shall, taken together, constitute but one agreement. Any party named in
this Agreement may deliver an executed signature page to this Agreement by
telecopier transmission to any other party, and the party so delivering that
signature page shall be deemed to have executed and delivered that signature
page with the intent to be bound by this Amendment.
10B. TERMINATION. This Agreement may be terminated only as follows:
10B.01 BY MUTUAL AGREEMENT. At any time prior to the Initial Closing
Date, this Agreement may be terminated by the mutual agreement of all
parties.
10B.02 BY COMPANY ON OR AFTER NOVEMBER 30, 1997. At any time on or
after November 30, 1997, this Agreement may be terminated by notice
given to Purchaser by Company, in the event that the Initial Closing
shall not have occurred and
(a) any representation or warranty made in subsection 5C, or
any statement made in the certificate to be delivered by
Purchaser pursuant to subsection 4A.02, shall have been false
or erroneous in any respect when made,
(b) Purchaser shall fail or omit to perform and observe any
agreement contained in this Agreement that is on its part to
be complied with, and that failure or omission shall not have
been fully corrected within ten (10) days after the giving of
written notice to Purchaser by Company that it is to be
remedied, or
(c) any condition precedent contained in section 4A shall not
have been satisfied or waived.
10B.03 BY PURCHASER ON OR AFTER NOVEMBER 30, 1997. At any time on or
after November 30, 1997, this Agreement may be terminated by notice
given to Selling Shareholder Representative by Purchaser, in the event
that the Initial Closing shall not have occurred and
-51-
<PAGE> 53
(a) any representation or warranty made in section 5A, any
representation or warranty made in section 5B, or any
statement made in the certificate to be delivered by Company
pursuant to subsection 4B.02, shall have been false or
erroneous in any respect when made,
(b) Selling Shareholders and Company or any of them shall fail
or omit to perform and observe any agreement contained in this
Agreement that is on the part of Selling Shareholders and
Company or any of them to be complied with, and that failure
or omission shall not have been fully corrected within ten
(10) days after the giving of written notice to Selling
Shareholder Representative by Purchaser that it is to be
remedied, or
(c) any condition precedent contained in sections 4B shall not
have been satisfied or waived.
10B.04 BY COMPANY OR PURCHASER PRIOR TO INITIAL CLOSING DATE. At any
time after October 15, 1997, but prior to the Initial Closing, this
Agreement may be terminated by Company or Purchaser, in either case by
the giving of notice to the other, if those parties shall not have
agreed in writing, on or before October 15, 1997, on the aggregate
amount of the imbalances, if any, in Company's cash settlement accounts
or if the parties agree to the aggregate amount of the imbalances but
are unable to agree on the amount of the imbalances to be credited to
Purchaser.
10C. ARBITRATION. Any claim or controversy arising out of or in connection with
this Agreement or the breach of any provision thereof, including, without
limitation, any claim or controversy relating to the construction, enforcement,
or validity of any provision of this Agreement (including, without limitation,
this section or any part thereof) or of the entire Agreement, or any claim that
all or any part of this Agreement (including, without limitation, this section
or any part thereof) unenforceable, void, or voidable, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. Unless otherwise agreed
by all parties to this Agreement and Purchaser, all arbitration proceedings
pursuant to this section shall be conducted in the City of Cleveland, Ohio. For
purposes of any applicable statute of limitations, the commencement of
arbitration pursuant to this section shall be deemed to be the equivalent of the
commencement of a lawsuit, and any claim or controversy which may be arbitrated
under this section shall be subject to any applicable statute of limitations.
The arbitrators shall have authority to decide whether any such claim or
controversy is barred by the applicable statute of limitations and, if the claim
or controversy in question is so barred, to dismiss the arbitration thereof on
that basis. The arbitrators shall have no authority to award punitive damages or
any other damages not measured by the prevailing party's actual damages, and may
not, in any event, make any award, finding, or ruling that does not conform to
the terms and conditions of this Agreement. The arbitrators shall award to the
prevailing party, if
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<PAGE> 54
any, as determined by the arbitrators, all of its costs and fees. "COSTS AND
FEES" means, for purposes of this section, all reasonable pre-award expenses of
the arbitration, including, without limitation, administrative fees,
arbitrators' fees, out-of-pocket expenses (such as expenses for copying and
telephone charges), travel expenses, witness fees, and attorney fees.
[Signature Page(s) to Follow]
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<PAGE> 55
--------------------------------------------------------------------
S T O C K P U R C H A S E A G R E E M E N T
by and among
All of the Shareholders (each a "Selling Shareholder")
of FA Holdings, Inc.
and
FA Holdings, Inc. ("Company")
and
National Processing Company ("Purchaser")
August 18, 1997
--------------------------------------------------------------------
--------------------------------------------------------------------
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<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1A. CROSS-REFERENCE................................................. 1
2A. ISSUANCE AND SALE OF COMPANY STOCK.............................. 1
2A.01 ISSUANCE OF COMPANY NON-VOTING STOCK........................ 1
2A.02 SALE OF VOTING STOCK........................................ 2
2B CONSIDERATION FOR COMPANY STOCK................................. 2
2B.01 CONSIDERATION. INITIAL CLOSING ............................. 2
2B.02 CONSIDERATION. SECONDARY CLOSING............................ 3
2C. RECOURSE TO SELLING SHAREHOLDERS................................
2D. BREAK-UP FEE.................................................... 4
3A. INITIAL CLOSING................................................. 5
3A.01 COMPANY NON-VOTING STOCK.................................... 5
3A.02 INITIAL CLOSING CONSIDERATION............................... 6
3B. INITIAL CLOSING-DELIVERIES. SELLING SHAREHOLDERS AND COMPANY.... 6
3B.01 CONSTITUENT DOCUMENTS....................................... 6
3B.02 LEGAL OPINION............................................... 6
3B.03 FINANCIAL STATEMENTS........................................ 6
3B.04 NOTICES, APPROVALS, AND CONSENTS............................ 7
3B.05 EMPLOYMENT, NON-COMPETITION, AND NON-SOLICITATION
AGREEMENTS........................................................ 7
3B.06 ESCROW AGREEMENTS........................................... 8
3B.07 OTHER ACTS.................................................. 8
3C INITIAL CLOSING DELIVERIES. PURCHASER........................... 8
3C.01 RESOLUTIONS/INCUMBENCY...................................... 8
3C.02 NOTICES, APPROVALS, AND CONSENTS............................ 8
3D. SECONDARY CLOSING............................................... 8
3D.01 COMPANY VOTING STOCK........................................ 9
3D.02 SECONDARY CLOSING CONSIDERATION............................. 9
3E. SECONDARY CLOSING DELIVERIES. SELLING SHAREHOLDERS.............. 9
3E.01 SECONDARY CLOSING DATE BALANCE SHEET........................ 10
3E.02 WAIVER OF OPTIONS AND RIGHTS TO ACQUIRE..................... 10
3E.03 OTHER ACTS.................................................. 10
4A. CONDITIONS PRECEDENT TO INITIAL CLOSING: COMPANY................ 10
4A.01 INITIAL CLOSING DELIVERIES: PURCHASER....................... 10
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<PAGE> 57
4A.02 CERTIFICATE OF PURCHASER AS OF INITIAL CLOSING DATE.......... 10
4B. CONDITIONS PRECEDENT TO INITIAL CLOSING......................... 10
4B.01 INITIAL CLOSING DELIVERIES: SELLING SHAREHOLDERS............ 11
4B.02 CERTIFICATE OF SELLING SHAREHOLDERS AS OF INITIAL CLOSING
DATE.............................................................. 11
4B.03 ELECTION OF PURCHASER REPRESENTATIVES....................... 11
4C. CONDITIONS PRECEDENT TO SECONDARY CLOSING: SELLING
SHAREHOLDERS........................................................ 11
4D. CONDITIONS PRECEDENT TO SECONDARY CLOSING: PURCHASER............ 11
4D.01 SECONDARY CLOSING DELIVERIES: SELLING SHAREHOLDERS.......... 11
4D.02 CERTIFICATE OF SELLING SHAREHOLDERS AS OF SECONDARY CLOSING
DATE.............................................................. 11
5A. REPRESENTATIONS AND WARRANTIES: COMPANY AND SELLING
SHAREHOLDERS........................................................ 12
5A.01 EXISTENCE................................................... 12
5A.02 NATURE OF BUSINESS.......................................... 12
5A.03 CAPITALIZATION.............................................. 12
5A.04 SHAREHOLDERS................................................ 13
5A.05 NO NOTICES, APPROVALS, OR CONSENTS REQUIRED................. 13
5A.06 AUTHORITY................................................... 14
5A.07 NO CONFLICT................................................. 14
5A.08 LITIGATION.................................................. 15
5A.09 TAXES....................................................... 15
5A.10 TITLE....................................................... 16
5A.11 FRANCHISES, LICENSES, AND INTELLECTUAL PROPERTY............. 16
5A.12 MATERIAL CONTRACTS.......................................... 16
5A.13 MATERIAL PERMITS............................................ 17
5A.14 REAL PROPERTY............................................... 18
5A.15 ELIGIBLE RECEIVABLES........................................ 18
5A.16 BANK ACCOUNTS............................................... 19
5A.17 INSURANCE................................................... 19
5A.18 UNION CONTRACTS, LABOR AND EMPLOYEES........................ 19
5A.19 INTERESTS, INC CLIENTS, CUSTOMERS, ETC...................... 19
5A.20 PRODUCT AND SERVICE WARRANTY LIABILITY...................... 20
5A.21 FINANCIAL STATEMENTS........................................ 20
5A.22 DIVIDENDS................................................... 20
5A.23 LAWFUL OPERATIONS........................................... 21
5A.24 ENVIRONMENTAL MATTERS....................................... 21
5A.25 EMPLOYEE BENEFIT PLANS, WARN ACT............................ 21
5A.26 NO BROKERS' OR INSIDERS FEES................................ 24
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<PAGE> 58
5A.27 DISCLOSURE.................................................. 25
5B. REPRESENTATIONS AND WARRANTIES: PURCHASER....................... 27
5B.01 EXISTENCE................................................... 27
5B.02 NOTICES, APPROVALS, OR CONSENTS REQUIRED: PURCHASER......... 27
5B.03 AUTHORITY................................................... 27
5B.04 NO CONFLICT................................................. 28
6A. COVENANTS OF SELLING SHAREHOLDERS............................... 29
6A.01 NO NOTICES, APPROVALS, OR CONSENTS REQUIRED................. 29
6A.02 NO EXTRAORDINARY TRANSACTIONS............................... 29
6A.03 FINANCIAL STATEMENTS........................................ 32
6A.04 FULL ACCESS................................................. 33
6A.05 NOTICE OF DEVELOPMENTS...................................... 33
6A.06 EXCLUSIVITY................................................. 34
6A.07 CONSOLIDATED EBITDA......................................... 34
6A.08 SERVICE AGREEMENT........................................... 35
6A.09 FURTHER ASSURANCE........................................... 35
6B. COVENANTS OF PURCHASER.......................................... 35
7A. INDEMNITY: PURCHASER HIDDENITES................................. 35
7B. INDEMNITY: SELLING INDEMNITEES.................................. 37
7C. DEFENSE OF CLAIMS............................................... 37
7C.01 INDEMNITOR'S RIGHTS TO ASSUME DEFENSE....................... 37
7C.02 EFFECT OF INDEMNITOR'S ELECTION TO ASSUME DEFENSE........... 38
7C.03 EFFECT OF INDEMNITOR'S ELECTION NOT TO ASSUME DEFENSE....... 38
7C.04 AUTHORITY TO SETTLE......................................... 39
7D. MATERIALITY THRESHOLD........................................... 39
7E. COOPERATION..................................................... 39
7F. CONTRIBUTION AMONG SELLING SHAREHOLDERS......................... 40
8. INTERPRETATION................................................... 40
8.01 WAIVERS..................................................... 40
8.02 CUMULATIVE PROVISIONS....................................... 40
8.03 SUCCESSORS AND ASSIGNS...................................... 40
8.04 SURVIVAL.................................................... 41
8.05 CAPTIONS.................................................... 41
8.06 SUBSECTIONS................................................. 41
8.07 SEVERABILITY................................................ 41
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<PAGE> 59
8.08 ACCOUNTING TERMS.............................................41
8.09 GOVERNING LAW................................................41
8.10 INTEGRATION..................................................41
8.11 NOTICES AND OTHER COMMUNICATIONS............................ 42
8.12 IMMEDIATE U.S. FUNDS.........................................42
9. DEFINITIONS.......................................................42
DIVIDEND..........................................................44
NET INCOME........................................................48
PERSON............................................................49
10A. EXECUTION AND DELIVERY..........................................51
10B. TERMINATION.....................................................51
10B.01 BY MUTUAL AGREEMENT.........................................51
10B.02 BY PURCHASER OR SELLING SHAREHOLDERS........................51
10B.03 BY PURCHASER................................................51
10B.04 BY SELLING SHAREHOLDERS.....................................52
10.C ARBITRATION.....................................................52
</TABLE>
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<PAGE> 1
NATIONAL PROCESSING, INC.
EXHIBIT 11-STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average Shares Outstanding 50,575 47,597 50,575 44,610
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 189 0 105 0
--- - --- -
Total 50,764 47,597 50,680 44,610
------- ------- ------- -------
Net income $ 7,637 $ 7,604 $15,164 $20,815
------- ------- ------- -------
Per share amount $ 0.15 $ 0.16 $ 0.30 $ 0.47
------- ------- ------- -------
FULLY DILUTED
- -------------
Average shares outstanding 50,575 47,597 50,575 44,610
Net effect of dilutive stock options-
basd on the treasury stock method
using the year-end market price,
if higher than average market price 247 0 137 0
--- - --- -
Total 50,822 47,597 50,712 44,610
------- ------- ------- -------
Net income $ 7,637 $ 7,604 $15,164 $20,815
------- ------- ------- -------
Per share amount $ 0.15 $ 0.16 $ 0.30 $ 0.47
------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
THE PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,737
<SECURITIES> 109,408
<RECEIVABLES> 68,739
<ALLOWANCES> 0
<INVENTORY> 5,101
<CURRENT-ASSETS> 322,566
<PP&E> 130,731
<DEPRECIATION> 65,638
<TOTAL-ASSETS> 502,876
<CURRENT-LIABILITIES> 164,873
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 330,861
<TOTAL-LIABILITY-AND-EQUITY> 502,876
<SALES> 0
<TOTAL-REVENUES> 284,169
<CGS> 0
<TOTAL-COSTS> 207,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,378
<INCOME-TAX> 8,214
<INCOME-CONTINUING> 15,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,164
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>
