<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
---------------------
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File Number 1-1969
CERIDIAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-0278528
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8100 34th Avenue South
Minneapolis, Minnesota 55425
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Telephone No.: (612) 853-8100
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH
Common stock, par value $.50 REGISTERED:
New York Stock Exchange, Inc.;
The Chicago Stock Exchange; and
The Pacific Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of Ceridian as of February 28,
1999, excluding outstanding shares beneficially owned by executive officers and
directors of Ceridian, was $5,152,475,234.
The number of shares of Ceridian common stock outstanding as of February 28,
1999 was 144,101,748.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Stockholders of Registrant: Parts I & II
Portions of the Proxy Statement for Annual Meeting of Stockholders, May 20,
1999: Parts III and IV
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CERIDIAN CORPORATION
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THE STATEMENTS REGARDING CERIDIAN CORPORATION CONTAINED IN THIS RELEASE THAT
ARE NOT HISTORICAL IN NATURE, PARTICULARLY THOSE THAT UTILIZE TERMINOLOGY
SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS," "ANTICIPATES," "ESTIMATES,"
"BELIEVES" OR "PLANS," OR COMPARABLE TERMINOLOGY, ARE FORWARD-LOOKING
STATEMENTS BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS, AND ENTAIL VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
KNOWN TO CERIDIAN THAT COULD CAUSE SUCH MATERIAL DIFFERENCES ARE IDENTIFIED
IN THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION" UNDER THE CAPTION "CAUTIONARY FACTORS THAT COULD AFFECT
FUTURE RESULTS" ON PAGE 15 OF CERIDIAN'S 1998 ANNUAL REPORT TO STOCKHOLDERS,
WHICH IS INCORPORATED BY REFERENCE INTO PART II, ITEM 7 OF THIS REPORT.
ITEM 1. BUSINESS.
Ceridian Corporation ("Ceridian") was founded in 1957 and is
incorporated in Delaware. The principal executive office of Ceridian is
located at 8100 34th Avenue South, Minneapolis, Minnesota 55425, telephone
(612) 853-8100.
Ceridian operates exclusively in the information services industry.
Ceridian's information services businesses, which consist of its Human
Resource Services businesses ("HRS"), its Comdata subsidiary and its Arbitron
division, provide products and services to customers in the human resources,
transportation and media information markets. These businesses collect,
manage and analyze data and process transactions on behalf of customers,
report information resulting from such activities to customers, and provide
customers with related software applications and services. The
technology-based products and services of these businesses are typically
provided through long-term customer relationships that result in a high level
of recurring revenue.
HUMAN RESOURCE SERVICES.
The businesses comprising HRS offer a broad range of services and
software designed to help employers more effectively manage their work forces
and information that is integral to human resource processes. HRS' human
resource management products and services are provided through Ceridian
Employer Services, Ceridian Performance Partners, Centrefile and Usertech.
HRS' revenue for the years 1996, 1997 and 1998 was $490.3 million, $578.6
million and $700.3 million, respectively.
MARKETS. The market for human resource services covers a comprehensive
range of information management and employer/employee assistance services and
software. These products and services include transaction-oriented
administrative services and software products, primarily in areas such as
payroll processing, tax filing and benefits administration as well as
management support software and services in areas such as human resource
administration, regulatory compliance, employee training and employee
assistance programs.
The market for these products and services is expected to continue to
grow as organizations seek not only to reduce costs and improve productivity
by outsourcing administrative services and further automating internal
processes, but also to adapt to the increasing scope and complexity of laws
and regulations governing businesses and increasingly complicated work-life
issues faced by employers and employees.
<PAGE>
Ceridian classifies employers in the human resource services market into
three categories: small (fewer than 100 employees), medium (100 to 10,000
employees) and large (over 10,000 employees). Small employers in the human
resource services market tend to be relatively more price sensitive, to
require less customization or flexibility in product and service offerings,
and to switch more readily from one provider to another. Medium- and
large-sized employers' human resource management needs tend to be more
complex, and therefore often require more customization and flexibility in
products and services, greater integration among data processing systems and
a greater variety of products and services. Ceridian believes, however, that
with regard to any size employer, a provider of a transaction-based service,
such as payroll processing, or employee assistance and work-life services is
afforded attractive opportunities to complement that core service with
additional products and services that are natural adjuncts to that core
service and potentially important factors in revenue growth.
PRODUCTS AND SERVICES. HRS' human resource management products and
services include payroll processing services and software, tax filing
services, human resource information software, benefits administration
software, time and attendance solutions, recruiting and skills management
software, employee assistance and work-life programs, training and other
services. These products and services are provided in the U.S., Canada and
the United Kingdom through Ceridian Employer Services, Ceridian Performance
Partners, Centrefile and Usertech. Payroll processing and tax filing
services accounted for about 86% of HRS' 1998 revenue, with about 80% of 1998
payroll processing and tax filing revenue derived from the United States.
Payroll processing in the U.S. consists primarily of preparing and
furnishing employee payroll checks, direct deposit advices and supporting
journals and summaries, but does not involve the handling or transmission of
customer payroll funds. Ceridian also supplies quarterly and annual social
security, Medicare, and federal, state and local income tax withholding
reports required to be filed by employers and employees. Payroll tax filing
consists primarily of collecting funds for federal, state and local
employment taxes from customers based on payroll information provided by the
customers, remitting funds collected to the appropriate taxing authorities,
filing applicable returns, and handling related regulatory correspondence and
amendments. Payroll-related services are typically priced on a
fee-per-item-processed basis.
Revenue from payroll tax filing services in the U.S. also includes
investment income earned by Ceridian from tax filing deposits temporarily
held pending remittance on behalf of customers to taxing authorities.
Customer deposits are held in a fiduciary capacity in a tax filing trust
established by Ceridian. The trust invests primarily in high quality
collateralized short-term investments, top tier commercial paper, U.S.
Treasury and Agency securities, AAA rated asset-backed securities and
corporate securities rated A3/A- or better. The duration of investments is
carefully managed to meet the liquidity needs of the trust. About 62% of
1998 tax filing revenue was attributable to such investment income. Due to
the significance of this investment income, HRS' quarterly revenue and
profitability fluctuate as a result of changes in interest rates and in the
amount of tax filing deposits held. Because the volume of payroll items
processed increases in the first and fourth quarters of each year in
connection with employers' year-end reporting requirements, and because the
amount of tax filing deposits also tends to be greatest in the first quarter,
HRS' revenue and profitability tend to be greater in those quarters.
Payroll processing in the U.S. is conducted using Ceridian's proprietary
"Signature" software at 31 district offices located throughout the U.S..
Ceridian's payroll system allows customers to input their own payroll data
via personal computers, transmit the data on-line to Ceridian for processing,
retrieve reports and data files from Ceridian and print reports and, in
certain instances, payroll checks or direct deposit advices on site.
Customers can also input payroll data by telephone or batch transmittal, with
payroll checks and related reports prepared by Ceridian at one of its
district processing centers. Ceridian's payroll processing system also
interfaces with both customer and third-party transaction processing systems
to facilitate services
2
<PAGE>
such as direct deposit of payroll. Ceridian's tax filing services are
provided not only to employers who utilize Ceridian's payroll processing
service, but also to local and regional payroll processors.
Ceridian provides human resource information systems (HRIS) software
that runs in either Windows (*) or DOS environments and serves as a
"front-end" to Ceridian's Signature payroll processing system, allowing
customers to utilize a common database for both payroll and HRIS purposes.
This enables the customer to create a single database of employee information
for on-line inquiry, updating and reporting in payroll and other areas
important to human resource administration and management, such as employee
data tracking, government compliance, compensation analysis and benefits
administration. Ceridian also provides HRIS software for Microsoft operating
environments that incorporates open, industry standard technology, is
scalable from standalone applications to full client/server configurations,
and can be utilized with an existing interface as a front-end for Ceridian's
payroll processing and tax filing services. Ceridian introduced during 1998
versions of this software that will enable it to serve as a fully integrated
front-end to the Signature payroll processing system, as well as an
Internet/intranet version which will enable employees and managers to view
and modify various types of human resources information on-line.
In 1998, Ceridian introduced its Source 500 product, a fully integrated
HRIS, payroll, benefits, recruiting and employee self-service solution.
Because of the importance of being able to integrate Ceridian's payroll
processing and tax filing systems with other systems and applications
utilized by customers and potential customers, particularly third-party HRIS
applications, Ceridian has also developed interfaces to exchange
employee-related information between Ceridian's payroll system and the HRIS
systems of vendors, such as Oracle Corporation, SAP and PeopleSoft Inc.
In recent years, Ceridian has expanded its payroll processing and HRIS
software businesses outside of the U.S. through acquisitions. Approximately
17% of HRS' 1998 revenue was obtained from customers outside of the U.S.
Ceridian's Centrefile Limited subsidiary provides mainframe-based payroll
processing services and HRIS software in the United Kingdom. Centrefile's
services do not involve the handling or transmission of customer payroll
funds. As a result of the acquisition of the payroll processing business of
the Toronto-Dominion Bank in January 1998 and the Comcheq payroll processing
business of the Canadian Imperial Bank of Commerce in March 1998, Ceridian
handles payroll as well as tax filing funds for its Canadian customers.
Ceridian collects payroll and payroll tax amounts from customers and remits
tax amounts to applicable governmental authorities and makes direct deposits
of payroll amounts to employees' bank accounts. As a result, revenue from
Ceridian's payroll processing services in Canada also includes investment
income received from temporarily holding these amounts. The Canadian trust
invests in securities issued by the government and provinces of Canada,
highly rated Canada banks and corporations, asset backed trusts and
mortgages. Ceridian earns income from the trust and charges fees for
services similar to those provided in the U.S. About 32% of the 1998 revenue
of these Canadian businesses was attributable to such investment income.
Ceridian's Small Business Solutions provides Internet payroll
processing, tax filing, unemployment compensation management and related
services, primarily for small employers located in the Mid-Atlantic States.
Ceridian also provides advanced time and attendance software, including a
client/server version which complements a wide variety of HRIS and payroll
systems, and a series of inter-related software applications that allow
employees and managers direct access to employment-related information
through telephones, touch screen kiosks, personal computers and
Internet/intranet technologies.
- ----------------------------------
(*) "Windows" is a trademark of Microsoft Corporation.
3
<PAGE>
HRS also includes Ceridian businesses that provide a variety of employee
assistance, work-life balance, management support and training products and
services. Ceridian Performance Partners provides services to help
organizations address workplace effectiveness issues and improve employee
recruitment, retention and productivity and reduce absenteeism. Staff
consultants provide confidential assistance 24 hours a day to customers'
employees to help them address issues ranging from everyday matters to crisis
situations. Supporting these consultants are research and subject matter
experts who provide specialized expertise in areas, such as parenting/child
care, elder care, adult disabilities, addiction disorders, mental health and
financial, legal, managerial/supervisory and education/schooling issues. In
November 1998, Ceridian acquired for Ceridian Performance Partners the
work-life services business of Work/Family Directions, Inc. The acquisition
doubled the number of Ceridian Performance Partners' employees and the number
of client employees and family members served.
Ceridian's Usertech provides customized end-user training and support
programs to organizations implementing new systems. Services provided by
Usertech include classroom and computer-based training, print-based and
on-line user guides and reference, and marketing communications programs.
SALES AND MARKETING. Payroll processing, tax filing and human resource
management software and services are marketed in the U.S. through a direct
sales force operating through about three dozen offices located throughout
the U.S. Marketing relationships have been established with banks, accounting
firms and insurance companies pursuant to which these products and services
are offered to the business clients of these entities. The most significant
source of customer leads for these transaction-based products and services
are referrals from these marketing relationships and existing customers. The
other HRS businesses, including operations in the United Kingdom and Canada,
utilize their own direct sales forces. Customer leads for the products and
services of these businesses are generally obtained through referrals, trade
shows, product demonstration seminars, third party resellers and direct sales
efforts.
HRS' customer base covers a wide range of industries and markets, and no
single customer represented more than 1% of HRS' 1998 revenue. HRS' products
and services are provided under written license or service agreements, with
contracts for repetitive services generally terminable upon relatively short
notice.
The HRS businesses utilize cooperative marketing relationships with
other companies offering products or services that complement those of the
HRS businesses as well as informal marketing alliances with human resource
consulting firms, and are exploring similar cooperative arrangements with
other software, insurance and human resource services providers. During
1998, Ceridian announced an alliance with Aetna U.S. Healthcare to develop
and market an Internet-based total benefits and human resources/payroll
solution for middle-market employers. HRS is also seeking to further
integrate and coordinate the sales and marketing efforts of its businesses
and to sell a greater variety of its products and services to the customers
of its various businesses.
COMPETITION. The human resource services industry is highly
competitive. Competition comes from national, regional and local third party
transaction processors, as well as from software companies, consulting firms
and internally developed and operated systems and software.
The majority of all payroll processing and tax filing in the U.S.,
Canada and the United Kingdom is supported in-house, with the remainder
supported by third party providers. In the U.S., Automatic Data Processing,
Inc. ("ADP") is the largest third party provider, with Ceridian and Paychex,
Inc. ("Paychex") comprising the other two large, national providers. ADP
serves all sizes of employers, while Paychex focuses on small employers.
Other third party payroll and tax
4
<PAGE>
filing providers are generally regional and local competitors, although
larger, national providers of benefits administration or 401(k) processing
services may contemplate expansion into outsourced payroll processing. In
both the United Kingdom and Canada, Ceridian believes that its respective
subsidiaries are the largest outsourced payroll processing providers in terms
of revenue, in each case competing with several other national providers,
including a subsidiary of ADP, and local providers. Competition in both the
payroll processing and HRIS software areas also comes from a number of large,
national software companies that provide both payroll processing software for
in-house processing as well as HRIS software, often in conjunction with other
enterprise management software applications.
Apart from payroll processing and tax filing services, HRS' businesses
generally compete with a variety of national and regional application
software companies, training companies, consulting firms and human resource
services providers. Generally, the market for these products and services is
evolving and is not dominated by a small number of competitors.
Currently, the principal competitive factors in the human resource
services industry are performance, price, functionality, ease and flexibility
of use, customer support and industry standard technology architecture.
Ceridian believes that the ability to integrate human resource management
software applications with customers' other in-house applications, and the
ability to provide client/server-based solutions are becoming increasingly
important competitive factors. While Ceridian believes its HRS businesses
are able to compete effectively in the overall human resource services
market, their continued ability to compete effectively will depend in large
measure on their ability to timely develop and implement new technology,
particularly that which incorporates industry standard architecture and
client/server-based solutions.
COMDATA.
Ceridian's Comdata subsidiary provides transaction processing and
decision support services to the transportation industry, primarily trucking
companies, truck stops and truck drivers, in both the long haul and local
markets in the U.S. In January 1998, Comdata sold its gaming services
business to First Data Corporation in exchange for First Data's NTS
transportation services business and cash. Comdata's revenue from products
and services provided to the transportation industry for the years 1996, 1997
and 1998, including 1998 revenue from the operations of NTS which have been
integrated with Comdata, was $173.7 million, $197.8 million and $261.5
million, respectively.
MARKETS. The transportation industry encompasses both long haul fleets
and local fleets. Private fleets predominate in the local fleet segment, but
play a lesser role in the long haul fleet segment. Common carriers, which
provide trucking services to companies that do not have fleets of their own,
predominate in the long haul fleet segment, which is comprised of
less-than-truckload and truckload components. The less-than-truckload
component, which involves trucks that make multiple stops to load and unload,
is characterized by large capital requirements and a relatively high degree
of consolidation. The truckload component, which involves the transportation
of full loads directly from shipper to final destination without going
through any sorting terminals, is highly fragmented and, Comdata believes, is
growing at the expense of the less-than-truckload component.
The majority of Comdata's trucking company customers are common carriers
serving the truckload component of the long haul segment. Many of these
carriers do not employ their drivers, but instead contract with individual
owner-operators. Such owner-operators usually settle their expenses with the
common carrier after the completion of each trip. Drivers for truckload
carriers often spend weeks on the road at a time, creating a number of unique
conditions and business opportunities. Truckload carriers are challenged to
monitor and control fuel purchases, provide driver services to aid in
recruitment and improve retention, obtain
5
<PAGE>
necessary licenses and permits, and effectively manage the routing and
logistics of such long-distance trips.
SERVICES. Comdata provides services to trucking companies, truck stops
and truck drivers in the long haul segment of the trucking industry, and is
seeking to expand its service offerings to the local fleet segment. These
services primarily involve the use of a proprietary funds transfer card which
facilitates truck driver transactions and provides transaction control and
trip information for trucking firms. Additionally, Comdata provides
assistance in obtaining regulatory permits and other compliance services,
driver relations services, local fueling services and discounted
telecommunications services in its markets.
TRUCKING COMPANY SERVICES. Comdata provides trucking companies and
their drivers with a variety of funds transfer services, most commonly
initiated through the use of Comdata's proprietary Comchek-Registered
Trademark- card, which is used in a manner similar to an ordinary credit
card. Comdata's funds transfer system is designed to enable truck drivers to
obtain funding for purchases and cash advances at truck stops and other
locations en route to their destination. Drivers may use the Comchek card to
purchase fuel, lodging and other approved items, obtain cash advances from
ATM machines or through the use of Comchek drafts, make long distance phone
calls and make direct deposits of pay, settlements (for non-employee
owner-operators) or trip advances to personal bank accounts. In 1998,
Comdata processed approximately 60 million funds transfer transactions
involving approximately $10.7 billion for the trucking industry.
Use of the Comchek card allows the trucking company customer greater
control over its expenses by allowing it to set limits on the use of the
cards, such as by designating locations where the cards may be used, the
frequency with which they may be used, phone numbers which may be called and
the amount of authorized use. Use of a Comchek card also enables Comdata to
capture and provide to trucking company customers (usually within 24 hours
after the completion of a given trip) transaction and trip-related
information that greatly enhances a customer's ability to track and plan fuel
purchases and other trip expenses and settle with drivers. Comdata also
provides trucking companies with a Windows-based software application that
provides trucking companies with on-line access to Comdata's computer system
for data on fuel purchases and other trip information, and facilitates pre-
and post-trip planning functions. Comdata recently introduced the MOTRS
(Modular Over The Road System) Web-based application that enables customers
to go online for local dial-up access, interactive reporting capabilities,
the latest diesel fuel prices and related information from their desktop.
Use of a Comchek card typically generates a Comchek draft, which is
payable through a Comdata bank account. Comdata funds the underlying
transaction when the truck stop (or other payee) negotiates the draft by
depositing it in its bank account. Comdata bills the trucking company for
the amount of the draft plus a portion of the service fee, and collects from
the truck stop the balance of the service fee. The trucking company remits
payment to Comdata by wire transfer or check, typically within six days,
although trucking companies may be billed by Comdata in advance for all funds
transfers authorized for any purpose in connection with a particular trip.
Approximately 16% of Comdata's funds transfer revenue is derived from
transactions that do not involve the Comchek card. When a truck driver makes
a request at a truck stop for a funds transfer, Comdata verifies that the
driver's company has established sufficient credit. Upon presentation of
valid identification, the truck stop obtains an authorization number from
Comdata and issues a Comchek draft, which is handled in the manner described
earlier. Comdata also provides the previously described information gathering
and processing services in connection with fueling transactions which Comdata
does not fund, but instead are billed directly by the truck stop to the
trucking company. Fees for these "direct bill" transactions are
substantially lower.
6
<PAGE>
Comdata also provides fuel price tracking reports and management within a
network of truck stops, including cost/plus fuel purchase programs.
Comdata's Regulatory Compliance division determines the permits needed
for a designated trip, truck and load, purchases those permits on behalf of
the customer and delivers them by facsimile machine to a truck stop where
they can be picked up by the driver. Comdata also provides certain
regulatory compliance services, such as processing and auditing of driver
trip logs, reporting of fuel taxes, annual licensing and motor vehicle
registration verification. Vehicle escort services for oversized loads are
also provided.
Comdata offers a computerized shipment interchange system to help
trucking companies find loads for their return trips, thereby reducing empty
backhauls. By making specific shipment information available to customers on
a subscription basis, available shipments can be matched with available cargo
space on a nationwide basis. Comdata generates and delivers invoices on
behalf of trucking companies to their customers, and also purchases trucking
company freight bills in addition to providing necessary invoicing. As a
result of agreements with two major long distance telecommunications
providers, Comdata offers to its trucking company customers long distance
telecommunications services at volume discount rates that might not otherwise
be available to such customers.
TRUCK STOP SERVICES. Comdata maintains a nation-wide electronic data
network with 24-hour independent truck stop service centers which utilize
point-of-sale devices and other computer equipment to facilitate
communication with Comdata's database and operations centers. The service
centers act as Comdata's agents pursuant to a service center agreement, and
typically also offer the funds transfer services of other companies.
Comdata's merchant services division provides fueling centers with
PC-based, point of sale systems which automate the various transactions that
occur at a fuel purchase desk, systems which enable customers to transact
card-based fuel purchases at the fuel pump, UPC scanning devices, and truck
stop management software. These systems accept many types of fuel purchase
cards currently used by drivers. Comdata also makes long distance
telecommunications services available to truck stops at volume discount
rates, and provides an 800 number phone service and prepaid long distance
phone cards to truck stops for resale to their customers.
DRIVER RELATIONS SERVICES. In order to assist trucking company
customers in attracting and retaining drivers, Comdata makes available to
trucking company employees and independent drivers the employee assistance
and work-life services of Ceridian Performance Partners, and provides
additional driver relations services, such as a monthly audio magazine and
audio tapes for drivers, and an electronic mail services to drivers through
kiosks placed in truck stops.
LOCAL FUELING. Comdata is a provider of fuel management and payment
systems for local transportation fleets. Comdata provides local fleet
operators with VISA (+) cards for their drivers' fuel purchases that offer
the fleet operators transaction control and trip-related information
gathering features similar to those of the Comchek card.
SALES AND MARKETING. Comdata markets its services to the transportation
industry through a direct sales force operating in various cities throughout
the U.S., and through a centralized tele-sales operation. Comdata has
contracts with approximately 21,000 long haul trucking companies, ranging in
size from those with several thousand trucks to those with fewer than five
trucks. Comdata also has relationships with approximately 8,000 fueling
locations. Contracts with trucking companies generally range from one to
three years in duration, while contracts with service centers are typically
one or two years in duration. No single customer
- ------------------------------------
(+) "VISA" is a trademark of Visa International Service Association.
7
<PAGE>
represented more than 2% of Comdata's 1998 revenue from services to the
transportation industry. Comdata is emphasizing the selling of a greater
variety of its products and services to its existing customers.
COMPETITION. The principal competitive factors relevant to funds
transfers in the trucking industry are marketing efforts, pricing,
reliability of computer and communications systems, and time required to
effect transactions. The major credit and debit card companies are
significant competitors of Comdata in that they make cash available to, and
facilitate purchases of fuel and other products by, holders of their cards on
a nationwide basis. Several other companies also offer similar funds
transfer services. In addition, truck stops often negotiate directly with
trucking companies for a direct billing relationship. Certain of Comdata's
competitors also operate or franchise nationwide truck stop chains. In
addition, Comdata competes with service centers (such as truck stops) that
offer similar products and services. Comdata also faces increasing
competition in the funds transfer area from ATMs that participate in national
networks.
While the majority of regulatory services continue to be performed
in-house, at least one other nationwide company and several regional
companies provide permit services similar to those provided by Comdata.
Competition in this market is influenced by price, the expertise of personnel
and the ease with which permits may be ordered and received.
Comdata believes that its competitive strengths include (i) its ability
to provide services to trucking companies and drivers at a large number of
locations in the continental U.S. and Canada, (ii) its ability to offer a
variety of services, frequently tailored to an individual customer's needs,
(iii) its proprietary databases regarding funds transfers and fuel purchases,
and (iv) its long-term experience relationships in the transportation
industry.
NETWORK AND DATA PROCESSING OPERATIONS. Comdata's principal
communications center for its funds transfer business is located near its
headquarters in Brentwood, Tennessee, with a secondary center located in
Dallas, Texas. WilTel, a wholesale services subsidiary of WorldCom, is the
primary supplier of telecommunications services to Comdata pursuant to an
agreement that continues to January 2003. Substantially all of Comdata's
internal data processing functions, including its payment processing systems,
are provided by IBM Global Services pursuant to an agreement that continues
to April 2005.
REGULATION. Many states require persons engaged in the business of
selling or issuing payment instruments (such as the Comchek draft) or in the
business of transmitting funds to obtain a license from the appropriate state
agency. In certain states, Comdata is required to post bonds or other
collateral to secure its obligations to its customers in those states.
Comdata believes that it is currently in compliance in all material respects
with the regulatory requirements applicable to its business. The failure to
comply with the requirements of any particular state could have a material
adverse effect on Comdata's business in that state.
ARBITRON.
Arbitron provides media and marketing information (primarily radio
audience measurement) to broadcasters, advertising agencies, advertisers and,
through a joint venture, newspapers and magazine publishers and TV
broadcasters. Arbitron also provides software applications that give
customers access to Arbitron's database and, through a joint venture,
measurement data concerning consumer retail behavior and media usage.
Arbitron's revenue for the years 1996, 1997 and 1998 was $153.1 million,
$165.2 million and $194.5 million, respectively. In May 1998, Arbitron
purchased the radio station, advertiser/agency and international assets of
Tapscan, Inc., a developer of software for broadcasters, agencies and
advertisers.
8
<PAGE>
MARKETS. Significant consolidation of radio station ownership has
occurred in the U.S. in recent years, which has tended to intensify
competition within the radio industry and to intensify competition between
radio and other forms of media for advertising dollars. At the same time,
audiences have become more fragmented as a result of greatly increased
programming choices and entertainment/media options. As a result,
advertisers increasingly seek to tailor advertising strategies to target
specific demographic groups through specific media, and the audience
information needs of radio broadcasters, advertising agencies and advertisers
have correspondingly become more complex. Increased competition and more
complex information requirements have heightened the need of radio
broadcasters for improved information management systems and more
sophisticated means to analyze such information. In addition, there is a
growing demand for quality radio audience information internationally from
global advertisers, U.S. broadcasters who have acquired broadcasting
interests in other countries, and an increasing number of private commercial
broadcasters in other countries.
These trends also affect other media. As the importance of reaching
niche audiences with targeted marketing strategies increases, broadcasters,
publishers, advertising agencies and advertisers increasingly require that
information regarding exposure to advertising be provided on a more
individualized basis and that such information be coupled with information
regarding shopping patterns and purchaser behavior. The need for purchase
data information may create opportunities for innovative approaches to
satisfy these information needs, particularly as technological advances
increase the alternatives available to advertisers for reaching potential
customers, including the possibilities of interactive communication.
SERVICES. Arbitron is a leading provider of radio audience measurement
information in the U.S. Arbitron estimates audience size and demographics in
the U.S. for local radio stations, and reports this and related data to its
customers. This information is used by radio stations to price and sell
advertising time and by advertising agencies and large corporate advertisers
in purchasing advertising time. Arbitron's proprietary data regarding radio
audience size and demographics is provided to customers through multi-year
license agreements. Arbitron uses listener diaries to gather radio listening
data from sample households in the 267 local markets for which it currently
provides radio ratings. Respondents mail the diaries to Arbitron's
processing center where Arbitron compiles periodic audience measurement
estimates. During the past three years, Arbitron has increased its survey
frequency so that all markets are measured at least twice each year, and
major markets are measured four times per year, and has increased sample
size.
Arbitron also provides software applications that give customers access
to Arbitron's database, and enable them to more effectively analyze and
understand that information and develop target marketing strategies.
Arbitron is also developing applications to enable customers to link
information provided by Arbitron's database with information from other
databases (such as product purchasing behavior) so as to enable customers to
further refine sales strategies and compete more effectively for advertising
dollars. The radio audience measurement service and related software sales
represented 80% of Arbitron's total 1998 revenue.
Arbitron also provides measurements of consumer retail behavior and
media usage in 254 local markets throughout the U.S. Arbitron's Scarborough
Research Partnership joint venture provides information regarding
product/service usage and media usage in 64 large U.S. markets, utilizing a
sample of consumers in the relevant markets to measure product and service
purchases. This information is provided twice each year to newspapers, radio
and television broadcasters, cable systems, advertisers and advertising
agencies in the form of the Scarborough Report. Arbitron has the exclusive
right to market the Scarborough Report to radio broadcasters and cable
systems. Arbitron has also developed and introduced in 42 mid-sized U.S.
markets its RetailDirect service, which is a locally oriented, purchase data
research service. The service, which utilizes diaries and telephone surveys,
provides a profile of the broadcast audience in terms of local media, retail
and consumer preferences so that local radio and television broadcasters and
9
<PAGE>
cable systems will have information that helps them develop
targeted sales and programming strategies. Arbitron's Qualitative Diary
service collects consumer and media usage information from Arbitron radio
diary keepers in 148 smaller U.S. markets.
Through Continental Research, a United Kingdom-based company that
Arbitron acquired in 1997, Arbitron provides media, advertising, financial
and telecommunications research services in the United Kingdom and Europe.
As a result of Arbitron's purchase of the radio station, advertiser/agency
and international assets of Tapscan, Inc., Arbitron provides software
applications for broadcasters, ad agencies and advertisers that help
customers analyze ratings data and make marketing decisions. The Tapscan
acquisition contributes to Arbitron's ability to expand into Europe and other
geographic markets. Arbitron continues to explore opportunities that would
facilitate the expansion of its audience measurement service into selected
international markets, provide additional software applications to
broadcasters and advertisers, and develop measurement products for the
Internet. Arbitron is also developing a passive, personalized electronic
measurement device to record broadcast listening or viewing for purposes of
audience measurement and verification that advertisements have been
broadcast.
SALES AND MARKETING. As of December 31, 1998, Arbitron provided its
radio audience measurement and related services to over 3,100 radio stations
and over 2,400 advertising agencies and advertisers nationwide under
contracts that vary in length from one to seven years. Arbitron markets its
products and services through a direct sales force operating through offices
in seven cities around the U.S.
In recent years, a small number of enterprises have greatly expanded
their holdings of U.S. radio broadcasters, and this consolidation of
ownership is continuing. Arbitron currently estimates that, while no one
customer represented 10% or more of 1998 segment revenue, five customers
represent approximately one-third of that amount. Although the industry
consolidation that has led to the increased concentration of Arbitron's
customer base could put pressure on the pricing of Arbitron's radio ratings
service, it has also contributed to an increase in the number of stations
subscribing for the ratings service, as stations have become Arbitron
customers upon their acquisition by a larger broadcasting group. It has also
been Arbitron's experience that stations which are part of a larger
broadcasting group have been somewhat more likely to purchase analytical
software applications and other services in addition to the ratings service.
Furthermore, Arbitron believes that it is well positioned to provide products
and services that meet the needs of large broadcasting groups.
COMPETITION. Arbitron competes with other providers of radio audience
measurement services, one of which utilizes a different survey methodology
than Arbitron and the other of which is a relatively new entrant into the
market. Arbitron also competes with other providers of applications software,
qualitative data and proprietary qualitative studies used by broadcasters,
cable systems, advertising agencies and advertisers.
DIVESTITURES
In August 1998, Ceridian sold the majority interest in its Resumix
subsidiary to a group of investors, including Resumix senior management.
Ceridian retained a 15% equity interest. Resumix provided skills management
software (and related hardware) which enabled organizations to manage
incoming resume data and match them with available staffing needs, and to
match the skills of an existing work force with new jobs or projects.
Comdata's gaming services business, which was sold in January 1998,
provided cash advance services to gaming patrons in casinos, racetracks and
other gaming locations through the use of credit cards and debit services
employing automated teller machines and similar devices.
10
<PAGE>
Revenue for this business for the years 1996, 1997 and 1998 was $125.5
million, $133.2 million and $5.8 million, respectively.
Further information on Ceridian's investing activities is provided in
Note N to the consolidated financial statements which is incorporated by
reference into Part II, Item 8 of this Report.
ADDITIONAL INFORMATION
PATENTS AND TRADEMARKS. Ceridian owns or is licensed under a number of
patents which relate to its products and are of importance to its business.
Certain of Ceridian's products and services are marketed under federally
registered trademarks that are helpful in creating recognition in the
marketplace. However, Ceridian believes that none of its businesses are
materially dependent upon any particular patent, license or trademark, or any
particular group of patents, licenses or trademarks.
BACKLOG. Although Ceridian's businesses are typically characterized by
long-term customer relationships that result in a high level of recurring
revenue, a substantial portion of the customer contracts utilized by these
businesses are terminable by the customers upon relatively short notice
periods, including contracts that have been extended beyond their original
terms. In addition, the period between the time a customer agrees to use a
Ceridian service and the time the service begins is generally relatively
short. For these reasons, Ceridian does not believe that meaningful backlog
information can be provided for its businesses.
RESEARCH AND DEVELOPMENT. The table below sets forth the amount of
research and development expenses for Ceridian's continuing operations for
the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996
------ ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Research and development $77.8 $59.6 $52.5
Percent of revenue 6.7% 5.5% 5.6%
</TABLE>
Ceridian's research and development efforts are generally described
earlier in this Item in the description of Ceridian's businesses, and in Part
II, Item 7 of this Report.
EMPLOYEES. As of December 31, 1998, Ceridian and its subsidiaries
employed approximately 9,600 people on a full- or part-time basis. None of
Ceridian's employees are covered by a collective bargaining agreement.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of
Ceridian as of March 1, 1999, are as follows:
<TABLE>
<CAPTION>
Executive
Name (Age) Position Officer Since
---------- -------- -------------
<S> <C> <C>
Lawrence Perlman (60) Chairman and Chief Executive Officer 1980
Ronald L. Turner (52) President and Chief Operating Officer 1993
John R. Eickhoff (58) Executive Vice President and Chief 1989
Financial Officer
Loren D. Gross (53) Vice President and Corporate Controller 1993
Tony G. Holcombe (43) Vice President, and President of 1997
Comdata
Shirley J. Hughes (53) Senior Vice President of Human 1998
Resources
Carl O. Keil (57) Vice President, and President of 1997
Ceridian Employer Services
Stephen B. Morris (55) Executive Vice President, and President 1992
of Arbitron
Gary M. Nelson (47) Vice President, General Counsel and 1997
Secretary
Linda Hall Whitman (50) Vice President, and President of Ceridian 1998
Performance Partners
</TABLE>
The executive officers of Ceridian are elected by the Board of Directors
and serve at the pleasure of the Board of Directors and the Chief Executive
Officer. They are customarily elected each year at the meeting of the Board
of Directors held in conjunction with the annual meeting of stockholders.
Lawrence Perlman has been Chief Executive Officer of Ceridian since
January 1990, and was appointed Chairman in November 1992. Mr. Perlman was
President of Ceridian from January 1990 to April 1998. He is a director of
Seagate Technology, Inc., The Valspar Corporation, Computer Network
Technology Corporation and Amdocs Limited. Mr. Perlman has been a director
of Ceridian since 1985.
Ronald L. Turner has been President and Chief Operating Officer of
Ceridian since April 1998. He was Executive Vice President of Operations of
Ceridian from March 1997 to April 1998; an Executive Vice President of
Ceridian and President and Chief Executive Officer of Ceridian's Computing
Devices International division from January 1996 to March 1997; and Vice
President of Ceridian and President of Computing Devices International from
January 1993 to January 1996. Mr. Turner was President and Chief Executive
Officer of GEC-Marconi Electronics Systems Corporation, a defense electronics
company, from March 1987 to January 1993. Mr. Turner is a director of FLIR
Systems, Inc. and BTG, Inc. Mr. Turner has been a director of Ceridian since
July 1998.
12
<PAGE>
John R. Eickhoff has been Executive Vice President and Chief Financial
Officer of Ceridian since May 1995, and was Vice President and Chief
Financial Officer of Ceridian from June 1993 to May 1995. Mr. Eickhoff was
Vice President and Corporate Controller of Ceridian from July 1989 to June
1993.
Loren D. Gross has been Vice President and Corporate Controller of
Ceridian since July 1993. Mr. Gross was Assistant Corporate Controller of
Ceridian from March 1987 to July 1993.
Tony G. Holcombe has been Vice President of Ceridian and President of
Comdata since May 1997. Mr. Holcombe was President and Chief Executive
Officer of National Processing, Inc., which provides transaction processing
services and customized processing solutions, from October 1994 to March
1997, and was Executive Vice President, Corporate Services for National
Processing from 1991 through 1994.
Shirley J. Hughes has been Senior Vice President of Human Resources of
Ceridian since June 1998. Ms. Hughes was Vice President of Human Resources
of Mercy Health Services from October 1994 to June 1998. From 1992 to 1994,
she served as Vice President of Human Resources and Administrative Services
of Ceridian, and from 1991 to 1992, she served as Vice President of Human
Resources for the Information Services Group of Ceridian.
Carl O. Keil has been Vice President of Ceridian and President of
Ceridian Employer Services since April 1997. Mr. Keil was President and
Chief Executive Officer of EduServ Technologies, Inc., which originates,
services and securitizes student loans, from March 1992 to January 1997;
Executive Vice President and Chief Operating Officer of International
Telecharge, Inc., which provides telecommunications and operator services,
from January 1991 to March 1992; and Senior Vice President of Marketing for
the Employer Services Group of Automatic Data Processing, Inc. from August
1987 to January 1991.
Stephen B. Morris has been Executive Vice President of Ceridian and
President of Arbitron since January 1996. Mr. Morris was Vice President of
Ceridian and President of Arbitron from December 1992 to January 1996. He
was President and Chief Executive Officer of Vidcode, Inc., which
electronically monitors, verifies and reports the broadcast of television
commercials, from August 1990 to December 1992; and Director and co-founder
of Spectra Marketing Systems, a micro-marketing firm, from March 1987 to
March 1992. Prior to that time, he spent seventeen years at General Foods
Corporation, the last three as General Manager/President of the Maxwell House
Division.
Gary M. Nelson has been Vice President and General Counsel of Ceridian
since July 1997 and Secretary of Ceridian since October 1998. From 1983 to
July 1997, Mr. Nelson was a partner in the Oppenheimer Wolff & Donnelly LLP
law firm.
Linda Hall Whitman has been Vice President of Ceridian since October
1998 and President of Ceridian Performance Partners since April 1996. From
October 1995 to March 1996, she was Vice President of Business Integration of
Ceridian. Prior to joining Ceridian, Ms. Whitman spent fifteen years at
Honeywell, Inc., serving most recently as Vice President of the Home and
Building Control consumer business group from 1993 to September 1995.
13
<PAGE>
ITEM 2. PROPERTIES.
At March 1, 1999, Ceridian's principal computer and office facilities
were located in the metropolitan areas of Minneapolis, Minnesota; Atlanta,
Georgia; Columbia, Maryland; New York, New York; Los Angeles and San
Francisco, California; Nashville, Tennessee; Dallas, Texas; Boston,
Massachusetts; Winnipeg, Calgary, Toronto and Ottawa, Canada; and London,
England.
The following table summarizes the usage and location of Ceridian's
facilities as of March 1, 1999:
FACILITIES
(In thousands of square feet)
<TABLE>
<CAPTION>
Type of Property Interest U.S. Non-U.S. Worldwide
- ------------------------- ----- -------- ---------
<S> <C> <C> <C>
Leased 2,767 270 3,037
----- --- -----
Total Square Feet 2,767 270 3,037
===== === =====
Utilization
- -----------
Office, Computer Center & Other 2,037 270 2,307
Leased or Subleased to Others 730 -- 730
----- --- -----
Total Square Feet 2,767 270 3,037
===== === =====
</TABLE>
The 3.0 million square feet of aggregate space leased worldwide remained
consistent with the total last year. There was a 0.2 million square feet
decrease in space leased in the U.S. which was offset by an increase in space
leased in Canada due to the acquisition of the Canadian payroll operations.
Ceridian conducts a substantial portion of its operations in leased
facilities. Most of these leases contain renewal options and require payments
for taxes, insurance and maintenance. Space subject to assigned leases is not
included in the table above, and Ceridian remains secondarily liable under
all such leases. As of December 31, 1998, the assigned leases involved 0.6
million square feet of space and future rental obligations totaling $13.4
million. The principal elements of these amounts are 0.4 million square feet
and $7.9 million related to the 1989 sale of Imprimis Technology,
Incorporated to Seagate Technology, Inc. and 0.05 million square feet and
$3.4 million related to the 1998 sale of Resumix, Inc. Ceridian does not
anticipate any material non-performance by the assignees of these leases.
No facilities owned by Ceridian or its subsidiaries are subject to any
major encumbrances. Ceridian believes that the facilities it currently
utilizes in its continuing operations are adequate for their intended
purposes, are adequately maintained and are reasonably necessary for current
and anticipated output levels of those businesses.
ITEM 3. LEGAL PROCEEDINGS.
Information regarding legal proceedings involving Ceridian and its
subsidiaries is incorporated herein by reference from Note L, LEGAL MATTERS,
on page 40 of Ceridian's 1998 Annual Report to Stockholders. Note L is part
of the consolidated financial statements contained in Ceridian's 1998 Annual
Report to Stockholders, which are attached hereto as Exhibit 13.03.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of Ceridian's stockholders during
the fourth quarter 1998.
PART II
All information incorporated by reference into Items 5 through 8 below
is contained in the financial portions of Ceridian's 1998 Annual Report to
Stockholders (the "Annual Report"), which are filed with this Report as
Exhibits 13.01 through 13.04.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Ceridian's common stock, par value $.50 per share, is listed and trades
on the New York Stock Exchange as well as on The Chicago Stock Exchange and
The Pacific Exchange. The following table sets forth the high and low sales
prices for a share of Ceridian's common stock on the New York Stock Exchange,
as adjusted to reflect a two-for-one stock split in the form of a 100% stock
dividend effected in February 1999.
<TABLE>
<CAPTION>
1998 1997
----------------------------- --------------------------
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter $ 27.8125 $21.75 $ 21.25 $ 16.125
2nd Quarter 30.875 25.3125 21.8125 14.75
3rd Quarter 32.25 24.2188 22.8125 16.0625
4th Quarter 36.0 24.0 23.875 17.625
</TABLE>
The number of holders of record of Ceridian common stock on March 1,
1999 was 12,661. No cash dividends have been declared or paid on the
Ceridian's common stock since 1985, it has no present intention of paying
such dividends. Ceridian did not issue any unregistered securities during the
quarter ended December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA.
See "Selected Five-Year Data" on the inside front cover of the Annual
Report, which is attached to the Report as Exhibit 13.01 and incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 8 through 17 of the Annual Report, which is
attached to this Report as Exhibit 13.02 and incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the section entitled "Market Risk Disclosure" on page 13 of the
Annual Report within the "Management's Discussion and Analysis of Results of
Operation and Financial Condition," which is attached to this Report as
Exhibit 13.02 and incorporated herein by reference.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Ceridian's consolidated financial statements described in Item 14.(a)1
of this Report are attached to this Report as Exhibit 13.03 and are
incorporated herein by reference. As for certain required supplementary
financial information, see "Supplementary Quarterly Data (Unaudited)" on page
41 of the Annual Report, which is attached to this Report as Exhibit 13.04
and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See information regarding the directors and nominees for director of
Ceridian under the heading "Nominees for Director" in the Proxy Statement for
the Annual Meeting of Stockholders, May 20, 1999 (the "Proxy Statement"),
which is incorporated herein by reference.
See the information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement, which is incorporated
herein by reference.
Information regarding the executive officers of Ceridian is on pages 12
and 13 of this Report, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
See information under the headings "Director Compensation" and
"Executive Compensation" in the Proxy Statement, which is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See information under the heading "Share Ownership Information" in the
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS OF REGISTRANT
Ceridian's consolidated financial statements included in its 1998 Annual
Report to Stockholders, which are attached to this Report as Exhibit 13.03 and
have been incorporated by reference into Part II, Item 8 of this Report, are
listed below (with the corresponding page numbers in the 1998 Annual Report to
Stockholders):
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Management.......................................................... 18
Independent Auditors' Report.................................................. 19
Consolidated Statements of
Operations for the years ended
December 31, 1998, 1997 and 1996.............................................. 20
Consolidated Balance Sheets as of
December 31, 1998 and 1997.................................................... 21
Consolidated Statements of Cash Flows
for the years ended
December 31, 1998, 1997 and 1996.............................................. 22
Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1998, 1997 and 1996.............................................. 23
Notes to Consolidated Financial Statements for
the three years ended December 31, 1998...................................... 24-40
</TABLE>
(a) 2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT
Attached to this Report on pages 24 through 26 is Financial Statement
Schedule II - "Ceridian Corporation and Subsidiaries Valuation and Qualifying
Accounts," together with the Independent Auditors' report thereon.
17
<PAGE>
(a) 3. EXHIBITS
The following is a complete list of Exhibits filed or incorporated by
reference as part of this Report.
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<C> <S>
2.01 Asset Purchase Agreement, dated as of November 3, 1997, by and between
Ceridian Corporation and General Dynamics Corporation (exhibits and
schedules omitted) (incorporated by reference to Exhibit 2.1 to
Ceridian's Current Report on Form 8-K dated December 31, 1997 (File
No. 1-1969)).
2.02 Closing Agreement, dated as of December 31, 1997, between and among
Ceridian Corporation, General Dynamics Corporation, General Dynamics
Information Systems, Inc. and CDI Acquisition Company (exhibits and
schedules omitted) (incorporated by reference to Exhibit 2.2 to
Ceridian's Current Report on Form 8-K dated December 31, 1997 (File
No. 1-1969)).
2.03 Exchange Agreement, dated as of January 17, 1998, among First Data
Corporation, Integrated Payment Systems Inc., NTS, Inc., First Data
Financial Services, L.L.C., Ceridian Corporation, Comdata Network,
Inc. and Permicom Permits Services, Inc. (exhibits and schedules
omitted) (incorporated by reference to Exhibit 2.03 to Ceridian's
Annual Report on Form 10-K for the year ended December 31, 1997 (File
No. 1-1969)).
2.04 Share Purchase Agreement, dated as of January 26, 1998, among The
Toronto-Dominion Bank, Business Windows Inc., 3454916 Canada Inc.,
Ceridian Corporation, Ceridian Canada Ltd. and Ceridian Canada
Holdings, Inc. (exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.04 to Ceridian's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 1-1969)).
2.05 Agreement for the Purchase and Sale of Certain of the Assets of
Comcheq Services Limited, dated as of March 10, 1998, among the
Canadian Imperial Bank of Commerce, Comcheq Services Limited and
Ceridian Canada Ltd. (exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.1 to Ceridian's Current Report on Form 8-K
dated March 10, 1998 (File No. 1-1969)).
2.06 Asset Purchase Agreement, dated as of November 17, 1998, among
Ceridian Corporation, Ceridian Performance Partners Ltd., Letter
Allied Limited, Work/Family Directions, Inc., Canadian Work/Family
Directions Co., WFD, Francene S. Rodgers, Charles S. Rodgers and the
Other Shareholders Party Thereto (exhibits and schedules omitted).
3.01 Restated Certificate of Incorporation of Ceridian Corporation
(incorporated by reference to Exhibit 4.01 to Ceridian's Registration
Statement on Form S-8 (File No. 33-54379)).
3.02 Certificate of Amendment of Restated Certificate of Incorporation of
Ceridian Corporation (incorporated by reference to Exhibit 3 to
Ceridian's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996 (File No. 1-1969)).
3.03 Bylaws of Ceridian Corporation, as amended (incorporated by reference
to Exhibit 3.01 to Ceridian's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File No. 1-1969)).
</TABLE>
18
<PAGE>
<TABLE>
<C> <S>
10.01* Amended and Restated Executive Employment Agreement between Ceridian
Corporation and Lawrence Perlman, dated as of November 8, 1996
(incorporated by reference to Exhibit 10.01 to Ceridian's Annual
Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)).
10.02* Executive Employment Agreement between Ceridian Corporation and Ronald
L. Turner, dated as of July 1, 1997 (incorporated by reference to
Exhibit 10.02 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.03* Executive Employment Agreement between Ceridian Corporation and
Stephen B. Morris, dated as of July 1, 1997 (incorporated by reference
to Exhibit 10.03 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.04* Executive Employment Agreement between Ceridian Corporation and John
R. Eickhoff, dated as of July 1, 1997 (incorporated by reference to
Exhibit 10.04 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.05* Executive Employment Agreement between Ceridian Corporation and Carl
O. Keil, dated as of October 22, 1997 (incorporated by reference to
Exhibit 10.05 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.06* Executive Employment Agreement between Ceridian Corporation and Tony
G. Holcombe, dated as of May 13, 1997.
10.07* Form of Amendment to Executive Employment Agreement (applicable to
agreements between Ceridian and Lawrence Perlman, Ronald L. Turner,
Stephen B. Morris, John R. Eickhoff, Carl O. Keil and Tony G. Holcombe
filed as Exhibits 10.01, 10.02, 10.03, 10.04, 10.05 and 10.06,
respectively) (incorporated by reference to Exhibit 10.01 to
Ceridian's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (File No. 1-1969)).
10.08* Ceridian Corporation 1993 Long-Term Incentive Plan (Amended and
Restated as of May 14, 1997) (incorporated by reference to Appendix A
to Ceridian's Proxy Statement for Annual Meeting of Stockholders, May
14, 1997 (File No. 1-1969)).
10.09* Form of Ceridian Corporation Employee Non-Statutory Stock Option Award
Agreement (under 1993 Long-Term Incentive Plan) (incorporated by
reference to Exhibit 10.12 to Ceridian's Annual Report on Form 10-K
for the year ended December 31, 1997 (File No. 1-1969)).
10.10* Form of Ceridian Corporation Performance-Based Stock Option Award
Agreement, dated October 22, 1997 (under the 1993 Long-Term Incentive
Plan) (incorporated by reference to Exhibit 10.13 to Ceridian's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 1-1969)).
10.11* Form of Ceridian Corporation Performance-Based Stock Option Award
Agreement, dated July 22, 1998 (under the 1993 Long-Term Incentive
Plan).
10.12* Form of Ceridian Corporation Performance-Based Stock Option Award
Agreement, dated October 21, 1998 (under the 1993 Long-Term Incentive
Plan).
</TABLE>
19
<PAGE>
<TABLE>
<C> <S>
10.13* Form of Ceridian Corporation Performance Restricted Stock Award
Agreement (under the 1993 Long-Term Incentive Plan) (incorporated by
reference to Exhibit 10.17 to Ceridian's Annual Report on Form 10-K
for the year ended December 31, 1996 (File No. 1-1969)).
10.14* Ceridian Corporation 1990 Long-Term Incentive Plan (1992 Restatement)
(as amended through October 21, 1994) (incorporated by reference to
Exhibit 10.12 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-1969)).
10.15* Ceridian Corporation Benefit Equalization Plan, as amended (effective
generally as of January 1, 1994) (incorporated by reference to Exhibit
10.14 to Ceridian's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969)).
10.16* Ceridian Corporation Employees' Benefit Protection Trust Agreement,
dated as of December 1, 1994, between Ceridian Corporation and First
Trust National Association (incorporated by reference to Exhibit 10.15
to Ceridian's Annual Report on Form 10-K for the year ended December
31, 1994 (File No. 1-1969)).
10.17* Ceridian Corporation Executive Investment Plan.
10.18* Ceridian Corporation 1993 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit 2 to Ceridian's Proxy Statement
for Annual Meeting of Stockholders, May 12, 1993 (File No. 1-1969)).
10.19* Ceridian Corporation 1996 Director Performance Incentive Plan (as
amended through December 15, 1997) (incorporated by reference to
Exhibit 10.22 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.20* Ceridian Corporation Employee Stock Purchase Plan (as amended through
May 22, 1998) (incorporated by reference to Exhibit 99.01 to
Ceridian's Registration Statement on Form S-8 (File No. 333-58143)).
10.21* Form of Indemnification Agreement between Ceridian Corporation and its
Directors (incorporated by reference to Exhibit 10.16 to Ceridian's
Annual Report on Form 10-K for the year ended December 31, 1996 (File
No. 1-1969)).
10.22 Amended and Restated Credit Agreement, dated as of July 31, 1997,
among Ceridian Corporation, Bank of America National Trust and Savings
Association as Agent, and the Financial Institutions Parties Thereto
(exhibits and schedules omitted) (incorporated by reference to Exhibit
10.1 to Ceridian's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-1969)).
10.23 Waiver and First Amendment to Credit Agreement, dated as of December
2, 1997, among Ceridian Corporation, Bank of America National Trust
and Savings Association as Agent, and the Financial Institutions
Parties Thereto (incorporated by reference to Exhibit 10.25 to
Ceridian's Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 1-1969)).
10.24 Credit Agreement, dated as of January 30, 1998, between The Toronto-Dominion
Bank and Ceridian Canada Ltd. (exhibits and schedules omitted) (incorporated
by reference to Exhibit 10.26 to Ceridian's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-1969)).
</TABLE>
20
<PAGE>
<TABLE>
<C> <S>
10.25 Guarantee Agreement, dated as of January 30, 1998, between Ceridian
Corporation and The Toronto-Dominion Bank (incorporated by reference
to Exhibit 10.27 to Ceridian's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-1969)).
10.26 Credit Agreement, dated as of March 2, 1998, between Canadian Imperial
Bank of Commerce and Ceridian Canada Ltd. (exhibits and schedules
omitted) (incorporated by reference to Exhibit 10.28 to Ceridian's
Annual Report on Form 10-K for the year ended December 31, 1997(File
No. 1-1969)).
10.27 Guarantee Agreement, dated as of March 2, 1998, between Ceridian
Corporation and Canadian Imperial Bank of Commerce (incorporated by
reference to Exhibit 10.29 o Ceridian's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 1-1969)).
10.28 Letter Agreement dated as of December 16, 1997, between Comdata
Network, Inc. and International Business Machines Corporation
pertaining to the Amended and Restated Agreement for Systems
Operations Services dated May 1, 1995 between Comdata Network, Inc.
and Integrated Systems Solutions Corporation n.k.a. International
Business Machines Corporation (exhibits and schedules omitted)
(incorporated by reference to Exhibit 10.30 to Ceridian's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 1-1969)).
10.29 Amended and Restated Agreement for Systems Operations Services dated
May 1, 1995 between Comdata Network, Inc. and Integrated Systems
Solutions Corporation n.k.a. International Business Machines
Corporation (exhibits and schedules omitted) (incorporated by
reference to Exhibit 10.20 to Ceridian's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 1-1969)).
10.30 Telecommunications Services Agreement, dated as of September 1, 1997,
among WorldCom Network Services, Inc. d.b.a. WilTel, Comdata Network,
Inc. and Comdata Telecommunications Services, Inc., including Program
Enrollment Terms, as amended (exhibits and schedules omitted)
(incorporated by reference to Exhibit 10.32 to Ceridian's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 1-1969)).
13.01 Selected Five-Year Data (inside front cover of Ceridian's 1998 Annual
Report to Stockholders).
13.02 Management's Discussion and Analysis of Results of Operations and
Financial Condition (pages 8 through 17 of Ceridian's 1998 Annual
Report to Stockholders).
13.03 Consolidated Financial Statements of Ceridian Corporation (pages 24
through 40 of Ceridian's 1998 Annual Report to Stockholders).
13.04 Supplementary Quarterly Data (Unaudited) (page 41 of Ceridian's 1998
Annual Report to Stockholders).
21.01 Subsidiaries of Ceridian.
23.01 Consent of Independent Auditors - KPMG Peat Marwick LLP.
24.01 Power of Attorney.
27.01 Financial Data Schedule.
</TABLE>
________________________
21
<PAGE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Report.
If requested, Ceridian will provide copies of any of the exhibits listed
above upon payment of its reasonable expenses in furnishing such exhibits.
Ceridian will provide to the Securities and Exchange Commission, upon
request, any exhibit or schedule to any of the foregoing exhibits which has
not been filed. Neither Ceridian nor its subsidiaries has outstanding as of
the date of this Report any securities authorized pursuant to long-term debt
instruments.
(b) REPORTS ON FORM 8-K
Ceridian filed no reports on Form 8-K during the quarter ended December
31, 1998.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of March 25,
1999.
CERIDIAN CORPORATION
By /s/ Lawrence Perlman
-----------------------------------------
Lawrence Perlman
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of March 25, 1998.
/s/ Lawrence Perlman /s/ J. R. Eickhoff
- -------------------------------------- ------------------------------------
Lawrence Perlman J. R. Eickhoff
Chairman and Chief Executive Officer Executive Vice President and Chief
(Principal Executive Officer) and Financial Officer
Director (Principal Financial Officer)
/s/ Loren D. Gross /s/ Ronald L. Turner
- -------------------------------------- ------------------------------------
Loren D. Gross Ronald L. Turner
Vice President and Corporate President, Chief Operating Officer
Controller (Principal Accounting and Director
Officer)
/s/ Bruce R. Bond /s/ Nicholas D. Chabraja
- -------------------------------------- ------------------------------------
Bruce R. Bond, Director Nicholas D. Chabraja, Director
/s/ Ruth M. Davis /s/ Robert H. Ewald
- -------------------------------------- ------------------------------------
Ruth M. Davis, Director Robert H. Ewald, Director
/s/ Richard G. Lareau /s/ Ronald T. LeMay
- -------------------------------------- ------------------------------------
Richard G. Lareau, Director Ronald T. LeMay, Director
/s/ George R. Lewis /s/ Charles Marshall
- -------------------------------------- ------------------------------------
George R. Lewis, Director Charles Marshall, Director
/s/ Ronald A. Matricaria /s/ Carole J. Uhrich
- -------------------------------------- ------------------------------------
Ronald A. Matricaria, Director Carole J. Uhrich, Director
/s/ Richard W. Vieser /s/ Paul S. Walsh
- -------------------------------------- ------------------------------------
Richard W. Vieser, Director Paul S. Walsh, Director
23
<PAGE>
SCHEDULE II
CERIDIAN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Restructure and Discontinued Operations Reserves
<TABLE>
<CAPTION>
Employer
Arbitron Services
TV Consolidation Other Total
<S> <C> <C> <C> <C>
Reserve Balance 12/31/95 $ 7.5 $ 11.7 $ 51.2 $ 70.4
Cash Payments (1) (1.6) (2.6) (10.7) (14.9)
Other Non-cash Items (2) (0.5) 0.2 1.7 1.4
Reserve Balance 12/31/96 $ 5.4 $ 9.3 $ 42.2 $ 56.9
Cash Payments (1) (1.1) (3.2) (16.8) (21.1)
Other Non-cash Items (2) (0.5) 0.3 0.2 --
Reserve Balance 12/31/97 $ 3.8 $ 6.4 $ 25.6 $ 35.8
Cash Payments (1) (0.5) (1.2) (1.2) (2.9)
Other Non-cash Items (2) (0.5) 0.4 0.3 0.2
Reserve Balance 12/31/98 (3) $ 2.8 $ 5.6 $ 24.7 $ 33.1
</TABLE>
(1) Primarily related to legal and environmental matters, vacant space and
employee terminations.
(2) Primarily proceeds from sale of idled assets that have been reclassified as
cash inflow from investing activities.
(3) Primarily related to vacant space and legal and environmental matters.
24
<PAGE>
SCHEDULE II (CONT.)
CERIDIAN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Allowance for Doubtful Accounts Receivable
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 10.5 $ 11.2 $ 11.7
Additions charged to costs and expenses 15.0 7.9 5.5
Write-offs and other adjustments (1) (3.8) (8.6) (5.8)
Balance at end of year $21.7 $ 10.5 $ 11.2
</TABLE>
(1) Other adjustments include the effect of acquisitions and dispositions
of businesses.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CERIDIAN CORPORATION:
Under date of January 20, 1999, we reported on the consolidated balance
sheets of Ceridian Corporation and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998, as contained in Ceridian's 1998 Annual Report to
Stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1998. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index (see Item 14.(a)2.).
This financial statement schedule is the responsibility of Ceridian's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 20, 1999
26
<PAGE>
[EXECUTION COPY]
ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 17, 1998
BY AND AMONG
CERIDIAN CORPORATION,
CERIDIAN PERFORMANCE PARTNERS LTD.,
LETTERALLIED LIMITED,
WORK/FAMILY DIRECTIONS, INC.,
CANADIAN WORK/FAMILY DIRECTIONS CO.,
WFD,
FRANCENE S. RODGERS,
CHARLES S. RODGERS
AND
THE OTHER SHAREHOLDERS
PARTY HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. "Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3. "Assumed Liabilities". . . . . . . . . . . . . . . . . . . . . . . 2
1.4. "Best Knowledge of Sellers" or "Sellers' Best Knowledge" . . . . . 2
1.5. "Business Condition" . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. "Business Days". . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. "Buyer's Report" . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8. "Canadian Purchased Assets". . . . . . . . . . . . . . . . . . . . 3
1.9. "Ceridian Performance Partners". . . . . . . . . . . . . . . . . . 3
1.10. "Closing".. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11. "Closing Balance Sheet" . . . . . . . . . . . . . . . . . . . . . 3
1.12. "Closing Book Value". . . . . . . . . . . . . . . . . . . . . . . 3
1.13. "Closing Date". . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14. "Closing Payment" . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15. "COBRA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16. "Code". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.17. "Company Purchased Assets". . . . . . . . . . . . . . . . . . . . 3
1.18. "Company Facility". . . . . . . . . . . . . . . . . . . . . . . . 3
1.19. "Company Products". . . . . . . . . . . . . . . . . . . . . . . . 3
1.20. "Company Software Products" . . . . . . . . . . . . . . . . . . . 3
1.21. "Company Tax Returns" . . . . . . . . . . . . . . . . . . . . . . 3
1.22. "Company Tax" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23. "Consulting/Community Development Business" . . . . . . . . . . . 4
1.24. "Contracts" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.25. "Corporate Sellers" . . . . . . . . . . . . . . . . . . . . . . . 4
1.26. "Customer Contracts". . . . . . . . . . . . . . . . . . . . . . . 4
1.27. "Deciding Accounting Firm". . . . . . . . . . . . . . . . . . . . 4
1.28. "Dispute Resolution". . . . . . . . . . . . . . . . . . . . . . . 4
1.29. "Disposal Site" . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30. "Effective Time". . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31. "Encumbrance" . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32. "Environmental Laws". . . . . . . . . . . . . . . . . . . . . . . 4
1.33. "Environmental Permit". . . . . . . . . . . . . . . . . . . . . . 4
1.34. "Equipment Leases". . . . . . . . . . . . . . . . . . . . . . . . 4
1.35. "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.36. "ERISA Benefit Plan". . . . . . . . . . . . . . . . . . . . . . . 5
1.37. "Escrow Agent". . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.38. "Escrow Agreement". . . . . . . . . . . . . . . . . . . . . . . . 5
1.39. "Excluded Assets" . . . . . . . . . . . . . . . . . . . . . . . . 5
1.40. "Excluded Liabilities". . . . . . . . . . . . . . . . . . . . . . 5
1.41. "First Measurement Date". . . . . . . . . . . . . . . . . . . . . 6
1.42. "GAAP". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.43. "Governmental Entity" . . . . . . . . . . . . . . . . . . . . . . 6
1.44. "Hazardous Material". . . . . . . . . . . . . . . . . . . . . . . 6
1.45. "Hazardous Materials Activity". . . . . . . . . . . . . . . . . . 6
1.46. "Intellectual Property Rights". . . . . . . . . . . . . . . . . . 6
i
<PAGE>
1.47. "Law(s)". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.48. "Leased Real Property". . . . . . . . . . . . . . . . . . . . . . 7
1.49. "Liabilities" . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.50. "Losses". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.54. "Office Leases" . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.55. "Ordinary Course" . . . . . . . . . . . . . . . . . . . . . . . . 7
1.56. "Other Agreements". . . . . . . . . . . . . . . . . . . . . . . . 8
1.57. "Owned Real Property" . . . . . . . . . . . . . . . . . . . . . . 8
1.58. "Permitted Encumbrances". . . . . . . . . . . . . . . . . . . . . 8
1.59. "Person". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.60. "Personal Property" . . . . . . . . . . . . . . . . . . . . . . . 8
1.61. "Purchase Price". . . . . . . . . . . . . . . . . . . . . . . . . 8
1.62. "Purchased Assets". . . . . . . . . . . . . . . . . . . . . . . . 8
1.63. "Records" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.64. "Related Party" . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.65. "Second Measurement Date" . . . . . . . . . . . . . . . . . . . . 9
1.66. "Seller's Report" . . . . . . . . . . . . . . . . . . . . . . . . 9
1.67. "Software". . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.68. "Subsidiary". . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.69. "Tax" or "Taxes". . . . . . . . . . . . . . . . . . . . . . . . .10
1.70. "Tax Agreement" . . . . . . . . . . . . . . . . . . . . . . . . .10
1.71. "Tax Return". . . . . . . . . . . . . . . . . . . . . . . . . . .10
1.72. "Third Party Software". . . . . . . . . . . . . . . . . . . . . .10
1.73. "Top Twenty Customers". . . . . . . . . . . . . . . . . . . . . .10
1.74. "Transactions". . . . . . . . . . . . . . . . . . . . . . . . . .10
1.76. "U.K. Purchased Assets" . . . . . . . . . . . . . . . . . . . . .10
1.77. "Work/Family Business". . . . . . . . . . . . . . . . . . . . . .10
2. THE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.1. The Transactions.. . . . . . . . . . . . . . . . . . . . . . . . .11
2.2. The Purchase Price.. . . . . . . . . . . . . . . . . . . . . . . .11
2.3. Adjustments to Purchase Price. . . . . . . . . . . . . . . . . . .14
2.4. Assignment of Customer Contracts.. . . . . . . . . . . . . . . . .16
2.5. Assignment of Office Leases. . . . . . . . . . . . . . . . . . . .16
2.6. Assignment of Equipment Leases.. . . . . . . . . . . . . . . . . .16
2.7. Assignment of Intellectual Property Rights.. . . . . . . . . . . .16
2.8. Assignment of Licenses, Permits, and Other Governmental
Authorizations.. . . . . . . . . . . . . . . . . . . . . . . . . .16
2.9. Transfer of Assets.. . . . . . . . . . . . . . . . . . . . . . . .16
2.10. Assumption of Liabilities.. . . . . . . . . . . . . . . . . . . .17
3. CERTAIN TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.1. Responsibility for Taxes.. . . . . . . . . . . . . . . . . . . . .17
3.2. Allocation of Purchase Price; Other Tax Matters. . . . . . . . . .17
4. REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . .19
4.1. Authority, Validity of Agreement.. . . . . . . . . . . . . . . . .19
4.2. No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.3. Consents and Approvals of Governmental Authorities.. . . . . . . .19
4.4. Other Consents.. . . . . . . . . . . . . . . . . . . . . . . . . .20
4.5. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . .20
ii
<PAGE>
4.6. Financial Statements.. . . . . . . . . . . . . . . . . . . . . . .20
4.7. Absence of Undisclosed Liabilities.. . . . . . . . . . . . . . . .21
4.8. Purchased Assets.. . . . . . . . . . . . . . . . . . . . . . . . .21
4.9. Plant, Property, and Equipment.. . . . . . . . . . . . . . . . . .21
4.10. Orders, Commitments and Returns.. . . . . . . . . . . . . . . . .22
4.11. Defects in Products, Warranties.. . . . . . . . . . . . . . . . .22
4.12. Real Property.. . . . . . . . . . . . . . . . . . . . . . . . . .22
4.13. Contracts.. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
4.14. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4.15. Compliance with Laws; Licenses. . . . . . . . . . . . . . . . . .25
4.16. Computer Software and Intellectual Property.. . . . . . . . . . .26
4.17. Environmental Matters.. . . . . . . . . . . . . . . . . . . . . .28
4.18. Employee Plans and Arrangements.. . . . . . . . . . . . . . . . .29
4.19. Employees.. . . . . . . . . . . . . . . . . . . . . . . . . . . .31
4.20. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.21. All Compensation and Benefit Data.. . . . . . . . . . . . . . . .32
4.22. Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.23. Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.24. Insider Transactions. . . . . . . . . . . . . . . . . . . . . . .33
4.25. Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . .33
4.26. No Brokerage or Other Fees. . . . . . . . . . . . . . . . . . . .33
4.27. Business Generally. . . . . . . . . . . . . . . . . . . . . . . .33
4.28. Inventories.. . . . . . . . . . . . . . . . . . . . . . . . . . .34
4.29. Year 2000.. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
4.30. Receivables and Payables. . . . . . . . . . . . . . . . . . . . .34
5. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . .35
5.1. Organization and Good Standing of Ceridian Entities. . . . . . . .35
5.2. Authority, Validity of Agreement.. . . . . . . . . . . . . . . . .35
5.3. No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . .35
5.4. Consents and Approvals of Governmental Authorities.. . . . . . . .36
5.5. Other Consents.. . . . . . . . . . . . . . . . . . . . . . . . . .36
5.6. Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
5.7. No Brokerage Fees. . . . . . . . . . . . . . . . . . . . . . . . .36
6. CERTAIN AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .36
6.1. Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . .36
6.2. Personnel Matters for U.S. Employees.. . . . . . . . . . . . . . .36
6.3. Escrow Agreement.. . . . . . . . . . . . . . . . . . . . . . . . .37
6.4. Assignments of Office Lease. . . . . . . . . . . . . . . . . . . .37
6.5. [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . .37
6.6. Assignment and Assumption Agreement. . . . . . . . . . . . . . . .37
6.7. Bills of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . .37
6.8. Trademark Assignment.. . . . . . . . . . . . . . . . . . . . . . .37
6.9. Copyright Assignments. . . . . . . . . . . . . . . . . . . . . . .37
6.10. Transitional Services Agreement.. . . . . . . . . . . . . . . . .38
6.11. F. Rodgers Consulting Agreement.. . . . . . . . . . . . . . . . .38
6.12. William Helm Consulting Agreement.. . . . . . . . . . . . . . . .38
6.13. Bulk Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.14. U.K. Employees. . . . . . . . . . . . . . . . . . . . . . . . . .38
iii
<PAGE>
6.15. Canadian Pension and Benefit Plans. . . . . . . . . . . . . . . .38
6.16. U.K. Lease Assignment.. . . . . . . . . . . . . . . . . . . . . .39
6.17. Canadian Seller Employees.. . . . . . . . . . . . . . . . . . . .39
6.18. Trademark License Agreement.. . . . . . . . . . . . . . . . . . .39
6.19. Purchase of Ceridian Community Resource Development Business. . .39
6.20. Accounts Receivable Guaranty. . . . . . . . . . . . . . . . . . .40
7. THE CLOSING
7.1. Time and Place.. . . . . . . . . . . . . . . . . . . . . . . . . .40
7.2. Sellers' Obligations at Closing. . . . . . . . . . . . . . . . . .40
7.3. Buyer's Obligations at Closing.. . . . . . . . . . . . . . . . . .41
7.4. Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
8. OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . .42
8.1. Further Assurances.. . . . . . . . . . . . . . . . . . . . . . . .42
8.2. Notices and Consents.. . . . . . . . . . . . . . . . . . . . . . .42
8.3. Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
8.4. Access to Properties and Records.. . . . . . . . . . . . . . . . .43
8.5. Post-Closing Confidentiality.. . . . . . . . . . . . . . . . . . .43
8.6. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . .43
8.7. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . .43
8.8. Covenant Not to Compete. . . . . . . . . . . . . . . . . . . . . .44
8.9. Use of Work/Family Directions Name.. . . . . . . . . . . . . . . .45
8.10. Wire of Cash included in Purchased Assets.. . . . . . . . . . . .46
8.11. CRD Materials.. . . . . . . . . . . . . . . . . . . . . . . . . .46
9. SURVIVAL OF REPRESENTATIONS, WARRANTS AND COVENANTS . . . . . . . . . .46
9.1. Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
10.1. Indemnification by Sellers. . . . . . . . . . . . . . . . . . . .47
10.2. Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . .47
10.3. Limitation on Indemnification.. . . . . . . . . . . . . . . . . .47
10.4. Defense Against Asserted Claims.. . . . . . . . . . . . . . . . .48
10.5. Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
11. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.1. No Publicity, Advertisement Without Prior Consultation. . . . . .49
11.2. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.3. Article and Section Headings, Schedules and Exhibits. . . . . . .49
11.4. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.5. Gender and Number.. . . . . . . . . . . . . . . . . . . . . . . .49
11.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.7. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.8. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . .50
11.9. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . .51
11.10. Modifications, Amendments or Waivers.. . . . . . . . . . . . . .51
11.11. Remedies Exclusive.. . . . . . . . . . . . . . . . . . . . . . .51
11.12. Assignment, Successors and Assigns.. . . . . . . . . . . . . . .51
11.13. Equitable Remedies.. . . . . . . . . . . . . . . . . . . . . . .51
iv
<PAGE>
11.14. Joint Preparation. . . . . . . . . . . . . . . . . . . . . . . .51
11.15. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . .51
11.16. Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . .51
11.17. Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
11.18. Stamp Duty.. . . . . . . . . . . . . . . . . . . . . . . . . . .52
</TABLE>
v
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as
of this 17th day of November, 1998, by and among Ceridian Corporation, a
Delaware corporation ("Ceridian"), Ceridian Performance Partners Ltd., a
corporation incorporated under the laws of Canada ("Canadian Buyer"), LETTER
ALLIED Limited, a private limited company which is to be renamed Ceridian
Performance Partners Limited and which is registered in England and Wales as
company number 3658400 and having its registered office at 165 Queen Victoria
Street, London EC4V 4DD ("U.K. Buyer") (Ceridian, Canadian Buyer and U.K. Buyer
are collectively referred to herein as "Buyer" and each of Ceridian, Canadian
Buyer and U.K. Buyer being sometimes referred to as a "Ceridian Entity"),
Work/Family Directions, Inc. a Massachusetts corporation (the "Company"),
Canadian Work/Family Directions Co., a Nova Scotia unlimited liability company
("Canadian Seller"), WFD, an unlimited private company registered in England and
Wales under number 3265909 and having its registered office at Barrington House
59-67 Gresham Street, London EC2V 7JA ("U.K. Seller"), Francene S. Rodgers ("F.
Rodgers"), Charles S. Rodgers ("C. Rodgers") and the other shareholders of the
Company listed on Schedule A hereto (the "Other Shareholders") (the Company,
Canadian Seller, U.K. Seller, F. Rodgers, C. Rodgers and the Other Shareholders
are also individually referred to herein as a "Seller" and collectively referred
to herein as "Sellers").
INTRODUCTION
RECITALS
A. The Canadian Buyer and U.K. Buyer are wholly-owned direct or
indirect subsidiaries of Ceridian. The Canadian Seller and U.K. Seller are
Affiliates (as hereinafter defined) of the Company.
B. Buyer wishes to purchase the Work/Family Business (as hereinafter
defined) and Sellers wish to retain the Consulting/Community Development
Business (as hereinafter defined). The Work/Family Business and the
Consulting/Community Development Business is conducted: in the United States
through the Company; in Canada through the Canadian Seller; and in the United
Kingdom through the U.K. Seller.
C. To implement the foregoing, the Company will sell the Company
Purchased Assets (as hereinafter defined) to Ceridian; the Canadian Seller will
sell the Canadian Purchased Assets (as hereinafter defined) to the Canadian
Buyer; and the U.K. Seller will sell the U.K. Purchased Assets (as hereinafter
defined) to the U.K. Buyer. In addition, (i) Ceridian will assume the Assumed
Liabilities to the extent associated with the Company Purchased Assets, (ii) the
Canadian Buyer will assume the Assumed Liabilities to the extent associated with
the Canadian Purchased Assets, and (iii) the U.K. Buyer will assume the Assumed
Liabilities to the extent associated with the U.K. Purchased Assets.
1
<PAGE>
D. F. Rodgers and C. Rodgers, as the holders, collectively, of a
majority of the outstanding capital stock of the Company, will benefit from the
transactions contemplated by this Agreement.
E. The parties hereto wish to make certain representations,
warranties, covenants and agreements in connection herewith and also to
prescribe various conditions to such transaction.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
ARTICLE
1.
DEFINITIONS
The following terms have the following meanings when used in this
Agreement, unless otherwise specified in the context:
1.1. "AFFILIATE" shall have the meaning assigned to such term in Rule
405, as presently promulgated under the Securities Act of 1933, as amended.
1.2. "ASSETS" means all properties and assets (real, personal or mixed,
tangible or intangible).
1.3. "ASSUMED LIABILITIES" means only (a) liabilities arising under the
Customer Contracts with respect to performance due after the Effective Time;
(b) liabilities arising under licenses to Third-Party Software with respect to
performance due after the Effective Time; (c) liabilities arising under the
Office Leases with respect to performance due after the Effective Time; (d)
liabilities arising under the Equipment Leases with respect to performance due
after the Effective Time; (e) liabilities described in Schedule 1.3; and (f)
liabilities incurred in the Ordinary Course and accrued on the Closing Balance
Sheet, including trade accounts payable, rent, salaries and wages (other than
bonuses), deferred revenue and other accrued expenses, PROVIDED, that the
aggregate liabilities assumed pursuant to clause (f) of this Subsection 1.3
shall not exceed the amount that is accrued therefor on the Closing Balance
Sheet, as defined in Section 2.3(b).
1.4. "BEST KNOWLEDGE OF SELLERS" OR "SELLERS' BEST KNOWLEDGE" means
actual knowledge of any individual listed on SCHEDULE 1.4;
1.5. "BUSINESS CONDITION" means, with respect to any corporation,
association or other business entity (and treating the Work/Family Business as a
separate business entity), the business, financial condition, operations, assets
and liabilities of such entity and its Subsidiaries taken as a whole.
1.6. "BUSINESS DAYS" means any day other than a Saturday, Sunday or a
Massachusetts or Federal holiday or a day when banks are generally closed in
Massachusetts.
1.7. "BUYER'S REPORT" shall have the meaning ascribed thereto in
Section 2.3.
2
<PAGE>
1.8. "CANADIAN PURCHASED ASSETS" means all Assets of the Canadian
Seller (including without limitation the Purchased Assets of the Canadian
Seller) other than the Excluded Assets.
1.9. "CERIDIAN PERFORMANCE PARTNERS" means any division, Affiliate or
subsidiary of Ceridian conducting the Work/Family Business.
1.10. "CLOSING" means the completion of the delivery on the Closing Date
of all of the documents described or referred to in Article 7 of this Agreement
and performance of all of the actions described in Article 7 of this Agreement.
1.11. "CLOSING BALANCE SHEET" shall have the meaning ascribed thereto in
Section 2.3(b).
1.12. "CLOSING BOOK VALUE" means the amount by which the Net Book Value
of the Purchased Assets included on the Closing Balance Sheet exceeds the
Assumed Liabilities.
1.13. "CLOSING DATE" means the date and time as of which the Closing
takes place.
1.14. "CLOSING PAYMENT" means the amounts payable pursuant to Section
2.2(a), as adjusted pursuant to Section 2.3(a).
1.15. "COBRA" means Section 4980B of the Code and Part 6 of Subtitle B
of Title I of ERISA.
1.16. "CODE" means the Internal Revenue Code of 1986, as amended.
1.17. "COMPANY PURCHASED ASSETS" means all Assets of the Company other
than the Excluded Assets.
1.18. "COMPANY FACILITY" means the leased premises scheduled on Schedule
4.12(b).
1.19. "COMPANY PRODUCTS" means all products, software, services and
technology of the Work/Family Business as presently conducted.
1.20. "COMPANY SOFTWARE PRODUCTS" means all Software that is used
internally or has been offered or provided, or is contemplated to be offered or
provided, by the Work/Family Business under license for use by Work/Family
Business's customers. Company Software Products does not include Third Party
Software.
1.21. "COMPANY TAX RETURNS" means all Tax Returns filed or required to
be filed by Sellers or their Affiliates with respect to the Work/Family Business
(including any consolidated, combined or unitary Tax Returns to the extent they
relate thereto).
1.22. "COMPANY TAX" means all liability (including, without limitation,
any contingent liability) for any Tax imposed on, relating or attributable to,
or otherwise payable by or with respect to the Work/Family Business or its
Assets in respect of the period prior to the Closing.
1.23. "CONSULTING/COMMUNITY DEVELOPMENT BUSINESS" means all
workplace-related consulting and/or community investment strategy services,
worldwide, which are provided to businesses on a limited, one-time, or
specified-term basis, rather than on a continuing basis, including, without
limitation, (i) workplace diagnostics and assessments, multi-company research
and pilot program
3
<PAGE>
development, business measurement and analysis, custom designed manager and
employee interventions in respect of specified issues, consultation, and
implementation services concerning the foregoing, (ii) executive and/or manager
briefings and education, (iii) training services to business executives and/or
managers, (iv) training services to employees, and (v) community investment
strategies and the implementation thereof.
1.24. "CONTRACTS" means, except as otherwise provided to the contrary in
this Agreement, all contracts and agreements (written or oral), contract
rights, license agreements, purchase and sales orders, and other executory
commitments.
1.25. "CORPORATE SELLERS" means the Company, the Canadian Seller and the
U.K. Seller.
1.26. "CUSTOMER CONTRACTS" means, except as otherwise provided to the
contrary in this Agreement, all customer Contracts of the Work/Family Business.
1.27. "DECIDING ACCOUNTING FIRM" means PriceWaterhouseCoopers LLC.
1.28. "DISPUTE RESOLUTION" means the following process: if Sellers and
Buyer are unable to resolve any dispute relating to the information contained
in the Buyer's Report, Sellers and Buyer shall submit any disputed items to the
Deciding Accounting Firm, which shall then make a determination as soon as
practicable with respect to the issue or issues so submitted and shall furnish a
written copy of such determination to each of Sellers and Buyer, which
determination shall be binding on Sellers and Buyer.
1.29. "DISPOSAL SITE" means a landfill, disposal agent, waste hauler, or
recycler of Hazardous Materials.
1.30. "EFFECTIVE TIME" means 11:59 P.M. (Eastern Standard Time) on
November 15, 1998.
1.31. "ENCUMBRANCE" means any security interest, mortgage, lien, charge,
assessment, adverse claim, restriction, easement or other encumbrance of any
kind, including, but not limited to, with respect to real property, any
exceptions to title, recorded and unrecorded.
1.32. "ENVIRONMENTAL LAWS" means all laws, rules, regulations, orders,
treaties, statutes, and codes promulgated by any Governmental Entity which
prohibits, regulates or controls any Hazardous Material or any Hazardous
Materials Activity, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Resource
Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act,
the Clean Air Act, comparable laws, rules, regulations, orders, treaties,
statutes and codes of other Governmental Entities, and the regulations and
publications promulgated pursuant to any of the foregoing, and all amendments
and modifications of any of the foregoing now or hereafter enacted.
1.33. "ENVIRONMENTAL PERMIT" means any approval, permit, license,
clearance or consent required to be obtained from any Governmental Entity with
respect to a Hazardous Materials Activity which is or was conducted by Sellers
or any of their Subsidiaries, or any of their respective predecessors, or
otherwise with respect to the Work/Family Business.
1.34. "EQUIPMENT LEASES" means the equipment leases of the Work/Family
Business listed in Schedule 4.13(b).
4
<PAGE>
1.35. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.36. "ERISA BENEFIT PLAN" means any "employee benefit plan" as defined
in Section 3(3) of ERISA, that is subject to any provision of ERISA.
1.37. "ESCROW AGENT" means National City Bank of Minneapolis, Minnesota,
or other such other National banking association as may be designated by
agreement of Sellers and Buyer.
1.38. "ESCROW AGREEMENT" means the Escrow Agreement substantially in the
form attached hereto AS SCHEDULE 1.38.
1.39. "EXCLUDED ASSETS" means cash in excess of Two Million Five Hundred
Forty-seven Thousand Nine Hundred Eighty-two Dollars ($2,547,982), the names
"Work/Family Directions", "WFD" and their derivatives, and those items listed on
SCHEDULE 1.39.
1.40. "EXCLUDED LIABILITIES" means all Liabilities, other than the
Assumed Liabilities, including, without limitation, the following:
(a) Any debts, obligations or liabilities of Sellers or their
Affiliates, whether absolute, accrued, contingent or
otherwise, for (i) Taxes arising with respect to the
operation of the Work/Family Business and/or the
Consulting/Community Development Business on or prior to
the Effective Time other than non-delinquent accrued
payroll Taxes or (ii) Taxes in respect of goods and
services taxes ("GST') in Canada or VAT in the United
Kingdom, as a result of the transactions contemplated by
this Agreement or sales taxes in the United States, Canada
or the United Kingdom as a result of the transactions
contemplated by this Agreement or (iii) the costs of
providing a surety or other guaranty in respect of any
Encumbrance imposed by a Governmental Entity upon any of
the Purchased Assets as a result of Sellers' failure to pay
any Taxes referred to in clause (a)(i) above;
(b) Any Liabilities of Sellers or their Affiliates with respect
to litigation which is, as of the Closing, pending, or
which relates to any act, omission, or event arising prior
to Closing;
(c) Any Liabilities of Sellers or their Affiliates of any kind
or nature, whether absolute, accrued, contingent or
otherwise, which, directly or indirectly, arises under or
relates to any Company ERISA Benefit Plan, Company
Non-ERISA Benefit Arrangement or Employee Agreement (other
than any Employee Agreement listed on Schedule 1.40(c)),
as such terms are defined in Section 4.18, including,
without limitation, any liabilities of Sellers or their
Affiliates of any kind or nature, whether absolute,
accrued, contingent or otherwise, which directly or
indirectly relate to the Work/Family Directions, Inc.
Performance Shares Plan adopted and effective
January 1, 1995;
(d) Any Liabilities of Sellers or their Affiliates of any kind
or nature, whether absolute, accrued, contingent or
otherwise, relating to the environment, including, without
limitation, Liabilities arising under Environmental Laws or
arising from any Hazardous Materials Activity;
5
<PAGE>
(e) Any Liabilities of Sellers or their Affiliates of any kind
or nature related to any debt to any bank or other
financial institution;
(f) Any Liabilities of Sellers or their Affiliates in respect
of notes payable or accrued earnings interest;
(g) Any Liabilities of Sellers or their Affiliates to any
broker, finder, accountant, or attorney for fees due
arising from, or with respect to work performed in
connection with, this Agreement or the Transaction; and
(h) Any Liability not previously paid, satisfied or discharged
related to the provision of services by CSC Consulting
Corp. to Sellers.
1.41. "FIRST MEASUREMENT DATE" shall mean the date which is eighteen
(18) months from the Closing Date.
1.42. "GAAP" means generally accepted accounting principles in effect in
the United States at the time when and for the period as to which such
accounting principles are to be applied.
1.43. "GOVERNMENTAL ENTITY" means any local, state, provincial, federal,
foreign or international governmental authority, agency or other entity,
including, but not limited to, any court, tribunal or panel.
1.44. "HAZARDOUS MATERIAL" means any material or substance (except for
materials or substances commonly used or managed in connection with an office
building and in compliance with Environmental Laws) that is prohibited or
regulated by any Environmental Law or that has been designated by any
Governmental Entity with competent jurisdiction to be radioactive, toxic,
hazardous, a pollutant or otherwise a danger to health, reproduction or the
environment.
1.45. "HAZARDOUS MATERIALS ACTIVITY" means the possession,
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, removal, remediation, release, exposure of others to, sale, or
distribution of, any Hazardous Material or any product containing a Hazardous
Material.
1.46. "INTELLECTUAL PROPERTY RIGHTS" means all of the Corporate Sellers'
rights, title and interest in and to all: (a) United States and foreign patents
and patent applications related to the Work/Family Business; (b) copyrights in
computer programs, databases and other works of authorship related to the
Work/Family Business; (c) trade secrets and proprietary or confidential business
and technical information related to the Work/Family Business; (d) proprietary
"know-how," whether or not protectable by patent, copyright or trade secret
right related to the Work/Family Business; (e) United States and foreign
trademarks, service marks, trade names and associated goodwill, and
registrations or applications for registration of any such marks or names
related to the Work/Family Business; (f) Company Software Products related to
the Work/Family Business; and (g) Third-Party Software related to the
Work/Family Business.
1.47. "LAW(s)" means all applicable laws, statutes, ordinances, rules,
regulations, judgments, administrative requirements, injunctions, stipulations,
decrees and orders of any Governmental Entity.
6
<PAGE>
1.48. "LEASED REAL PROPERTY" means all real property (other than Owned
Real Property) leased, occupied, operated or controlled by the Corporate Sellers
or their Affiliates and used in connection with the Work/Family Business.
1.49. "LIABILITIES" means any and all claims, assessments, charges,
indebtedness or obligations of any nature whatsoever, whether absolute, accrued,
contingent or otherwise, and whether due or to become due.
1.50. "LOSSES" means all Liabilities, losses, damages (but expressly
excluding incidental, consequential and special damages), costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) incurred in connection with the investigation, evaluation, settlement,
defense or prosecution of Liabilities, and shall specifically include any and
all claims, costs, damages, fines, penalties, or liabilities which arise from or
in connection with any Environmental Law. If and to the extent a claim for
indemnification under this Agreement is based upon payments to a third party,
Losses shall also include interest thereon from the date the payments were made
until the same have been reimbursed. Interest as described in this section shall
be the publicly announced prime rate (or reference rate) of interest charged by
the principal banker to the party to whom the interest is to be paid, as in
effect from time to time during the period for which interest is payable.
1.51. "MATERIAL ADVERSE EFFECT" means an event, circumstance, fact, or
condition which individually or in the aggregate, would result in a Liability or
Loss as it relates to the Work/Family Business of One Hundred Fifty Thousand
Dollars ($150,000).
1.52. "NET BOOK VALUE" shall mean (a) the gross book value of the
Purchased Assets (except for those Purchased Assets classified as intangible
assets), less (b) reserves for depreciation, shrinkage and obsolence.
1.53. "NON-ERISA BENEFIT ARRANGEMENTS" means any policy, practice,
program, arrangement, agreement, plan, trust or other method of contribution or
compensation that (a) provides benefits, perquisites or remuneration, other than
current cash compensation, to an employee, former employee or other individual
who provides or provided personal services other than as an employee or to the
dependent or beneficiary of such an employee, former employee or other
individual and (b) is not an ERISA Benefit Plan. Non-ERISA Benefit Arrangement
includes, without limitation, any policy, practice, program, arrangement,
agreement, plan, trust or other method of contribution or compensation providing
for the grant award or sale of stock, stock options, phantom stock or stock
appreciation or depreciation rights; direct or indirect extensions of credit;
health, life or disability benefits; retirement, profit sharing or deferred
compensation benefits; severance and separation benefits; workers' compensation;
vacation and other paid time off; cafeteria and flexible benefits; and incentive
and fringe benefits.
1.54. "OFFICE LEASES" means the current leases scheduled on Schedule
4.12(b).
1.55. "ORDINARY COURSE" means the ordinary course of business of the
respective Corporate Sellers as it relates to the Work/Family Business,
consistent with past practice.
1.56. "OTHER AGREEMENTS" means (a) the Escrow Agreement described in
Section 6.3; (b) the Assignments of Office Leases described in Section 6.4; (c)
the Assignment and Assumption Agreement described in Section 6.6; (d) the Bills
of Sale described in Section 6.7; (e) the Trademark Assignments described in
Section 6.8; (f) the Copyright Assignments described in Section 6.9; (g) the
Transitional Services Agreement described in Section 6.10; (h) the F. Rodgers
Consulting Agreement described in Section 6.11; (i) the William Helm Consulting
Agreement described in Section 6.12; (j) the U.K. Lease
7
<PAGE>
Assignment described in Section 6.16; (k) the Assignment of intellectual
property rights in the U.K. database and the U.K. pamphlets; and (l) the
Trademark License Agreement referred to in Section 6.18.
1.57. "OWNED REAL PROPERTY" means all real property in which the Company
or its Affiliates has any fee or other direct or indirect ownership interest and
which is used in connection with the Work/Family Business.
1.58. "PERMITTED ENCUMBRANCES" means:
(a) Encumbrances in favor of the Buyer or any of its
Affiliates;
(b) Encumbrances existing as of the date of this Agreement and
disclosed in SCHEDULE 1.58(b) hereto;
(c) Encumbrances for Taxes, to the extent that payment of the
same may be postponed or is not required to be paid prior
to the Effective Time in accordance with the provisions of
the Agreement (provided, however, this clause Section
l.58(c) shall not be construed to limit Sellers'
obligations with respect to Sections l.40(a) and 10.1 (b));
(d) landlords' and lessors' liens in respect to rent not in
default or Encumbrances in respect of pledges or deposits
under workmen's compensation, unemployment insurance,
social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', laborers' and
materialmen's and similar Encumbrances, if the obligations
secured by such Encumbrances are not then delinquent; liens
securing the performance of bids, tenders, or contracts
(other than for the payment of money); and statutory
obligations incidental to the conduct of its business and
that do not in the aggregate materially detract from the
value of its property or materially impair the use thereof
in the operation of its business;
(e) rights of lessors under capital leases; and
(f) easements, rights of way, restrictions or Encumbrances
relating to real property and not interfering in a material
way with the Ordinary Course.
1.59. "PERSON" means any natural person, firm, unlimited liability
company, limited liability company, limited liability partnership, corporation,
company (as defined by Companies Act 1985), partnership, association, trust, or
governmental body.
1.60. "PERSONAL PROPERTY" means all inventory, machinery, parts,
equipment, supplies, furniture, computer hardware, automobiles and vehicles and
other tangible personal property.
1.61. "PURCHASE PRICE" means the total amount of money to be paid by
Buyer for the Purchased Assets in accordance with Section 2.2 of this Agreement.
1.62. "PURCHASED ASSETS" means all Assets of the Corporate Sellers,
including, without limitation, the following:
8
<PAGE>
(a) All of the Corporate Sellers' rights under the Contracts
associated with the Work/Family Business, Office Leases and
Equipment Leases arising after the Effective Time;
(b) All of the Corporate Sellers' rights in the Intellectual
Property Rights;
(c) All of the Corporate Sellers' owned Personal Property,
including, without limitation, the tangible personal
property listed on Schedule 4.9;
(d) All of the Corporate Sellers' licenses, permits, and other
governmental authorizations related to the Work/Family
Business, to the extent assignable;
(e) Goodwill of the Work/Family Business;
(f) All Records; and
(g) All accounts receivable with respect to the Work/Family
Business.
provided, however, in no event shall the Purchased Assets include any of the
Excluded Assets.
1.63. "RECORDS" means originals or duplicate copies of all documents,
records, and files, in whatever form, related to the Purchased Assets, or to
employees of the Work/Family Business whose employment transfers to Buyer.
1.64. "RELATED PARTY" means any company (whether or not incorporated)
which is considered a single employer with the Company under Section 414(b),
(c), (m) or (o) of the Code or Title I or IV of ERISA.
1.65. "SECOND MEASUREMENT DATE" shall mean the date which is
twenty-seven (27) months from the Closing Date.
1.66. "SELLER'S REPORT" shall have the meaning ascribed thereto in
Section 2.3.
1.67. "SOFTWARE" means computer programs and databases in any form
(including source code and binary code), and in any stage of development, test
and release, together with all related technical documentation, user manuals,
data files, databases and other works of authorship, and all information and
materials necessary or required for the effective installation, maintenance, use
and support of such computer programs.
1.68. "SUBSIDIARY" of a designated entity means any corporation or other
entity of which securities (or other ownership interests) having ordinary voting
power to elect a majority of the board of directors (or other persons performing
similar functions) are at the time directly or indirectly owned by the
designated entity.
1.69. "TAX" OR "TAXES" means any tax or other levy, assessment, tariff,
duty or deficiency imposed or collected by any Governmental Entity, including,
without limitation, all federal, state, provincial, county, local, and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
occupation, property, excise, value added, goods and services and other taxes,
duties or assessments (including the recapture of any tax items such as
investment tax credits), together with any related interest, penalties and
additions and shall include any transferee or secondary liability for a Tax
9
<PAGE>
and any Tax liability arising as a result of being (or ceasing to be) a member
of any affiliated, consolidated, combined, or unitary group or being included
(or required to be included) in any Tax Return relating thereto.
1.70. "TAX AGREEMENT" means any sharing, allocation, indemnity or other
agreement or arrangement (written or unwritten) with any Affiliate relating to
Taxes (other than this Agreement).
1.71. "TAX RETURN" means any return, report, information return or other
documents (including any related or supporting schedules, statements or
information) filed or required to be filed with any Tax authority or
Governmental Entity in connection with the determination, assessment or
collection of any Taxes of any Person or the administration or any Laws relating
to any Taxes.
1.72. "THIRD PARTY SOFTWARE" means all Software licensed, leased or
loaned by third party vendors or contractors for use by any Seller in connection
with the internal business operations of the Work/Family Business, or for
distribution by the Work/Family Business under sublicense for use by customers,
either on a stand-alone basis or in combination with Company Software Products.
1.73. "TOP TWENTY CUSTOMERS" shall mean the customers of the Work/Family
Business listed on SCHEDULE 1.73 hereto, comprising the twenty (20) largest
customers of the Work/Family Business under written Contract with the Company as
of the Closing Date, based on annualized revenues from January 1, 1998 through
the Closing Date (or such portion of that period during which such customer was
under Contract with the Company).
1.74. "TRANSACTIONS" means the transactions contemplated by this
Agreement.
1.75. "U.K. LEASE" means a lease of the premises at 4th Floor, Celcon
House, 289- 293 High Holburn, London WC1V 7HU and made between Kingsway Group
Plc, WFD and Work/Family Directions, Inc.
1.76. "U.K. PURCHASED ASSETS" means all Assets of the U.K. Seller
(including without limitation the Purchased Assets of the U.K. Seller) other
than the Excluded Assets.
1.77. "WORK/FAMILY BUSINESS" means:
(a) All services, worldwide, which support broad groups of
employees and managers in respect of work/life issues and
which are delivered, as part of a generally available
assistance or managerial coaching program, to employees in
person or via mail, audio tape, video tape, e-mail,
intranet, internet, or through a program of education
seminars; such services include, without limitation,
referrals to care or other professional resources,
non-clinical consultations, employee assistance programs,
general managerial coaching, information on life
transitions, and personal concierge services; and
(b) the Consulting/Community Development Business conducted in
Canada and in the United Kingdom.
10
<PAGE>
ARTICLE
2.
THE TRANSACTIONS
2.1. THE TRANSACTIONS. Subject to the terms and conditions herein, as
of the Effective Time, (i) the Corporate Sellers shall sell, transfer, assign,
convey and deliver to Buyer, and Buyer shall purchase and acquire from the
Corporate Sellers, all of the Purchased Assets free and clear of all
Encumbrances other than Permitted Encumbrances and (ii) Buyer shall assume from
the Corporate Sellers all of the Assumed Liabilities. In furtherance of the
foregoing: (i) the Company shall sell, transfer, assign, convey and deliver to
Ceridian the Company Purchased Assets free and clear of all Encumbrances other
than Permitted Encumbrances, and Ceridian shall purchase and acquire from the
Company all of the Company Purchased Assets free and clear of all Encumbrances
other than Permitted Encumbrances; (ii) the Canadian Seller shall sell,
transfer, assign, convey and deliver to the Canadian Buyer the Canadian
Purchased Assets free and clear of all Encumbrances other than Permitted
Encumbrances, and the Canadian Buyer shall purchase and acquire from the
Canadian Seller all of the Canadian Purchased Assets free and clear of all
Encumbrances other than Permitted Encumbrances; and (iii) the U.K. Seller shall
sell, transfer, assign, convey and deliver to the U.K. Buyer the U.K. Purchased
Assets with full title guarantee (including, without limitation, free and clear
of all Encumbrances, except Permitted Encumbrances), the U.K. Buyer shall
purchase and acquire from the U.K. Seller all of the U.K. Purchased Assets and
the U.K. Buyer will acquire the Work/Family Business in the United Kingdom as a
going concern and will carry it on in succession to the U.K. Seller.
2.2. THE PURCHASE PRICE.
(a) GENERAL. Subject to the adjustment described in Section
2.3, the Purchase Price for the Transactions shall be the
sum of the following:
(i) In respect of the Company:
(A) Seventy-nine Million Six Hundred
Twenty-five Thousand Dollars
($79,625,000), Seventy-eight Million
Six Hundred Twenty-five Thousand
Dollars ($78,625,000) of which shall
be paid in cash or immediately
available funds to the Company and One
Million Dollars ($1,000,000) of which
shall be paid in cash or immediately
available United States funds to the
Escrow Agent, in each case by
Ceridian; and
(B) The contingent payments described in
Section 2.2(b)
(ii) In respect of the Canadian Seller, Forty-six
Thousand Canadian Dollars (C$46,000) payable
by the Canadian Buyer to the Canadian Seller
via check; and
(iii) In respect of the U.K. Seller, Two Hundred
Three Thousand British Pound Sterling
(L203,000) payable by the U.K. Buyer to the
U.K. Seller in cash or immediately available
British funds;
11
<PAGE>
(b) Contingent Payments.
(i) FIRST MEASUREMENT PAYMENT. On the first
business day of the first calendar month
following the First Measurement Date,
Ceridian shall make a payment (the "First
Contingent Payment") to the Company in cash
or immediately available United States funds,
determined as follows: if at least the
respective number set forth below of the Top
Twenty Customers remain as customers of
Ceridian Performance Partners as of the First
Measurement Date, then the amount of the
First Contingent Payment shall be as set
forth below:
<TABLE>
<CAPTION>
First Contingent
Number of Top Twenty Customers Payment Amount
------------------------------ ----------------
<S> <C>
At least 19 $3,000,000
At least 18 $2,250,000
At least 17 $1,500,000
At least 16 $750,000
Fewer than 16 $0
</TABLE>
So, by way of example, if the number of Top
Twenty Customers remaining as of the First
Measurement Date is 18, the amount of the
First Contingent Payment would be Two Million
Two Hundred Fifty Thousand Dollars
($2,250,000). Notwithstanding the foregoing,
for the purposes of this subsection
2.2(b)(i), any Top Twenty Customer who,
following the Closing and prior to the First
Measurement Date, terminates its relationship
with Ceridian Performance Partners primarily
as a result of Ceridian Performance Partners'
failure to perform its obligations to such
customer pursuant to applicable Contracts,
shall be deemed to have remained as a
customer of Ceridian Performance Partners as
of the First Measurement Date; and, PROVIDED
FURTHER, that if any two or more Top Twenty
Customers merge or consolidate with one
another and Ceridian Performance Partners
continues to service the employees of the
combined entity, then the number of such Top
Twenty Customers shall not be deemed reduced
as a result of such merger or consolidation,
and, PROVIDED FURTHER, that if a Contract
with a Top Twenty Customer is renewed or
rewritten in the name of Ceridian Performance
Partners, such Top Twenty Customer shall
continue to be deemed a Top Twenty Customer
for purposes of this Section 2.2(b); and
PROVIDED FURTHER, HOWEVER, that in the event
that, following the Closing and prior to the
First Measurement Date, all or substantially
all of the assets or more than fifty percent
(50%) of the equity of any Top Twenty
Customers is acquired by a third party and,
as a result, the business of such Top Twenty
12
<PAGE>
Customer no longer remains with Ceridian
Performance Partners (each such customer, an
"Acquired Customer"), then (i) if, following
the Closing and prior to the First
Measurement Date, Ceridian Performance
Partners obtains a new customer or customers
principally as a result of the efforts of F.
Rodgers, and (ii) such customer or customers
enter into a Contract (or Contracts) with
Ceridian Performance Partners pursuant to
which Ceridian Performance Partners'
projected aggregate annual revenues for the
twelve (12) months following such Contract
(or Contracts) can reasonably be expected to
be in excess of the annualized revenues
generated by the Acquired Customer (or
Acquired Customers, as the case may be)
during the period from January 1, 1998
through the Closing Date (or for such portion
thereof during which such Acquired Customer
was under Contract with the Company), then
such newly obtained customer, or such newly
obtained customers in the aggregate, as the
case may be, shall be deemed to have been a
Top Twenty Customer as of the Closing for
purposes of this subsection 2.2(b)(i).
(ii) SECOND MEASUREMENT PAYMENT. On the first
business day of the first calendar month
following the Second Measurement Date,
Ceridian shall make a payment (the "Second
Contingent Payment") to the Company in cash
or immediately available United States funds,
determined as follows: if at least the
respective number set forth below of the Top
Twenty Customers remain as customers of
Ceridian Performance Partners as of the
Second Measurement Date, then the amount of
the Second Contingent Payment shall be as set
forth below:
<TABLE>
<CAPTION>
Second Contingent
Number of Top Twenty Customers Payment Amount
------------------------------ ------------------
<S> <C>
At least 19 $2,000,000
At least 18 $1,000,000
At least 17 $500,000
Fewer than 17 $0
</TABLE>
So, by way of example, if the number of Top
Twenty Customers remaining as of the Second
Measurement Date is 18, the amount of the
Second Contingent Payment would be One
Million Dollars ($1,000,000). Notwithstanding
the foregoing, for the purposes of this
subsection 2.2(b)(ii), any Top Twenty
Customer who, following the Closing and prior
to the Second Measurement Date, terminates
its relationship with Ceridian Performance
Partners primarily as a result of Ceridian
Performance Partners' failure to perform its
obligations to such customer pursuant to
applicable
13
<PAGE>
Contracts, shall be deemed to have remained
as a customer of Ceridian Performance
Partners as of the Second Measurement Date;
and, PROVIDED FURTHER, that if any two or
more Top Twenty Customers merge or
consolidate with one another and Ceridian
Performance Partners continues to service the
employees of the combined entity, then the
number of such Top Twenty Customers shall not
be deemed reduced as a result of such merger
or consolidation, and, PROVIDED FURTHER, that
if a Contract with a Top Twenty Customer is
renewed or rewritten in the name of Ceridian
Performance Partners, such Top Twenty
Customer shall continue to be deemed a Top
Twenty Customer for purposes of this Section
2.2(b); and PROVIDED FURTHER, HOWEVER, that
in the event that following the Closing and
prior to the Second Measurement Date, all or
substantially all of the assets or more than
fifty percent (50%) of the equity of any Top
Twenty Customers is acquired by a third party
and, as a result, the business of such Top
Twenty Customer no longer remains with
Ceridian Performance Partners (each such
customer, a "Second Measurement Acquired
Customer"), then (i) if, following the
Closing and prior to the Second Measurement
Date, Ceridian Performance Partners obtains a
new customer or customers principally as a
result of the efforts of F. Rodgers, and (ii)
such customer or customers enter into a
Contract (or Contracts) with Ceridian
Performance Partners pursuant to which
Ceridian Performance Partners' projected
aggregate annual revenues for the twelve (12)
months following such Contract (or Contracts)
can reasonably be expected to be at least one
hundred fifteen percent (115%) of the
annualized revenues generated by the Second
Measurement Acquired Customer (or Second
Measurement Acquired Customers, as the case
may be) during the period from January 1,
1998 through the Closing Date (or for such
portion thereof during which such Second
Measurement Acquired Customer was under
Contract with the Company), then such newly
obtained customer, or such newly obtained
customers in the aggregate, as the case may
be, shall be deemed to have been a Top Twenty
Customer as of the Closing for purposes of
this subsection 2.2(b)(ii).
2.3. ADJUSTMENTS TO PURCHASE PRICE.
(a) Not later than two business days prior to the Closing Date,
Sellers shall deliver to Buyer their good faith estimate of
the Closing Book Value. If the estimated Closing Book Value
is less than Six Million Dollars ($6,000,000), the Closing
Date Payment shall be reduced by an amount (the "Closing
Adjustment") equal to (a) Six Million Dollars ($6,000,000)
less (b) the estimated Closing Book Value.
14
<PAGE>
(b) Within 120 days following the Closing Date, Buyer
will prepare and deliver to Sellers a consolidated
balance sheet (the "Closing Balance Sheet") of the
Work/Family Business, prepared in accordance with
GAAP as utilized by the Corporate Sellers on a
consolidated basis prior to Closing, consistently
applied with the pro forma balance sheet attached as
Schedule 2.3(b), showing, except as noted below, the
Purchased Assets and assumed Liabilities as of the
Effective Time, together with a calculation of the
"Closing Book Value" reflected on the Closing
Balance Sheet ("Buyer's Report"); provided, however,
that for purposes of this subsection 2.3(b) the
Closing Balance Sheet will not include (i) any
Purchased Asset which comprises an intangible asset,
(ii) any Excluded Asset or (iii) any Liability which
is not an Assumed Liability. Notwithstanding the
foregoing or anything else in this Agreement to the
contrary, the Closing Balance Sheet shall be
prepared using the same exchange rates (One Pound
Sterling equals $1.70 U.S. Dollar and One Canadian
Dollar equals $.65 U.S. Dollar). In addition,
notwithstanding anything to the contrary in this
Agreement, for all purposes including tax and
accounting, the profits or losses of the Work/Family
Business from and after the Effective Time shall
accrue for the benefit of, or be to the detriment
of, as the case may be, the Buyer.
(c) Sellers shall have the right to have auditors or
other representatives of their choosing audit the
Buyer's Report and the Buyer shall cooperate with
such audit. Within 60 days after delivery to Sellers
of the Buyer's Report Sellers shall have the right
to object to the information contained in the
Buyer's Report and in such event:
(i) Sellers shall provide Buyer with a written
statement (the "Sellers' Report"), setting
forth an itemized list of Sellers'
objections;
(ii) Sellers and Buyers and their respective
independent accountants, shall attempt to
resolve any dispute as to the information
contained in the Buyer's Report; and
(iii) if the parties and their independent
accountants are unable to reach agreement
within 30 days following delivery of the
Sellers' Report, the parties shall submit to
Dispute Resolution. The fees, costs and
expenses of the Deciding Accounting Firm
shall be paid by the party or parties who do
not prevail in the Dispute Resolution (as
determined by the Deciding Accounting Firm).
(d) Within ten (10) Business Days following the
resolution by the parties of any dispute with
respect to the Buyer's Report or the date on which
Buyer actually receives written determination of the
Deciding Accounting Firm with respect to any such
dispute, as the case may be:
(i) if the Closing Book Value is less than the
remainder of (a) Six Million Dollars
($6,000,000) minus (b) the Closing Adjustment
(if any), then' the Sellers shall make, or
cause the Corporate Sellers to make, a cash
payment to Buyer in an amount equal to such
shortfall; or
(ii) if the Closing Book Value is greater than the
remainder of (a) Six Million Dollars
($6,000,000) minus (b) the Closing Adjustment
(if any),
15
<PAGE>
then Buyer shall make a cash payment to the
Company in an amount equal to such overage.
2.4. ASSIGNMENT OF CUSTOMER CONTRACTS. At the Closing, with respect to
all Customer Contracts: (a) each of the Corporate Sellers shall assign all of
its right, title and interest in and to these Customer Contracts (to which it is
a party) (apart from Customer Contracts which relate to the Work/Family Business
in the UK (the "UK Customer Contracts")) to Buyer notwithstanding any provision
in such Customer Contract purporting to prohibit or limit such assignment
without consent or to require the satisfaction of any conditions in order to
effect such assignment (other than conditions relating to the Corporate Sellers'
obligations under such Customer Contracts relating to any matters other than
assignment of such Customer Contracts) and the U.K. Customer Contracts which are
capable of assignment or in relation to which the party to such Customer
Contract other than the U.K. Seller agrees to such assignment shall be assigned
by the U.K. Seller to the U.K. Buyer and for the avoidance of doubt this
Agreement shall constitute an assignment of such Customer Contracts to the U.K.
Buyer; (b) the parties shall jointly communicate with the customers concerning
such assignment; (c) in the event any such customer objects to such assignment
and insists that the Customer Contract continue to be performed by a Corporate
Seller, until the end of the minimum remaining term of such agreement, Sellers
shall at Buyer's expense (with respect to Sellers' out-of-pocket expense,
including reasonable attorneys' fees) provide their full cooperation and
assistance in the resolution of such situation, including by way of causing such
work to be performed by Buyer on a subcontract basis, and in such event, Buyer
shall insure that continued service is provided to the customer under such
contract and any services so provided shall be performed at Buyers cost and for
its benefit; and (d) to the extent that any U.K. Customer Contracts are not
assigned to the U.K. Buyer at Closing, the U.K. Seller will use all reasonable
endeavors to ensure that the benefits of any such contracts be assigned to the
U.K. Buyer as soon as possible after the Closing provided that the Buyer shall
fully indemnify the U.K. Seller in respect of any costs, liabilities or expenses
arising in connection with the assignment of such Customer contracts and which
are incurred by the U.K. Seller and shall cooperate fully with the U.K. Seller
in obtaining such assignments; and (e) for the avoidance of doubt, the U.K.
Seller shall incur no liability in connection with any failure to obtain consent
to the assignment of a U.K. Customer Contract and shall be fully indemnified by
the Buyer in connection with any liabilities arising in connection therewith.
2.5. ASSIGNMENT OF OFFICE LEASES. At the Closing, the Corporate
Sellers shall assign to Ceridian, the Canadian Buyer or the U.K. Buyer, as the
case may be, all rights in the Office Leases (other than with respect to leased
property in the United Kingdom).
2.6. ASSIGNMENT OF EQUIPMENT LEASES. At the Closing, the Corporate
Sellers shall assign to Ceridian, the Canadian Buyer or the U.K. Buyer, as the
case may be, all rights in the Equipment Leases.
2.7. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS. At the Closing, the
Corporate Sellers shall, to the extent assignable, assign to Ceridian, the
Canadian Buyer or the U.K. Buyer, as the case may be, all rights in the
Intellectual Property Rights (other than any Intellectual Property Rights which
comprise Excluded Assets).
2.8. ASSIGNMENT OF LICENSES, PERMITS, AND OTHER GOVERNMENTAL
AUTHORIZATIONS. At the Closing, the Corporate Sellers shall, to the extent
assignable, assign to Ceridian, the Canadian Buyer or the U.K. Buyer, as the
case may be, the licenses, permits, and other authorizations related to the
Work/Family Business, including those listed in Schedule 4.15(b).
2.9. TRANSFER OF ASSETS.
16
<PAGE>
(a) At the Closing, the Corporate Sellers shall deliver
possession of the tangible Purchased Assets to Ceridian,
the Canadian Buyer or the U.K. Buyer, as the case may be,
such delivery to take place at the locations where such
assets have been located in the Ordinary Course prior to
the Closing.
(b) To the extent that any of the rights assigned to Buyer
hereunder are governed by Contracts that also govern
comparable rights of the Corporate Sellers relating to
assets or operations of the Corporate Sellers not included
in the Purchased Assets or the Work/Family Business, Buyer
shall, upon written request of the Corporate Sellers, use
reasonable commercial efforts to enforce each such Contract
against any other parties to such Contract for the benefit
of the Corporate Sellers as a third party beneficiary, to
the extent such Contract affects or applies to assets or
operations of the Corporate Sellers other than the
Work/Family Business or the Purchased Assets.
2.10. ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall assume and
agree to pay, perform and discharge when due, all of the Assumed Liabilities. In
no event shall Buyer have any obligation to pay, perform and discharge the
Excluded Liabilities. In furtherance of the foregoing; (i) Ceridian shall assume
the Assumed Liabilities associated with the Company Purchased Assets; (ii) the
Canadian Buyer shall assume the Assumed Liabilities associated with the Canadian
Purchased Assets; and (iii) the U.K. Buyer shall assume the Assumed Liabilities
associated with the U.K. Purchased Assets.
ARTICLE
3.
CERTAIN TAX MATTERS
3.1. RESPONSIBILITY FOR TAXES. The Corporate Sellers shall be
responsible for all sales, transfer, and similar taxes or duties, imposed on, or
resulting from, the sale or transfer of the Purchased Assets pursuant to this
Agreement.
3.2. ALLOCATION OF PURCHASE PRICE; OTHER TAX MATTERS.
(a) At or prior to Closing, the Company, Sellers and Buyer
shall allocate the Purchase Price (and all other
capitalized costs) among the Company Purchased Assets as
set forth on SCHEDULE 3.2(a). Such allocation shall be made
as provided in Section 1060 of the Code. Buyer and Sellers
shall report or cause the Company to report (including the
filing of Form 8594 to the Internal Revenue Service) the
sale and purchase of the Purchased Assets for all Tax
purposes in a manner consistent with such allocation.
Schedule 3.2(a) also includes the aggregate fair market
value of each class of assets described in the regulations
promulgated pursuant to Section 1060 of the Code. Buyer and
the Company shall file on a timely basis any amendments
required to Form 8594 as a result of a subsequent increase
or decrease-of the Purchase Price. The Company's United
States Federal Employee Identification Number is
04-2921926. Ceridian's United States Federal Employee
Identification Number is 52-0278528.
(b) The Purchase Price for the Canadian Purchased Assets shall
be allocated in accordance with Schedule 3.2(b). The
Canadian Buyer and Canadian Seller shall follow the agreed
allocation in Schedule 3.2(b) in determining and reporting
17
<PAGE>
their liabilities for any Taxes and, without
limitation, shall file their respective Canadian tax
returns prepared in accordance with such
allocations. The Canadian Buyer and Canadian Seller
shall execute jointly an election in the prescribed
form under Section 22 of the INCOME TAX ACT (Canada)
in respect of the accounts receivable of the
Canadian Seller and shall file such election with
their respective Canadian tax returns for their
respective taxation years that include the Effective
Time. The Canadian Buyer and Canadian Seller shall
execute jointly an election in the prescribed manner
under subsection 20(24) of the INCOME TAX ACT
(Canada) in respect of all deposits and other
prepayments received by the Canadian Seller from
customers of its Work/Family Business. At the
Closing, the Canadian Seller and Canadian Buyer
shall execute jointly an election under Section 167
of the EXCISE TAX ACT (Canada) to have the sale of
the Canadian Purchased Assets take place on a GST-free
basis under Part IX of the EXCISE TAX ACT
(Canada) and the Canadian Buyer shall file such
election with its GST return for the reporting
period in which the sale of the Canadian Purchased
Assets takes place.
(c) The Purchase Price for the U.K. Purchased Assets shall be
allocated in accordance with Schedule 3.2(c). The U.K.
Seller and U.K. Buyer shall follow the agreed allocation in
Schedule 3.2(c) in determining and reporting their
liabilities for any Taxes and, without limitation, shall
file their respective United Kingdom tax returns prepared
in accordance with such allocations. The Sellers and the
Buyer intend that, and shall use all reasonable efforts to
ensure that, the sale and transfer of the UK Purchased
Assets pursuant to this Agreement shall be treated as
neither a supply of goods nor a supply of services for the
purposes of the UK Value Added Tax and accordingly the U.K.
Seller and the U.K. Buyer shall when required to do so give
notice of such sale and transfer to H.M. Customs and Excise
pursuant to paragraph 11 of Schedule 1 to the Value Added
Tax Act 1994 ("VATA") or regulation 6 of the Value Added
Tax Regulations 1995 or as otherwise required by law and
the U.K. Seller shall apply (before or as soon as
reasonably practicable after Closing) to H.M. Customs and
Excise and obtain a direction that all records referred to
in Section 49 VATA may be retained by it and the U.K.
Seller undertakes to preserve those records in such a
manner and for such periods as may be required by law and
during such period to give to the U.K. Buyer (on reasonable
prior notice) reasonable access during normal business
hours to such records. If and to the extent that VAT is
determined by H.M. Customs and Excise to be payable on the
sale, such VAT shall be for the account of the U.K. Seller
and (for the avoidance of doubt) any amounts expressed in
this Agreement to be payable by Buyer shall be inclusive of
VAT. The U.K. Buyer warrants that it is or will at Closing
be a taxable person for VAT purposes and that it intends to
use the U.K. Purchased Assets after Closing in carrying on
the same kind of business as that carried on by the U.K.
Seller.
18
<PAGE>
ARTICLE
4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
As an inducement to Buyer to enter into this Agreement and consummate the
Transactions, Sellers hereby jointly and severally make to Buyer the
representations and warranties contained in this Article 4.
4.1. AUTHORITY, VALIDITY OF AGREEMENT. Each of the Corporate Sellers
has full power and authority to carry on the Work/Family Business as currently
conducted. Each Seller has all requisite corporate power and authority to enter
into this Agreement and the Other Agreements (to the extent such Seller is a
party thereto) and to perform the obligations hereunder and thereunder and to
consummate the transactions contemplated by this Agreement and the Other
Agreements (to the extent such Seller is a party thereto). The execution and
delivery by each Seller of this Agreement and the Other Agreements (to the
extent Seller is a party thereto) and the consummation of the Transactions have
been duly authorized by all necessary action on the part of each Seller and no
other corporate approval is required for the performance by any Seller of his,
her or its obligations hereunder or thereunder. This Agreement has been, and
when executed and delivered on or prior to the Closing each of the Other
Agreements (to the extent such Seller is a party to any Other Agreement) will
have been, duly executed and delivered by each Seller. This Agreement
constitutes, and when executed and delivered at or prior to the Closing each of
the Other Agreements (to the extent such a Seller is a party to the Other
Agreements) will constitute, assuming due authorization, execution and delivery
by Buyer, a valid and binding obligation of each Seller, enforceable in
accordance with its terms (subject to the effect of applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights and to general principles of equity).
4.2. NO VIOLATIONS. Except as set forth on Schedule 4.2, neither (i)
the execution and delivery of this Agreement and, to the extent any Seller is a
party to the Other Agreements, such Other Agreements, by each such Seller nor
(ii) the consummation of the Transactions will: (a) violate any provisions of
the Restated Articles of Organization or Bylaws of the Company, the articles of
association and the memorandum of association of the U.K. Seller, or the
memorandum and articles of association of the Canadian Seller; (b) violate, or
be in conflict with, or constitute a default (or an event which, with or without
due notice or lapse of time, or both, would constitute a default) under, or
cause or permit the acceleration of the maturity of or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any note,
debt, debt instrument, indenture, security agreement, option to purchase, lease,
deed of trust or license, or any other Contract to which any Seller or any of
their Affiliates is a party or by which any of them or any of their Assets is or
may be bound; (c) result in the creation of imposition of any Encumbrance (other
than a Permitted Encumbrance) of any kind upon any of the Purchased Assets under
any debt, obligation, or Contract to which any Seller is a party or by which it
or its Assets is or may be bound; or (d) violate any Laws to which any Seller
may be subject.
4.3. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except for
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), no consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required with respect to any Seller in connection with the execution, delivery
and performance of this Agreement and the Other Agreements by any Seller (which
is a party thereto) or the consummation by any Seller of the Transactions.
19
<PAGE>
4.4. OTHER CONSENTS. Except as set forth on Schedule 4.4. no consent,
waiver or approval of, or notice to, any third party is required or necessary to
be obtained by any Seller in connection with the execution and delivery of this
Agreement or any Other Agreements to which such Seller is a party and the
performance of Sellers' respective obligations hereunder and thereunder.
4.5. ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 4.5,
since January 1, 1998, neither any of the Corporate Sellers nor their Affiliates
to the extent it affects the Work/Family Business, has:
(a) Suffered any change or changes which, individually or in
the aggregate, have had or may reasonably be expected to
have, a Material Adverse Effect on the Business Condition
of the Work/Family Business;
(b) Granted any increase in the compensation of officers or
employees (other than normal increases to non-officer
employees in the Ordinary Course);
(c) Entered into any other transaction, Contract, commitment or
arrangement other than in the Ordinary Course;
(d) Permitted or allowed any of the Purchased Assets to be
subjected to any Encumbrance other than a Permitted
Encumbrance which remains in effect at the date hereof;
(e) Sold, leased or otherwise disposed of any of its Assets,
except in the Ordinary Course;
(f) Licensed, sold, transferred, pledged, modified, disposed of
or permitted to lapse any Intellectual Property Right; or
(g) Agreed, whether in writing or otherwise, to take any action
described in paragraphs (a) through (f) above.
4.6. FINANCIAL STATEMENTS.
(a) Attached as SCHEDULE 4.6 are complete copies of the
following financial statements of the Corporate Sellers or
the Work/Family Business, as the case may be (collectively,
the "Financial Statements"): (i) audited consolidated
financial statements as of December 31, 1995, December 31,
1996 and December 31, 1997 and an unaudited product line
profit and loss statement for the Work/Family Business for
the year ended December 31, 1997; (ii) unaudited
consolidated balance sheets and income statements of the
Corporate Sellers as of March 31, 1998, June 30, 1998,
September 30, 1998 and October 31, 1998; and (iii)
unaudited product line profit and loss statements of the
Work/Family Business as of March 31, 1998, June 30, 1998,
September 30, 1998 and October 31, 1998, an accrued expense
reconciliation as of October 31, 1998 and an unaudited
balance sheet of the Work/Family Business as of October 31,
1998 (the "October 31, 1998 Balance Sheet") (collectively,
the "Unaudited Financial Statements").
20
<PAGE>
(b) Except as disclosed in the Financial Statements, the
Financial Statements (i) have been prepared in accordance
with GAAP consistently applied for all periods (except,
with respect to the Unaudited Financial Statements, for
normal recurring year-end adjustments (the effect of which
will not be materially adverse) and the absence of notes
which, if presented, would not differ materially from those
included in the December 31, 1997 audited financial
statements included in the Financial Statements) and fairly
present in all material respects the consolidated financial
position of the Corporate Sellers and the Work/Family
Business, as the case may be, as of the respective dates
thereof, and the results of operations (or income or loss)
for the Corporate Sellers and the Work/Family Business, as
the case may be, and, in the case of the audited Financial
Statements only, changes in shareholders' equity and
changes in cash flow (or financial position) for the
periods then ended.
(c) The general ledger, accounts receivable, accounts payable,
bank reconciliations and payroll records of the Corporate
Sellers have been maintained in the Ordinary Course.
4.7. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 4.7, the Corporate Sellers have no Liabilities (apart from obligations
for future performance under the Customer Contracts, the Office Leases, and the
Equipment Leases or any Contract set forth on any schedule delivered pursuant to
Section 4.13) which could adversely affect the Business Condition of the
Work/Family Business, except:
(a) Liabilities that are fully accrued or reserved against in
the October 31, 1998 Balance Sheet which have not been paid
or discharged since the date thereof; and
(b) Liabilities incurred since the date of the October 31, 1998
Balance Sheet in the Ordinary Course.
4.8. PURCHASED ASSETS.
(a) TITLE. The Corporate Sellers have good and marketable title
to all of the Purchased Assets. None of such Purchased
Assets is subject to any Encumbrance except for Permitted
Encumbrances.
(b) GENERAL. The Purchased Assets together with the Excluded
Assets constitute all of the property and assets, real,
personal and mixed, tangible and intangible, presently used
to carry on the Work/Family Business, and the Purchased
Assets are adequate to carry on the Work/Family Business as
presently conducted.
4.9. PLANT, PROPERTY, AND EQUIPMENT. Schedule 4.9 contains a true and
correct list of all of the tangible Purchased Assets, except for items with an
initial acquisition value of Seven Hundred Fifty Dollars ($750) or less. The
Leased Real Property, and other plant, property, equipment, leasehold
improvements, and other tangible Assets of the Work/Family Business conform in
all respects with all Laws, are, except as set forth in Schedule 4.9, in good
operating condition and repair (ordinary wear and tear excepted) and are
adequate in all respects for the purposes for which they are being used.
21
<PAGE>
4.10. ORDERS, COMMITMENTS AND RETURNS. All accepted and unfulfilled
orders for the sale of Company Products were made in the Ordinary Course. There
are no written claims pending and unresolved against the Company or its
Affiliates with respect to the Work/Family Business relating to unsatisfactory
performance of services by the Corporate Sellers.
4.11. DEFECTS IN PRODUCTS, WARRANTIES. There are no defects in the
Company Products sold by the Corporate Sellers or their Affiliates which would
adversely affect the performance and quality of such products or services. There
are no express or implied warranties outstanding with respect to the Company
Products except as set forth in SCHEDULE 4.11 hereof.
4.12. REAL PROPERTY.
(a) OWNED REAL PROPERTY. Sellers do not own and have not in
the past owned any Owned Real Property used in connection
with the operation of the Work/Family Business.
(b) LEASED REAL PROPERTY AGREEMENTS. SCHEDULE 4.12(b) sets
forth a true and complete list of all Leased Real Property
and a copy of all of the Office Leases relating thereto.
All the Office Leases are in full force and have not been
further modified, amended, or altered, in writing or
otherwise. Except as expressly set forth in the Office
Leases, none of the leasehold interests of the Corporate
Sellers or their Affiliates in the Leased Real Property is
subject to subordination, foreclosure, termination,
cancellation or extinguishment, whether with notice, by way
of operation of law or otherwise, absent a default under
the lease by the tenant. None of the Office Leases (except
as contemplated by the Transactions) is in default in any
respect by any of the Corporate Sellers or, to Sellers'
Best Knowledge, by other third parties thereto, and no
circumstance exists (other than the need to obtain landlord
consents to the Transactions), which, with notice, the
passage of time or both would (i) constitute a default
under the Office Leases, (ii) provide a basis for
termination under such Office Leases prior to their normal
expiration dates, or (iii) (except as contemplated by the
Transactions) grant to a third party the right to occupy
the premises subject to such Office Leases. There are no
other Contracts to which any Seller is a party that concern
right, title or interest in and to the Leased Real Property
or grant to a third party the right to occupy the premises
used in the Work/Family Business.
(c) LEGAL PROCEEDINGS AFFECTING PROPERTY. Except as disclosed
on Schedule 4.12(c), to the Best Knowledge of the Sellers,
with respect to the Work/Family Business there is not: (i)
any planned public improvement which will result in any
charge being levied or assessed against any Leased Real
Property or which would create any Encumbrance upon such
property; (ii) any condemnation proceeding pending with
respect to any Leased Real Property; (iii) any proposal (of
which Sellers have Best Knowledge) by a Tax authority to
change materially the assessed value or assessment rates of
any Leased Real Property; or (iv) any other pending claim,
suit, proceeding, order or demand of any Governmental
Entity or any Persons which could have an adverse impact on
the value, use or condition of any Leased Real Property.
22
<PAGE>
(d) UTILITIES. All utilities necessary for the normal use and
operation of the Leased Real Property for the purposes for
which they are used by the Work/Family Business in the
Ordinary Course are available at such property.
(e) DISPUTES. No Seller has received from any third party any
notice of any claim, dispute or controversy with respect to
any of the Contracts of the Corporate Sellers or their
Affiliates relating to the Work/Family Business which is
required to be listed in any of the Schedules to this
Section 4.12.
4.13. CONTRACTS.
(a) SCHEDULE 4.13(a)(i) contains a complete list of certain
executory Contracts of the Corporate Sellers' with
customers which Contracts, in the aggregate, comprise at
least seventy percent (70%) of projected fiscal year 1998
annual revenue with respect to the Work/Family Business and
a list of all customers of the Work/Family Business. For
purposes of the preceding sentence a "customer" is a Person
who has purchased goods or services from any of the
Corporate Sellers pursuant to a Contract in connection with
the Work/Family Business since January 1, 1998 or has
committed to purchase goods or services after the date
hereof. SCHEDULE 4.13(a)(ii) contains a list of all written
proposals to customers or potential customers of the
Work/Family Business currently outstanding but unaccepted.
To the Best Knowledge of Sellers, SCHEDULE 4.13(a)(iii)
contains a description of all material oral proposals to
customers or potential customers of the Work/Family
Business currently outstanding but unaccepted. Except as
set forth in SCHEDULE 4.13(a)(iv), since October 1, 1998,
no customers of the Work/Family Business have canceled,
terminated or failed to renew such Contracts, or notified
the Company in writing of their intent to cancel or
terminate or not to renew their Contracts, or, to Sellers'
Best Knowledge, orally notified the Sellers of such
intention, or, to Seller's Best Knowledge, put the services
subject to such Contract out for bid.
(b) SCHEDULE 4.13(b) contains a complete list of Equipment
Leases.
(c) SCHEDULE 4.13(c) contains a complete list of all suppliers
of the Work/Family Business who, since January 1, 1998,
have invoiced any Seller or their Affiliates with respect
to the Work/Family Business for Twenty-five Thousand
Dollars ($25,000) or more, including the types of products
and/or services provided by each such supplier.
(d) SCHEDULE 4.13(d) sets forth a true and complete list of all
Contracts of the types listed below to which any of the
Corporate Sellers is bound (which have not expired or been
terminated), or by which it or any of its Assets is in any
respect bound in connection with the Work/Family Business:
(i) Employment agreements and any written offers
of employment outstanding.
(ii) Royalty agreements.
23
<PAGE>
(iii) Consulting agreements for the provisions of
consulting services to any of the Corporate
Sellers.
(iv) Joint venture or partnership agreements with
any other entity.
(v) [INTENTIONALLY OMITTED]
(vi) Non-competition or similar agreements which
prevent any of the Corporate Sellers (to the
extent it relates to the Work/Family
Business) from competing with any Person or
confidentiality or employee non-solicitation
agreements with any other Person.
(vii) Capitalized leases.
(viii) Any Contract (other than a Contract with a
"customer"' as defined in the second sentence
of Section 4.13(a)), not listed in a Schedule
to this Agreement, requiring the performance
by any of the Corporate Sellers (with respect
to the Work/Family Business) of any
obligation for a period of time extending
more than ninety days from and after the date
of this Agreement or requiring (with respect
to the Work/Family Business) any of the
Corporate Sellers after the date hereof to
pay a consideration or incur costs of more
than Twenty-five Thousand Dollars ($25,000).
SCHEDULE 4.13(d) is organized by the relevant subcategory
described above and sets forth, with respect to each Contract, the
names of the parties thereto, the date of the Contract, and all
amendments or modifications thereto.
(e) The Corporate Sellers (i) have in all respects performed,
and are now performing, the obligations of the Corporate
Sellers under any Contract referred to in the Schedules
delivered pursuant to this Section 4.13, and (ii) are not
in default (or would by the lapse of time or the giving of
notice or both be in default) in respect of any Contract
referred to in the Schedules delivered pursuant to this
Section 4.13. Each of the Contracts shown on the Schedules
delivered pursuant to this Section 4.13 is in full force
and effect and is a valid and enforceable obligation
against the Corporate Sellers (to the extent a Corporate
Seller is a party thereto), and, to the Best Knowledge of
Sellers, against the other party thereto in accordance with
its terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws
affecting creditors' rights, and to general principles of
equity). Except as set forth in Schedule 4.13(e), to the
Best Knowledge of Sellers, no other parties to such
Contracts is in default in any respect (or would by the
lapse of time or the giving of notice or both be in default
in any respect) thereunder or has breached in any respect
any terms or provisions thereof.
(f) No Seller has received from any third party any notice of
any claim, dispute or controversy with respect to any of
the Contracts relating to the Work/Family Business, which
is required to be listed in any of the Schedules delivered
pursuant to this Section 4.13, nor has any Seller or any of
their Affiliates
24
<PAGE>
received notice or warning of alleged nonperformance, delay
in delivery or other noncompliance with respect to its
obligations under any such Contracts.
(g) True and complete copies of all of the original Contracts
(and any current renewal letters relating thereto) referred
to in the Schedules delivered pursuant to this Section 4.13
have been delivered to Buyer (or, in the case of Contracts
with provider Affiliates of the Work/Family Business, true
and complete copies of original Contracts or standard form
contracts and a listing of material deviations therefrom).
4.14. LITIGATION. Except as described on Schedule 4.14, there are no
suits, claims, actions, arbitrations, litigations, legal, administrative or
other proceedings (including without limitation permit revocations, permit
amendments, or administrative complaints of discrimination) or governmental
investigations, pending, or to Sellers' Best Knowledge, threatened against or
adversely affecting the Purchased Assets, or involving any Seller regarding the
Work/Family Business or any of the Corporate Sellers. There are no judicial or
administrative actions, proceedings or investigations pending or, to Sellers'
Best Knowledge, threatened (or any reasonable basis therefor) that question the
validity of this Agreement or the Other Agreements or any action taken or to be
taken by any Seller in connection with this Agreement or the Other Agreements.
4.15. COMPLIANCE WITH LAWS; LICENSES.
(a) The operations and business of the Work/Family Business has
been conducted, and is being conducted, in all respects in
compliance with all Laws and, with respect to the
Work/Family Business, no Seller nor any of its Affiliates
has received any notification that the Work/Family
Business, or any of the Corporate Sellers or any of their
Affiliates, is in violation of any Laws.
(b) SCHEDULE 4.15(b) hereto sets forth a true and complete list
of all governmental approvals, permits, licenses,
certifications or other authorizations required to conduct
the Work/Family Business as presently conducted. All
approvals, permits, licenses, certifications or other
authorizations necessary to conduct the Work/Family
Business as presently conducted have been obtained and are
in full force and effect, and are being complied with in
all respects.
(c) Except as set forth in SCHEDULE 4.15(c) there are no
judgments, orders, injunctions, decrees, stipulations,
awards (whether rendered by a Governmental Entity or by
arbitration) or private settlement agreements presently in
effect involving any Seller or their Affiliates with
respect to the Work/Family Business or against any of their
respective Assets related to the Work/Family Business. All
of the foregoing set forth in Schedule 4.15(c) are being
complied with in all respects.
(d) With respect to the Work/Family Business, no Seller nor any
Affiliates of any Seller nor any director, officer,
employee or agent of any of them acting on their behalf, or
any other Person acting on their behalf has, directly or
indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, competitor or
governmental employee or official which would subject
any of the
25
<PAGE>
Purchased Assets or the Work/Family Business, to any
damage or penalty under any Law in any civil, criminal
or governmental litigation or proceeding.
4.16. COMPUTER SOFTWARE AND INTELLECTUAL PROPERTY.
(a) COMPANY SOFTWARE PRODUCTS. SCHEDULE 4.16(a) contains a
complete list of all Company Software Products which
support the Work/Family Business, including proprietary
databases.
(b) THIRD PARTY SOFTWARE. SCHEDULE 4.16(b) contains a complete
list of all Third Party Software, and all corresponding
license agreements (including title of agreement, effective
date, and names of all parties thereto) under which any
rights to use or distribute Third Party Software have been
granted to any of the Corporate Sellers in respect of the
Work/Family Business, other than license agreements
included in shrink-wrapped software packages. Sellers have
delivered to Buyer complete, true and correct copies of all
such license agreements.
(c) SOURCE CODE ESCROW. Schedule 4.16(c) contains a list of
all agreements (including title of agreement, effective
date, and names of all parties thereto) under which any of
the Corporate Sellers has delivered source code for any
Company Software Product to be held in escrow and released
upon the occurrence of certain events or conditions. The
Corporate Sellers have delivered to Buyer complete, true
and correct copies of all such source code escrow
agreements.
(d) CERTAIN INTELLECTUAL PROPERTY RIGHTS. Schedule 4.16(d)
contains a complete list of the following items included in
the Intellectual Property Rights: (i) United States and
foreign patents and patent applications; (ii) copyrights in
computer programs and other works of authorship which are
registered with any Governmental Entity, or for which
registration applications have been filed; (iii) United
States and foreign trademarks, service marks and trade
names, and all registrations or applications for
registration of any such marks or names; and (iv) URL
sites.
(e) DISCLOSURES.
(i) The Corporate Sellers have the following rights in
the Intellectual Property Rights:
(aa) SCHEDULE 4.16(e)(i)(aa) contains a list of all
Intellectual Property Rights in which any of the
Corporate Sellers has the exclusive and unrestricted
right to possess, use, modify and prepare derivative
works based on, manufacture, reproduce, license,
sell, distribute and dispose, free and clear of all
Encumbrances and rights of third parties; has valid
and enforceable rights free and clear of all
Encumbrances; and has received no claim that any
Intellectual Property Right is in whole or in part
invalid, unenforceable, ineffective or in violation
of the rights of others.
26
<PAGE>
(bb) SCHEDULE 4.16(e)(i)(bb) contains a list of
all Intellectual Property Rights in which any of the
Corporate Sellers has the right to possess, use,
modify and prepare derivative works based on,
manufacture, reproduce, license, sell, distribute
and dispose, subject to restrictions as stated
therein; and has received no claim that any
Intellectual Property Right is in whole or in part
invalid, unenforceable, ineffective or in violation
of the rights of others. Other than any Intellectual
Property Rights specifically scheduled as Excluded
Assets, the Intellectual Property Rights described
on Schedule 4.16(e)(i)(aa), Schedule 4.16(e)(i)(bb)
and Schedule 4.16(e)(i)(cc) constitute all of the
Intellectual Property Rights used in the Work/Family
Business.
(cc) SCHEDULE 4.16(e)(i)(cc) contains a list of
all Intellectual Property Rights in works of
authorship developed by the Consulting/Community
Development Business and heretofore distributed by
the Work/Family Business, in which any of the
Corporate Sellers has the right to possess, use,
modify and prepare derivative works based on,
manufacture, reproduce, license, sell, distribute
and/or dispose, subject to the restrictions as
stated therein; and no Seller has received any claim
that any such Intellectual Property Rights are in
whole or in part invalid, unenforceable, ineffective
or in violation of the rights of others.
(ii) There is no pending claim or litigation and, to each
Seller's Best Knowledge, there is no threatened
claim or litigation, contesting the right to use,
sell, license or dispose of any Company Software
Product or Intellectual Property Right, nor is there
any fact or alleged fact which would reasonably
serve as a basis for any such claim that could limit
the protection afforded by the Intellectual Property
Rights to the use, sale, license, or disposition of
the Company Software Products.
(iii) Each Person who participated in the creation of the
Work/Family Business's Company Software Products
either has executed an assignment of rights of
ownership to a Corporate Seller, as the case may be,
or was an employee of a Corporate Seller acting
within the scope of his or her employment at the
time of such creation.
(iv) Each of the Corporate Sellers is in compliance with
the terms and conditions of all license agreements
governing the use of Third Party Software.
(v) All Third Party Software used by any of the
Corporate Sellers for its internal business
operations (including product development and
testing) is licensed for use only on computer
equipment located at the Corporate Sellers' sites or
on computers under control of the Corporate Sellers'
employees.
27
<PAGE>
(vi) Each of the Corporate Sellers has taken all
reasonable steps to safeguard and maintain the
secrecy and confidentiality of all trade secrets and
proprietary or confidential business and technical
information included in the Intellectual Property
Rights, including, without limitation, entering into
appropriate confidentiality or disclosure agreements
with all employees, officers, directors,
consultants, independent contractors and licensees
that serve the Corporate Sellers, true and correct
forms of which have been delivered to Buyer.
(vii) All documents and materials containing trade secrets
or proprietary or confidential business or technical
information of the Corporate Sellers (including
without limitation unpublished source code for the
Company Software Products) are presently and as of
the Effective Time will be located at one of the
premises identified as Leased Real Property in
SCHEDULE 4.12(b), and as applicable, at any escrow
agents' sites listed on SCHEDULE 4.16(c), and to
each Seller's Best Knowledge have not been used,
divulged, or appropriated for the benefit of any
Person other than the Corporate Sellers, or to the
detriment of any of the Corporate Sellers.
(viii) To the Sellers' Best Knowledge, no third party is
infringing on any Intellectual Property Right in a
manner that could limit the protection afforded by
the Intellectual Property Rights to the use, sale,
license or disposition of the Company Software
Products.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the Transactions
will not breach, violate or conflict with any
instrument or material agreement governing any
Intellectual Property Right, will not cause the
forfeiture or termination or give rise to a right of
forfeiture or termination of any Intellectual
Property Right or in any way impair the right of
Buyer to use, sell, license or dispose of or bring
any action for the infringement of, any Intellectual
Property Right or any Company Software Product.
(f) OTHER. The Intellectual Property Rights constitute all of
the intellectual property used in the Work/Family Business.
4.17. ENVIRONMENTAL MATTERS.
(a) There are no underground storage tanks present on any
Company Facility.
(b) Neither the Company nor its Affiliates holds or is required
to hold any Environmental Permits necessary for the
continued conduct of any Hazardous Material Activity of the
Work/Family Business as such activities are currently being
conducted.
(c) No Corporate Seller has transferred (other than through
permitted means in accordance with Laws) or released
Hazardous Materials.
(d) The Corporate Sellers have delivered to Buyer all records
concerning any Hazardous Materials Activities of the
Work/Family Business and all environmental audits and
environmental assessments of any Company Facility
28
<PAGE>
conducted at the request of, or otherwise in the
possession of, the Corporate Sellers or any of their
Affiliates.
(e) No Hazardous Material is present on any Company Facility in
a manner which would have a Material Adverse Effect and, no
reasonable likelihood exists that any Hazardous Material
present on other property will come to be present on a
Company Facility.
(f) Neither any Corporate Seller nor any of their Affiliates
with respect to the Work/Family Business has ever conducted
any Hazardous Material Activity in violation of any
applicable Environmental Law. Except as set forth in
Schedule 4.17, no Corporate Seller is engaged in any
Hazardous Materials Activity with respect to the
Work/Family Business which has at any time caused or
resulted in the exposure of any Person to a Hazardous
Material in a manner which has caused or will cause an
adverse health effect to said Person.
(g) Neither Seller nor any of their Affiliates with respect to
the Work/Family Business is liable for any remediation or
removal of Hazardous Materials from any Disposal Site,
including the Company's Facilities, or with respect to
investigation thereof.
(h) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to
Sellers' Best Knowledge threatened, concerning or relating
to any Company Facility, any Environmental Permit or any
Hazardous Materials Activity of the Work/Family Business.
No facts or circumstances exist which could with notice,
the passage of time, or both, result in such an action,
proceeding or claim.
4.18. EMPLOYEE PLANS AND ARRANGEMENTS.
(a) Neither Sellers nor any Related Party sponsors, maintains,
administers, contributes to or has or could reasonably be
expected to have any Liability with respect to any ERISA
Benefit Plan other than an ERISA Benefit Plan specifically
listed on SCHEDULE 4.18(a) (a "Company ERISA Benefit
Plan"). No Company ERISA Benefit Plan is subject to Code
Section 412 or Part 3 of Subtitle B of Title I of ERISA or
Title IV of ERISA. Schedule 4.18(a) also lists the
outstanding balances as of the Effective Time of any loans
under the Company's 40 1 (k) Plan.
(b) No Corporate Seller nor any Related Party sponsors,
maintains, administers, contributes to, is a party to or
has or could reasonably be expected to have any Liability
with respect to (i) any Non-ERISA Benefit Arrangement other
than a Non-ERISA Benefit Arrangement specifically listed on
SCHEDULE 4.18(b) (a "Company Non-ERISA Benefit
Arrangement"), or (ii) employment agreement, collective
bargaining agreement, consulting agreement, confidentiality
agreement, agreement not to compete or other labor
agreement between Seller or a Related Party and any
individual who provides or provided personal services to
either Seller or a Related Party as an employee or
otherwise or such individual's employer or agent (an
"Employee Agreement") other than an Employee Agreement
specifically listed on Schedule 4.18(b).
29
<PAGE>
(c) True and complete copies of each of the following documents
have been delivered to Buyer: (i) each Non-ERISA Benefit
Arrangement operated by any of the Corporate Sellers or, a
complete description of any Non-ERISA Benefit Arrangement
that is not in writing and a complete and accurate
description of the individuals covered by each such
arrangement; (ii) all written documents of any nature
establishing the terms and conditions of each Employee
Agreement or a complete description of any Employee
Agreement that is not in writing; (iii) all written
documents of any nature establishing the terms and
conditions of each Company ERISA Benefit plan and related
trust or insurance agreements or contracts evidencing any
funding vehicle with respect thereto; (iv) the three most
recent annual reports on Treasury Form 5500, including all
schedules and attachments, with respect to any plan for
which such a report is required; (v) the form of summary
plan description, including any summary of material
modifications thereto or other modifications communicated
to participants; and (vi) the most recent determination
letter with respect to each Company ERISA Benefit Plan
intended to qualify under Section 401(a) of the Code and
the full and complete application therefor submitted to the
Internal Revenue Service.
(d) There are no facts or circumstances relating to any Company
ERISA Benefit Plan that could, directly or indirectly,
subject Company or any Related Party to any liability
pursuant to COBRA.
(e) There are no facts or circumstances relating to any Company
ERISA Benefit Plan, Non-ERISA Benefit Arrangement operated
by any of the Corporate Sellers or Employee Agreement that
could, directly or indirectly, subject the Buyer or any of
its Affiliates to any Liability.
(f) [INTENTIONALLY OMITTED]
(g) Neither the Canadian Seller, nor any related party
sponsors, maintains, administers or contributes to or has
or could reasonably be expected to have any Liability with
respect to any "registered pension plan" as that term is
defined in subsection 248(l) of the INCOME TAX ACT (Canada)
or with respect to any plans, arrangements, agreements,
programs, policies or practices, whether oral or written,
formal or informal, funded or unfunded, relating to
retirement savings or pensions, including, without
limitation, any group registered retirement savings plan,
or supplemental pension or retirement plan; any bonus,
profit sharing, deferred compensation, incentive
compensation, hospitalization, health, dental, disability,
unemployment insurance, vacation pay, severance pay or
other benefit plan with respect to any of the employees
situated in Canada who are to become employees of the
Canadian Buyer (the "Canadian Transferred Employees"),
other than: (i) all statutory plans which the Canadian
Seller or any related party is required to comply with,
including, without limitation, the Canada Pension Plan and
plans administered pursuant to applicable provincial health
tax, workers' compensation and unemployment insurance
legislation; and (ii) those plans, policies and
arrangements set out in Schedule 4.18(g) (the "Canadian
Employee Benefit Plans").
(h) With respect to the Canadian Employee Benefit Plans, (i)
each of the Canadian Employee Benefit Plans are, and have
been, established, registered, qualified,
30
<PAGE>
administered, contributed to and invested, in compliance
with the terms thereof, and all Laws; (ii) all obligations
under the Canadian Employee Benefit Plans (whether pursuant
to the terms thereof or Laws) have been satisfied;
(iii) all contributions or premiums required to be. paid
to or in respect of each of the Canadian Employee Benefit
Plans have been paid in a timely fashion in accordance with
the terms thereof and all Laws; (iv) no Taxes, penalties or
fees are owing or eligible under any Canadian Employee
Benefit Plan; and (v) there is no proceeding, action, suit
or claim (other than routine claims for benefits) pending
or to Canadian Seller's knowledge, threatened involving any
Canadian Employee Benefit Plan or its assets, and to
Canadian Seller's knowledge, no facts exist which could
reasonably be expected to give rise to any such proceeding,
action, suit or claim (other than routine claims for
benefits).
4.19. EMPLOYEES.
(a) With respect to the Work/Family Business, no Corporate
Seller nor any of their Affiliates (i) is a member of any
multi-employer bargaining group, (ii) has withdrawn from
any multi-employer bargaining group within the past five
years, or (iii) within the past three years has defeated
any collective bargaining representation petition or
application for certification, removed any existing
collective bargaining authority, or defeated any
multi-employer bargaining group or other third party
with respect to employees of the Work/Family Business.
(b) The Corporate Sellers have complied in all respects with
all Laws respecting employment and employment practices,
terms and conditions of employment, and wages and hours
with respect to employees of the Work/Family Business.
(c) There is no strike, labor dispute, work slowdown or work
stoppage actually pending or, to the Sellers' Best
Knowledge, threatened, against any of the Corporate
Sellers. No collective bargaining representation petition
or application for certification or collective bargaining
agreement grievance is pending or, to the Sellers' Best
Knowledge, threatened against any of the Corporate Sellers
or any of their Affiliates with respect to the Work/Family
Business.
(d) As of the Effective Time, the Corporate Sellers will have
paid or reserved on their books any and all obligations for
vacation pay, severance pay, layoff or termination, or
other amounts that may be due any Person including, but not
limited to, by reason of any action taken under this
Agreement. For each employee of the Work/Family Business
employed immediately prior to the Effective Time, Schedule
4.19(d) lists, as of October 31, 1998, the employee's
accrued and unused vacation and sick time and sick leave
bank time.
(e) None of the Corporate Sellers nor any of their Affiliates
with respect to the Work/Family Business is a joint
employer with any other legal entity and does not control
labor relations or operations of any other legal entity.
(f) No Corporate Seller employs or otherwise obtains the
services of any "leased employee" (as such term is defined
in the Code).
31
<PAGE>
(g) All employees of the Work/Family Business are employees of
one of the Corporate Sellers.
(h) SCHEDULE 4.19(h) lists the names, titles, date of
employment and re-employment, and current base compensation
rates for each employee of the Work/Family Business as of a
recent date, and the amount of bonuses paid during the most
recent full fiscal year to each employee.
(i) SCHEDULE 4.19(i) lists each Inactive Employee, within the
meaning of Section 6.2, as of the Effective Time, the date
on which his or her absence commenced and the reason for
the absence.
4.20. COMPENSATION. Except as set forth in SCHEDULE 4.20, none of the
Corporate Sellers nor any of their Affiliates with respect to the Work/Family
Business is a party, or is subject, to any plan, Contract or understanding
providing for any incentive compensation, bonuses, commissions, or similar
obligations of any kind, including any incentive compensation, bonus, retention
bonus, sale bonus, or similar obligations relating to the Transaction, and
copies of all such plans, contracts, and understandings have been provided to
Buyer.
4.21. ALL COMPENSATION AND BENEFIT DATA. All data furnished by any
Seller to Buyer with respect to any Employee Agreements which is an Assumed
Liability is accurate and complete in all respects.
4.22. INSURANCE. There has been, and there is now, insurance maintained
for the benefit of the Work/Family Business with reputable and responsible
insurance companies or associations, in such amounts and covering such risk as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general area in which the Work/Family Business operates.
Except for the deductible amount, to the Sellers' Best Knowledge such insurance
is adequate to cover the replacement cost of the tangible Personal Property and
real property improvements of the Work/Family Business. Schedule 4.22 contains
an accurate and complete description of all policies of general liability,
theft, fire, flood, windstorm, earthquake, workers' compensation, life, health,
dental, disability, business travel accident, directors and officers, and other
forms of insurance owned or held by the Corporate Sellers or their Affiliates
for the benefit of the Work/Family Business, specifying the insurer, amount of
coverage, dates of coverage, type of insurance, policy number, any pending
claims thereunder, and a description of whether such policies cover occurrences
which took place prior to the Effective Time, regardless of whether claims
therefor are made after the Effective Time. All available claims under such
insurance have been properly filed by the Corporate Sellers or their Affiliates.
All such policies are (i) in full force and effect and all premiums due with
respect thereto are currently paid; (ii) are sufficient for compliance with all
requirements of Law and of all agreements to which any of the Corporate Sellers
or any of their Affiliates is a party; (iii) are valid, outstanding and
enforceable policies; and (iv) provide in the reasonable judgment of the
Corporate Sellers adequate insurance coverage for the assets and operations of
the Work/Family Business as presently conducted. None of the Corporate Sellers
nor any of their Affiliates has, during the last three fiscal years, been denied
or had revoked or rescinded any policy of insurance except as set forth in
Schedule 4.22. Listed on Schedule 4.22 are all outstanding bonds required by
any customer.
4.23. TAXES.
32
<PAGE>
(a) Neither Buyer nor the Purchased Assets will suffer or be
adversely affected by any Losses or Liabilities arising
from or related to any Taxes by reason of any action taken
or not taken or arising from or related to the activities
of the Work/Family Business, the Sellers, or their
Affiliates for the period prior to the Effective Time.
(b) To the extent requested in writing by Buyer, there have
been delivered to Buyer true and complete copies of all
Company Tax Returns and Tax workpapers and all Revenue
agent (or other) reports, findings, proposed assessments,
deficiency (or other) notices, opinions, letters,
agreements (including any Tax Agreement), elections, claims
or demands and all other items relating to Taxes.
(c) The Canadian Seller is not a non-resident of Canada for the
purposes of the Income Tax Act (Canada).
(d) The Canadian Seller is a "registrant' under Part IX of the
Excise Tax Act (Canada). The Canadian Seller's GST
registration number is 886404797RT.
(e) None of the U.K. Purchased Assets is a capital item for
purposes of Part XV of the U.K. Value Added Tax Regulations
1995.
4.24. INSIDER TRANSACTIONS. No Person related to any Seller has any
interest in (a) any Purchased Asset, or (b) any creditor, supplier, customer,
manufacturer, distributor or reseller of products of the Work/Family Business;
PROVIDED, HOWEVER, that (1) no such other Person shall be deemed to have such an
interest solely by virtue of the ownership of less than 1% of the outstanding
voting stock or debt securities of any publicly held company, the stock or debt
securities of which are traded on a recognized stock exchange or quoted on the
National Association of Securities Dealers Automation Quotation System, and (2)
no other Person shall be deemed to have such an interest solely by virtue of the
ownership by a partnership in which he is a partner of less than 5% of the
outstanding voting stock or debt securities of any privately held company.
4.25. POWERS OF ATTORNEY. None of the Corporate Sellers nor their
Affiliates has granted, and there are not outstanding, any general or special
powers of attorney or comparable delegations of authority, which would be
binding upon Buyer, the Work/Family Business or any of their respective Assets,
after the Closing.
4.26. NO BROKERAGE OR OTHER FEES. Except as set forth on SCHEDULE 4.26,
no broker or finder has acted for any Seller in connection with this Agreement
or the Transactions. No Person is entitled to any brokerage or finder fee or
commission from Buyer as a result of any Seller's actions in respect to this
Agreement or any such transaction.
4.27. BUSINESS GENERALLY. Other than as specifically disclosed in any
schedule called for by this Article 4, there has been no event, transaction or
information which has come to the attention of the Sellers which, as it relates
to the Work/Family Business, would individually, or in the aggregate, reasonably
be expected to have a Material Adverse Effect on the Business Condition of the
Corporate Sellers. To the Sellers' Best Knowledge, the Corporate Sellers have a
good commercial working relationship with their respective customers, dealers
and suppliers. The Work/Family Business is conducted in Canada in all material
respects exclusively through the Canadian Seller and in the United Kingdom in
all material respects exclusively through the U.K. Seller.
33
<PAGE>
4.28. INVENTORIES. All inventory of the Work/Family Business, whether
reflected in the Financial Statements or otherwise, consists of a quality and
quantity usable and saleable in the Ordinary Course, and the present quantities
of all inventory of the Work/Family Business are reasonable in the present
circumstances of the Work/Family Business as currently conducted.
4.29. YEAR 2000. Sellers have reviewed the areas within its businesses
and operations which it reasonably believes could be adversely affected by, and
has developed a program it reasonably believes will address and remediate on a
timely basis, the so-called "Year 2000 Problem" (i.e., the risk that
applications used by Sellers or its suppliers and/or providers may be unable to
recognize and properly perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999) with respect to the operations of
the Work/Family Business. Sellers have attached hereto as Schedule 4.29 its good
faith estimate as to what it would cost Sellers to remediate the Year 2000
Problem. Sellers make no other Year 2000 compliance representations or
warranties, express or implied, as to any kind of costs with respect to, or
affect, adverse or otherwise, upon any of Corporate Sellers' software, hardware,
databases or embedded control systems (microprocessor controlled or controlled
by any robotic or other device) or upon any of the Purchased Assets or Assumed
Liabilities, with respect to being able to accurately process date data,
including, but not limited to calculating, comparing and sequencing from, into
and between the twentieth century (through year 1999), the Year 2000 and the
twenty-first century, including leap year calculations.
4.30. RECEIVABLES AND PAYABLES.
(a) Except as set forth on Schedule 4.30, (i) each of the
Corporate Sellers, as the case may be, has good right,
title and interest in and to all its accounts and notes
receivable and trade notes and trade accounts constituting
Purchased Assets; (ii) none of such accounts and notes
receivable and trade notes and trade accounts is subject to
any Encumbrance; (iii) each such account and note
receivable and trade note and trade account arose from a
bona fide transaction in the Ordinary Course; (iv) as of
October 31, 1998 no account or note debtor whose account or
note balance exceeds the amount set forth in SCHEDULE 4.30
at the date set forth therein was delinquent in payment by
more than ninety (90) days; and (v) as of September 30,
1998, the aging schedule of the accounts and notes
receivable and trade notes and trade accounts of the
Corporate Sellers previously furnished to Buyer was
complete and accurate.
(b) All accounts payable included in the Assumed Liabilities
arose in bona fide transactions in the Ordinary Course and
no such account payable is delinquent.
Notwithstanding anything contained in this Agreement to the contrary, except as
expressly set forth in Schedule 7.2(o), Buyer acknowledges and consents to the
fact that Sellers have not obtained any consents to assign any Customer
Contracts or Office Leases or other Contracts to which any Corporate Seller is a
party relating to the Work/Family Business or, with respect to the 926 Office
Lease (as hereinafter defined), to sublet a portion of the premises subject to
such Office Lease, from the other parties thereto or satisfied any conditions
(other than conditions relating to the Corporate Sellers' obligations under such
Customer Contracts or Office Leases or other Contracts to which any Corporate
Seller is a party relating to the Work/Family Business relating to any matters
other than the assignment of such Customer Contracts or Office Leases or other
Contracts to which any Corporate Seller is a party relating to the Work/Family
Business) with respect to the assignment of any such Customer Contract, Office
Lease or other Contract or, with respect to the 926 Office Lease, to sublet a
portion of the premises subject to such Office Lease, included in the Purchased
Assets or Assumed Liabilities; provided, however, in the event a
34
<PAGE>
Top Twenty Customer terminates, cancels or fails to renew a Contract as a
result of such failure to obtain a consent or to satisfy such conditions,
such customer shall be considered a lost Top Twenty Customer for purposes of
Section 2.2(b).
ARTICLE
5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers that the following statements,
each of which are acknowledged to be material and relied upon by Sellers, are
true and correct.
5.1. ORGANIZATION AND GOOD STANDING OF CERIDIAN ENTITIES. Ceridian is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Canadian Buyer is a corporation duly incorporated
and validly existing under the laws of Canada. Each of Ceridian and Canadian
Buyer is qualified to do business and in good standing in each state, province
and jurisdiction where such qualification is required and where the failure to
be so qualified would have a Material Adverse Effect on Buyer. U.K. Buyer is
validly incorporated as a private limited company in England and Wales.
5.2. AUTHORITY, VALIDITY OF AGREEMENT. Each of Ceridian, the Canadian
Buyer and the U.K. Buyer has all requisite corporate power and authority to
enter into this Agreement and the Other Agreements (to the extent such entitles
are a party thereto) and to perform the obligations hereunder and thereunder and
to consummate the transactions contemplated by this Agreement and the Other
Agreements (to the extent such entitles are a party thereto). The execution and
delivery of this Agreement and the Other Agreements (to the extent Ceridian, the
Canadian Buyer or the UK Buyer is a party thereto), and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of Ceridian, the Canadian Buyer or the U.K. Buyer,
as the case may be, and no other corporate approval is required for the
performance by Ceridian, the Canadian Buyer or the U.K. Buyer, as the case may
be, of its obligations hereunder and thereunder. This Agreement the Other
Agreements (to the extent Ceridian, the Canadian Buyer or the U.K. Buyer is a
party thereto) have been, duly executed and delivered by Ceridian, the Canadian
Buyer or the U.K. Buyer, as the case may be. This Agreement constitutes, and
when executed and delivered at or prior to the Closing each of the Other
Agreements (to the extent Ceridian, the Canadian Buyer or the U.K. Buyer is a
party thereto) will constitute, assuming due authorization, execution and
delivery by Sellers, a valid and binding obligation of Ceridian, the Canadian
Buyer or the U.K. Buyer, as the case may be, enforceable in accordance with its
terms (subject to the effect of applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors' rights and to
general principles of equity).
5.3. NO VIOLATIONS. Neither the execution and delivery of this
Agreement and the Other Agreements by Ceridian, the Canadian Buyer or the U.K.
Buyer, as the case may be, nor the consummation of the transactions contemplated
hereby or thereby will (a) violate any provisions of the Certificate of
Incorporation or bylaws of Ceridian, the articles of incorporation or bylaws of
the Canadian Buyer or the articles of association of the U.K. Buyer, or (b)
violate, or be in conflict with, or constitute a default (or an event which,
with or without due notice or lapse of time, or both, would constitute a
default) under, or cause or permit the acceleration of the maturity of or give
rise to any right of termination, cancellation, imposition of fees or penalties
under, any note, debt, debt instrument, indenture, security agreement, option to
purchase, lease, deed of trust or license, or any other Contract to which
Ceridian, the Canadian Buyer or the U.K. Buyer or any of their Affiliates is a
party or by which
35
<PAGE>
any of them or any of their Assets is or may be bound, or (c) violate any
Laws to which Ceridian, the Canadian Buyer or the U.K. Buyer may be subject.
5.4. CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except for
applicable requirements of the HSR Act, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required with respect to Ceridian, the Canadian Buyer or the U.K.
Buyer in connection with the execution delivery and performance of this
Agreement and the Other Agreements (to the extent Ceridian, the Canadian Buyer
or the U.K. Buyer is a party thereto) by Ceridian, the Canadian Buyer or the
U.K. Buyer, as the case may be, or the consummation by Ceridian, the Canadian
Buyer or the U.K. Buyer, as the case may be, of the transactions contemplated
hereby and thereby.
5.5. OTHER CONSENTS. No consent, waiver or approval of, or notice to,
any third party is required or necessary to be obtained solely by Ceridian, the
Canadian Buyer or the U.K. Buyer, as the case may be, in connection with the
execution and delivery of this Agreement or any Other Agreement (to the extent
Ceridian, the Canadian Buyer or the U.K. Buyer is a party thereto) and the
performance of Ceridian's, the Canadian Buyer's or the U.K. Buyer's, obligations
hereunder and thereunder (other than any consent requirements contained in any
Contract included in the Purchased Assets with respect to the assignability
thereof).
5.6. LITIGATION. There is no litigation or governmental proceeding
pending or, to the Buyer's best knowledge, threatened against Ceridian, the
Canadian Buyer or the U.K. Buyer which would prevent or hinder Buyer from
consummating the Transactions.
5.7. NO BROKERAGE FEES. No broker or finder has acted for Ceridian,
the Canadian Buyer or the U.K. Buyer in connection with this Agreement or the
transactions contemplated hereby, and no Person is entitled to any brokerage or
finder fee or commission from Sellers as a result of Buyer's actions in respect
to this Agreement or any such transaction.
ARTICLE
6.
CERTAIN AGREEMENTS
The parties further agree as set forth below in this Article 6.
6.1. EMPLOYEE BENEFIT PLANS. The Company shall retain all Company
ERISA Benefit Plans, Company Non-ERISA Benefit Arrangements and Employee
Agreements and all Liabilities, rights, duties and obligations of any nature
which, directly or indirectly, arise under or relate to any Company ERISA
Benefit Plan, Company Non-ERISA Benefit Arrangement or Employee Agreement,
including, without limitation, any such Liabilities, rights, duties and
obligations arising under COBRA.
6.2. PERSONNEL MATTERS FOR U.S. EMPLOYEES. As of the Effective Time,
Ceridian will be deemed to have offered the employees of the Company listed on
Schedule 6.2 employment with Ceridian at salaries or wages which are not less
than those provided by the Company as of the date of this Agreement. Nothing
herein shall limit the discretion of Ceridian to change the terms of, terminate
or eliminate such employment at any time subsequent to Closing. For each
employee of the Company who becomes an employee of Ceridian effective
immediately after the Effective Time, Ceridian will recognize the employee's
service with the Company for purposes of eligibility to participate and vesting
(but not for purposes of benefit accruals) in ERISA Benefit Plans and Non-ERISA
Benefit Arrangements sponsored or maintained by Ceridian. Ceridian shall allow
such employees to participate in the same
36
<PAGE>
ERISA Benefit Plans and Non-ERISA Benefit Arrangements sponsored or
maintained by Ceridian in which similarly situated employees of Ceridian
participate (except for the Ceridian Corporation Retirement Plan and the
Ceridian Corporation Benefit Equalization Plan). Any group medical plan
provided by Ceridian to the employees of the Company shall not contain any
pre-existing condition limitation or exclusion applicable to their
participation therein. Ceridian is not obligated to offer employment to any
employee of the Company who, immediately prior to the Effective Time, is
absent from active employment due to a paid or unpaid leave of absence
(including personal leave of absence), short-term or long-term disability or
occupational illness or injury (an "Inactive Employee"). If an Inactive
Employee, other than an Inactive Employee on a personal leave of absence,
returns to work within 12 months after the Effective Time, Ceridian will
either (a) offer the Inactive Employee immediate employment in a job suitable
to his or her abilities and limitations, if any, with salary or wages at a
rate that is not less than the rate in effect immediately before the
commencement of the absence and with recognition of such employee's service
with the Company for purposes of eligibility to participate and vesting (but
not for purposes of benefit accruals) or (b) reimburse Seller for the full
amount of any severance benefits paid by Seller to the Inactive Employee
under the Seller's generally applicable severance policy in effect at that
time. The Company will cause its 401(k) Plan (the "Company 401(k) Plan") to
provide that loans do not become due and will not be deemed to be in default
until sixty (60) days after the Effective Time. Within sixty (60) days after
the Effective Time, Ceridian will loan to each Company employee who (i)
becomes an employee of Ceridian immediately after the Effective Time and
remains an employee of Ceridian on the date of the loan and (ii) signs and
delivers to Ceridian a promissory note in form specified by Ceridian in the
amount of the employee's outstanding loan balance in the Company's 401(k)
Plan in order to allow the employee to repay that loan prior to taking a
distribution from the Company 401(k) Plan to Ceridian's 401(k) Plan.
6.3. ESCROW AGREEMENT. At Closing, Company, F. Rodgers, C. Rodgers and
Ceridian shall execute the Escrow Agreement in substantially the form attached
hereto as Schedule 1.36, and shall arrange for its execution by the Escrow
Agent.
6.4. ASSIGNMENTS OF OFFICE LEASE. At Closing, the Corporate Sellers
(other than the U.K. Seller) and Buyer (other than the U.K. Buyer) shall execute
the Assignments of Office Lease in substantially the forms attached hereto as
Schedule 6.4.
6.5. [INTENTIONALLY OMITTED]
6.6. ASSIGNMENT AND ASSUMPTION AGREEMENT. At Closing, Buyer (other
than the U.K. Buyer) and the Corporate Sellers (other than the U.K. Seller)
shall enter into the Assignment and Assumption Agreement substantially in the
form attached hereto as Schedule 6.6.
6.7. BILLS OF SALE. At Closing, each of the Corporate Sellers (other
than the U.K. Seller) shall execute and deliver the Bill of Sale substantially
in the form attached hereto as Schedule 6.7.
6.8. TRADEMARK ASSIGNMENT. At Closing, the Corporate Sellers to the
extent they have any interest in a trademark shall execute and deliver the
Trademark Assignment substantially in the form attached hereto as Schedule 6.8.
6.9. COPYRIGHT ASSIGNMENTS. At Closing, the Corporate Sellers to the
extent they have any interest in a copyright shall deliver the Copyright
Assignments substantially in the forms attached hereto as Schedule 6.9.
37
<PAGE>
6.10. TRANSITIONAL SERVICES AGREEMENT. At Closing, Buyer and the
Corporate Sellers shall enter into the Transitional Services Agreement
substantially in the, form attached hereto as Schedule 6.10.
6.11. F. RODGERS CONSULTING AGREEMENT. At Closing, Ceridian and F.
Rodgers shall enter into the Consulting Agreement in the form of attached hereto
as Schedule 6.11.
6.12. WILLIAM HELM CONSULTING AGREEMENT. At Closing, Ceridian and
William Helm shall enter into the Consulting Agreement in the form attached
hereto as Schedule 6.12.
6.13. BULK SALES. Each of Ceridian, the Canadian Buyer and the U.K.
Buyer hereby waives compliance by any of the Corporate Sellers with any bulk
sales notice requirements of any Laws, and the Sellers shall jointly and
severally indemnify and hold the Buyer harmless from any Tax or other Liability
which may be incurred by Ceridian, the Canadian Buyer or the U.K. Buyer for the
failure to comply with such requirements, except to the extent that such
liability is an Assumed Liability.
6.14. U.K. EMPLOYEES. The Sellers and the Buyer agree and acknowledge
that the Transfer of Undertakings (Protection of Employment Regulations) 1981
("Transfer Regulations") shall at Closing be applicable in relation to the UK
Employees identified on Schedule 6.14 (the "UK Employees"). 'Me Sellers shall be
responsible for and shall fully indemnify and keep indemnified the Buyer from
and against all and any costs, claims, expenses, damages, demands, actions and
liabilities suffered by any Ceridian Entity: arising, directly or indirectly,
from any action omission obligation or liability of the UK Seller in relation to
the UK Employees prior to the Closing including any act omission or liability
which is deemed by virtue of the Transfer Regulations to be the responsibility
of the UK Buyer after Closing; arising from any claim in respect of any person
who is not a UK Employee, (including, without limitation, the dismissal of such
person or employee by UK Buyer or a change in his terms of employment) which
arises or is alleged to arise by reason of the operation of the Transfer
Regulations; arising out of any claim made by any recognized trade union or
elected representative or individual employee under Section 189 of the Trade
Union and Labour Relations (Consolidation) Act 1992 (as amended) or under
Regulation 11 of the Transfer Regulations for protective awards which may have
arisen by virtue of the failure to and/or consult on the part of the UK Seller
in respect of collective redundancies or business transfers other than pursuant
to this Agreement. The Buyer shall be responsible for and shall indemnify and
keep indemnified the U.K. Seller from and against all and any costs, claims,
expenses, damages and liabilities suffered by the U.K. Seller: arising in
respect of the U.K. Employees on or after the Closing which arise out of or are
connected with any act or omission by the U.K. Buyer or any event, matter or any
other occurrence having its origin on or after the Closing and which the U.K.
Seller incurs in relation to any contract of employment of or collective
agreement relating to one or more of the U.K. Employees pursuant to the Transfer
Regulations; arising out of any act or omission by the U.K. Buyer prior to the
Closing which the U.K. Seller incurs by virtue of Regulation 5(5) of the Transer
Regulations and/or Article 4(2) of Council Directive 77/187 EEC, arising out of
the U.K. Buyer's failure to comply with Regulation 10(2)(d) of the Transfer
Regulations. For the avoidance of doubt, the Buyer will be responsible for and
will indemnify and keep the U.K. Seller indemnified against all accrued holiday
pay entitlements and accrued holiday pay entitlements of the U.K. Employees
prior to Closing.
6.15. CANADIAN PENSION AND BENEFIT PLANS.
(a) Effective as of the Effective Time, the Canadian
Transferred Employees shall cease to participate in, and
accrue benefits under the Canadian Employee Benefit Plans
and shall commence participation in benefit plans
established or provided by the Canadian Buyer which shall
provide benefits on the same terms and
38
<PAGE>
conditions, or otherwise on a basis which is substantially
similar in the aggregate, as those provided to the Canadian
Transferred Employees under the Canadian Employee Benefit
Plans immediately prior to the date hereof Canadian
Transferred Employees who are not participants in the
Canadian Employee Benefit Plans as at the Closing Date
shall become participants in the benefits plans established
or provided by the Canadian Buyer in accordance with, and
subject to, the membership eligibility and coverage
requirements thereof but their service with the Canadian
Seller prior to the Effective Time will be credited by the
Canadian Buyer for purposes of such eligibility and
coverage requirements.
(b) The Canadian Seller shall retain responsibility under the
Canadian Employee Benefit Plans for all amounts payable by
reason of or in connection with any and all reported and
unreported claims incurred and filed by the Canadian
Transferred Employees on or prior to the Closing Date. The
Canadian Buyer shall be responsible under its benefit plans
for any and all claims of the Canadian Transferred
Employees which relate to claims that are incurred with
respect to events after the Closing Date.
(c) Notwithstanding Paragraphs (a) and (b) of this Section
6.15, the Canadian Buyer and the Canadian Seller agree that
the Canadian Transferred Employees shall continue
participation in the Canadian Employee Benefit Plans until
such time as the Canadian Buyer can provide its own benefit
plans for the Transferred Employees (the "Interim Period").
The Canadian Seller agrees to take such action and to make
any contribution and to pay any claims on behalf of the
Canadian Transferred Employees as is necessary to ensure
the continued participation of the Canadian Transferred
Employees in the Canadian Employee Benefit Plans during the
Interim Period. The Canadian Buyer agrees to reimburse the
Canadian Seller for any and all administrative costs to the
Canadian Seller relating to the continued participation of
the Canadian Transferred Employees in the Canadian Employee
Benefit Plans during the Interim Period.
6.16. U.K. LEASE ASSIGNMENT. At Closing, U.K. Seller and U.K. Buyer
shall execute and complete in duplicate the U.K. Lease Assignment in
substantially the form attached hereto as Schedule 6.16.
6.17. CANADIAN SELLER EMPLOYEES. As of or prior to the Closing Date and
effective immediately after the Effective Time, the Canadian Buyer will offer
employment to each employee of the Canadian Seller on terms no less favorable in
the aggregate than those in effect for such employee with the Canadian Seller on
the date hereof. The Canadian Seller will be responsible for severance
obligations with respect to employees of the Canadian Seller who do not accept
the Canadian Buyer's offer of employment. The Canadian Seller and the Canadian
Buyer will provide all reasonable assistance to encourage the Canadian Seller's
employees to accept an offer of employment with the Canadian Buyer.
6.18. TRADEMARK LICENSE AGREEMENT. At Closing, the Company and Ceridian
shall enter into the Trademark License Agreement in substantially the form
attached hereto on Schedule 6.18.
6.19. PURCHASE OF CERIDIAN COMMUNITY RESOURCE DEVELOPMENT BUSINESS.
Ceridian and Company agree to negotiate in good faith for a period of sixty (60)
days following the Closing Date to
39
<PAGE>
reach a definitive agreement whereby the Company will purchase Ceridian's
Community Resource Development business on commercially reasonable terms. If
Ceridian and the Company are unable to reach a written agreement on such
proposed transaction prior to the end of such sixty (60) day period, the
Company and Ceridian will have no further obligations to each other under
this Section whatsoever.
6.20. ACCOUNTS RECEIVABLE GUARANTY. Ceridian shall use commercially
reasonable efforts (consistent with such efforts previously used by Corporate
Sellers) to collect all accounts receivable listed on SCHEDULE 4.24 hereto to
the extent not collected by the Closing Date (the "Guaranteed Accounts
Receivable"), but such efforts shall not include litigation or the use of
collection agencies. All amounts collected after the Effective Date with
respect to such Guaranteed Accounts Receivable shall be applied as directed
by the account debtor and if no direction is so given, then first to the
oldest Guaranteed Account Receivable from such account debtor. In the event
that any such Guaranteed Accounts Receivable remain uncollected one hundred
twenty (120) days after the Effective Date, Ceridian shall promptly notify
Sellers within fifteen (15) Business Days after the expiation of such one
hundred twenty (120)-day period and within five (5) Business Days thereafter
assign to the Company such of those uncollected Guaranteed Accounts
Receivable (without recourse or warranty) as Ceridian shall elect against
payment of the purchase price therefor as described in the next sentence.
The Company shall purchase from Ceridian all uncollected Guaranteed Accounts
Receivable which Ceridian assigns to Seller pursuant to this Section 6.20,
for a purchase price, in cash, equal to the aggregate amount of such assigned
Guaranteed Accounts Receivable (less reserves accrued on the Closing Balance
Sheet). Following payment therefor as provided herein, such uncollected
Guaranteed Accounts Receivable shall be the Company's property and thereafter
the Company shall be free to collect such Guaranteed Accounts Receivable in
its sole and absolute discretion. Neither the Company nor any Seller shall
have any further obligations under this Section 6.20 with respect to any
uncollected Guaranteed Accounts Receivable to the extent not so assigned to
the Company.
ARTICLE
7.
THE CLOSING
7.1. TIME AND PLACE. The Closing shall take place on November 17,
1998, at the offices of Sellers' Counsel, or such other date or place as the
parties may agree. All actions taken at the Closing shall be deemed to occur
simultaneously.
7.2. SELLERS' OBLIGATIONS AT CLOSING. At the Closing, Sellers shall
execute and/or deliver to Buyer, against execution and/or delivery by Buyer of
the items specified in Section 7.3:
(a) A certificate by each Seller certifying that the
representations and warranties of Sellers are true and
correct as of the Closing and that Seller has performed the
obligations required to be performed by it at or prior to
the Closing;
(b) The Escrow Agreement described in Section 6.3;
(c) The Assignments of Office Leases described in Section 6.4;
(d) The Assignments and Assumption Agreements described in
Section 6.6;
(e) The Bills of Sale described in Section 6.7;
(f) The Trademark Assignments described in Section 6.8;
40
<PAGE>
(g) The Copyright Assignments described in Section 6.9;
(h) The Transitional Services Agreement described in Section
6.10
(i) The F. Rodgers Consulting Agreement described in Section
6.11;
(j) The William Helm Consulting Agreement described in Section
6.12;
(k) The U.K. Lease Assignment described in Section 6.16
(executed in duplicate);
(l) A certified copy of the Resolution of the Company's Board
of Directors or an authorized committee thereof approving
the Transaction;
(m) A certified copy of the Resolution of the Company's and
Canadian Seller's shareholders approving the Transaction;
(n) The legal opinion of Goodwin, Procter & Hoar LLP, counsel
to Seller, in substantially the form attached hereto as
Schedule 7.2(n);
(o) The consents, approvals or waivers listed on
Schedule 7.2(o).
(p) A certified copy of board meeting minutes of U.K. Seller
approving the sale of the U.K. Purchased Assets; and
(q) Assignment of intellectual property rights in the U.K.
database and U.K. pamphlets.
(r) The Trademark License Agreement described in Section 6.18.
(s) Original versions of the license, Underlet of the leasehold
Premises made between Pensions Management (WF Scottish
Widow Fund) Limited, Kingsway Group Plc, WFD and
Work/Family Directions, Inc., the Agreement for lease for
the leasehold Premises made between Kingsway Group Plc, WFD
and Work/Family Directions, Inc. and the U.K. lease and
License to Alter made between Kingsway Group Plc, WFD and
Work/Family Directions.
(t) All other certificates, Schedules, Exhibits, and
attachments, in completed form, which are required by the
provisions of this Agreement.
7.3. BUYER'S OBLIGATIONS AT CLOSING. At the Closing, Buyer shall
execute and/or deliver to Sellers, against execution and/or delivery by Seller
of the items specified in Schedule 7.2:
(a) A certificate by Buyer certifying that the representations
and warranties of Buyer are true and correct as of the
Closing and that Buyer has performed the obligations
required to be performed by it at or prior to the Closing;
(b) The Escrow Agreement described in Section 6.3;
(c) The Assignments of Office Leases described in Section 6.4;
(d) The Assignment and Assumption Agreements described in
Section 6.6;
41
<PAGE>
(e) The Transitional Services Agreement described in
Section 6.7;
(f) The F. Rodgers Consulting Agreement described in
Section 6.12;
(g) The William Helm Consulting Agreement described in
Section 6.12;
(h) A certified copy of the Resolution of Ceridian's and
Canadian Buyer's Board of Directors or an authorized
committee thereof approving the Transaction;
(i) The Closing Payment, One Million Dollars ($1,000,000) of
which shall be delivered to the Escrow Agent;
(j) The legal opinion of the General Counsel of Ceridian,
counsel to Buyer, in substantially the form attached hereto
as Schedule 7.30);
(k) a certified copy of board meeting minutes of the U.K. Buyer
approving the purchase of the U.K. Purchased Assets;
(l) All other certificates, Schedules, Exhibits, and
attachments, in completed form, which are required by the
provisions of this Agreement; and
(m) The U.K. Lease Assignment described in Section 6.16
(executed in duplicate).
7.4. INSTRUMENTS. All instruments delivered at Closing shall be dated
as of November 17, 1998 and shall be reasonably satisfactory to the party
receiving the benefit thereof.
ARTICLE
8.
OBLIGATIONS AFTER CLOSING
8.1. FURTHER ASSURANCES. At or after the Closing Date, Sellers and
Buyer shall prepare, execute and deliver, with each to bear its own expenses
thereof, such further instruments of conveyance, sale, assignment or transfer,
and shall take or cause to be taken such other or further action, as Sellers and
Buyer shall reasonably request at any time or from time to time in order to
perfect, confirm or evidence the Transactions or to give effect to the
provisions of this Agreement. Each Seller and Buyer further agree that after the
Closing they will hold and will promptly transfer and deliver to the other (at
such intervals as are mutually agreed between the parties), any cash, checks
with appropriate endorsements (using their commercially reasonable efforts not
to convert such checks into cash) or other property that it may receive on or
after the Closing which properly belongs to the other party, and will account to
the other for all such receipts. Further, Buyer shall, to the extent possible,
work with Seller to facilitate the use by Seller of any phone numbers used by
Seller prior to the Effective Time in the Consulting/Community Development
Business.
8.2. NOTICES AND CONSENTS. Following the Closing and notwithstanding
any provision in this Agreement to the contrary, the Sellers shall cooperate
with and assist Buyer at Buyer's expense (with respect to Seller's out-of-pocket
expenses) in obtaining any consents, notices, novations or waivers that are
necessary or helpful in connection with the transfer and assignment of the
Purchased Assets to Buyer. For the avoidance of doubt, and in relation only to
the U.K. Lease, in providing such assistance the Sellers should not be obliged
to pay any costs or suffer any guarantees (financial or otherwise); however,
they shall pursue appropriate Court proceedings in assisting the U.K. Buyer to
obtain consent to the
42
<PAGE>
assignment of the U.K. Lease, such costs reasonably and properly incurred by
the Sellers to be borne by the U.K. Buyer.
8.3. TAX RETURNS. Sellers shall, with respect to the Work/Family
Business, continue to timely file all income Tax Returns which are required to
be filed covering the pre-Closing Period, and shall pay all such income Taxes
when due. Buyer shall cause its employees to cooperate in any manner reasonably
requested by Sellers in the preparation of such Tax Returns or with respect to
any subsequent audit thereof.
8.4. ACCESS TO PROPERTIES AND RECORDS. Subject to consummation of the
Closing, for a period of one year after the Closing Date, upon reasonable prior
notice and during normal business hours as requested by any Seller, Buyer will
afford to such Seller access to such records of the Work/Family Business as
Buyer has and such cooperation of employees of the Work/Family Business and/or
Buyer as is reasonably necessary to enable the Company to prepare timely audited
financial statements and federal, state and local Tax Returns and similar
matters. In addition during the period commencing one year after the Closing
Date and ending on the date twenty-seven (27) months after the Closing Date,
upon reasonable prior notice and during normal business hours as requested by
Sellers, Buyer will afford to a certified public accountant retained by Sellers
and approved by Buyer (which approval shall not be unreasonably withheld) access
to customer Contracts and customer records of the Work/Family Business as is
reasonably necessary to enable such accountant to determine whether the First
Contingent Payment or Second Contingent Payment is due and owing, subject to
such accountant agreeing in a writing reasonably acceptable to Buyer to disclose
to Sellers only whether the First Contingent Payment or Second Contingent is due
and owing, and if so the amount so owing.
8.5. POST-CLOSING CONFIDENTIALITY. After the Closing, Sellers will not
use or disclose to third parties any confidential information relating to the
Work/Family Business, and Buyer will not use or disclose to third parties any
confidential information of Sellers that is not related to the Work/Family
Business, provided that, in either case (a) either party may use or disclose any
such information which has been publicly disclosed (other than by such party
after the date hereof) and (b) to the extent that the party may become legally
compelled to disclose any of such information, the party may disclose such
information if such party shall have afforded the other party the opportunity to
obtain an appropriate protective order, or other satisfactory assurance of
confidential treatment, for the information required to be so disclosed.
8.6. POWER OF ATTORNEY. Effective as of the Closing, each of the
Corporate Sellers appoints the Buyer and its successors and assigns, the true
and lawful attorney or attorneys of the Corporate Sellers, with full power of
substitution, in the name of the Corporate Sellers but on behalf and for the
benefit of and at the expense of Buyer solely to the extent required: (A) to
collect in the name of the Corporate Sellers for the account of Buyer all
receivables and other items to be sold and transferred to Buyer as provided
herein; (B) to institute and prosecute, in the name of each of the Corporate
Sellers or otherwise, all proceedings which Buyer may deem necessary or
desirable in order to collect, assert or enforce any claim, right or title of
any kind in or to the Purchased Assets; and (C) to do all such acts and things
in relation thereto as Buyer may deem advisable. The foregoing power is coupled
with an interest and shall be irrevocable by each of the Corporate Sellers or by
their dissolution in any manner or for any reason. Buyer shall retain for its
own account any amounts collected pursuant to the foregoing power, including any
sums payable as interest in respect thereof, and each of the Corporate Sellers
shall pay to Buyer, when received, any amounts which shall be received by each
of the Corporate Sellers in respect of any receivables or other assets or
properties related to the Purchased Assets.
8.7. [INTENTIONALLY OMITTED]
43
<PAGE>
8.8. COVENANT NOT TO COMPETE.
(a) In order to induce Buyer to enter into and consummate this
Agreement, and in further consideration thereof, the
Sellers are willing to provide to Buyer certain
noncompetition covenants for the benefit of Buyer upon the
terms and conditions of this Section.
(b) Each Seller severally agrees that for the Restricted Period
(as hereinafter defined), such Seller shall not compete in
any manner, directly or indirectly (whether through an
Affiliate or otherwise), with Buyer, or any Affiliate of
Buyer, in any business activities in any city, county, or
other governmental jurisdiction in North America or Europe
which are in competition with the Work/Family Business,
whether alone or as a partner, officer, director,
shareholder, creditor or employee of any firm or entity
(other than Buyer). For purposes of this section,
"shareholder" shall not include the beneficial ownership of
less than five percent (5%) of the combined voting power of
all issued and outstanding voting securities of a publicly
held corporation whose stock is traded on a major stock
exchange. For purposes of this Agreement, the term
"Restricted Period" means the five (5) year period after
the Closing Date.
(c) Each Seller further severally agrees that, for the
Restricted Period, such Seller will not, directly or
indirectly, solicit for hire as an employee or independent
contractor, any person currently employed by any of the
Corporate Sellers who has become and remains an employee of
Buyer; provided, however, that this provision shall not
prevent the Sellers from hiring any such person who
responds to an advertisement or to a nondirected executive
search inquiry or who makes an unsolicited contact for
employment with Seller.
(d) This Section 8.8 shall not apply to, and it is agreed that
the following activities shall not be deemed to be in
violation of this Section 8.8(b):
(i) Consulting/Community Development Business conducted
in Canada and the United Kingdom;
(ii) any activity engaged in by Sellers to fulfill their
obligations contained in the Transitional Services
Agreement or any written Contract with Buyer
(including, without limitation, F. Rodgers'
Consulting Agreement); or
(iii) Any of the following workplace-related consulting
and/or community investment strategies:
(aa) workplace diagnostics and assessments,
multi-company research and pilot program
development, business measurement and analysis,
custom designed manager and employee interventions
in respect of specified issues, consultation, and
implementation services concerning the foregoing;
(bb) executive and/or manager briefings and
education;
44
<PAGE>
(cc) training services to business executives
and/or managers;
(dd) training services to employees relating to
workplace flexibility or women's advancement; or
(ee) community investment strategies and the
implementation thereof.
(e) If any of the restrictions set forth in this Section
should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or
enforcement of the remainder of such restrictions and
covenants shall not thereby be adversely affected. Each of
Sellers and Buyer agree that, if any provision of this
Section should be adjudicated to be invalid or
unenforceable, such provision shall be deemed deleted
herefrom with respect and only with respect to the
operation of such provision in the particular jurisdiction
in which such adjudication was made; provided, however,
that to the extent any such provision may be made valid and
enforceable in such jurisdiction by limitations on the
scope of the activities, geographical area or time period
covered, each of Sellers and Buyer agrees that such
provision instead shall be deemed limited to the extent,
and only to the extent, necessary to make such provision
enforceable to the fullest extent permissible under the
laws and public policies applied in such jurisdiction.
(f) Sellers hereby acknowledge that in the event of their
breach of the provisions of this Section, money damages
would be an inadequate remedy. Accordingly, without
prejudice to the rights of Buyer also to seek such damages
or other remedies by it, Buyer may seek, and Sellers
acknowledge and covenant that they will not contest the
availability of, injunctive or other equitable relief in
any proceeding which Buyer may bring to enforce the
provisions of this Section on their respective express and
explicit terms. No waiver of any breach of the foregoing
covenants shall be implied from any forbearance or failure
of Buyer to take action thereon.
8.9. USE OF WORK/FAMILY DIRECTIONS NAME. Except as specifically set
forth below, the Sellers shall make no further use of the WORK/FAMILY DIRECTIONS
mark or the Work/Family Directions trade name or any confusingly similar
trademark or trade name (it being expressly agreed, however, that the name "WFD"
is not in violation of the foregoing provisions). Notwithstanding the
foregoing, the Company may retain the trade name Work/Family Directions, Inc.
(the "Trade Name"), provided it uses the Trade Name: (i) only when it is
required to identify itself by its corporate name in connection with the
execution of corporate contracts or other legal documents, or as a party to
litigation; or (ii) to deplete existing quantities of any Excluded Assets which
contain the Trade Name. Buyer may only use the WORK/FAMILY DIRECTIONS mark or
the Trade Name to deplete any Purchased Assets which contain such mark or Trade
Name. Under no circumstances may Sellers or Buyer use or display such mark or
Trade Name on or in connection with any products or services, or in any
advertising or other promotional materials, or for any other commercial purpose
except as specifically permitted by this Section 8.9.
45
<PAGE>
8.10. WIRE OF CASH INCLUDED IN PURCHASED ASSETS. On the Closing
Date, the Company shall wire to Ceridian immediately available United States
funds in the amount of Two Million Five Hundred Forty-seven Thousand Nine
Hundred Eighty-two dollars ($2,547,982).
8.11. CRD MATERIALS. Sellers and Buyer acknowledge that certain
materials owned by the Corporate Sellers and identified on Schedule
4.16(e)(i)(cc) hereto (the "Retained Materials") which are used in the
Work/Family Business are not being transferred to Buyer hereunder.
Notwithstanding the foregoing, the Corporate Sellers hereby grant to Buyer a
perpetual royalty free license to use, sell and distribute the Retained
Materials throughout the world. Further, the Corporate Sellers agree not to
sell or distribute the Retained Materials, or grant any license, or other
right in the Retained Materials, to any competitor of the Work/Family
Business.
ARTICLE
9.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1. SURVIVAL. The representations and warranties of the parties
contained in Articles 4 and 5 of this Agreement shall survive the Closing;
provided, however, that:
(a) subject to Sections 9.1(b) and 9.1(c) below, no claim may
be made based upon a breach or other inaccuracy,
incompleteness or untruth of such representations or
warranties unless the Indemnified Party (as hereinafter
defined) gives written notice thereof (describing the
specific claim in reasonable detail) to the Indemnifying
Party (as hereinafter defined) on or prior to May 31, 2000;
(b) no claim may be made based upon a breach of or other
inaccuracy, incompleteness or untruth of such
representations and warranties to the extent relating to
employee benefit matters, Taxes, and environmental matters
unless the Indemnified Party gives written notice thereof
(describing the specific claim in reasonable detail) to the
Indemnifying Party prior to sixty (60) days after the
expiration of the applicable statute of limitation; and
(c) claims for violations of representations and warranties
concerning title to Assets will survive without limitation.
The covenants and agreements contained herein shall survive the
Closing forever unless the covenant or agreement specifies a term
in which case such covenant or agreement shall survive for the
term specified. Notwithstanding anything in this Agreement to the
contrary, the applicable representations, warranties, covenants
and agreements shall survive and be deemed extended until final
resolution of the claim relating thereto pursuant to Article 10
hereof (but such representations, warranties, covenants and
agreements shall not be extended with respect to any claim
discovered during such extension with respect to matters other
than employee benefit matters, Taxes or environmental matters, as
the case may be), the notice of which was given on or before the
relevant Expiration Date (as hereinafter defined) and the
covenants and indemnification obligations relating to Assumed
Liabilities or Excluded Liabilities shall survive forever. The
respective expiration dates for the survival of the
representations and warranties and the covenants shall be referred
to herein as the relevant "Expiration Date."
46
<PAGE>
ARTICLE
10.
INDEMNIFICATION
10.1. INDEMNIFICATION BY SELLERS. Sellers, jointly and severally, shall
and hereby agree to indemnify and hold Buyer (and its Affiliates and the
directors, officers, employees, agents, attorneys and shareholders of Buyer and
its Affiliates) harmless at all times against and in respect of any Liabilities
and Losses arising out of, relating to, or resulting from: (a) any breach by any
Seller of any representation, warranty, covenant or agreement made by any Seller
in this Agreement; (b) the Excluded Liabilities; or (c) the nonperformance of
any obligations to be performed on the part of any Seller under any agreement
executed pursuant hereto or in conjunction herewith.
10.2. INDEMNIFICATION BY BUYER. Buyer shall and hereby agrees to
indemnify and hold Sellers harmless at all times against and in respect of any
Liabilities and Losses arising out of, relating to, or resulting from (a) any
breach by Buyer of any representation, warranty, covenant or agreement made by
Buyer in this Agreement; (b) the Assumed Liabilities; or (c) the nonperformance
of any obligations to be performed on the part of Buyer under this Agreement or
any agreement executed pursuant hereto or in conjunction herewith. In addition,
Buyer shall and hereby agrees to indemnify and hold Sellers harmless at all
times against any Liabilities and Losses (other than any Losses attributable to
such customer being a lost customer for purposes of Section 2.2(b) hereof) to
the extent such Liabilities and Losses arise out of (1) the failure of any
Corporate Seller to obtain any consent to assign any Customer Contract or Office
Lease (except as set forth on Schedule 4.4) or any other Contract to which any
Corporate Seller is a party relating to the Work/Family Business, or, with
respect to the Office Lease relating to 926-928 Commonwealth Avenue in
Brookline, Massachusetts (the "926 Office Lease"), to sublet a portion of the
premises subject to such Office Lease or (2) the failure of any Corporate Seller
to satisfy any conditions with respect to the assignment of any such Customer
Contract, Office Lease or other Contract (other than conditions relating to the
Corporate Sellers' obligations under any such Customer Contract, Office Lease or
other Contract relating to any matters other than the assignment thereof) or,
with respect to the 926 Office Lease, to sublet a portion of the premises
subject to such Office Lease. Notwithstanding anything in this Agreement to the
contrary (but subject to the provisions of Section 2.2(b)), Buyer expressly
covenants and agrees that it shall not be entitled to any indemnification under
Section 10.1 to the extent that any Losses or Liabilities arise out of any
termination of or other loss of benefits under or pursuant to, any Customer
Contract or Office Lease (except as set forth on Schedule 4.4) or other Contract
to which any Corporate Seller is a party to the extent arising out of (1) the
failure of any Corporate Seller to obtain any consent to assign any such
Customer Contract, Office Lease or other Contract, or, with respect to the 926
Office Lease, to sublet a portion of the premises subject to such Office Lease
or (2) the failure of any Corporate Seller to satisfy any conditions with
respect to the assignment of any such Customer Contract, Office Lease or other
Contract (other than conditions relating to the Corporate Sellers' obligations
under any such Customer Contract, Office Lease or other Contract relating to any
matters other than the assignment thereof) or, with respect to the 926 Office
Lease, to sublet a portion of the premises subject to such Office Lease.
10.3. LIMITATION ON INDEMNIFICATION.
(a) BASKET. In the event of any claim for indemnity under
Section 10.1(a) or 10.2(a), the Indemnified Party (as
hereinafter defined) shall not be entitled to
indemnification therefor unless the Indemnified Party has
sustained Losses or Liabilities in excess of Three Hundred
Thousand Dollars ($300,000) in the aggregate (the "BASKET
AMOUNT"), in which event the Indemnified Party shall be
47
<PAGE>
entitled to indemnification for the full amount of all
Losses or Liabilities suffered or incurred in excess of the
Basket Amount.
(b) CAP. In no event shall the aggregate liability of Sellers
or Buyer, as the case may be under Sections 10.1(a),
10.1(c), 10.2(a) or 10.2(c) (except with respect to the
payment of the Purchase Price) exceed Forty Million Dollars
($40,000,000).
(C) NO SET-OFF. In no event shall Buyer be permitted to
set-off against any payments due Sellers except as
provided in the Escrow Agreement.
10.4. DEFENSE AGAINST ASSERTED CLAIMS. If any claim or assertion of
liability is made or asserted by a third party against a party indemnified
pursuant to this Article 10 ("Indemnified Party") which might give rise to a
right to indemnification under this Agreement, the Indemnified Party shall, with
reasonable promptness, give to the other party ("Indemnifying Party") written
notice of the claim or assertion of liability and request of the Indemnifying
Party to defend the same, provided that any delay or failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
the Indemnified Party except to the extent of any prejudice resulting directly
from such delay or failure. The Indemnifying Party shall, at the Indemnifying
Party's expense, assume the defense of such claim or assertion with counsel
chosen by the Indemnifying Party and reasonably satisfactory to the Indemnified
Party. The Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party unless
(a) the employment thereof has been specifically authorized by the Indemnifying
Party in writing, or (b) the Indemnifying Party has failed to assume the defense
of such action, or (c) if the named parties to the action or proceeding include
both the Indemnifying and the Indemnified Party and the Indemnified Party is
advised in an opinion of its counsel that representation of both parties by the
same counsel would be inappropriate under the applicable standards of
professional conduct. The Indemnifying Party shall not be permitted to enter
into any settlement or compromise involving affirmative action or forbearance by
the Indemnified Party unless the Indemnified Party shall have been notified in
writing of the proposed settlement or compromise and shall have consented in
writing thereto, which consent shall not be unreasonably withheld. The parties
will cooperate with each other in the. defense of any such action and the
relevant records and personnel of each shall be available to the other with
respect to such defense. If the Indemnifying Party assumes the defense of a
third party claim, (a) no compromise or settlement thereof may be effected by
the Indemnifying Party without the Indemnifying Party's consent unless (i) there
is no finding or admission of an' violation of Law or any violation of the
rights of any Person and no effect on any other claim that may be made against
the Indemnified Party, (ii) the sole relief provided is monetary damages that
are paid in full by the Indemnifying Party and (iii) the compromise or
settlement includes, as an unconditional ten-n thereof, the giving by the
claimant or the plaintiff to the Indemnified Party of a release, in form and
substance reasonably satisfactory to the Indemnified Party, from all liability
in respect of such third party claim, and (b) the Indemnified Party shall have
no liability with respect to any compromise or settlement thereof effected
without its consent.
10.5. OTHER. The right to indemnification or any other remedy based on
representations, warranties, covenants and obligations in this Agreement will
not be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
48
<PAGE>
indemnification or any other remedy based on such representations, warranties,
covenants and obligations.
ARTICLE
11.
GENERAL PROVISIONS
11.1. NO PUBLICITY, ADVERTISEMENT WITHOUT PRIOR CONSULTATION. Neither
Sellers nor Buyer shall, and each of the parties shall cause its officers,
directors, employees, agents or advisors not to publicize, advertise, announce
or describe to any Governmental Entity or other third person, the terms of this
Agreement, the parties hereto or the transactions contemplated hereby, except as
required by Law, the rules of any stock exchange or court order.
11.2. SEVERABILITY. Any portion or provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision hereof invalid, illegal or
unenforceable in any other jurisdiction.
11.3. ARTICLE AND SECTION HEADINGS, SCHEDULES AND EXHIBITS. The Article
and Section headings included in this Agreement are for the convenience of the
parties only and shall not affect the construction or interpretation of this
Agreement. Schedules and Exhibits referred to in this Agreement are an integral
part of this Agreement.
11.4. COUNTERPARTS. This Agreement and any documents executed pursuant
hereto may be executed in any number of counterparts, each one of which shall be
an original and all of which shall constitute one and the same document.
11.5. GENDER AND NUMBER. In this Agreement (unless the context requires
otherwise), the masculine, feminine and neuter genders and the singular and the
plural include one another.
11.6. EXPENSES. Sellers and Buyer shall each bear their own fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, all fees and expenses of
investment advisors, accountants, and counsel).
11.7. NOTICES. All notices given pursuant to this Agreement shall be in
writing and be personally delivered or mailed with postage prepaid, by
registered or certified mail, return receipt requested to the address set forth
below or such other address as a party may from time to time specify in writing
to the other party. If so mailed and also sent by telegram or facsimile machine,
the notice will conclusively be deemed to have been received on the business day
next occurring 24 hours after the latest to occur of such mailing and
telegraphic or facsimile communication; otherwise, no notice shall be deemed
given until it actually arrives at the address in question. The addressees to
which notice are initially to be sent are as follows:
(a) If to Buyer to:
Ceridian Corporation
8100 34th Avenue South
Bloomington, Minnesota 55425-1640
49
<PAGE>
Attention: President/Ceridian Performance Partners
Facsimile No.: (612) 853-5270
with a copy to:
Ceridian Corporation
8100 34th Avenue South
Bloomington, Minnesota 55425-1640
Attention: Office of General Counsel
Facsimile No: (612) 853-3413
(b) If to any of the Corporate Sellers, to:
Work/Family Directions, Inc.
928 Commonwealth Avenue
Boston, Massachusetts 02215
Attention: President
Facsimile No.: (617) 566-2806
with copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: F. Beirne Lovely, Jr., P.C.
Facsimile No.: (617) 523-1231
(c) If to F. Rodgers and C. Rodgers, to:
72 Evans Road
Brookline, Massachusetts 02146
Facsimile No.: (617) 232-1124
with copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: F. Beirne Lovely, Jr., P.C.
Facsimile No.: (617) 523-1231
11.8. NO THIRD PARTY BENEFICIARIES. No employee of the Work/Family
Business or former employee thereof (or his/her spouse or beneficiary, other
than employees or former employees who are parties to this Agreement), or any
other Person not a party to this Agreement, shall be entitled to assert any
claim hereunder. In no event shall this Agreement constitute a third party
beneficiary Contract.
50
<PAGE>
11.9. GOVERNING LAW. This Agreement is governed by and is to be
construed and interpreted in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to the conflict of law principles thereof,
as to all matters, including without limitation matters of validity,
construction, effect, performance and remedies, unless otherwise required by
mandatory provisions of the laws of England or Canada.
11.10. MODIFICATIONS, AMENDMENTS OR WAIVERS. Except as otherwise
provided herein, provisions of this Agreement may be modified, amended or waived
only by a written document specifically identifying this Agreement and signed by
a duly authorized executive officer of each of the parties.
11.11. REMEDIES EXCLUSIVE. Except for remedies based on fraud, equitable
remedies (including, but not limited to, specific performance) and the remedies
provided for in Article 2 of this Agreement, the remedies provided in Article 10
and in the Escrow Agreement constitute the sole and exclusive remedies for
recovery against the Sellers based upon the inaccuracy, untruth, incompleteness
or breach of any representation or warranty of any Seller contained in this
Agreement or in any certificate, schedule or exhibit furnished by any Seller
hereunder or in any Contract or instrument delivered in connection with the
Transactions, or based upon the failure of any Seller to perform any covenant,
agreement or undertaking required by the terms hereof or by any of the
certificates, schedules, exhibits, Contracts or instruments referred to above to
be performed by any Seller.
11.12. ASSIGNMENT, SUCCESSORS AND ASSIGNS. Without the other party's
written consent, this Agreement and the rights and obligations hereunder, shall
not be assignable by any party hereto, except that no such consent shall be
required for such assignment by Buyer of all or any portion of its rights and
obligations under this Agreement to any direct or indirect subsidiary of
Ceridian, or to the purchaser of all or substantially all of the assets of the
Work/Family Business or all or substantially all of the assets of the Ceridian
Performance Partners division provided that Ceridian continues to guaranty all
obligations of Buyer hereunder and no such assignment shall adversely affect
Sellers' rights hereunder. This Agreement shall be binding upon, and inure to
the benefit of, the respective successors and permitted assigns of the parties
hereto.
11.13. EQUITABLE REMEDIES. The obligations of Buyer and Sellers under
this Agreement are unique. The parties acknowledge that it would be extremely
impracticable to measure damages resulting from any default under this
Agreement. Accordingly, it is agreed that a party not in default under this
Agreement may sue in equity for specific performance or injunctive relief.
11.14. JOINT PREPARATION. This Agreement has been jointly prepared by
the parties and the provisions of this Agreement shall not be construed more
strictly against any party hereto as a result of its participation in such
preparation.
11.15. ATTORNEYS' FEES. If any party to this Agreement initiates any
legal action against any other party relating to this Agreement or any agreement
executed pursuant hereto, the prevailing party in such action shall be entitled
to receive reimbursement from the other party for all reasonable attorneys'
fees, expert fees and other costs and expenses incurred by the prevailing party
in respect of such proceeding.
11.16. ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement of the parties with respect to
the subject matter hereof and supersedes all
51
<PAGE>
prior written or oral and all contemporaneous oral agreements, understandings
and negotiations between the parties with respect to the subject matter
hereof.
11.17. DOLLARS. Unless otherwise specified, "Dollars" shall mean United
States Dollars.
11.18. STAMP DUTY. The parties to this Agreement:
(a) hereby certify that the Transactions effected by this
Agreement do not form part of a larger transaction or
series of transactions and that the correct amount of UK
stamp duty will be applied when the amount or value, or
aggregate amount or value, of the consideration for the
purposes of UK stamp duty (which is ascertainable but not
yet ascertained at the date hereof) is determined;
(b) shall execute this Agreement and all transfers, assignments
and other documents to be entered into pursuant to this
Agreement (together the "Transfer Documents") and retain
the same outside the United Kingdom; and
(c) agree that they shall not at any time cause or knowingly
permit any signed or executed original or counterpart of
any Transfer Document to be brought into the United Kingdom
unless (A) the parties to this Agreement so agree in
writing or (B) it is necessary (i) to produce the same in
any judicial, arbitration or administrative proceedings in
which a certified copy thereof is not accepted in evidence,
(ii) for the purpose of registering title to any Asset or
(iii) to comply with any legal requirement or the
requirement or request of any Governmental Entity in the
United Kingdom, provided that each party to this Agreement
shall first have used reasonable endeavors to avoid any
such necessity and shall have consulted with the other
parties as to the possibility of not bringing any such
Transfer Document into the United Kingdom, and provided
further that any party hereto permitted to bring a Transfer
Document into the United Kingdom pursuant to this Section
11.18(c) shall notify the other parties to this Agreement
at least fifteen (15) Business Days in advance of so doing.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument on behalf of each of the parties hereto as of the day and year first
above written.
CERIDIAN CORPORATION CANADIAN WORK/FAMILY
DIRECTIONS CO.
By: /s/ A. Reid Shaw By: /s/ Francene S. Rodgers
----------------------------------- ----------------------------------
Name: Name:
--------------------------------- --------------------------------
Its: Its:
---------------------------------- ---------------------------------
WORK/FAMILY DIRECTIONS, INC. WFD
By: /s/ Francene S. Rodgers By: /s/ Francene S. Rodgers
----------------------------------- ----------------------------------
Name: Name:
--------------------------------- --------------------------------
Its: Its:
---------------------------------- ---------------------------------
/s/ Francene S. Rodgers
- -------------------------------------- CERIDIAN PERFORMANCE
Francene S. Rodgers PARTNERS LTD.
52
<PAGE>
By: /s/ A. Reid Shaw
----------------------------------
Name:
--------------------------------
/s/ Charles S. Rodgers Its:
- -------------------------------------- ---------------------------------
Charles S. Rodgers
THE RODGERS FAMILY IRREVOCABLE LETTERALLIED LIMITED
TRUST OF 1998
By: /s/ Charles S. Rodgers By: /s/ A. Reid Shaw
----------------------------------- ----------------------------------
Solely in his/her capacity as Name:
Trustee of said Trust, and not --------------------------------
Individually Its:
---------------------------------
By: /s/ Charles T. O'Neill, Trustee
-----------------------------------
Solely in his/her capacity as
Trustee of said Trust, and not
Individually
FRANCENE S. RODGERS 1998 RETAINED
ANNUITY TRUST
By: /s/ Charles S. Rodgers
-----------------------------------
Solely in his/her capacity as
Trustee of said Trust, and not
Individually
By: /s/ Charles T. O'Neill, Trustee
-----------------------------------
Solely in his/her capacity as
Trustee of said Trust, and not
Individually
53
<PAGE>
CERIDIAN CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT
PARTIES
CERIDIAN CORPORATION (A DELAWARE CORPORATION)
8100 34TH AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55425-1640
AND
TONY HOLCOMBE
DATE: JUNE 1, 1997
RECITALS
A. Ceridian wishes to obtain the services of Executive for at least the
duration of this Agreement, and the Executive wishes to provide his or
her services for such period.
B. Ceridian desires reasonable protection of Ceridian's Confidential
Information (as defined below).
C. Ceridian desires assurance that Executive will not compete with Ceridian
or engage in recruitment of Ceridian's employees for a reasonable period
of time after termination of employment, and Executive is willing to
refrain from competition and recruitment.
D. Executive desires to be assured of a minimum Base Salary (as defined
below) from Ceridian for Executive's services for the term of this
Agreement (unless terminated earlier pursuant to the terms of this
Agreement).
E. It is expressly recognized by the parties that Executive's acceptance of,
and continuance in, Executive's position with Ceridian and agreement to
be bound by the terms of this Agreement represents a substantial
commitment to Ceridian in terms of Executive's personal and professional
career and a foregoing of present and future career options by Executive,
for all of which Ceridian receives substantial value.
F. The parties recognize that a Change of Control (as defined below) may
result in material alteration or diminishment of Executive's position and
responsibilities and substantially frustrate the purpose of Executive's
commitment to Ceridian and forebearance of options.
1
<PAGE>
G. The parties recognize that in light of the above-described commitment and
forebearance of options, it is essential that, for the benefit of
Ceridian and its stockholders, provision be made for a Change of Control
Termination (as defined below) in order to enable Executive to accept and
effectively continue in Executive's position in the face of inherently
disruptive circumstances arising from the possibility of a Change of
Control of the Parent Corporation (as defined below), although no such
change is now contemplated or foreseen.
H. The parties wish to replace any and all prior agreements and undertakings
with respect to the Executive's employment and Change of Control
occurrences and compensation.
NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in
Executive's employment for the term of this Agreement and the parties' agreement
to be bound by the terms contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses or incentive payments.
1.02 "BOARD" shall mean the Board of Directors of Ceridian Corporation (the
"Parent Corporation").
1.03 "CERIDIAN" shall mean Ceridian Corporation and, except as otherwise
provided in Article VIII and Section 9.02 of Article IX,
(a) any Subsidiary (as that term is defined in Section 1.07); and
(b) any successor in interest by way of consolidation, operation of
law, merger or otherwise.
1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is
not generally available to or used by others, or the utility or value of
which is not generally known or recognized as standard practice, whether
or not the underlying details are in the public domain, including:
(a) information or material relating to Ceridian and its business as
conducted or anticipated to be conducted; business plans;
operations; past, current or anticipated software, products or
services; customers or prospective customers; or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities;
2
<PAGE>
(b) information or material relating to Ceridian's inventions,
improvements, discoveries, "know-how," technological developments,
or unpublished writings or other works of authorship, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of Ceridian's
software, products or services;
(c) information which when received is marked as "proprietary,"
"private," or "confidential;"
(d) trade secrets;
(e) software in various stages of development, including computer
programs in source code and binary code form, software designs,
specifications, programming aids (including "library subroutines"
and productivity tools), programming languages, interfaces, visual
displays, technical documentation, user manuals, data files and
databases; and
(f) any similar information of the type described above which Ceridian
obtained from another party and which Ceridian treats as or
designates as being proprietary, private or confidential, whether
or not owned or developed by Ceridian.
Notwithstanding the foregoing, "Confidential Information" does not
include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of Executive outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been
properly published, and therefore will not be in the public domain for
purposes of this Agreement.
1.05 "DISABILITY" shall mean the inability of Executive to perform his or her
duties under this Agreement because of illness or incapacity for a
continuous period of five months.
1.06 "PARENT CORPORATION" shall mean Ceridian Corporation and, except as
otherwise provided in Article VIII and Section 9.02 of Article IX, any
successor in interest by way of consolidation, operation of law, merger
or otherwise. "Parent Corporation" shall not include any Subsidiary.
1.07 "SUBSIDIARY" shall mean: (a) any corporation at least a majority of
whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
occurrence of a contingency) is at the time owned by Parent Corporation
and/or one or more Subsidiaries; and (b) any division or business unit
(or portion thereof) of Parent Corporation or a corporation described in
clause (a) of this Section 1.07.
3
<PAGE>
ARTICLE II
EMPLOYMENT, DUTIES AND TERM
2.01 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
Ceridian hereby employs Executive, and Executive accepts such employment.
Except as expressly provided herein, termination of this Agreement by
either party shall also terminate Executive's employment by Ceridian.
2.02 DUTIES. Executive shall devote his or her full-time and best efforts to
Ceridian and to fulfilling the duties of his or her position which shall
include such duties as may from time to time be assigned him or her by
Ceridian, provided that such duties are reasonably consistent with
Executive's education, experience and background. Executive shall comply
with Ceridian's policies and procedures to the extent they are not
inconsistent with this Agreement in which case the provisions of this
Agreement prevail.
2.03 TERM. Subject to the provisions of Articles IV, VII, and VIII,
Executive's employment shall continue until the later of: (a) June 30,
1999; and (b) two years after a Change of Control which occurs prior to
June 30, 1999. In any event, the Agreement shall automatically terminate
without notice when Executive reaches 65 years of age. If employment is
continued after the age of 65 by mutual agreement, it shall be terminable
at will by either party.
ARTICLE III
COMPENSATION AND EXPENSES
3.01 BASE SALARY. For all services rendered under this Agreement during the
term of Executive's employment, Ceridian shall pay Executive a minimum
Base Salary at the annual rate currently being paid or, if Executive is
not currently in Ceridian's employ, at the annual rate specified in the
written offer of employment. If Executive's salary is increased from
time to time during the term of this Agreement, the increased amount
shall be the Base Salary for the remainder of the term and any
extensions.
3.02 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the
sole discretion of Ceridian. Except as otherwise provided in Article
VII, Ceridian shall have the right in accordance with their terms to
alter, amend or eliminate any bonus or incentive plans, or Executive's
participation therein, without compensation to Executive.
4
<PAGE>
3.03 BUSINESS EXPENSES. Ceridian shall, in accordance with, and to the extent
of, its policies in effect from time to time, bear all ordinary and
necessary business expenses incurred by Executive in performing his or
her duties as an employee of Ceridian, provided that Executive accounts
promptly for such expenses to Ceridian in the manner prescribed from time
to time by Ceridian.
ARTICLE IV
EARLY TERMINATION
4.01 EARLY TERMINATION. Subject to the respective continuing obligations of
the parties pursuant to Articles V, VI, and IX, this Article sets forth
the terms for early termination of this Agreement; provided, however,
that this Article shall not apply to a Change of Control Termination
which is governed solely by the provisions of Article VII.
4.02 TERMINATION FOR CAUSE. Ceridian may terminate this Agreement immediately
for cause. For the purpose hereof "cause" means (a) fraud, (b)
misrepresentation, (c) theft or embezzlement of Ceridian assets,
(d) intentional violations of law involving moral turpitude, (e) the
continued failure by Executive to satisfactorily perform his or her
duties as reasonably assigned to Executive pursuant to Section 2.02 of
Article II of this Agreement for a period of 60 days after a written
demand for such satisfactory performance which specifically identifies
the manner in which it is alleged Executive has not satisfactorily
performed such duties. In the event of termination for cause pursuant to
this Section 4.02, Executive shall be paid at the usual rate of
Executive's annual Base Salary through the date of termination specified
in any notice of termination.
4.03 TERMINATION WITHOUT CAUSE. Either Executive or Ceridian may terminate
this Agreement and Executive's employment without cause on at least 75
days' written notice. In the event of termination of this Agreement and
of Executive's employment pursuant to this Section 4.03, compensation
shall be paid as follows:
(a) if the notice of termination is given by Executive at any time
Executive shall be paid at the usual rate of his or her annual
Base Salary through the date of termination specified in such
notice (but not to exceed 75 days);
(b) if the notice of termination is given by Ceridian and effective
prior to Executive's 65th birthday, (1) Executive shall be paid at
the usual rate of his or her annual Base Salary through the date
of termination specified in the notice provided, however, Ceridian
shall have the option of making termination of the Agreement and
Executive's employment effective immediately upon notice in which
case Executive shall be paid a lump sum representing the value of
75 days worth of salary; and (2) Executive shall receive, starting
within 15 days following termination, a payment equivalent to one
years' Base Salary payable, at the sole
5
<PAGE>
discretion of Ceridian, in either the form of a lump sum
payment or on a regular payroll period basis. In addition, the
Executive shall receive the bonus, if any, to which Executive
would otherwise have become entitled under all Ceridian bonus
plans in effect at the time of termination of this Agreement
had Executive remained continuously employed for the full
fiscal year in which termination occurred and continued to
perform his or her duties in the same manner as they were
performed immediately prior to termination, multiplied by a
fraction, the numerator of which shall be the number of whole
months Executive was employed in the year in which termination
occurred and the denominator of which is 12. This bonus amount
shall be paid within 15 days after the date such bonus would
have been paid had Executive remained employed for the full
fiscal year.
(c) If the event that termination occurs pursuant to Section 4.03(b),
in addition to the payments specified in said Section, Ceridian
shall pay to Executive an amount equal to one years' Base Salary
payable, at the sole discretion of Ceridian, in either the form of
a lump sum payment or on a regular payroll period basis, provided
the Executive executes a release, similar to that attached as
Exhibit A, of all claims against the Company.
(d) If the notice of termination is given by Ceridian to be effective
on or after Executive's 65th birthday, Executive shall be paid at
the usual rate of his or her annual Base Salary through the date
of termination specified in any notice. In addition, Executive
will be paid the bonus, if any, to which Executive would otherwise
have become entitled under all Ceridian bonus plans in effect at
the time of termination of this Agreement had Executive remained
continuously employed for the full fiscal year in which
termination occurred and continued to perform his or her duties in
the same manner as they were performed immediately prior to
termination, multiplied by a fraction, the numerator of which
shall be the number of whole months Executive was employed in the
year in which termination occurred and the denominator of which is
12. The amount payable pursuant to this Section 4.03(d) shall be
paid within 15 days after the date such bonus would have been paid
had Executive remained employed for the full fiscal year.
4.04 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement shall
terminate in the event of death or disability of Executive.
(a) In the event of Executive's death, Ceridian shall pay an amount
equal to 12 months of Base Salary at the rate in effect at the
time of Executive's death plus the amount Executive would have
received in annual incentive plan bonus for the year in which
termination occurs had "target" goals been achieved. Such amount
shall be paid (1) to the beneficiary or beneficiaries designated
in writing to Ceridian by Executive, (2) in the absence of such
designation to the surviving spouse, or (3) if there is no
surviving spouse, or such surviving spouse disclaims all or any
part, then the full amount, or such disclaimed portion, shall be
paid to
6
<PAGE>
the executor, administrator or other personal representative
of Executive's estate. The amount shall be paid as a lump sum as
soon as practicable following Ceridian's receipt of notice of
Executive's death. All such payments shall be in addition to any
payments due pursuant to Section 4.04(c) below.
(b) In the event of disability, Base Salary shall be terminated as of
the end of the month in which the last day of the five-month
period of Executive's inability to perform his or her duties
occurs.
(c) In the event of termination by reason of Executive's death or
disability, Ceridian shall pay to Executive any amount equal to
(1) the amount Executive would have received in annual incentive
plan bonus for the year in which termination occurs had "target"
goals been achieved, multiplied by (2) a fraction, the numerator
of which shall be the number of whole months Executive was
employed in the year in which the death or disability occurred and
the denominator of which is 12. The amount payable pursuant to
this Section 4.04(c) shall be paid within 15 days after the date
such bonus would have been paid had Executive remained employed
for the full fiscal year.
4.05 ENTIRE TERMINATION PAYMENT. The compensation provided for in this
Article IV for early termination of this Agreement and termination
pursuant to this Article IV shall constitute Executive's sole remedy for
such termination. Executive shall not be entitled to any other
termination or severance payment which may be payable to Executive under
any other agreement between Executive and Ceridian.
ARTICLE V
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
5.01 CONFIDENTIALITY. Executive will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information obtained while
employed by Ceridian. If Executive leaves the employ of Ceridian,
Executive will not, without Ceridian's prior written consent, retain or
take away any drawing, writing or other record in any form containing any
Confidential Information.
5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with Ceridian,
Executive will engage in no activity or employment which may conflict
with the interest of Ceridian, and will comply with Ceridian's policies
and guidelines pertaining to business conduct and ethics.
5.03 DISCLOSURE. Executive will disclose promptly in writing to Ceridian all
inventions, discoveries, software, writings and other works of authorship
which are conceived, made,
7
<PAGE>
discovered, or written jointly or singly on Ceridian time or on
Executive's own time, providing the invention, improvement, discovery,
software, writing or other work of authorship is capable of being used
by Ceridian in the normal course of business, and all such inventions,
improvements, discoveries, software, writings and other works of
authorship shall belong solely to Ceridian.
5.04 INSTRUMENTS OF ASSIGNMENT. Executive will sign and execute all
instruments of assignment and other papers to evidence vestiture of
Executive's entire right, title and interest in such inventions,
improvements, discoveries, software, writings or other works of
authorship in Ceridian, at the request and the expense of Ceridian, and
Executive will do all acts and sign all instruments of assignment and
other papers Ceridian may reasonably request relating to applications for
patents, patents, copyrights, and the enforcement and protection thereof.
If Executive is needed, at any time, to give testimony, evidence, or
opinions in any litigation or proceeding involving any patents or
copyrights or applications for patents or copyrights, both domestic and
foreign, relating to inventions, improvements, discoveries, software,
writings or other works of authorship conceived, developed or reduced to
practice by Executive, Executive agrees to do so, and if Executive leaves
the employ of Ceridian, Ceridian shall pay Executive at a rate mutually
agreeable to Executive and Ceridian, plus reasonable traveling or other
expenses.
5.05 INVENTIONS DEVELOPED ON EXECUTIVE'S OWN TIME. The two immediately
preceding sections entitled "Disclosure" and "Instruments of Assignment"
do not apply to inventions in which a Ceridian claim of any rights will
create a violation of Chapter 47 Minnesota Revised Statutes, Section
1-181.78, reproduced below and constituting the written notification
of its Subdivision 3.
181.78 Agreements relating to inventions
Subdivision 1.
Any provision in an employment agreement which provides that an Executive
shall assign or offer to assign any of his rights in an invention to his
employer shall not apply to an invention for which no equipment,
supplies, facility or trade secret information of the employer was used
and which was developed entirely on the employee's own time, and
(1) which does not relate (a) directly to the business of the employer or
(b) to the employer's actual or demonstrably anticipated research or
development, or (2) which does not result from any work performed by the
employee for the employer. Any provision which purports to apply to such
an invention is to that extent against the public policy of this state
and is to that extent void and unenforceable.
Subdivision 2.
No employer shall require a provision made void and unenforceable by
subdivision 1 as a condition of employment or continuing employment.
8
<PAGE>
Subdivision 3.
IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A
PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS
RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE
TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE
EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO
EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER
WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND
(1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR
(b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE
EMPLOYEE FOR THE EMPLOYER.
5.06 EXECUTIVE'S DECLARATION. Executive has no inventions, improvements,
discoveries, software, writings or other works of authorship useful to
Ceridian in the normal course of business, which were conceived, made or
written prior to the date of this Agreement and which are excluded from
this Agreement.
5.07 SURVIVAL. The obligations of this Article V shall survive the expiration
or termination of this Agreement.
ARTICLE VI
NON-COMPETITION, NON-RECRUITMENT
6.01 GENERAL. The parties hereto recognize and agree that (a) Executive is a
senior executive of Ceridian and is a key Executive of Ceridian, (b)
Executive has received, and will in the future receive, substantial
amounts of Confidential Information, (c) Ceridian's business is conducted
on a worldwide basis, and (d) provision for non-competition and
non-recruitment obligations by Executive is critical to Ceridian's
continued economic well-being and protection of Ceridian's Confidential
Information. In light of these considerations, this Article VI sets
forth the terms and conditions of Executive's obligations of
non-competition and non-recruitment subsequent to the termination of this
Agreement and/or Executive's employment for any reason.
6.02 NON-COMPETITION.
(a) Unless the obligation is waived or limited by Ceridian in
accordance with subsection (b) of this Section 6.02, Executive
agrees that for a period of two years following termination of
employment for any reason, Executive will not directly
9
<PAGE>
or indirectly, alone or as a partner, officer, director,
shareholder or employee of any other firm or entity, engage in
any commercial activity in competition with any part of Ceridian's
business as conducted as of the date of such termination of
employment or with any part of Ceridian's contemplated business
with respect to which Executive has Confidential Information as
governed by Article V of this Agreement. For purposes of this
subsection (a), "shareholder" shall not include beneficial
ownership of less than five percent (5%) of the combined voting
power of all issued and outstanding voting securities of a
publicly held corporation whose stock is traded on a major
stock exchange. Also for purposes of this subsection (a),
"Ceridian's business" shall include business conducted by
Ceridian or its affiliates and any partnership or joint venture
in which Ceridian or its affiliates is a partner or joint
venturer; provided that, "affiliate" as used in this sentence
shall not include any corporation in which Ceridian has
ownership of less than fifteen percent (15%) of the voting
stock.
(b) At its sole option Ceridian may, by written notice to Executive
within 30 days after the effective date of termination of
Executive's employment, waive or limit the time and/or geographic
area in which Executive cannot engage in competitive activity.
(c) During the term of the non-competition obligation, prior to
accepting employment with, or agreeing to provide consulting
services to, any firm which offers products or services in the
fields of electronics or information processing, Executive shall
give 30 days prior written notice to Ceridian. Such written
notice shall describe the proposed employment or consulting
services and the firm to which they will be rendered. Ceridian's
failure to respond or object to such notice shall not in any way
constitute acquiescence or waiver of Ceridian's rights under this
Article VI.
(d) During any period of non-competition pursuant to this Article VI
Ceridian shall pay Executive an amount equal to the usual rate of
Executive's Base Salary in effect at the time of termination.
There shall be credited against Ceridian's obligation to make such
payments any other payments made by Ceridian to Executive pursuant
to Article IV of this Agreement. In the event that Ceridian
elects, pursuant to subsection (b) of this Section 6.02, to waive
all or any portion of the non-competition obligation, no payment
shall be required by Ceridian with respect to the portion of the
non-competition period which has been waived.
6.03 NON-RECRUITMENT. For a period of two years following termination of
employment for any reason, Executive will not initiate or actively
participate in any other employer's recruitment or hiring of Ceridian
employees. This provision shall not preclude Executive from responding
to a request (other than by Executive's employer) for a reference with
respect to an individual's employment qualifications.
6.04 SURVIVAL. The obligations of this Article VI shall survive the
expiration or termination of this Agreement.
10
<PAGE>
ARTICLE VII
CHANGE OF CONTROL
7.01 DEFINITIONS. For purposes of this Article VII, the following definitions
shall be applied:
(a) "BENEFIT PLAN" means any formal or informal plan, program or other
arrangement heretofore or hereafter adopted by Ceridian for the
direct or indirect provision of compensation to the Executive
(including groups or classes of participants or beneficiaries of
which the Executive is a member), whether or not such compensation
is deferred, is in the form of cash or other property or rights,
or is in the form of a benefit to or for the Executive.
(b) "CHANGE OF CONTROL" shall mean any of the following events:
(1) a merger or consolidation to which Parent
Corporation is a party if the individuals and
entities who were stockholders of Parent Corporation
immediately prior to the effective date of such
merger or consolidation have beneficial ownership
(as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of less than fifty percent
(50%) of the total combined voting power for
election of directors of the surviving corporation
immediately following the effective date of such
merger or consolidation; or
(2) the direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934) in the aggregate of securities of
Parent Corporation representing twenty-five percent
(25%) or more of the total combined voting power of
Parent Corporation's then issued and outstanding
securities by any person or entity, or group of
associated persons or entities acting in concert; or
(3) the sale of the properties and assets of Parent
Corporation, substantially as an entirety, to any
person or entity which is not a wholly-owned
subsidiary of Parent Corporation; or
(4) the stockholders of Parent Corporation approve any
plan or proposal for the liquidation of Parent
Corporation; or
(5) a change in the composition of the Board at any time
during any consecutive 24 month period such that the
"Continuity Directors" cease for any reason to
constitute at least a seventy percent (70%) majority
of the Board. For purposes of this clause,
"Continuity
11
<PAGE>
Directors" means those members of the Board who
either (A) were directors at the beginning of such
consecutive 24 month period, or (B) were elected
by, or on the nomination or recommendation of, at
least a two-thirds (2/3) majority of the
then-existing Board.
(c) "CHANGE OF CONTROL COMPENSATION" means any payment or benefit
(including any transfer of property) in the nature of compensation, to or
for the benefit of a Participant under this Agreement or any Other
Agreement or Benefit Plan, which is considered to be contingent on a
Change of Control for purposes of Section 280G of the Code.
(d) "CHANGE OF CONTROL TERMINATION" means, with respect to Executive,
either of the following events occurring within two years after a Change
of Control:
(1) Termination of Executive's employment by Ceridian
for any reason other than (A) fraud, (B) theft or
embezzlement of Ceridian assets, (C) intentional
violations of law involving moral turpitude, or (D)
the substantial and continuing failure by Executive
to satisfactorily perform his or her duties as
reasonably assigned to Executive pursuant to Section
2.02 of Article II of this Agreement for a period of
60 days after a written demand for such satisfactory
performance which specifically identifies the manner
in which it is alleged Executive has not
satisfactorily performed such duties; or
(2) Termination of employment with Ceridian by Executive
pursuant to Section 7.02 of this Article VII.
A Change of Control Termination by Executive shall not, however,
include termination by reason of death or Disability.
(e) "CODE" means the Internal Revenue Code of 1986, as amended. Any
reference to a section of the Code shall include the corresponding
section of such Code as from time to time amended.
(f) "EXCISE TAX" means any applicable federal excise tax imposed by
Section 4999 of the Code.
(g) "GOOD REASON" means a good faith determination by Executive, in
Executive's sole and absolute judgment, that any one or more of the
following events has occurred, without Executive's express written
consent, after a Change of Control:
(1) A change in Executive's reporting responsibilities,
titles or offices as in effect immediately prior to
the Change of Control, or any removal of Executive
from, or any failure to re-elect Executive to,
12
<PAGE>
any of such positions, which has the effect of
materially diminishing Executive's responsibility or
authority;
(2) A reduction by Ceridian in Executive's Base Salary
as in effect immediately prior to the Change of
Control or as the same may be increased from time to
time thereafter;
(3) Ceridian requiring Executive to be based anywhere
other than within 25 miles of Executive's job
location at the time of the Change of Control;
(4) Without replacement by plans, programs, or
arrangements which, taken as a whole, provide
benefits to Executive at least reasonably comparable
to those discontinued or adversely affected, (A) the
failure by Ceridian to continue in effect, within
its maximum stated term, any pension, bonus,
incentive, stock ownership, purchase, option, life
insurance, health, accident, disability, or any
other employee compensation or benefit plan, program
or arrangement, in which Executive is participating
immediately prior to a Change of Control; or (B) the
taking of any action by Ceridian that would
materially adversely affect Executive's
participation or materially reduce Executive's
benefits under any of such plans, programs or
arrangements;
(5) The failure by Ceridian to provide office space,
furniture, and secretarial support at least
comparable to that provided Executive immediately
prior to the Change of Control or the taking of any
similar action by Ceridian that would materially
adversely affect the working conditions in or under
which Executive performs his or her employment
duties;
(6) If Executive's primary employment duties are with a
Subsidiary, the sale, merger, contribution, transfer
or any other transaction in conjunction with which
Parent Corporation's ownership interest in such
Subsidiary decreases below the level specified in
Section 1.07 of Article I unless (A) this Agreement
is assigned to the purchaser/transferee with the
provisions of Article VII in full force and effect
and operative as if a Change of Control has occurred
with respect to the purchaser/transferee as Parent
Corporation immediately after the purchase/transfer
becomes effective, and (B) such purchaser/transferee
has a creditworthiness reasonably equivalent to
Parent Corporation's; or
(7) Any material breach of this Agreement by Ceridian.
13
<PAGE>
(h) "OTHER AGREEMENTS" means any agreement, contract or understanding
heretofore or hereafter entered into between Executive and Ceridian for
the direct or indirect provision of compensation to Executive.
(i) "REDUCED AMOUNT" means the largest amount that could be received
by a Participant as Change of Control Compensation such that no portion
of such Change of Control Compensation would be subject to the Excise
Tax.
7.02 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two years following
a Change of Control, Executive shall have the right, at any time and
within Executive's sole discretion, to terminate employment with Ceridian
for Good Reason. Such termination shall be accomplished by, and
effective upon, Executive giving written notice to Ceridian of
Executive's decision to terminate. Except as otherwise expressly
provided in this Agreement, upon the exercise of said right, all
obligations and duties of Executive under this Agreement shall be of no
further force and effect.
7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of
Control Termination, and subject to the "Limitation on Change of Control
Compensation" contained in Section 7.04, then, and without further action
by the Board, Compensation Committee or otherwise, Parent Corporation
shall, within five days of such termination, make a lump sum payment to
Executive in an amount equal to one dollar ($1.00) less than three times
the average annualized compensation, as defined by Section 280G of the
Code, received by Executive from Ceridian and includible in Executive's
gross income for federal income tax purposes for the five most recent
taxable years of the Executive ending before the date upon which the
Change in Control occurred (or such portion of such period during which
Executive was an employee of Ceridian).
7.04 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding any other
provisions of this Agreement or of any Other Agreement or Benefit Plan,
if any Change of Control Compensation would be considered a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code and if,
after reduction for any Excise Tax and federal income tax imposed by the
Code, Executive's net proceeds of such Change of Control Compensation
would be less than the amount of Executive's net proceeds resulting from
the payment of the Reduced Amount after reduction for federal income
taxes, then the Change of Control Compensation payable to Executive shall
be limited to the Reduced Amount. The determinations required by the
preceding sentence shall be made by the firm of independent certified
public accountants serving as the outside auditor of Ceridian as of the
date of the applicable Change of Control, and such determinations shall
be binding upon Ceridian and Executive. If Change of Control
Compensation to Executive is limited to the Reduced Amount, then
Executive shall have the right, in his or her sole discretion, to
designate those payments or benefits under this Agreement, any Other
Agreements and/or any Benefit Plans that should be reduced or eliminated
so as to avoid having Executive's Change of Control Compensation be
subject to the Excise Tax. If Executive fails to make such designation
within 30 days of having
14
<PAGE>
received notification that such designation is required, Ceridian shall
make such designations and shall promptly inform Executive of its actions
in such regard.
7.05 INTEREST. In the event Parent Corporation does not make timely payment
in full of the Change of Control Termination payment described in Section
7.03, Executive shall be entitled to receive interest on any unpaid
amount at the lower of: (a) the prime rate of interest (or such
comparable index as may be adopted) established from time to time by the
First Bank National Association, Minneapolis, Minnesota; or (b) the
maximum rate permitted under Section 280G(d)(4) of the Internal Revenue
Code."
7.06 ATTORNEYS' FEES. In the event Executive incurs any legal expense to
enforce or defend his or her rights under this Article VII of this
Agreement, or to recover damages for breach thereof, Executive shall be
entitled to recover from Ceridian any expenses for attorneys' fees and
disbursements incurred.
7.07 BENEFITS CONTINUATION. In the event of a Change of Control Termination,
Executive (and anyone entitled to claim under or through Executive)
shall, until age 65, be entitled to receive from Ceridian the same or
equivalent health, dental, accidental death and dismemberment, short and
long-term disability, life insurance coverages, and all other insurance
policies and health and welfare benefits programs, policies or
arrangements, at the same levels and coverages as Executive was receiving
on the day immediately prior to the Change of Control. To the extent
that election of continuation of any of such coverages, programs,
policies, or arrangements is made available to employees terminating at
age 55 with 15 or more years of service, Executive shall be required to
pay no more for continuation than is required of such employees on the
day immediately prior to the Change of Control. If no such continuation
program is available, Executive shall be required to pay no more than
he/she paid as an active employee, or if provided by Ceridian at no cost
to employees on the day immediately prior to the Change of Control, they
shall continue to be made available to Executive on this basis.
ARTICLE VIII
CHANGE OF SUBSIDIARY STATUS
In the event that, prior to a Change of Control: (a) a Subsidiary is sold,
merged, contributed, or in any other manner transferred, or if for any reason
Parent Corporation's ownership interest in any such Subsidiary falls below the
level specified in Section 1.07, (b) Executive's primary employment duties are
with the Subsidiary at the time of the occurrence of such event, and (c)
Executive does not, in conjunction therewith, transfer employment directly to
Parent Corporation or another Subsidiary, then:
(1) If Executive gives his or her written consent to the assignment of
this Agreement to such Subsidiary, or to the purchaser or new
majority interest holder of such Subsidiary, (and such assignment
is accepted) this Agreement shall remain in full
15
<PAGE>
force and effect between Executive and the assignee, except that
the provisions of Article VII of this Agreement shall become null
and void;
(2) If such assignment is not accepted by the Subsidiary or purchaser,
then this Agreement shall be deemed to have been terminated by
Ceridian without cause pursuant to Section 4.03 of Article IV; and
(3) In all other cases, this Agreement shall be deemed terminated for
cause pursuant to Section 4.02 of Article IV.
ARTICLE IX
GENERAL PROVISIONS
9.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement.
Therefore, if either party shall institute any action or proceeding to
enforce the provisions hereof, such party against whom such action or
proceeding is brought hereby waives the claim or defense that such party
has an adequate remedy at law, and such party shall not urge in any such
action or proceeding the claim or defense that such party has an adequate
remedy at law.
9.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VIII,
this Agreement shall be binding upon and inure to the benefit of the
successors and assigns of Parent Corporation and each Subsidiary, whether
by way of merger, consolidation, operation of law, assignment, purchase
or other acquisition of substantially all of the assets or business of
Ceridian, and any such successor or assign shall absolutely and
unconditionally assume all of Ceridian's obligations hereunder.
9.03 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address:
(a) Ceridian Corporation
8100 34th Avenue South
Minneapolis, Minnesota 55425-1640
Attention: Office of General Counsel
(b) In the case of Executive shall be:
At the address listed on the last page of this Agreement.
Either party may, by notice hereunder, designate a changed
address. Any notice, if mailed properly addressed, postage
prepaid, registered or certified mail, shall be
16
<PAGE>
deemed dispatched on the registered date or that stamped on the
certified mail receipt, and shall be deemed received within the
second business day thereafter or when it is actually received,
whichever is sooner.
9.04 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
9.05 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota and any
and every legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the State of
Minnesota, each of the parties hereby consenting to the exclusive
jurisdiction of said courts for this purpose. The parties hereto
expressly recognize and agree that the implementation of this Governing
Law provision is essential in light of the fact that Parent Corporation's
corporate headquarters and its principal executive offices are located
within the State of Minnesota, and there is a critical need for
uniformity in the interpretation and enforcement of the employment
agreements between Ceridian and its senior executives.
9.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions
of this Agreement.
9.07 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by any related
document or by law.
9.08 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
9.09 ARBITRATION. Because the parties recognize that resolving any future
differences in the courts can require a long time and great expense,
Company and Executive agree that their only remedy for disputes either
may have with the other and that arise out of Executive's employment, or
any aspect of this Agreement, shall be to submit all disputes to final
and binding arbitration in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The aggrieved
party must send a written notice of claim to the other party by certified
mail, return receipt requested to the address listed in Section 7.03 of
this Agreement. The arbitrator shall apply the law in accordance with
this Agreement, or federal law, or both, as applicable to the claim(s)
asserted.
17
<PAGE>
9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon. This Agreement replaces in full all prior employment
agreements or understandings of the parties hereto, and any and all such
prior agreements or understandings are hereby rescinded by mutual
agreement. Any changes or amendments to this Agreement must be in
writing and signed by both parties.
IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EXECUTIVE CERIDIAN CORPORATION
/s/ Tony R. Holcombe By: /s/ Michael E. Kotten
- -------------------------- ------------------------------
Title: V.P. Organization Resources
------------------------------
Address:
201 Lake Ridge Court
- -----------------------
Franklin, TN 37064
- -----------------------
- -----------------------
18
<PAGE>
CERIDIAN CORPORATION
PERFORMANCE-BASED STOCK OPTION AWARD AGREEMENT
1993 LONG-TERM INCENTIVE PLAN
This Agreement between you, JOHN R. EICKHOFF, and Ceridian Corporation (the
"Company") is dated as of JULY 22, 1998 (the "Date of Grant") and evidences the
grant of a Non-Statutory Stock Option (the "Stock Option") to you pursuant to
the 1993 Long-Term Incentive Plan of the Company (the "Plan").
1. Any capitalized term used in this Agreement which is defined in the
Plan shall have the same meaning as set forth in the Plan. When used in this
Agreement, the following additional terms shall have the meanings indicated:
(a) "TOTAL RETURN TO SHAREHOLDERS" means, with respect to the Company
or any other S&P 500 Company, the total return to a holder of the common stock
of such company as a result of his or her ownership of such common stock during
the Measurement Period, such total return (i) to be expressed as a percentage of
an assumed initial investment in such common stock as of July 22, 1998 and (ii)
to include both the appreciation in the per share price of such common stock
during the Measurement Period and the per share fair market value of all
dividends and distributions paid or distributed by such company with respect to
such common stock during the Measurement Period, assuming that all such
dividends and distributions are reinvested in shares of such common stock at
their Fair Market Value on the last trading day of the month in which the
dividend or distribution is paid or distributed. For purposes of calculating
TRS for the Company or any other S&P 500 Company, the assumed initial investment
in such company's common stock as of July 22, 1998 shall be at the applicable
Starting Price, and the value of a share of such company's common stock at the
end of the Measurement Period shall be the applicable Ending Price.
(b) "ENDING PRICE" means, with respect to any S&P 500 Company
(including the Company), the average daily last reported sales price of a share
of such company's common stock as reported in the WALL STREET JOURNAL during the
period June 1, 2001 through June 30, 2001.
(c) "FAIR MARKET VALUE" (i) with respect to the Company has the same
meaning as specified in Section 2.10 of the Plan, and (ii) with respect to any
other S&P 500 Company means the last reported sales price of a share of such
company's common stock on the date in question as reported in the Wall Street
Journal.
(d) "MEASUREMENT PERIOD" means the period July 22, 1998 through June
30, 2001.
(e) "S&P 500 COMPANIES" means the companies that comprise the
Standard & Poors' 500 Stock Index as it existed on July 22, 1998, and which are
still publicly traded on June 30, 2001.
(f) "STARTING PRICE" means, with respect to any S&P 500 Company
(including the Company), the average daily last reported sales price of a share
of such
<PAGE>
company's common stock as reported in the WALL STREET JOURNAL during the
period July 1, 1998 through July 22, 1998.
2. Effective as of the Date of Grant, and subject to the terms and
conditions of the Plan and this Agreement, the Company has granted to you the
option to purchase from the Company, and the Company has agreed to sell to you,
40,000 shares of Common Stock at a price of $61.50 per share (the "Option
Shares").
3. This Stock Option will become void and expire at 5:00 p.m.
(Minneapolis time) on the tenth anniversary of the Date of Grant and may not be
exercised after that time.
4. Except as otherwise expressly provided in Sections 5 through 8 of this
Agreement, this Stock Option will become exercisable at the times specified in
this Section 4, but only if, at the time specified, you have been continuously
employed by the Company or a Subsidiary since the Date of Grant. If this Stock
Option becomes exercisable, it will remain exercisable until the date specified
in Section 3 of this Agreement.
(a) This Stock Option will become exercisable with regard to all of
the Option Shares as of December 31, 2000 if the average closing price of a
share of the Company's Common Stock on the New York Stock Exchange for any 20
consecutive trading days during the period beginning on the Grant Date and
ending on December 31, 2000 is equal to or greater than $84.50.
(b) If the condition specified in paragraph (a) of this Section 4 is
not satisfied, this Stock Option will become exercisable with regard to all of
the Option Shares if the average closing price of a share of the Company's
Common Stock on the New York Stock Exchange for any 20 consecutive trading day
period that ends during the period beginning January 1, 2001 and ending June 30,
2001 is equal to or greater than $84.50. If this condition is satisfied, this
Stock Option will become exercisable as of the day immediately following the
completion of such 20 day period.
(c) If neither of the conditions specified in paragraphs (a) and (b)
of this Section 4 are satisfied, this Stock Option will, nevertheless, become
exercisable with regard to all of the Option Shares as of June 30, 2001 if the
Company's rank for Total Return to Shareholders among S&P 500 Companies during
the Measurement Period is at least at the 60th percentile.
(d) Notwithstanding Paragraphs (a) through (c) of this Section 4,
this Stock Option shall become exercisable with respect to all of the Option
Shares on March 31, 2008.
(e) If there is any change in the corporate structure or shares of
the Company of the types described in Sections 3.2(c) or 4.4 of the Plan, then
the number of Option Shares, the Starting Price and Ending Price specified in
Section 1 and the per share price specified in Paragraphs 4(a) and (b) shall be
appropriately adjusted as contemplated by Sections 3.2(c) and 4.4 of the Plan so
as to prevent reduction or enlargement of your rights under this Agreement.
5. If your employment is terminated by the Company or any Subsidiary for
Cause (as defined in Section 10.3(b) of the Plan), this Stock Option may not be
exercised after such
2
<PAGE>
termination of employment and will be forfeited, and all of your rights under
the Plan and this Agreement will immediately terminate.
6. If your employment with the Company and all Subsidiaries terminates
because of death, Disability or a Change of Control Termination, or if the
Company or any applicable Subsidiary terminates your employment without Cause,
this Stock Option shall immediately become exercisable in full if the stock
price performance condition specified in paragraph 4(a) of this Agreement was
satisfied prior to the date of such termination.
7. If your employment with the Company and all Subsidiaries terminates
for any reason prior to December 31, 2000 other than as provided in Section 6 of
this Agreement, you will forfeit this Stock Option and all of your rights under
the Plan and this Agreement will immediately terminate. If your employment with
the Company and all Subsidiaries terminates on or after December 31, 2000 due to
Retirement, and if at that time this Stock Option is not yet exercisable, this
Stock Option may become exercisable after such termination if either of the
conditions specified in Paragraphs 4(b) and 4(c) of this Agreement is satisfied.
If neither of such conditions is satisfied following a termination of employment
on or after December 31, 2000 due to your Retirement, or if your employment with
the Company and all Subsidiaries terminates on or after December 31, 2000 for
any reason other than Retirement or as provided in Section 6 of this Agreement,
you will forfeit this Stock Option and all of your rights under the Plan and
this Agreement will immediately terminate. YOU EXPRESSLY AGREE THAT EXCEPT AS
SPECIFICALLY PROVIDED IN SECTION 6 OF THIS AGREEMENT, YOU WILL HAVE NO RIGHT TO
ACCELERATED EXERCISABILITY OF THIS STOCK OPTION UNDER SECTION 12 OF THE PLAN IN
THE EVENT OF A CHANGE OF CONTROL OR A CHANGE OF CONTROL TERMINATION, AND AGREE
THAT FOR PURPOSES OF THIS STOCK OPTION, SECTION 12 OF THE PLAN SHALL OTHERWISE
BE DEEMED TO HAVE BEEN RESCINDED BY THE BOARD. YOU ALSO EXPRESSLY CONSENT TO
THE TREATMENT OF THIS STOCK OPTION IN THE MANNER SPECIFIED IN THIS SECTION 7
UNDER CIRCUMSTANCES THAT WOULD OR COULD OTHERWISE CONSTITUTE "RETIREMENT" AS
DEFINED IN THE PLAN.
8. If, at any time during the period that this Stock Option is or may yet
become exercisable in whole or in part, or at any time prior to one year after
the termination of your employment with the Company and all Subsidiaries,
whichever is later, you (i) engage in any commercial activity in competition
with any part of the business of the Company or its Subsidiaries, (ii) divert or
attempt to divert from Ceridian or its Subsidiaries any business of any kind,
including, without limitation, interference with any business relationships with
suppliers, customers, licensees, licensors, clients or contractors, (iii) make,
or cause or attempt to cause any other person to make, any statement, either
written or oral, or convey any information about the Company which is
disparaging or which in any way reflects negatively upon the Company, or (iv)
engage in any other activity that is inimical, contrary or harmful to the
interests of the Company or its Subsidiaries, including influencing or advising
any person who is employed by or in the service of the Company or its
Subsidiaries to leave such employment or service to compete with the Company or
its Subsidiaries or to enter into the employment or service of any actual or
prospective competitor of the Company or its Subsidiaries, or influencing or
advising any competitor of the Company or its Subsidiaries to employ or to
otherwise engage the services of any person who is employed by or in the service
of the Company or its Subsidiaries, or improperly disclosing or otherwise
misusing any confidential information regarding the Company or its Subsidiaries,
then notwithstanding any other provision of this Agreement (1) this Stock Option
shall terminate effective the date on
3
<PAGE>
which you enter into such activity, unless terminated sooner by operation of
another term of this Agreement or the Plan, and (2) any gain realized by you
from exercising all or any portion of this Stock Option during a period
beginning six months prior to the date on which you enter into such activity
shall be paid by you to the Company.
9. By accepting this Agreement, you consent to a reduction from any
amounts the Company owes you from time to time (including wages or other
compensation) of any amount you owe the Company under Section 8 of this
Agreement. If the Company does not recover by means of set-off the full amount
you owe it, you agree to immediately repay the unpaid balance to the Company.
10. Nothing in the Plan or this Agreement shall confer upon you any right
with respect to continued employment by the Company or any Subsidiary, nor
interfere in any way with the right of the Company or a Subsidiary to terminate
your employment at any time.
11. Except as otherwise expressly provided in Sections 4 through 8 of this
Agreement, this Agreement is subject to all of the terms and conditions of the
Plan and, where any questions or matters of interpretation arise, the terms and
conditions of the Plan and the rules of the Committee administering the Plan
shall control.
12. Neither you nor any other person shall have any rights as a
stockholder with respect to any Option Shares until you or such other person
shall have become a holder of record of such shares and, except as otherwise
provided in Section 4.4 of the Plan, no adjustments shall be made for dividends
or other distributions or rights as to which there is a record date preceding
the date you become the holder of record of such shares.
13. Any notice to be given with respect to this Stock Option, including
without limitation a notice of exercise, shall be addressed to the Company,
Attention: Corporate Treasury, at its principal executive office at 8100 34th
Avenue South, Minneapolis, Minnesota 55425, Facsimile No. 612-853-3932, and any
notice to be given to you shall be addressed to you at the address given beneath
your signature below, or at such other address as either party may hereafter
designate in writing to the other.
14. Any notice of stock option exercise must specify the number of shares
with respect to which the Stock Option is being exercised and be accompanied by
either (i) payment in full of the purchase price for the shares exercised or
(ii) a Broker Exercise Notice in form and substance satisfactory to the Company.
The exercise of the Stock Option shall be deemed effective upon receipt by
Corporate Treasury of such notice and payment of the exercise price from the
Participant or the broker or dealer named in the Broker Exercise Notice. Any
such notice will not be deemed given until actual receipt by Corporate Treasury.
4
<PAGE>
In Witness Whereof, Ceridian Corporation and you have executed this
Agreement as of the Date of Grant.
OPTIONEE
CERIDIAN CORPORATION
By /s/ John Haveman /s/ John R. Eickhoff
-------------------------------- ----------------------------------
Secretary John R. Eickhoff
###-##-####
6028 Schaeffer Road
Edina, MN 55436
5
<PAGE>
CERIDIAN CORPORATION
STOCK OPTION AWARD AGREEMENT
1993 LONG-TERM INCENTIVE PLAN
This Agreement between you, ______________, and Ceridian Corporation (the
"Company") is dated as of OCTOBER 21, 1998 (the "Date of Grant") and evidences
the grant of a Non-Statutory Stock Option (the "Stock Option") to you pursuant
to the 1993 Long-Term Incentive Plan of the Company (the "Plan"). Any
capitalized term used in this Agreement which is defined in the Plan shall have
the same meaning as set forth in the Plan.
1. Effective as of the Date of Grant, and subject to the terms and
conditions of the Plan and this Agreement, the Company has granted to you the
option to purchase from the Company, and the Company has agreed to sell to you,
_________ shares of Common Stock at a price of $54.81 per share (the "Option
Shares"). This Stock Option is comprised of two components: ______ of the
Option Shares will become exercisable as provided in paragraph 3 of this
Agreement and are referred to as "Time-Based Option Shares," and ________ of the
Option Shares will become exercisable as provided in paragraph 4 of this
Agreement and are referred to as "Performance-Based Option Shares."
2. This Stock Option will become void and expire at 5:00 p.m. (Minneapolis
time) on the tenth anniversary of the Date of Grant and may not be exercised
after that time.
3. Except as otherwise expressly provided in paragraphs 5 through 9 of
this Agreement, and provided you have been continuously employed by the Company
or a Subsidiary since the Date of Grant, upon October 21, 1999, this Option
shall become exercisable with respect to one-third of the Time-Based Option
Shares, and upon each succeeding October 21st, the Option shall become
exercisable with respect to an additional one-third of the Time-Based Option
Shares.
4. Except as otherwise expressly provided in paragraphs 5 through 9 of
this Agreement, this Stock Option will become exercisable with respect to the
Performance-Based Option Shares at the time specified in this paragraph 4, but
only if, at the time specified, you have been continuously employed by the
Company or a Subsidiary since the Date of Grant.
(a) This Stock Option will become exercisable with respect to all of
the Performance-Based Option Shares as of February 15, 2001 if the average
closing price of a share of the Company's Common Stock on the New York Stock
Exchange for any 20 consecutive trading days during the period beginning on
October 21, 1998 and ending on January 31, 2001 is greater than $70.00 per
share.
(b) If the condition specified in paragraph 4(a) is not satisfied,
this Stock Option will, nevertheless, become exercisable with regard to all of
the Performance-Based Option Shares as of February 15, 2001 if the Company's
rank for Total Return to Shareholders among S&P 500 Companies during the
Performance Period exceeds the 60th percentile.
<PAGE>
(c) If neither of the conditions specified in paragraphs 4(a) and (b)
is satisfied, this Stock Option shall nevertheless become exercisable with
respect to all of the Performance-Based Option Shares on October 21, 2004.
(d) When used in this paragraph 4, the following terms shall have the
meanings indicated:
(1) "TOTAL RETURN TO SHAREHOLDERS" means, with respect to the
Company or any other S&P 500 Company, the total return to a holder of the common
stock of such company as a result of his or her ownership of such common stock
during the Performance Period, such total return (i) to be expressed as a
percentage of an assumed initial investment in such common stock as of October
21, 1998 and (ii) to include both the appreciation in the per share price of
such common stock during the Performance Period and the per share fair market
value of all dividends and distributions paid or distributed by such company
with respect to such common stock during the Performance Period, assuming that
all such dividends and distributions are reinvested in shares of such common
stock at their Fair Market Value on the last trading day of the month in which
the dividend or distribution is paid or distributed. For purposes of
calculating Total Return to Shareholders for the Company or any other S&P 500
Company, the assumed initial investment in such company's common stock as of
October 21, 1998 shall be at the applicable Starting Price, and the value of a
share of such company's common stock at the end of the Performance Period shall
be the applicable Ending Price.
(2) "ENDING PRICE" means, with respect to any S&P 500 Company
(including the Company), the average daily last reported sales price of a share
of such company's common stock as reported in the WALL STREET JOURNAL during the
period January 1, 2001 through January 31, 2001.
(3) "FAIR MARKET VALUE" (i) with respect to the Company has the
same meaning as specified in Section 2.10 of the Plan, and (ii) with respect to
any other S&P 500 Company means the last reported sales price of a share of such
company's common stock on the date in question as reported in the WALL STREET
JOURNAL.
(4) "PERFORMANCE PERIOD" means the period October 21, 1998
through January 31, 2001.
(5) "S&P 500 COMPANIES" means the companies that comprise the
Standard & Poors' 500 Stock Index as it existed on October 21, 1998, and which
are still publicly traded on January 31, 2001.
(6) "STARTING PRICE" means, with respect to any S&P 500 Company
(including the Company), the average daily last reported sales price of a share
of such company's common stock as reported in the WALL STREET JOURNAL during the
period October 1, 1998 through October 21, 1998.
2
<PAGE>
(e) If there is any change in the corporate structure or shares of
the Company of the types described in Sections 3.2(c) or 4.4 of the Plan, then
the number of Option Shares, the Starting Price and Ending Price specified in
this paragraph 4 and the per share price specified in paragraph 4(a) shall be
appropriately adjusted as contemplated by Sections 3.2(c) and 4.4 of the Plan so
as to prevent reduction or enlargement of your rights under this Agreement.
5. If your employment with the Company and all Subsidiaries is terminated
for Cause (as defined in Section 10.3(b) of the Plan), this Stock Option may not
be exercised after such termination of employment and will be forfeited, and all
of your rights under the Plan and this Agreement will immediately terminate.
6. If your employment with the Company and all Subsidiaries terminates
because of Death or Disability, this Stock Option shall immediately become
exercisable with respect to all of the Time-Based Option Shares, and shall
immediately become exercisable with respect to all of the Performance-Based
Option Shares if the stock price performance condition specified in paragraph
4(a) of this Agreement was satisfied prior to the date of such termination. If
your employment with the Company and all Subsidiaries terminates because of
Retirement, then this Stock Option shall continue to become exercisable (i) with
respect to the Time-Based Option Shares as specified in paragraph 3 of this
Agreement, and (ii) with respect to the Performance-Based Option Shares on the
date specified in paragraph 4(a) of this Agreement only if the stock price
performance condition specified in paragraph 4(a) was satisfied prior to the
date of such termination. To the extent this Stock Option is already exercisable
at the time your employment terminates due to Death, Disability or Retirement,
or becomes exercisable as provided in this paragraph 6, it will remain
exercisable until the date specified in paragraph 2 of this Agreement.
7. If a Change of Control Termination occurs, and if this Stock Option has
been outstanding for at least six months from the Date of Grant, then you shall
have the rights, if any, to accelerated exercisability of this Stock Option as
are specified in Section 12 of the Plan as in effect on the date of the Change
of Control, except that such accelerated exercisability shall be available with
respect to the Performance-Based Option Shares only if the stock price
performance condition specified in paragraph 4(a) of this Agreement was
satisfied prior to the date of such termination.
8. If your employment with the Company and all Subsidiaries terminates for
any reason other than as provided in paragraphs 6 or 7 of this Agreement, you
shall have three months following the date of such termination to exercise this
Stock Option (but in no event after the time it expires as set forth in
paragraph 2) to the extent that you were entitled to exercise it as of the date
of such termination. You will forfeit this Stock Option to the extent it has
not yet become exercisable as of such employment termination date. YOU
EXPRESSLY CONSENT TO THE TREATMENT OF THE PERFORMANCE-BASED OPTION SHARES OF
THIS STOCK OPTION IN THE MANNER SPECIFIED IN PARAGRAPHS 6, 7, AND 8 OF THIS
AGREEMENT AS APPLICABLE, EVEN UNDER CIRCUMSTANCES THAT WOULD OR COULD OTHERWISE
CONSTITUTE "DEATH", "DISABILITY", "RETIREMENT" OR "CHANGE OF CONTROL" AS
DEFINED IN THE PLAN AND THEREBY RESULT IN DIFFERING TREATMENT.
3
<PAGE>
9. If, at any time during the period that this Stock Option is or may yet
become exercisable in whole or in part, or at any time prior to one year after
the termination of your employment with the Company and all Subsidiaries,
whichever is later, you (i) engage in any commercial activity in competition
with any part of the business of the Company or its Subsidiaries, (ii) divert or
attempt to divert from Ceridian or its Subsidiaries any business of any kind,
including, without limitation, interference with any business relationships with
suppliers, customers, licensees, licensors, clients or contractors, (iii) make,
or cause or attempt to cause any other person to make, any statement, either
written or oral, or convey any information about the Company which is
disparaging or which in any way reflects negatively upon the Company, or (iv)
engage in any other activity that is inimical, contrary or harmful to the
interests of the Company or its Subsidiaries, including influencing or advising
any person who is employed by or in the service of the Company or its
Subsidiaries to leave such employment or service to compete with the Company or
its Subsidiaries or to enter into the employment or service of any actual or
prospective competitor of the Company or its Subsidiaries, or influencing or
advising any competitor of the Company or its Subsidiaries to employ or to
otherwise engage the services of any person who is employed by or in the service
of the Company or its Subsidiaries, or improperly disclosing or otherwise
misusing any confidential information regarding the Company or its Subsidiaries,
then notwithstanding any other provision of this Agreement (1) this Stock Option
shall terminate effective the date on which you enter into such activity, unless
terminated sooner by operation of another term of this Agreement or the Plan,
and (2) any gain realized by you from exercising all or any portion of this
Stock Option during a period beginning six months prior to the date on which you
enter into such activity shall be paid by you to the Company. Should any
provision of this paragraph be held invalid or illegal, such illegality shall
not invalidate the whole of this paragraph, but, rather, the agreement shall be
construed as if it did not contain the illegal part or narrowed to permit its
enforcement, and the rights and obligations of the parties shall be construed
and enforced accordingly. This paragraph does not replace other such agreements
you may have which also remain in effect.
10. By accepting this Agreement, you consent to a reduction from any
amounts the Company owes you from time to time (including wages or other
compensation) of any amount you owe the Company under paragraph 9 of this
Agreement. If the Company does not recover by means of set-off the full amount
you owe it, you agree to immediately repay the unpaid balance to the Company.
11. Nothing in the Plan or this Agreement shall confer upon you any right
with respect to continued employment by the Company or any Subsidiary, nor
interfere in any way with the right of the Company or a Subsidiary to terminate
your employment at any time.
12. This Agreement is subject to all of the terms and conditions of the
Plan and, where any questions or matters of interpretation arise, the terms and
conditions of the Plan and the rules of the Committee administering the Plan
shall control.
4
<PAGE>
13. Neither you nor any other person shall have any rights as a
stockholder with respect to any Option Shares until you or such other person
shall have become a holder of record of such shares and, except as otherwise
provided in Section 4.4 of the Plan, no adjustments shall be made for dividends
or other distributions or rights as to which there is a record date preceding
the date you become the holder of record of such shares.
14. Any notice to be given with respect to this Stock Option, including
without limitation a notice of exercise, shall be addressed to the Company,
Attention: Corporate Treasury, at its principal executive office at 8100 34th
Avenue South, Minneapolis, Minnesota 55425, Facsimile No. 612-853-3932, and any
notice to be given to you shall be addressed to you at the address given beneath
your signature below, or at such other address as either party may hereafter
designate in writing to the other.
15. Any notice of stock option exercise must specify the number of shares
with respect to which the Stock Option is being exercised and be accompanied by
either (i) payment in full of the purchase price for the shares exercised or
(ii) a Broker Exercise Notice in form and substance satisfactory to the Company.
The exercise of the Stock Option shall be deemed effective upon receipt by
Corporate Treasury of such notice and payment of the exercise price from the
Participant or the broker or dealer named in the Broker Exercise Notice. Any
such notice will not be deemed given until actual receipt by Corporate Treasury.
In Witness Whereof, Ceridian Corporation and you have executed this
Agreement as of the Date of Grant.
CERIDIAN CORPORATION OPTIONEE
By
---------------------------- ----------------------------------
Assistant Secretary [Name of Optionee]
----------------------------------
Address
----------------------------------
5
<PAGE>
CERIDIAN CORPORATION
EXECUTIVE INVESTMENT PLAN
As Amended Effective as of January 1, 1999
<PAGE>
CERIDIAN CORPORATION
EXECUTIVE INVESTMENT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. DESCRIPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1. Plan Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2. Plan Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3. Plan Type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.4. Plan Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.5. Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 2. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.2. Loss of Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.3. Transfer Among Participating Employers.. . . . . . . . . . . . . . . . . .4
2.4. Multiple Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.5. Conditions of Participation. . . . . . . . . . . . . . . . . . . . . . . .4
2.6. Termination of Participation.. . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 3. BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1. Participant Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2. Participant Deferral Credits.. . . . . . . . . . . . . . . . . . . . . . .6
3.3. Discretionary Credits. . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.4. Earnings Credits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.5. Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 4. DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1. Distribution to Participant Before Severance or Disability.. . . . . . . 12
4.2. Distribution to Participant After Severance or Disability. . . . . . . . 13
4.3. Distribution to Beneficiary. . . . . . . . . . . . . . . . . . . . . . . 16
4.4. Nondeductibility.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.5. Payment in Event of Incapacity.. . . . . . . . . . . . . . . . . . . . . 18
4.6. Suspension.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 5. SOURCE OF PAYMENTS; NATURE OF INTEREST . . . . . . . . . . . . . . . . 19
5.1. Establishment of Trust.. . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2. Source of Payments.. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3. Status of Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4. Non-assignability of Benefits. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 6. ADOPTION, AMENDMENT, TERMINATION . . . . . . . . . . . . . . . . . . . 20
6.1. Adoption.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3. Termination of Participation.. . . . . . . . . . . . . . . . . . . . . . 20
6.4. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
<PAGE>
ARTICLE 7. DEFINITIONS, CONSTRUCTION AND INTERPRETATION . . . . . . . . . . . . . 22
7.1. Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2. Active Participant.. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3. Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4. Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5. Annual Bonus.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6. Base Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.7. Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8. Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9. Code.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.10. Company.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.11. Cross Reference.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.12. Director Participant. . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.13. Disability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.14. Discretionary Account . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.15. Eligible Long-Term Bonus. . . . . . . . . . . . . . . . . . . . . . . . 24
7.16. Employee Participant. . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.17. ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.18. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.19. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.20. Number and Gender.. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.21. Participant.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.22. Participant Deferral Account. . . . . . . . . . . . . . . . . . . . . . 24
7.23. Participating Employer. . . . . . . . . . . . . . . . . . . . . . . . . 24
7.24. Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.25. Plan Year.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.26. Plan Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.27. Qualified Director. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.28. Qualified Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.29. Retirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.30. Severance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.31. Trust.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.32. Trustee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.33. Unforeseeable Emergency.. . . . . . . . . . . . . . . . . . . . . . . . 26
7.34. Valuation Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 8. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1. Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2. Plan Rules and Regulations.. . . . . . . . . . . . . . . . . . . . . . . 27
8.3. Administrator's Discretion.. . . . . . . . . . . . . . . . . . . . . . . 27
8.4. Specialist's Assistance. . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6. Benefit Claim Procedure. . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7. Disputes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
ARTICLE 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1. Withholding and Offsets. . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2. Other Benefits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3. No Warranties Regarding Tax Treatment. . . . . . . . . . . . . . . . . . 29
9.4. No Rights to Continued Service Created.. . . . . . . . . . . . . . . . . 29
9.5. Special Provisions.. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.6. Successors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
iii
<PAGE>
CERIDIAN CORPORATION
EXECUTIVE INVESTMENT PLAN
ARTICLE
1.
DESCRIPTION
1.1. PLAN NAME.
The name of the Plan is the "Ceridian Corporation Executive Investment
Plan."
1.2. PLAN PURPOSES.
The purposes of the Plan are to
(a) assist the Participating Employers in attracting and retaining key
executives,
(b) provide an employer-sponsored tax-deferred capital accumulation
vehicle for key executives and members of the Company's board of
directors and
(c) encourage additional retirement savings by eligible executives and
directors.
1.3. PLAN TYPE.
The Plan is an unfunded plan maintained primarily for the purpose of
providing deferred compensation for Qualified Directors and a select group of
management or highly compensated employees. It is intended that, with respect
to participation by Qualified Directors, ERISA will not apply to the Plan and
that, with respect to participation by Qualified Employees, the Plan is exempt
from the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by
operation of sections 201(2), 301(a)(3) and 401(a)(4) thereof, respectively, and
from the provisions of Title IV of ERISA, to the extent otherwise applicable, by
operation of section 4021(b)(6) thereof. The Plan is also intended to be
unfunded for tax purposes. The Plan will be construed and administered in a
manner that is consistent with and gives effect to the foregoing.
1.4. PLAN BACKGROUND.
(a) The Company adopted the Plan effective as of January 1, 1995.
(b) Effective as of January 1, 1999, the Plan was restated and the
name of the Plan was changed from the Ceridian Corporation
Deferred Compensation Plan to the Ceridian Corporation Executive
Investment Plan.
1.5. APPLICABILITY.
(a) The terms of the Plan as restated effective as of January 1, 1999
apply only to a Participant who
(i) experiences a Severance or Disability after December 31,
1998 and
<PAGE>
(ii) elects deferrals pursuant to Section 3.2 for a Plan Year
beginning after December 31, 1998 or makes an election
pursuant to Section 3.4(i)(iii) to have the entire portion
of his or her Participant Deferral Account attributable to
deferral credits for Plan Years ending before January 1,
1999 credited with earnings in accordance with Section 3.4
without regard to Section 3.4 (i).
By making an election described in clause (ii), a Participant
consents to the application of all of the terms of the Plan as
restated effective as of January 1, 1999 to his or her entire
Account, including the entire portion attributable to deferral
credits for Plan Years ending before January 1, 1999.
(b) If a credit is made to the Discretionary Account of a Participant
to whom the terms of the Plan, as restated effective as of January
1, 1999, are not otherwise applicable, the terms of the Plan as
restated effective as of January 1, 1999 will apply to the
Participant but only with respect to his or her Discretionary
Account.
2
<PAGE>
ARTICLE
2.
PARTICIPATION
2.1. ELIGIBILITY.
(a) FIRST DAY OF PLAN YEAR.
(i) QUALIFIED EMPLOYEE. An individual who is a Qualified
Employee on the first day of a Plan Year is eligible to
defer Base Compensation pursuant to Section 3.2(a), Annual
Bonus pursuant to Section 3.2(b) and Eligible Long-Term
Bonus pursuant to Section 3.2(c) with respect to the Plan
Year.
(ii) QUALIFIED DIRECTOR. An individual who is a Qualified
Director on the first day of a Plan Year is eligible to
defer Base Compensation pursuant to Section 3.2(a) with
respect to the Plan Year.
(b) DURING PLAN YEAR.
(i) QUALIFIED EMPLOYEE. An individual who becomes a Qualified
Employee after the first day of a Plan Year is eligible to
defer Base Compensation pursuant to Section 3.2(a), Annual
Bonus pursuant to Section 3.2(b) and Eligible Long-Term
Bonus pursuant to Section 3.2(c) with respect to the
remainder of the Plan Year.
(ii) QUALIFIED DIRECTOR. An individual who becomes a Qualified
Director after the first day of a Plan Year is eligible to
defer Base Compensation pursuant to Section 3.2(a) with
respect to the remainder of the Plan Year.
2.2. LOSS OF ELIGIBILITY.
(a) REASONS.
(i) CEASING TO BE QUALIFIED EMPLOYEE. An Employee Participant
will cease to be eligible to defer Base Compensation,
Annual Bonus and Eligible Long-Term Bonus as of the date on
which he or she ceases to be a Qualified Employee.
(ii) CEASING TO BE A QUALIFIED DIRECTOR. A Director Participant
will cease to be eligible to defer Base Compensation as of
the date on which he or she ceases to be a Qualified
Director.
(iii) UNFORESEEABLE EMERGENCY. A Participant who, pursuant to
Section 3.2(a)(iii), Section 3.2(b)(iii) or Section
3.2(c)(iii), has revoked a deferral election in connection
with an Unforeseeable Emergency, or pursuant to Section
4.1(b), has received a distribution due to an Unforeseeable
Emergency, is not eligible to defer Base Compensation,
Annual Bonus or Eligible Long-Term Bonus with respect to
the remainder of the Plan Year during which the revocation
occurs or the distribution is received, as the case may be,
and the immediately following Plan Year.
3
<PAGE>
(iv) ACCELERATED DISTRIBUTION. A Participant who, pursuant to
Section 4.1(c), has received an accelerated distribution,
is not eligible to defer Base Compensation, Annual Bonus or
Eligible Long-Term Bonus with respect to the remainder of
the Plan Year during which the distribution is received and
the immediately following Plan Year.
(v) 401(k) HARDSHIP WITHDRAWAL. A Qualified Employee who
receives a hardship withdrawal from a 401(k) plan
maintained by a Participating Employer, or by any other
employer required to be aggregated with the Participating
Employer under Code section 414(b), (c), (m) or (o), is not
eligible to defer Base Compensation, Annual Bonus or
Eligible Long-Term Bonus under the Plan to the extent
required to comply with the terms of the 401(k) Plan.
(b) AFFECT ON DEFERRAL ELECTIONS. An Active Participant who, pursuant
to Subsection (a), loses his or her eligibility to defer for a
Plan Year is not eligible for further deferral credits relating to
deferral elections made pursuant to Section 3.2 for the Plan Year
(or, in the case of an Eligible Long-Term Bonus deferral, for any
prior Plan Year) other than credits relating to Base Compensation
with respect to the period before the loss of eligibility, and any
other Base Compensation, Annual Bonus or Eligible Long-Term Bonus
that would have otherwise been deferred in connection with a
deferral election made pursuant to Section 3.2 for the Plan Year
(or, in the case of an Eligible Long-Term Bonus deferral, for any
prior Plan Year) will be paid to the Participant as if he or she
had not made the deferral election.
2.3. TRANSFER AMONG PARTICIPATING EMPLOYERS.
An Employee Participant who transfers employment from one Participating
Employer to another Participating Employer and who continues to be a Qualified
Employee after the transfer will, for the duration of the Plan Year during which
the transfer occurs, continue to participate in the Plan, in accordance with the
election in effect for the portion of the Plan Year before the transfer, as a
Qualified Employee of such other Participating Employer.
2.4. MULTIPLE EMPLOYMENT.
An Employee Participant who is simultaneously employed as a Qualified
Employee with more than one Participating Employer will participate in the
Plan as a Qualified Employee of all such Participating Employers on the basis
of (a) a single deferral election pursuant to Section 3.2 applied ratably to
his or her Base Compensation from each Participating Employer and applied
ratably to his or her Annual Bonus from each Participating Employer if the
Annual Bonus deferral election was made in a dollar amount or applied
separately to his or her Annual Bonus from each Participating Employer if the
election was made in a percentage and (b) each deferral election pursuant to
Section 3.2 with respect to Eligible Long-Term Bonus applied separately to
the particular Eligible Long-Term Bonus to which the deferral election
relates.
2.5. CONDITIONS OF PARTICIPATION.
Each Qualified Employee and Qualified Director, as a condition of
participation in the Plan, is bound by all the terms and conditions of the Plan
and the Plan Rules, and must furnish to the Administrator such pertinent
information and execute such election forms and other instruments as the
Administrator or Plan Rules may require by such dates as the Administrator or
Plan Rules may establish.
4
<PAGE>
All elections, directions, designations and similar actions required in
connection with the Plan must be made in accordance with and are subject to
the terms of the Plan and Plan Rules.
2.6. TERMINATION OF PARTICIPATION.
A Participant will cease to be a Participant as of the date on which he
or she is not then eligible to make deferrals and his or her entire Account
balance has been distributed.
5
<PAGE>
ARTICLE
3.
BENEFITS
3.1. PARTICIPANT ACCOUNTS.
(a) PARTICIPANT DEFERRAL ACCOUNT. For each Participant who elects
deferrals pursuant to Section 3.2, the Administrator will
establish and maintain a Participant Deferral Account.
(b) DISCRETIONARY ACCOUNT. For each Participant for whom a
Participating Employer elects to make a discretionary credit
pursuant to Section 3.3, the Administrator will establish and
maintain a Discretionary Account.
(c) SUBACCOUNTS.
(i) MULTIPLE PARTICIPATING EMPLOYERS. If an Employee
Participant makes deferrals with respect to Base
Compensation, Annual Bonus or Eligible Long-Term Bonus from
more than one Participating Employer, or receives
discretionary credits attributable to service with more
than one Participating Employer, amounts attributable to
each Participating Employer will be credited to separate
subaccounts within the appropriate Account.
(ii) PRIME RATE EARNINGS METHOD. The portion of a Participant's
Participant Deferral Account balance with respect to which
earnings credits are made pursuant to Section 3.4(i) will
be credited to a separate subaccount within the Account if
deferrals are credited to the Account pursuant to Section
3.2 for any Plan Year beginning after December 31, 1998.
(iii) MULTIPLE VESTING SCHEDULES. If a Participating Employer
specifies different vesting schedules applicable to
discretionary credits made pursuant to Section 3.3, the
Administrator will maintain two or more separate
subaccounts within the Participant's Discretionary Account,
each of which will evidence amounts credited to the Account
pursuant to Section 3.3 with respect to which the vesting
schedule is identical.
(iv) GRANDFATHERED DISTRIBUTION ELECTIONS. If a Participant
made distribution elections under the provisions of the
Plan in effect prior to January 1, 1999 pursuant to which
distributions are scheduled to be made or to begin before
January 1, 2001, the Administrator will maintain separate
subaccounts within the Participant's Participant Deferral
Account each of which will evidence amounts credited to the
Account pursuant to any such election with respect to which
the Participant has elected an identical form and timing of
distribution.
3.2. PARTICIPANT DEFERRAL CREDITS.
(a) BASE COMPENSATION. Base Compensation deferrals will be made in
accordance with the following rules:
6
<PAGE>
(i) An Active Participant may elect to defer all or any portion
of his or her Base Compensation for a Plan Year. Unless
the Participant revokes the election pursuant to clause
(iii), the election will remain in effect through the end
of the last pay period that ends during the Plan Year.
Plan Rules may specify minimum and maximum deferral amounts
for a Plan Year, payroll periods or both.
(ii) An election made pursuant to this subsection will not be
effective unless it is made on a properly completed
election form received by the Administrator by a date
specified by the Administrator which is prior to the first
day of the Plan Year to which the election relates or, in
the case of an individual who becomes a Qualified Employee
or a Qualified Director after the first day of a Plan Year,
within 30 days after he or she becomes a Qualified Employee
or Qualified Director.
(iii) An Active Participant may revoke a deferral election made
pursuant to this subsection after the election becomes
effective if, and only if, the Participant submits a
written request to the Administrator and the Administrator
determines that the Participant has experienced an
Unforeseeable Emergency. The revocation will be effective
as soon as administratively practicable after the
Administrator's determination that the Participant has
experienced an Unforeseeable Emergency.
(iv) Any election or revocation pursuant to this subsection
applies only to Base Compensation relating to services
performed after the effective date of the election or
revocation.
(b) ANNUAL BONUS. Annual Bonus deferrals by an Employee Participant
will be made in accordance with the following rules:
(i) An Employee Participant may elect to defer all or any
portion of his or her Annual Bonus for the Plan Year from a
minimum percentage or dollar amount to a maximum percentage
or dollar amount, as specified in Plan Rules.
(ii) An election made by an Employee Participant pursuant to
this subsection will not be effective unless it is made on
a properly completed election form received by the
Administrator by a date specified in Plan Rules but not
later than the last day of the Plan Year immediately
preceding the Plan Year in which the Annual Bonus is earned
or, in the case of an individual who becomes a Qualified
Employee after the first day of a Plan Year, within 30 days
after he or she becomes a Qualified Employee.
(iii) An Active Participant may revoke a deferral election made
pursuant to this subsection after the election becomes
effective if, and only if, the Participant submits a
written request to the Administrator and the Administrator
determines that the Participant has experienced an
Unforeseeable Emergency. The revocation will be effective
as soon as administratively practicable after the
Administrator's determination that the Participant has
experienced an Unforeseeable Emergency.
7
<PAGE>
(iv) Any election pursuant to this subsection for a Plan Year by
an Employee Participant who becomes a Qualified Employee
after the first day of the Plan Year applies only to the
portion of the Annual Bonus relating to services performed
after the effective date of the election, as determined by
the Administrator.
(c) ELIGIBLE LONG-TERM BONUS. Eligible Long-Term Bonus deferrals by
an Employee Participant will be made in accordance with the
following rules:
(i) An Employee Participant may elect to defer all or any
portion of his or her Eligible Long-Term Bonus from a
minimum percentage or dollar amount to a maximum percentage
or dollar amount, as specified in Plan Rules.
(ii) An election made by an Employee Participant pursuant to
this subsection will not be effective unless it is made on
a properly completed election form received by the
Administrator by a date specified in Plan Rules but not
later than the first day of the period during which the
Eligible Long-Term Bonus is earned.
(iii) An Active Participant may revoke a deferral election made
pursuant to this subsection after the election becomes
effective if, and only if, the Participant submits a
written request to the Administrator and the Administrator
determines that the Participant has experienced an
Unforeseeable Emergency. The revocation will be effective
as soon as administratively practicable after the
Administrator's determination that the Participant has
experienced an Unforseeable Emergency.
(d) ADMINISTRATIVE REDUCTION. The Administrator may reduce the amount
of any deferral that would otherwise be made pursuant to this
section to the extent determined by the Administrator to be
necessary to effect any required payroll withholding,
contributions or deferrals pursuant to any other plan maintained
by any Affiliate or any other deductions.
(e) TIMING OF CREDITS. Deferrals of an Active Participant's Base
Compensation, Annual Bonus and Eligible Long-Term Bonus pursuant
to this section will be credited to his or her Participant
Deferral Account as of the first day of the month first following
the date on which the Participant would have otherwise received
the Base Compensation, Annual Bonus or Eligible Long-Term Bonus
but for his or her deferral election pursuant to this section.
3.3. DISCRETIONARY CREDITS. A Participating Employer may from time to time
credit the Discretionary Account of any Participant with an amount
determined by the Participating Employer. If a Participating Employer
chooses to make such a credit, the Company will provide the Participant
with a written notice that specifies the amount of the credit, the timing
of the credit, any conditions that the Participant must satisfy to be
entitled to the credit and how the Participant will become vested in the
portion of his or her Discretionary Account attributable to the credit.
Credits pursuant to this section will be made, if at all, on a
Participant-by-Participant basis. If a Participating Employer chooses to
credit the Discretionary Account of a Participant, the Participating
Employer is not, as a result, required to make any credit to the
Discretionary Account of any other Participant, whether or not he or she
is otherwise similarly situated.
8
<PAGE>
3.4. EARNINGS CREDITS.
(a) DESIGNATION OF INVESTMENT FUNDS. The Administrator will designate
two or more investment funds which will serve as the basis for
determining adjustments pursuant to this section. The
Administrator may, from time to time, designate additional
investment funds or eliminate any previously designated investment
funds. The designation or elimination of a fund pursuant to this
subsection is not a Plan amendment. The Administrator will not be
responsible in any manner to any Participant or other person for
any damages, losses, liabilities, costs or expenses of any kind
arising in connection with any designation or elimination of an
investment fund.
(b) PARTICIPANT DIRECTION. A Participant must direct the manner in
which amounts credited to his or her Account pursuant to Section
3.2 or 3.3 will be deemed to be invested among the investment
funds designated pursuant to Subsection (a). Amounts will be
deemed to be invested in accordance with the Participant's
direction on or as soon as administratively practicable after the
date as of which the amounts are credited to the Participant's
Account.
(c) CHANGE IN DIRECTION FOR FUTURE CREDITS. A Participant may direct
a change in the manner in which future credits to his or her
Account pursuant to Section 3.2 or 3.3 will be deemed to be
invested among the investment funds designated pursuant to
Subsection (a). The direction will be effective for deferrals
credited to the Participant's Account pursuant to Section 3.2 or
3.3 on or as soon as administratively practicable after the first
day of the calendar month that first follows by at least 10 days
(or such shorter period as Plan Rules may allow) the date on which
the Administrator receives the direction from the Participant.
(d) CHANGE IN DIRECTION FOR EXISTING ACCOUNT BALANCE. A Participant
may direct a change in the manner in which his or her existing
Account balance is deemed to be invested among the investment
funds designated pursuant to Subsection (a). The direction will
be effective on or as soon as administratively practicable after
the first day of the calendar month that first follows by at least
10 days (or such shorter period as Plan Rules may allow) the date
on which the Administrator receives the direction from the
Participant.
(e) ACCOUNT ADJUSTMENT. The Administrator will cause Participants'
Accounts to be separately adjusted as of each Valuation Date, in a
manner determined by the Administrator to be uniform and
equitable, to reflect the income, expense, gains, losses, fees and
the like that would have resulted since the last Valuation Date
had the Participant's investment directions pursuant to this
section actually been implemented. To the extent determined by
the Administrator to be necessary in conjunction with any
distribution pursuant to the Plan, the Administrator will cause
the Account from which the distribution is to be made to be
adjusted to reflect a good faith estimate by the Administrator of
any fees and other expenditures payable after the date of the
distribution in connection with deemed investment activity in the
Account through and including the date of the distribution. Any
such estimate is binding on the Participating Employer and the
person to whom the distribution is made.
(f) ADMINISTRATOR'S OBLIGATIONS AND RESPONSIBILITIES. The sole
obligation of the Administrator with respect to the designation or
elimination of any investment fund designated pursuant to
Subsection (a) is to act in accordance with the express terms of
9
<PAGE>
Subsection (a). By way of example and without limiting the
previous sentence, the Administrator is not required, and no
course of conduct will cause it to be required, to investigate or
monitor any designated fund to any extent or for any purpose or to
take or refrain from taking any action with respect to a fund
because of any aspect of the performance of the fund. The
designation of a limited number of investment funds is solely for
administrative convenience and in no way reflects any endorsement
of any such funds by the Administrator.
(g) DEEMED INVESTMENT. Trust assets are not required to be invested
in accordance with a Participant's directions and the balance of
all Accounts pursuant to the Plan will be determined pursuant to
this section and other applicable sections of the Plan without
regard to the actual amount of Trust assets.
(h) PARTICIPANT RESPONSIBILITIES. Each Participant is solely
responsible for any and all consequences of his or her investment
directions made pursuant to this section. Neither any
Participating Employer, any of its directors, officers or
employees nor the Administrator has any responsibility to any
Participant or other person for any damages, losses, liabilities,
costs or expenses of any kind arising in connection with any
investment direction made by the Participant pursuant to this
section.
(i) PRIME RATE METHOD.
(i) GENERAL. The entire portion of a Participant's Participant
Deferral Account attributable to deferral credits for Plan
Years ending before January 1, 1999 will be credited with
earnings in accordance with clause (ii) unless the
Participant elects not to have this subsection apply in
accordance with clause (iii).
(ii) METHOD. As of the last day of each calendar month, the
Administrator will, in accordance with Plan Rules, credit
the Participant Deferral Account of each Participant to
whom this clause applies with earnings in an amount equal
to the "applicable percentage" of the average daily balance
of the Account for the month. The applicable percentage
for a given month is the monthly equivalent of the annual
prime rate of interest in effect on the first banking day
of the month as reported in THE WALL STREET JOURNAL or
other national financial publication selected by the
Administrator.
(iii) ELECTION. A Participant who is an Active Participant on
January 1, 1999 may make a one time irrevocable election to
have the entire portion of his or her Participant Deferral
Account attributable to deferral credits for Plan Years
ending before January 1, 1999 credited with earnings in
accordance with the other provisions of this section
without regard to this subsection. The election must be
made on a form provided by the Administrator, must specify
the investment funds or funds in which his or her
Participant Deferral Account will be deemed to be invested
as of the effective date of the direction and must be
received by the Administrator on a date specified in Plan
Rules which is not later than December 31, 1998. The
election will be effective on or as soon as
administratively practicable after January 1, 1999. If a
Participant fails to make an election pursuant to this
clause, the Participant will not have any other opportunity
to change the method for crediting earnings to the portion
of his or
10
<PAGE>
her Participant Deferral Account attributable to deferral
credits for Plan Years ending before January 1, 1999.
3.5. VESTING.
(a) Each Participant always has a fully vested nonforfeitable interest
in his or her Participant Deferral Account.
(b) Each Participant will acquire a vested nonforfeitable interest in
the portion of his or her Discretionary Account attributable to a
credit made pursuant to Section 3.3 to the extent specified by the
Company in the written notice provided in connection with the
credit in accordance with Section 3.3.
11
<PAGE>
ARTICLE
4.
DISTRIBUTION
4.1. DISTRIBUTION TO PARTICIPANT BEFORE SEVERANCE OR DISABILITY.
(a) IN-SERVICE DISTRIBUTIONS.
(i) Each Participant will be provided with one opportunity to
elect to receive a distribution of all or any portion of
his or her Participant Deferral Account as of a specified
date or dates prior to his or her Severance date or
Disability. The election must be made in conjunction with
the first deferral election that the Participant makes
pursuant to Section 3.2 that relates to a Plan Year
beginning after December 31, 1998. The Participant will
not have any other opportunity to make an election pursuant
to this subsection.
(ii) The first distribution date specified in an election made
pursuant to clause (i) may not be before the first day of
the second Plan Year after the Plan Year to which the
deferral election relates. A Participant may not specify
more than one distribution date per Plan Year.
(iii) A Participant will be provided with one opportunity to
elect to either delay or cancel each date specified in an
election made pursuant to clause (i). An election pursuant
to this clause will not be valid and will not have any
effect unless it is made on a properly completed form
received by the Administrator before the first day of the
Plan Year immediately preceding the Plan Year that includes
the distribution date originally specified.
(iv) If the Participant experiences a Severance or Disability
before a specified date, the Participant's election
pursuant to this subsection will become ineffective on his
or her Severance date or Disability and distribution of his
or her remaining Account balance will be made pursuant to
Section 4.2 or 4.3, as the case may be.
(v) Any distribution pursuant to this subsection will be made
in a lump sum cash payment on or as soon as
administratively practicable after the date specified by
the Participant. If the Participant elected a specific
dollar amount, the amount of the distribution will be the
specified amount or the balance of the Participant's
Participant Deferral Account as of the Valuation Date
coinciding with or immediately preceding the date on which
the payment is made (reduced by the amount of any other
distribution from the Account after that Valuation Date),
whichever is less. If the Participant elected a specific
percentage of the Participant Deferral Account, the amount
of the distribution will be the specified percentage of the
Participant's Participant Deferral Account as of the
Valuation Date coinciding with or immediately preceding the
date on which the payment is made (reduced by the amount of
any other distribution from the Account after that
Valuation Date).
(b) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. Prior to a
Participant's Severance date or Disability, a distribution will be
made to a Participant from his or her Participant Deferral Account
if the Participant submits a written distribution request to the
12
<PAGE>
Administrator and the Administrator determines that the
Participant has experienced an Unforeseeable Emergency. The
amount of the distribution may not exceed the lesser of (a) the
amount necessary to satisfy the emergency, as determined by the
Administrator, and (b) the balance of the Participant Deferral
Account as of the Valuation Date coinciding with or immediately
preceding the date of the distribution (reduced by the amount of
any other distribution from the Account after that Valuation
Date). The distribution will be made in the form of a lump sum
cash payment as soon as administratively practicable after the
Administrator's determination that the Participant has experienced
an Unforeseeable Emergency.
(c) ACCELERATED DISTRIBUTION. Prior to a Participant's Severance date
or Disability, the Participant may elect to receive a distribution
in an amount equal to 90 percent of his or her Participant
Deferral Account balance as of the Valuation Date coinciding with
or immediately preceding the date on which the payment is made
(reduced by the amount of any other distribution from the Account
after that Valuation Date), and the remaining 10 percent balance
of the Participant Deferral Account will be permanently forfeited
as of that Valuation Date. The distribution will be made in the
form of a lump sum cash payment as soon as administratively
practicable after the Participant's properly completed written
election is filed with the Administrator.
(d) REDUCTION OF ACCOUNT BALANCE. The balance of the Participant's
Participant Deferral Account will be reduced (but not below zero)
by the amount of the distribution as of the beginning of the next
day after the Valuation Date coinciding with or last preceding the
date of the distribution.
4.2. DISTRIBUTION TO PARTICIPANT AFTER SEVERANCE OR DISABILITY.
(a) TIME. Distribution to a Participant will be made or commence on
or as soon as administratively practicable after the date of the
Participant's Retirement, Disability or other Severance.
(b) FORM.
(i) SEVERANCE BEFORE RETIREMENT OR DISABILITY. Upon a
Participant's Severance before his or her Retirement or
Disability, distribution to the Participant will be made in
the form of a lump sum cash payment.
(ii) RETIREMENT OR DISABILITY. Upon a Participant's Retirement
or Disability, distribution to the Participant will be made
in the form of a lump sum cash payment unless (1) the
Participant made a written election, on a form provided by
the Administrator, to receive his or her distribution in
the form of five, 10 or 15 annual installment cash payments
and (2) his or her properly completed election form is
filed with the Administrator before the first day of the
Plan Year immediately preceding the Plan Year that includes
his or her Retirement or Disability. Not more than once
during any 12-month period, a Participant may change an
election made pursuant to this subsection, but the change
will not be valid and will not have any effect unless it is
made on a properly completed form received by the
Administrator before the first day of the Plan Year
immediately preceding the Plan Year that includes the
Participant's Retirement or Disability. Until an election
becomes effective, it will have no effect on any prior
election
13
<PAGE>
whether or not such prior election became effective before
or after the Administrator received the later election.
When an election becomes effective, it will automatically
supersede any prior election then in effect.
(c) AMOUNT.
(i) LUMP SUM. The amount of a lump sum payment from a
Participant's Account will be equal to the vested balance
of the Account as of the Valuation Date coinciding with or
immediately preceding the date on which the payment is made
(reduced by the amount of any other distribution from the
Account after that Valuation Date).
(ii) INSTALLMENTS. The amount of an installment payment from a
Participant's Account will be determined by dividing the
vested balance of the Account as of the Valuation Date
coinciding with or immediately preceding the date on which
the payment is made (reduced by the amount of any other
distribution from the Account after that Valuation Date) by
the total number of remaining payments (including the
current payment). The undistributed portion of an Account
distributed in the form of installment payments will
continue to be credited with earnings in accordance with
Section 3.4.
(d) SPECIAL RULES. The provisions of this subsection apply
notwithstanding Subsection (a), (b) or (c) or any election by a
Participant to the contrary.
(i) DIVESTITURES.
(1) If some or all of the assets of a Participating
Employer are sold or otherwise disposed of to an
unrelated third party, the Administrator may, but is
not required to, cause to be distributed the Account
of any Employee Participant whose employment with
all Affiliates is terminated in connection with the
sale or disposition unless the acquirer adopts a
successor plan which is substantially similar to the
Plan in all material respects and expressly assumes
the Participating Employer's obligation to provide
benefits to the Participant, in which case the
Participating Employer will cease to have any
obligation to provide benefits to the Participant
pursuant to the Plan as of the effective date of the
assumption. Any such distribution will be made in
the form of a lump sum cash payment as soon as
administratively practicable after the date of the
sale or disposition. The amount of the payment will
be determined in accordance with Subsection (c).
(2) If a Participating Employer ceases to be an
Affiliate, unless otherwise provided in an agreement
between an Affiliate and the Participating Employer
or an Affiliate and an unrelated third-party
acquirer:
(A) a Participant who is employed with the
Participating Employer or
14
<PAGE>
(B) a Participant who is not employed with the
Participating Employer but has an Account
balance attributable to service with the
Participating Employer as a Qualified
Employee
will not become entitled to his or her Account
balance attributable to service with the
Participating Employer as a Qualified Employee
solely as a result of the cessation and the
Participating Employer will, after the date on which
it ceases to be an Affiliate, continue to be solely
responsible to provide benefits to the Participant
at least equal to the balance of the Account as of
the effective date of the cessation and as
thereafter increased by deferral credits relating to
the period before the effective date and earnings
credits pursuant to Section 3.4.
(ii) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. If a
Participant is receiving installment payments, a
distribution will be made to a Participant from his or her
Participant Deferral Account if the Participant submits a
written distribution request to the Administrator and the
Administrator determines that the Participant has
experienced an Unforeseeable Emergency. The amount of the
distribution may not exceed the lesser of (a) the amount
necessary to satisfy the emergency, as determined by the
Administrator, and (b) the balance of the Participant
Deferral Account as of the Valuation Date coinciding with
or immediately preceding the date of the distribution
(reduced by the amount of any other distribution from the
Account after that Valuation Date). The distribution will
be made in the form of a lump sum cash payment as soon as
administratively practicable after the Administrator's
determination that the Participant has experienced an
Unforeseeable Emergency.
(iii) ACCELERATED DISTRIBUTION. If a Participant is receiving
installment payments, the Participant may elect to receive
a distribution in an amount equal to 90 percent of his or
her Participant Deferral Account balance as of the
Valuation Date coinciding with or immediately preceding the
date on which the payment is made (reduced by the amount of
any other distribution from the Account after that
Valuation Date), and the remaining 10 percent balance of
the Participant Deferral Account will be permanently
forfeited as of that Valuation Date. The distribution will
be made in the form of a lump sum cash payment as soon as
administratively practicable after the Participant's
properly completed written election is filed with the
Administrator.
(e) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from
which a distribution is made will be reduced (but not below zero)
by the amount of the distribution as of the beginning of the next
day after the Valuation Date coinciding with or last preceding the
date of the distribution.
15
<PAGE>
(f) TRANSITION RULES.
(i) SEVERANCE OR DISABILITY BEFORE 1999. Any distribution to a
Participant who experienced a Severance or Disability
before January 1, 1999 will be made in its entirety in the
form elected by the Participant under the provisions of the
Plan in effect prior to January 1, 1999.
(ii) ACTIVE PARTICIPANTS ON JANUARY 1, 1999. Subject to Section
1.5, in the case of a Participant who is an Active
Participant on January 1, 1999:
(1) Any distribution scheduled to be made or to commence
after December 31, 1998 and before January 1, 2001
pursuant to the terms of an election made under the
provisions of the Plan in effect before January 1,
1999 will be made in its entirety in the form
elected by the Participant under the provisions of
the Plan in effect prior to January 1, 1999; and
(2) Any distribution made or commencing after December
31, 2000 will be made in accordance with the
provisions of the Plan in effect after December 31,
1998 without regard to this subsection and any
election made by the Participant pursuant to the
provisions of the Plan in effect prior to January 1,
1999 to receive or begin receiving a distribution
after December 31, 2000 is null and void as of
January 1, 1999.
4.3. DISTRIBUTION TO BENEFICIARY.
(a) TIME. Distribution to a Beneficiary will be made as soon as
administratively practicable after the date on which the
Administrator receives notice of the Participant's death and
determines that the Beneficiary is entitled to receive the
distribution.
(b) FORM. Distribution to the Participant's Beneficiary will be made
in the form of a lump sum cash payment whether or not payments had
commenced to the Participant in the form of installments prior to
his or her death.
(c) AMOUNT. The amount of a lump sum payment will be equal to the
vested balance of the Participant's Account as of the Valuation
Date coinciding with or immediately preceding the date on which
the payment is made (reduced by the amount of any other
distribution from the Account after that Valuation Date). In
addition, if the Participant dies before his or her Severance date
or Disability and the Administrator determines that the death is
not attributable to the Participant's suicide committed during the
first Plan Year beginning after December 31, 1998 for which
deferrals are credited to the Participant's Participant Deferral
Account or the next following Plan Year, the Beneficiary will also
receive an amount equal to twice the Participant's total deferrals
pursuant to the Plan for all Plan Years (exclusive of earnings on
the deferrals, discretionary credits by a Participating Employer
and earnings on discretionary credits). If there are multiple
Beneficiaries, the total amount distributed will be divided among
the Beneficiaries as directed by the Participant in the
Beneficiary designation.
(d) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from
which a distribution is made will be reduced (but not below zero)
by the amount of the distribution as of the
16
<PAGE>
beginning of the next day after the Valuation Date coinciding
with or immediately preceding the date of the distribution.
(e) BENEFICIARY DESIGNATION.
(i) Each Participant may designate, on a form furnished by the
Administrator, one or more primary Beneficiaries or
alternative Beneficiaries to receive all or a specified
part of his or her Account, and the additional amount
described in Subsection (c), after his or her death, and
the Participant may change or revoke any such designation
from time to time. No such designation, change or
revocation is effective unless executed by the Participant
and received by the Administrator during the Participant's
lifetime. No designation of a Beneficiary other than the
Participant's spouse is effective unless the spouse
consents to the designation or the Administrator determines
that spousal consent cannot be obtained because the spouse
cannot reasonably be located or is legally incapable of
consenting. The consent must be in writing, must
acknowledge the effect of the election and must be
witnessed by a notary public. The consent is effective
only with respect to the Beneficiary or class of
Beneficiaries so designated and only with respect to the
spouse who so consented.
(ii) If a Participant--
(1) fails to designate a Beneficiary, or
(2) revokes a Beneficiary designation without naming
another Beneficiary, or
(3) designates one or more Beneficiaries, none of whom
survives the Participant or exists at the time in
question,
for all or any portion of his or her Account, such Account
or portion will be paid to the Participant's surviving
spouse or, if the Participant is not survived by a spouse,
to the representative of the Participant's estate.
(iii) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries
designated by the Participant, become fixed as of the
Participant's death so that, if a Beneficiary survives the
Participant but dies before the receipt of the payment due
such Beneficiary, the payment will be made to the
representative of such Beneficiary's estate. Any
designation of a Beneficiary by name that is accompanied by
a description of relationship or only by statement of
relationship to the Participant is effective only to
designate the person or persons standing in such
relationship to the Participant at the Participant's death.
(f) TRANSITION RULES.
(i) DEATH BEFORE 1999. Distribution to the Beneficiary of a
Participant who dies before January 1, 1999 will be made in
accordance with the provisions of the Plan in effect prior
to January 1, 1999.
17
<PAGE>
(ii) DEATH AFTER 1998. Distribution to the Beneficiary of a
Participant who dies after December 31, 1998 will be made
in accordance with the provisions of this section unless,
pursuant to Section 1.5, the terms of the Plan as restated
effective as of January 1, 1999 were not applicable to the
Participant, in which case distribution to the Beneficiary
will be made in accordance with the provisions of the Plan
in effect prior to January 1, 1999.
4.4. NONDEDUCTIBILITY.
If the Company determines in good faith that there is a reasonable
likelihood that any compensation paid to a Participant by an Affiliate for a
taxable year of the Affiliate would not be deductible by the Affiliate solely by
reason of the limitation under Code section 162(m), to the extent deemed
necessary by the Company to ensure that the entire amount of any distribution to
the Participant pursuant to the Plan is deductible, notwithstanding any other
provision of the Plan or any election by the Participant to the contrary, all or
any portion of the distribution may be deferred. Any amounts deferred pursuant
to this section will continue to be credited with earnings in accordance with
Section 3.4. The deferred amounts and earnings thereon will be distributed to
the Participant, or to his or her Beneficiary in the case of the Participant's
death, at the earliest possible date, as determined by the Company in good
faith, on which the deductibility of compensation paid or payable to the
Participant for the taxable year of the Affiliate during which the distribution
is made will not be limited by Code section 162(m).
4.5. PAYMENT IN EVENT OF INCAPACITY.
If any individual entitled to receive any payment under the Plan is, in
the judgment of the Administrator, physically, mentally or legally incapable of
receiving or acknowledging receipt of the payment, and no legal representative
has been appointed for the individual, the Administrator may (but is not
required to) cause the payment to be made to any one or more of the following as
may be chosen by the Administrator: the Beneficiary (in the case of the
incapacity of a Participant); the institution maintaining the individual; a
custodian for the individual under the Uniform Transfers to Minors Act of any
state; or the individual's spouse, children, parents, or other relatives by
blood or marriage. The Administrator is not required to see to the proper
application of any such payment and the payment completely discharges all claims
under the Plan against the Participating Employer, the Plan and Trust to the
extent of the payment.
4.6. SUSPENSION.
If a Participant who is receiving installment payments again becomes a
Qualified Employee or Qualified Director, the installment payments will stop.
The remaining balance of the Participant's Account will be distributed upon the
Participant's subsequent Severance or Disability in accordance with Article 4
without regard to any election made pursuant to Section 4.2(b)(ii) prior to the
Participant's last preceding Retirement or Disability.
18
<PAGE>
ARTICLE
5.
SOURCE OF PAYMENTS; NATURE OF INTEREST
5.1. ESTABLISHMENT OF TRUST.
A Participating Employer may establish a Trust, or may be covered by a
Trust established by another Participating Employer, with an independent
corporate trustee. The Trust must (a) be a grantor trust with respect to which
the Participating Employer is treated as the grantor for purposes of Code
section 677, (b) not cause the Plan to be funded for purposes of Title I of
ERISA and (c) provide that the Trust assets will, upon the insolvency of a
Participating Employer, be used to satisfy claims of the Participating
Employer's general creditors. The Participating Employers may from time to time
transfer to the Trust cash, marketable securities or other property acceptable
to the Trustee in accordance with the terms of the Trust.
5.2. SOURCE OF PAYMENTS.
(a) Each Participating Employer will pay, from its general assets, the
portion of any benefit pursuant to Article 4 or Section 6.3 or 6.4
attributable to a Participant's Account with respect to that
Participating Employer, and all costs, charges and expenses
relating thereto.
(b) The Trustee will make distributions to Participants and
Beneficiaries from the Trust in satisfaction of a Participating
Employer's obligations under the Plan in accordance with the terms
of the Trust. The Participating Employer is responsible for
paying any benefits attributable to a Participant's Account with
respect to that Participating Employer that are not paid by the
Trust.
5.3. STATUS OF PLAN.
Nothing contained in the Plan or Trust is to be construed as providing
for assets to be held for the benefit of any Participant or any other person or
persons to whom benefits are to be paid pursuant to the terms of the Plan, the
Participant's or other person's only interest under the Plan being the right to
receive benefits in accordance with the terms of the Plan. The Trust is
established only for the convenience of the Participating Employers and the
Participants, and no Participant has any interest in the assets of the Trust.
To the extent the Participant or any other person acquires a right to receive
benefits under the Plan or the Trust, such right is no greater than the right of
any unsecured general creditor of the Participating Employer.
5.4. NON-ASSIGNABILITY OF BENEFITS.
The benefits payable under the Plan and the right to receive future
benefits under the Plan may not be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered or subjected to any charge or legal process.
19
<PAGE>
ARTICLE
6.
ADOPTION, AMENDMENT, TERMINATION
6.1. ADOPTION.
With the prior approval of the Administrator, an Affiliate may adopt the
Plan and become a Participating Employer by furnishing to the Administrator a
certified copy of a resolution of its Board adopting the Plan.
6.2. AMENDMENT.
(a) RIGHT. The Company reserves the right to amend the Plan at any
time to any extent that it may deem advisable.
(b) METHOD. To be effective, an amendment must be stated in a written
instrument approved in advance or ratified by the Company's Board
and executed in the name of the Company by its President or a Vice
President and attested by the Secretary or an Assistant Secretary.
(c) BINDING EFFECT. An amendment adopted in accordance with
Subsection (b) is binding on all interested parties as of the
effective date stated in the amendment; provided, however, that no
amendment may retroactively deprive any Participant, or the
Beneficiary of a deceased Participant, of any benefit to which he
or she is entitled under the terms of the Plan in effect
immediately prior to the effective date of the amendment or the
date on which the amendment is adopted, whichever is later.
(d) PRIME RATE INVESTMENT FUND. An amendment which changes the method
of crediting earnings described in Section 3.4(i)(ii) will be
effective only if the Company's Board determines in good faith
that on the date on which the amendment is approved by the Board,
it is reasonably likely that, in the long run, the new method will
not result in materially lower earnings credits than the method
described in Section 3.4(i)(ii).
(e) APPLICABILITY TO PARTICIPANTS WHO HAVE EXPERIENCED A SEVERANCE OR
DISABILITY. The provisions of the Plan in effect on a
Participant's Severance date or Disability will, except as
otherwise expressly provided by a subsequent amendment, continue
to apply to such Participant.
6.3. TERMINATION OF PARTICIPATION.
Notwithstanding any other provision of the Plan to the contrary, if
determined by the Administrator to be necessary to ensure that the Plan is
exempt from ERISA to the extent contemplated by Section 1.3, or upon the
Administrator's determination that a Participant's interest in the Plan has been
or is likely to be includable in the Participant's gross income for federal
income tax purposes prior to the actual payment of benefits pursuant to the
Plan, the Administrator may take any or all of the following steps:
(a) terminate the Participant's future participation in the Plan;
20
<PAGE>
(b) cause the Participant's entire interest in the Plan to be
distributed to the Participant in the form of an immediate lump
sum cash payment in an amount determined in accordance with
Section 4.2(c); and/or
(c) transfer the benefits that would otherwise be payable pursuant to
the Plan for all or any of the Participants to a new plan that is
similar in all material respects (other than those which require
the action in question to be taken.)
6.4. TERMINATION.
The Company reserves the right to terminate the Plan in its entirety at
any time. Each Participating Employer reserves the right to cease its
participation in the Plan at any time. The Plan will terminate in its entirety
or with respect to a particular Participating Employer as of the date specified
by the Company or such Participating Employer in a written instrument adopted in
the same manner as an amendment. Upon the termination of the Plan in its
entirety or with respect to any Participating Employer, the Company or
Participating Employer, as the case may be, will either cause (a) any benefits
to which Participants have become entitled prior to the effective date of the
termination to continue to be paid in accordance with the provisions of Article
4 or (b) the entire interest in the Plan of any or all Participants, or the
Beneficiaries of any or all deceased Participants, to be distributed in the form
of an immediate lump sum cash payment in an amount determined in accordance with
Section 4.2(c).
21
<PAGE>
ARTICLE
7.
DEFINITIONS, CONSTRUCTION AND INTERPRETATION
The definitions and rules of construction and interpretation set forth in
this article apply in construing the Plan unless the context otherwise
indicates.
7.1. ACCOUNT.
"Account" means the bookkeeping account or accounts maintained with
respect to a Participant pursuant to Section 3.1.
7.2. ACTIVE PARTICIPANT.
"Active Participant" means a Director Participant or an Employee
Participant.
7.3. ADMINISTRATOR.
"Administrator" means the Company or the person to whom administrative
duties are delegated pursuant to the provisions of Section 8.1, as the context
requires.
7.4. AFFILIATE.
"Affiliate" means the Company and any corporation at least a majority of
whose outstanding securities ordinarily having the right to vote at elections of
directors is owned, directly or indirectly, by the Company.
7.5. ANNUAL BONUS.
"Annual Bonus" for a Plan Year means the annual bonus earned by an
Employee Participant during the Plan Year for his or her services during the
Plan Year as a Qualified Employee and paid in cash from a United States payroll
to the Employee Participant by a Participating Employer during the calendar
quarter first following the Plan Year, net of any contributions and deductions
specified in Plan Rules.
7.6. BASE COMPENSATION.
"Base Compensation" for a Plan Year means:
(a) the base salary payable in cash from a United States payroll to an
Employee Participant by a Participating Employer for the Employee
Participant's services during the Plan Year as a Qualified
Employee, net of any contributions and deductions specified in
Plan Rules; or
(b) the compensation payable in cash to a Director Participant by the
Company for the Director Participant's services during the Plan
Year as a Qualified Director, including, without limitation,
committee chair fees, but excluding travel expense allowances and
expense reimbursements.
22
<PAGE>
7.7. BOARD.
"Board" means the board of directors of the Affiliate in question. When
the Plan provides for an action to be taken by the Board, the action may be
taken by any committee or individual authorized to take such action pursuant to
a proper delegation by the board of directors in question.
7.8. BENEFICIARY.
"Beneficiary" with respect to a Participant is the person designated or
otherwise determined under the provisions of Section 4.3(e) as the distributee
of benefits payable after the Participant's death. A person designated or
otherwise determined to be a Beneficiary under the terms of the Plan has no
interest in or right under the Plan until the Participant in question has died.
A Beneficiary will cease to be such on the day on which all benefits to which
he, she or it is entitled under the Plan have been distributed.
7.9. CODE.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to that
provision as it may be amended from time to time and to any successor provision.
7.10. COMPANY.
"Company" means Ceridian Corporation.
7.11. CROSS REFERENCE.
References within a section of the Plan to a particular subsection refer
to that subsection within the same section and references within a section or
subsection to a particular clause refer to that clause within the same section
or subsection, as the case may be.
7.12. DIRECTOR PARTICIPANT.
"Director Participant" means a Participant who is a Qualified Director.
7.13. DISABILITY.
"Disability" means a disability for which a Participant is receiving
disability benefits pursuant to a long-term disability plan maintained by an
Affiliate or as a result of which the Participant is certified as being disabled
by the Social Security Administration and is receiving disability benefits under
the disability provisions of the Social Security Act. The Participant must
provide the Administrator with proof of his or her Disability that is
satisfactory to the Administrator. For purposes of the Plan, a Disability
occurs on the date following the Administrator's receipt of such proof on which
the Administrator determines that the Participant has experienced a Disability.
7.14. DISCRETIONARY ACCOUNT
"Discretionary Account" means the account maintained for a Participant
pursuant to Section 3.1(b).
23
<PAGE>
7.15. ELIGIBLE LONG-TERM BONUS.
"Eligible Long-Term Bonus" for a Plan Year means a retention bonus or
other incentive bonus earned over a period of more than 12 months beginning
during the Plan Year which is payable in cash from a United States payroll to an
Employee Participant by a Participating Employer and which is designated by the
Company as eligible for deferral pursuant to the Plan by the Employee
Participant, net of any contributions and deductions specified in Plan Rules.
7.16. EMPLOYEE PARTICIPANT.
"Employee Participant" means a Participant who is a Qualified Employee.
7.17. ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Any reference to a specific provision of ERISA includes a reference to
that provision as it may be amended from time to time and to any successor
provision.
7.18. GOVERNING LAW.
To the extent that state law is not preempted by the provisions of ERISA,
or any other laws of the United States, all questions pertaining to the
construction, validity, effect and enforcement of the Plan will be determined in
accordance with the internal, substantive laws of the State of Minnesota without
regard to the conflict of law rules of the State of Minnesota or any other
jurisdiction.
7.19. HEADINGS.
The headings of articles and sections are included solely for convenience
of reference; if there exists any conflict between such headings and the text of
the Plan, the text will control.
7.20. NUMBER AND GENDER.
Wherever appropriate, the singular may be read as the plural, the plural
may be read as the singular and one gender may be read as the other gender.
7.21. PARTICIPANT.
"Participant" means a current or former Active Participant to whose
Account amounts have been credited pursuant to Article 3 and who has not ceased
to be a Participant pursuant to Section 2.6.
7.22. PARTICIPANT DEFERRAL ACCOUNT.
"Participant Deferral Account" means the account maintained for a
Participant pursuant to Section 3.1(a).
7.23. PARTICIPATING EMPLOYER.
"Participating Employer" means the Company and any other Affiliate that
has adopted the Plan, or all of them collectively, as the context requires. An
Affiliate will cease to be a Participating Employer upon a termination of the
Plan as to its Qualified Employees (and, in the case of the Company, its
24
<PAGE>
Qualified Directors) and the satisfaction in full of all of its obligations
under the Plan or upon its ceasing to be an Affiliate.
7.24. PLAN.
"Plan" means the Ceridian Corporation Executive Investment Plan, as from
time to time amended or restated.
7.25. PLAN YEAR.
"Plan Year" means the calendar year.
7.26. PLAN RULES.
"Plan Rules" are rules, policies, practices or procedures adopted by the
Administrator pursuant to Section 8.2.
7.27. QUALIFIED DIRECTOR.
"Qualified Director" means an individual who is a member of the Company's
board of directors and is independent (i.e., is not an employee of the Company
or any of its affiliates or subsidiaries).
7.28. QUALIFIED EMPLOYEE.
"Qualified Employee" means an individual who performs services for a
Participating Employer as an employee of the Participating Employer (as
classified by the Participating Employer at the time the services are performed
without regard to any subsequent reclassification) and who is (a) is an officer
of the Participating Employer elected by the Participating Employer's Board, (b)
a Vice President of the Participating Employer or (c) a Director of the
Participating Employer with a salary grade level of D1 or D2.
7.29. RETIREMENT.
"Retirement" means:
(a) in the case of an Employee Participant, the Participant's
Severance after his or her
(i) attainment of age 65 or
(ii) attainment of age 55 and completion of at least 15 years of
"vesting service" (within the meaning of the Company's
Savings and Investment Plan as in effect at the time in
question); or
(b) in the case of a Director Participant, the Participant's Severance
after his or her completion of at least three complete years of
service as a Qualified Director.
25
<PAGE>
7.30. SEVERANCE.
"Severance" means:
(a) the date on which an Employee Participant has completely severed
his or her employment relationship with all Affiliates; or
(b) the date on which a Director Participant ceases to be a member of
the Company's board of directors.
7.31. TRUST.
"Trust" means any trust or trusts established by a Participating Employer
pursuant to Section 5.1.
7.32. TRUSTEE.
"Trustee" means the independent corporate trustee or trustees that at the
relevant time has or have been appointed to act as Trustee of the Trust.
7.33. UNFORESEEABLE EMERGENCY.
"Unforeseeable Emergency" means an unanticipated emergency that is caused
by an event beyond the Participant's or Beneficiary's control resulting in a
severe financial hardship that cannot be satisfied through other means. The
existence of an unforeseeable emergency will be determined by the Administrator.
7.34. VALUATION DATE.
"Valuation Date" means the last day of each calendar month on which the
New York Stock Exchange is open for regular business and any interim dates
selected by the Administrator.
26
<PAGE>
ARTICLE
8.
ADMINISTRATION
8.1. ADMINISTRATOR.
The general administration of the Plan and the duty to carry out its
provisions is vested in the Company. The Company may delegate such duty or any
portion thereof to a named person or persons and may from time to time revoke
such authority and delegate it to another person or persons.
8.2. PLAN RULES AND REGULATIONS.
The Administrator has the discretionary power and authority to make such
Plan Rules as the Administrator determines to be consistent with the terms, and
necessary or advisable in connection with the administration, of the Plan and to
modify or rescind any such Plan Rules.
8.3. ADMINISTRATOR'S DISCRETION.
The Administrator has the discretionary power and authority to make all
determinations necessary for administration of the Plan, except those
determinations that the Plan requires others to make, and to construe,
interpret, apply and enforce the provisions of the Plan and Plan Rules whenever
necessary to carry out its intent and purpose and to facilitate its
administration, including, without limitation, the discretionary power and
authority to remedy ambiguities, inconsistencies, omissions and erroneous
benefit calculations. In the exercise of its discretionary power and authority,
the Administrator will treat all similarly situated persons uniformly.
8.4. SPECIALIST'S ASSISTANCE.
The Administrator may retain such actuarial, accounting, legal, clerical
and other services as may reasonably be required in the administration of the
Plan, and may pay reasonable compensation for such services. All costs of
administering the Plan will be paid by the Participating Employers.
8.5. INDEMNIFICATION.
The Participating Employers jointly and severally agree to indemnify and
hold harmless, to the extent permitted by law, each director, officer, and
employee of any Affiliates against any and all liabilities, losses, costs and
expenses (including legal fees) of every kind and nature that may be imposed on,
incurred by, or asserted against such person at any time by reason of such
person's services in connection with the Plan, but only if such person did not
act dishonestly or in bad faith or in willful violation of the law or
regulations under which such liability, loss, cost or expense arises. The
Participating Employers have the right, but not the obligation, to select
counsel and control the defense and settlement of any action for which a person
may be entitled to indemnification under this provision.
8.6. BENEFIT CLAIM PROCEDURE.
(a) If a request for a benefit by a Participant or Beneficiary of a
deceased Participant is denied in whole or in part, he or she may,
not later than 30 days after the denial, file with the
Administrator a written claim objecting to the denial.
27
<PAGE>
(b) The Administrator, not later than 90 days after receipt of such
claim, will render a written decision to the claimant on the
claim. If the claim is denied, in whole or in part, such decision
will include the reason or reasons for the denial; a reference to
the Plan provisions on which the denial is based; a description of
any additional material or information, if any, necessary for the
claimant to perfect his or her claim; an explanation as to why
such information or material is necessary; and an explanation of
the Plan's claim procedure.
(c) The claimant may file with the Administrator, not later than 60
days after receiving the Administrator's written decision, a
written notice of request for review of the Administrator's
decision, and the claimant or his or her representative may
thereafter review relevant Plan documents which relate to the
claim and may submit written comments to the Administrator.
(d) Not later than 60 days after receipt of such review request, the
Administrator will render a written decision on the claim, which
decision will include the specific reasons for the decision,
including a reference to the Plan's specific provisions where
appropriate.
(e) The foregoing 90- and 60-day periods during which the
Administrator must respond to the claimant may be extended by up
to an additional 90- or 60 days, respectively, if special
circumstances beyond the Administrator's control so require and
notice of such extension is given to the claimant prior to the
expiration of such initial 90- or 60-day period, as the case may
be.
(f) A Participant or Beneficiary must exhaust the procedure described
in this section before making any claim of entitlement to benefits
pursuant to the Plan in any court or other proceeding.
8.7. DISPUTES.
(a) In the case of a dispute between a Qualified Employee Participant
or his or her Beneficiary and a Participating Employer, the
Administrator or other person relating to or arising from the
Plan, the United States District Court for the District of
Minnesota is a proper venue for any action initiated by or against
the Participating Employer, Administrator or other person and such
court will have personal jurisdiction over any Participant or
Beneficiary named in the action.
(b) Regardless of where an action relating to or arising from the
participation in the Plan by a Qualified Employee is pending, the
law as stated and applied by the United States Court of Appeals
for the Eighth Circuit or the United States District Court for the
District of Minnesota will apply to and control all actions
relating to the Plan brought against the Plan, a Participating
Employer, the Administrator or any other person or against any
such Participant or his or her Beneficiary.
28
<PAGE>
ARTICLE
9.
MISCELLANEOUS
9.1. WITHHOLDING AND OFFSETS.
The Participating Employers and the Trustee retain the right to withhold
from any compensation, deferral and/or benefit payment pursuant to the Plan, any
and all income, employment, excise and other tax as the Participating Employers
or Trustee deems necessary and the Participating Employers may offset against
amounts then payable to a Participant or Beneficiary under the Plan any amounts
then owing to the Participating Employers by such Participant or Beneficiary.
9.2. OTHER BENEFITS.
Neither amounts deferred nor amounts paid pursuant to the Plan constitute
salary or compensation for the purpose of computing benefits under any other
benefit plan, practice, policy or procedure of a Participating Employer unless
otherwise expressly provided thereunder.
9.3. NO WARRANTIES REGARDING TAX TREATMENT.
The Participating Employers make no warranties regarding the tax
treatment to any person of any deferrals or payments made pursuant to the Plan
and each Participant will hold the Administrator and the Participating Employers
and their officers, directors, employees, agents and advisors harmless from any
liability resulting from any tax position taken in good faith in connection with
the Plan.
9.4. NO RIGHTS TO CONTINUED SERVICE CREATED.
Neither the establishment of nor participation in the Plan gives any
individual the right to continued employment or service on the Company's board
of directors or limits the right of the Participating Employer to discharge,
transfer, demote, modify terms and conditions of employment or service on the
Company's board of directors or otherwise deal with any individual without
regard to the effect which such action might have on him or her with respect to
the Plan.
9.5. SPECIAL PROVISIONS.
Special provisions of the Plan applicable only to certain Participants
may be set forth on an exhibit to the Plan adopted in the same manner as an
amendment to the Plan. In the event of a conflict between the terms of the
exhibit and the terms of the Plan, the exhibit controls. Except as otherwise
expressly provided in the exhibit, the generally applicable terms of the Plan
control all matters not covered by the exhibit.
9.6. SUCCESSORS.
Except as otherwise expressly provided in the Plan, all obligations of
the Participating Employers under the Plan are binding on any successor to the
Participating Employer whether the existence of such successor is the result of
a direct or indirect purchase, merger, consolidation or otherwise of all or
substantially all of the business and/or assets of the Participating Employer.
29
<PAGE>
Exhibit 13.01
<TABLE>
<CAPTION>
SELECTED FIVE-YEAR DATA (Dollars in millions, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUE $1,162.1 $1,074.8 $ 942.6 $ 823.5 $ 691.5
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations (1) $ 164.4 $ 35.4 $ 135.5 $ 59.2 $ 64.6
Gain and earnings from
discontinued operations (2) 25.4 437.0 46.4 38.3 33.1
Extraordinary loss (3) -- -- -- (38.9) --
-------------- ------------- ------------- ------------- --------------
NET EARNINGS $ 189.8 $ 472.4 $ 181.9 $ 58.6 $ 97.7
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE (4)
BASIC
Continuing operations $ 1.14 $ 0.23 $ 0.90 $ 0.35 $ 0.39
Net earnings $ 1.32 $ 3.01 $ 1.24 $ 0.34 $ 0.64
DILUTED
Continuing operations $ 1.11 $ 0.22 $ 0.84 $ 0.37 $ 0.41
Net earnings $ 1.29 $ 2.96 $ 1.12 $ 0.37 $ 0.63
Shares used in calculations (in thousands)
Basic 144,070 156,835 135,841 132,269 131,650
Diluted 147,597 159,481 161,938 159,473 156,021
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $1,289.7 $1,243.3 $1,016.6 $ 905.6 $ 816.0
Debt obligations $ 54.5 $ 3.0 $ 138.2 $ 201.5 $ 222.3
Stockholders' equity (5) $ 650.6 $ 588.3 $ 346.3 $ 150.0 $ 86.9
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY (DEFICIT) PER COMMON SHARE (6) $ 4.53 $ 3.98 $ 2.17 $ (0.64) $ (1.12)
Common shares outstanding at end of
year (in thousands) 143,514 147,884 159,537 134,555 133,446
- ----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES AT END OF YEAR 9,600 8,000 7,700 7,100 6,400
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 1998 unusual gains of $24.3, 1997 FAS 109 income tax benefit of
$175.0, 1997 unusual losses of $307.6, as described in Notes B and D,
and 1995 pooling expenses of $29.7.
(2) Includes gain from the December 1997 sale of Computing Devices
International and earnings from its operations prior to the sale as
described in Note B.
(3) Relates to the early retirement of debt.
(4) All share and per share amounts reflect a 2-for-1 stock split in the form
of a 100% stock dividend announced on January 20, 1999 and effective for
holders of record on February 10, 1999. For further information on the
calculation of earnings per share, see Note A.
(5) The Company does not pay cash dividends on its common stock. For
information regarding the 1996 conversion of preferred stock, see the
Statements of Stockholders' Equity.
(6) Computed by reducing stockholders' equity by the liquidation value of
outstanding preferred stock ($236.0 at December 31, 1995 and 1994) and
dividing by the number of outstanding common shares at the end of the
year. Assuming that any outstanding convertible preferred stock was
converted to common stock, the equity per common share would have been
$0.97 and $0.56 at December 31, 1995 and 1994, respectively.
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE STATEMENTS
REGARDING CERIDIAN CORPORATION CONTAINED IN THIS RELEASE THAT ARE NOT HISTORICAL
IN NATURE, PARTICULARLY THOSE THAT UTILIZE TERMINOLOGY SUCH AS "MAY," "WILL,"
"SHOULD," "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES" OR "PLANS," OR
COMPARABLE TERMINOLOGY, ARE FORWARD-LOOKING STATEMENTS BASED ON CURRENT
EXPECTATIONS AND ASSUMPTIONS, AND ENTAIL VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS KNOWN TO CERIDIAN THAT COULD
CAUSE SUCH MATERIAL DIFFERENCES ARE IDENTIFIED AND DISCUSSED ON PAGE 15 OF THIS
ANNUAL REPORT.
Inside front cover of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.02
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
ON JANUARY 20, 1999, CERIDIAN CORPORATION ANNOUNCED A 2-FOR-1 STOCK SPLIT IN
THE FORM OF A 100% STOCK DIVIDEND FOR DISTRIBUTION ON FEBRUARY 26, 1999 TO
STOCKHOLDERS OF RECORD ON FEBRUARY 10, 1999. ALL SHARE AND PER SHARE AMOUNTS
REFLECT THE EFFECT OF THIS STOCK SPLIT. ALL REFERENCES TO NOTES IN THIS
MANAGEMENT'S DISCUSSION REFER TO THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
RESULTS OF OPERATIONS
For 1998, Ceridian reported net earnings of $189.8 million, or $1.29 per
diluted share of common stock, on revenue of $1,162.1 million, compared to
net earnings for 1997 of $472.4 million, or $2.96 per diluted share, on
revenue of $1,074.8 million. Earnings from continuing operations for 1998
were $164.4 million ($1.11 per diluted share) compared to $35.4 million
($0.22 per diluted share) for 1997. For 1996, net earnings were $181.9
million ($1.12 per diluted share) and earnings from continuing operations
were $135.5 million ($0.84 per diluted share) on revenue of $942.6 million.
Earnings from discontinued operations in 1998 of $25.4 million ($0.18 per
diluted share), in 1997 of $437.0 million ($2.74 per diluted share) and in
1996 of $46.4 million ($0.28 per diluted share) represent the gain from the
sale and results of operations of Computing Devices International ("CDI"),
which was sold on December 31, 1997. In the discussion that follows,
"Ceridian" refers only to Ceridian's continuing operations unless the context
clearly indicates otherwise.
The comparison of Ceridian's earnings from continuing operations is
significantly affected by a number of unusual events in 1998 and 1997. In
1998, Ceridian recognized unusual gains of $24.3 million in the fourth
quarter consisting of a tax benefit of $18.5 million related to the
difference between the tax and financial reporting basis in a subsidiary sold
in that quarter and a gain of $9.2 million ($5.8 million after tax),
primarily from the sale of land not used in the business. In 1997, Ceridian
recognized a $175.0 million tax benefit from Ceridian's fourth quarter
recognition under FAS 109 of the future tax benefits of its net operating
loss carryforwards ("NOL") and future tax deductions. Also in 1997, Ceridian
incurred unusual charges of $144.6 million in the fourth quarter, primarily
as a result of asset write-offs; $150.0 million in the third quarter, due to
the termination of a payroll software development project; and $13.0 million
in the first quarter, due to settlement of certain litigation. These unusual
gains and losses are further described in Note B, SUPPLEMENTARY DATA TO THE
STATEMENTS OF OPERATIONS and Note D, INCOME TAXES.
In an effort to facilitate comparisons between earnings from continuing
operations, Ceridian has utilized certain pro forma adjustments to calculate
revised earnings figures for its continuing operations for 1998, 1997 and
1996. The most significant of these pro forma adjustments include (i)
eliminating the 1998 and 1997 unusual events described above, (ii) tax
effecting 1997 and 1996 pre-tax earnings at an assumed rate of 37% and (iii)
assuming that CDI was sold at the beginning of each of the years for net
proceeds approximately equal to the difference between CDI's revenue for that
year and the approximately $100 million of CDI cash in Canada, and that those
net proceeds were invested at 5.5% per annum.
On this pro forma adjusted basis, Ceridian estimates that its earnings from
continuing operations would have been $140.1 million in 1998 ($0.95 per
diluted share), $123.9 million in 1997 ($0.78 per diluted share) and $104.6
million in 1996 ($0.65 per diluted share).
The following table sets forth revenue for Ceridian's business segments for
the periods shown. Additional business segment information is provided in
Note C, SEGMENT DATA.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
REVENUE BY BUSINESS SEGMENT
(DOLLARS IN MILLIONS) 1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
change change
Human Resource Services $700.3 21.0% $578.6 18.0% $490.3
Comdata Transportation Services 261.5 32.2% 197.8 13.9% 173.7
Comdata Gaming Services (1) 5.8 NC 133.2 6.1% 125.5
Arbitron 194.5 17.8% 165.2 7.9% 153.1
------------- ------------ -----------
Total Revenue $1,162.1 8.1% $1,074.8 14.0% $942.6
------------- ------------ -----------
------------- ------------ -----------
(1) SOLD TO FIRST DATA CORPORATION IN JANUARY 1998 IN EXCHANGE FOR ITS NTS TRANSPORTATION SERVICES BUSINESS
AND CASH.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Page 8 of the Ceridian Annual Report
<PAGE>
The following table presents the Statements of Operations amounts as a
percentage of revenue for each of the reported periods.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
PERCENTAGE COMPARISONS TO REVENUE
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue 100.0 100.0 100.0
Gross profit 52.5 50.9 51.5
Selling, general and administrative 27.2 28.7 30.2
Research and development 6.7 5.5 5.6
Other expense (income) (0.6) 28.8 --
Earnings (Loss) before interest and taxes 19.2 (12.1) 15.7
Interest income 0.9 0.2 0.3
Interest expense (0.4) (1.0) (1.0)
Earnings (Loss) before income taxes 19.7 (12.9) 15.0
Income tax provision (benefit) 5.6 (16.2) 0.6
Earnings from continuing operations 14.1 3.3 14.4
Discontinued operations gain and earnings 2.2 40.7 4.9
Net earnings 16.3 44.0 19.3
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1998 COMPARED WITH 1997
REVENUE. Human Resource Services ("HRS") revenue grew by 21.0%, which, after
adjustment for the net effect of acquisitions and dispositions, represented
internal revenue growth of 12.3%. The most significant acquisitions were the
first quarter 1998 purchases of two payroll processing businesses in Canada
and the fourth quarter 1998 purchase of the global work-life services
business from Work/Family Directions, Inc. The most significant disposition
was the sale of Resumix, Inc. in the third quarter of 1998. Details on these
and other investing transactions are presented in Note J, INVESTING ACTIVITY.
The internal revenue growth largely reflected a revised pricing structure for
payroll services, employment growth experienced by Ceridian's payroll and tax
filing customers, the sale of add-on services to existing customers and
growth of employee assistance services. Revenue growth was restrained
somewhat by implementation on January 1, 1998 of IRS electronic funds
transfer regulations that reduced by one day the period of time certain tax
filing deposits may be held. As a result, the average balance of collected
but unremitted payroll tax funds in the U.S. was down 4.1% from the 1997
level.
The January 1998 exchange of Comdata's gaming services business for the NTS
transportation services business and cash significantly affected the amount
and the mix of Comdata's revenues. Overall, Comdata revenue declined by
19.3%, reflecting the $127.4 million decline in gaming revenues from 1997 to
1998. Transportation services revenues increased by 32.2%, primarily
reflecting the increased transportation revenues from the NTS acquisition and
internal growth. Major factors contributing to internal growth included
cross-selling products on the Comcheck card, increases in customer accounts
and revenue from local fueling, an increase in funds transfer transactions
and increased sales of fuel desk island automation systems and
telecommunications services and products.
Arbitron revenue increased by 17.8%, which, after adjustment for
acquisitions, represented internal revenue growth of 9.6%. The major
acquisitions that affected these comparisons were the November 1997
acquisition of Continental Research and the May 1998 acquisition of the radio
station, advertiser/agency and international assets of Tapscan, Inc.
Arbitron's revenue growth also reflected price escalators in multi-year
customer contracts, a high customer contract renewal rate, increased sales of
analytical software and product and media usage reports and an increased
number of subscribers for ratings services.
COSTS AND EXPENSES. Ceridian's gross margin increased from 50.9% to 52.5%,
due primarily to improved gross margins at Comdata, resulting in large part
from the disposition of the gaming services business. Comdata's gross margin
also benefited from revenue growth and economies resulting from the
integration of the NTS business. These improvements were offset in part by an
increase in the provision for bad debts, primarily related to the expansion
of the local fueling business. After eliminating the 1997 and partial year
1998 results of Resumix, the HRS gross margin improvement largely reflected
the revenue growth attributable to a revised pricing structure for payroll
services, cost reductions and productivity initiatives in the payroll
business and generally increased economies of scale. Arbitron's gross margin
remained at the same level as the previous year.
Page 9 of the Ceridian Annual Report
<PAGE>
Ceridian's selling, general and administrative ("SG&A") expenses decreased
from 28.7% to 27.2% of revenue, due to decreases in HRS and Comdata. Selling
expense as a percentage of revenue increased in Comdata and decreased in the
other business segments. The increase in the selling expense to revenue ratio
for Comdata reflected customer acquisition expense during the first half of
1998 in connection with local fueling services. The decrease in Comdata's
general and administrative expense to revenue ratio was primarily
attributable to the sale of gaming services and the treatment of proceeds
from the temporary provision of processing services to the purchaser of that
business as a reduction of administrative expense. The HRS improvement in
general and administrative expenses was largely due to staff reductions.
Ceridian's research and development ("R&D") expenses increased from 5.5% to
6.7% of revenue, reflecting development efforts directed toward new
applications, enhancements to existing applications, quality assurance
programs and a portion of the costs for year 2000 readiness, primarily in HRS.
Ceridian's other expense (income) in 1998 and 1997 consisted primarily of the
pre-tax effect of the unusual events described above. Further information
about the attribution to business segments of the pre-tax effect of these
unusual gains and losses is provided in Note C, SEGMENT DATA. Also included
in other expense (income) in both years was the elimination of the minority
partner's share of the earnings related to Arbitron's majority ownership in
the Scarborough Research Partnership ("SRP").
EARNINGS BEFORE INTEREST AND TAXES. On the pro forma adjusted basis described
earlier, Ceridian's earnings before interest and taxes ("EBIT") increased
$36.4 million, or 20.5%. On this basis, HRS's EBIT increased $32.5 million,
or 47.7%; Comdata's EBIT decreased by $4.8 million, or 8.4%; and Arbitron's
EBIT increased by $8.7 million, or 16.5%. As a percentage of revenue on a pro
forma adjusted basis, Ceridian's EBIT improved from 16.6% to 18.5%. On this
basis, HRS improved from 11.8% to 14.4% and Comdata from 17.3% to 19.6%,
while Arbitron remained at about 32%.
INTEREST INCOME AND EXPENSE. The decrease in interest expense and the
increase in interest income reflected the benefit from the proceeds from the
sale of CDI, a portion of which was used to reduce debt at the end of 1997
and to acquire businesses and repurchase stock in 1998.
INCOME TAXES. The income tax provision for 1998 includes a tax benefit of
$18.5 million that reduces the normal effective tax rate as a result of a
difference between the Company's tax and financial reporting basis in a
subsidiary that was disposed of during the fourth quarter. The recognition in
the fourth quarter of 1997 of the tax benefit of Ceridian's NOL and future
tax deductions has resulted in an effective tax rate of approximately 36.5%
for 1998 in contrast to a 1997 tax provision that reflected only a minor
amount of state and foreign taxes. Although the tax benefit of the NOL and
future tax deductions has been recognized for financial statement purposes,
they continue to reduce Ceridian's actual federal income tax payments.
Ceridian used $202.9 million of NOL during 1998. As a result, Ceridian had
$344.4 million of NOL remaining as of December 31, 1998, which will be
available to offset regular taxable U. S. income during the carryforward
period (through 2013). If unused, Ceridian's NOL would begin to expire in
2005. At December 31, 1998, Ceridian also had reported $193.3 million of
expenses for financial statement purposes that are expected to become
deductible for federal income tax purposes in future taxable years.
Section 382 of the Internal Revenue Code contains complex rules that place an
annual limit on the amount of NOL that a company may utilize after an
"ownership change." Ceridian does not expect, given the amount of its NOL,
the time when such NOL would begin to expire and the level of Ceridian's
market capitalization, that the imposition of any such annual limit, if it
were to occur, would have a material adverse effect on its ability to utilize
the NOL.
Page 10 of the Ceridian Annual Report
<PAGE>
1997 COMPARED WITH 1996
REVENUE. HRS revenue grew by 18.0%, which, after adjustment for acquisitions
made during 1996 and 1997, represented internal revenue growth of 13.6%. This
internal growth was largely attributable to U.S. payroll tax filing services,
software sales, particularly skills management and time and attendance
software, and employee assistance services. Revenue in 1997 also benefited
from an increase in the retention rate for payroll and tax filing customers.
Interest income from tax filing deposits, which represented about two-thirds
of tax filing revenue, increased 21.5%, about three-fourths of which was due
to increased business volume, and about one-fourth of which was due to the
earlier collection by Ceridian of such deposits in anticipation of the
implementation of IRS electronic funds transfer regulations that reduced by
one day the period of time certain tax filing deposits may be held. Because
the general implementation of these regulations was delayed until the
beginning of 1998, Ceridian's 1997 revenue benefited accordingly.
Revenue from Comdata's transportation services business increased 13.9%,
resulting from acquisitions and internal growth. The internal revenue growth
in transportation, particularly during the second half of 1997, was primarily
due to a 5.5% increase in the level of funds transfer transactions and
increased sales of prepaid phone cards and fuel desk island automation
systems, reflecting favorable conditions in the trucking industry generally
and increased success by Comdata in winning new accounts. Comdata's revenue
from the gaming services business increased 6.1% overall, but decreased 1.9%
after adjusting for a 1997 acquisition. The revenue performance in gaming
services was primarily due to an accelerating decline during the year in the
number of credit card cash advance transactions over year earlier levels,
largely reflecting increased use of lower fee sources of cash such as ATM
machines and increasing competitive pressures that resulted in reduced
pricing and the loss of certain customers. Also contributing to the revenue
decrease from credit card cash advance transactions was an increase in the
average merchant discount fee on such transactions (which was netted against
revenue). Partially offsetting these factors was increased revenue from ATM
transactions, reflecting both transaction growth and price increases.
Arbitron's revenue in 1997 was 7.9% greater than in 1996. After adjusting for
a $3.4 million revenue increase in 1996 due to a change in the revenue
recognition policy of SRP and for the acquisition of Continental Research in
the fourth quarter of 1997, Arbitron's revenue increased 10.0% from 1996 to
1997. Revenue from sales of radio ratings and analytical software, which
comprised about 83% of Arbitron's revenue, increased 8.4%, reflecting an
increased number of subscribers for ratings services and analytical software
applications, price escalators in multi-year customer contracts, and
generally favorable pricing in connection with contract renewals. The
increase in the number of stations that are Arbitron customers reflected a
high level of both contract renewals and new business during 1997, due in
large measure to consolidation in the radio broadcasting industry, as larger
broadcasting groups tend to utilize Arbitron's services to a greater degree.
Also contributing to the revenue increase was increased sales of the
Scarborough Report.
COSTS AND EXPENSES. Ceridian's gross profit margin decreased from 51.5% to
50.9%, due primarily to decreases in Comdata that were offset in part by
increases in Arbitron and HRS. The decrease in Comdata was primarily due to
increased agent commissions paid to gaming locations, reflecting competitive
pressures; to revenue mix, as much of Comdata's 1997 revenue growth was
attributable to product and service offerings and acquisitions that tended to
have lower gross margins than Comdata's core funds transfer business; and to
higher data processing costs. The gross margin increase in Arbitron primarily
reflected revenue growth as well as additional costs in 1996 resulting from
the change in SRP's revenue recognition policy. This increase in Arbitron was
offset
Page 11 of the Ceridian Annual Report
<PAGE>
in part by 1997 increases in costs associated with data collection,
reflecting an expanded number of markets measured and actions to maintain the
level of survey responses. The gross margin improvement in HRS primarily
reflected revenue growth overall, efforts to reduce production costs in
payroll processing, and revenue mix, with higher rates of revenue growth in
higher gross margin software businesses.
Ceridian's SG&A expenses decreased from 30.2% to 28.7% of revenue, due in
large measure to a decrease in compensation expense associated with
Ceridian's performance restricted stock plan. Also contributing to the
reduction in SG&A expenses as a percentage of revenue was a sizeable decrease
in selling expense as a percentage of revenue in HRS, reflecting revenue
growth, lower marketing expense and efforts to better focus and coordinate
sales efforts.
Ceridian's R&D expenses increased proportionately with its revenue increase
from 1996 to 1997, with virtually all of the increase in such expenses
occurring in the fourth quarter of 1997. In the fourth quarter of 1997, R&D
expenses increased substantially in HRS, reflecting the development of
upgrades and enhancements to existing payroll processing software, the
development of a new data processing system for the tax filing business and
certain year 2000 efforts.
Ceridian's other expense (income) in 1997 consisted primarily of the unusual
charges described above. Also included in other expense (income) in both 1997
and 1996 was the elimination of the minority partner's share of the earnings
of SRP.
EARNINGS BEFORE INTEREST AND TAXES. On the pro forma adjusted basis described
earlier, Ceridian's EBIT increased $30.1 million, or 20.4%. As a percentage
of revenue, Ceridian's EBIT, similarly adjusted, increased from 15.7% to
16.6%. On this basis, HRS's EBIT increased $34.4 million, or 102.1%;
Comdata's EBIT decreased by $11.1 million, or 16.2%; and Arbitron's EBIT
increased by $6.8 million, or 14.8%. As a percentage of revenue on a pro
forma adjusted basis, HRS improved from 6.9% to 11.8% and Arbitron from 30.0%
to 31.9%, while Comdata declined from 22.8% to 17.3%.
INTEREST INCOME AND EXPENSE. The increase in interest expense from 1996 to
1997 reflected significant borrowings by Ceridian during the fourth quarter
of 1997 to repurchase shares of its common stock. These borrowings were
repaid at the end of 1997 from the proceeds from the sale of CDI. The
decrease in interest income reflected lower levels of cash during 1997.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS. In the fourth quarter of
1997, Ceridian recognized the future tax benefits of its remaining NOL and
future tax deductions as income of $175.0 million for accounting purposes in
accordance with FAS 109, having determined that it was more likely than not
that it would generate future U.S. taxable income over a reasonable period of
time in an amount sufficient to utilize those NOL and future tax deductions.
The application of FAS 109 also resulted in the balance sheet presence at
December 31, 1997 of Ceridian's net deferred tax asset of $199.5 million
(generally representing the application of a federal tax rate of 35% to
Ceridian's remaining NOL and future tax deductions), after elimination of a
valuation allowance previously applied to fully reserve this asset. Although
Ceridian's operating results in 1998 and the future will be reported on a
fully taxed basis, its cash actually utilized for tax payments is expected to
be approximately 3-4% of pre-tax earnings as the deferred tax asset is
utilized.
FINANCIAL CONDITION
During 1998, operating activities provided $162.5 million of cash, compared
to $114.6 million in 1997 and $171.4 million in 1996. Cash flows from
operations during the 1998 period benefited from the $58.1 million portion of
the $65.3 million income tax provision which is not payable due to the
benefit of the NOL. Net changes in working capital items reduced operating
cash flows in 1998 by $106.9 million, as net payments of trade payables,
income taxes and costs related to the CDI sale and accruals for 1997 unusual
charges, along with an increase in Comdata receivables, more than offset a
decrease in net payments for employee compensation and benefits. The net
changes in working capital items in 1997 and 1996 were $15.1 million cash
Page 12 of the Ceridian Annual Report
<PAGE>
provision and $0.1 million cash use, respectively, with an increase in
receivables, largely at Comdata, and Comdata drafts and settlements payable
offsetting increases in payables for taxes and accruals for unusual charges.
Comdata's receivables grew in 1998 due largely to revenue growth in local
fueling and the acquisition of the NTS business.
Ceridian's major investing activities during 1998 are described in Note J,
INVESTING ACTIVITY. Cash utilized for financing activities during 1998
involved Ceridian's repurchase of shares of its common stock, as presented in
the accompanying Statements of Stockholders' Equity, and the financing of the
Company's purchase of two Canadian payroll processing businesses, as
described in Note H, FINANCING. This utilization of cash was partially offset
by a net increase in outstanding revolving credit and overdraft debt of $56.8
million, primarily to finance a portion of the purchase price of the Canadian
payroll processing businesses, and proceeds from stock option exercises.
During 1998, Ceridian repurchased 6,746,284 shares of its common stock at an
average price of $24.42 per share. Cash utilized in 1998 for stock
repurchases was $182.0 million, including the payment of $17.2 million in
connection with 1997 stock repurchases for which the settlement date was not
until early 1998.
At December 31, 1998, there were no revolving loans and $2.9 million in
letters of credit outstanding under Ceridian's $250 million U.S. revolving
credit facility. Ceridian and its subsidiaries were in compliance with all
covenants contained in applicable credit facilities on that date.
Ceridian's expenditures for capital assets and software presently planned for
1999 total approximately $111 million, with about one-half of that amount
involving HRS and one-quarter related to corporate center operations. Planned
expenditures for 1999 include the construction of a new headquarters
building, replacement of an accounting data processing system and equipment
to expand and improve service delivery capabilities in HRS, and routine
replacements and upgrades for existing equipment.
Ceridian expects to meet its liquidity needs from existing cash balances,
cash flow from operations and borrowings under existing credit facilities.
MARKET RISK DISCLOSURE
Ceridian's market risk exposure is primarily interest rate risk related to
revenue derived from customer payroll and tax filing deposits. Interest
income paid to Ceridian from trusts holding client assets varies as a
function of short-term U.S. and Canadian interest rates. Ceridian uses
interest rate collars to hedge the risk of falling interest rates. The table
below indicates the hypothetical change in Ceridian's after-tax net interest
income over a one-year period due to an immediate and sustained change in the
annual average interest rate. The base scenario assumes the Federal funds
rate of 4.75% at December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PERCENT CHANGE IN INTEREST RATES HYPOTHETICAL CHANGE IN NET
EXPRESSED IN BASIS POINTS INTEREST INCOME FROM BASE
SCENARIO
(IN MILLIONS OF DOLLARS)
<S> <C>
300 Rise 20.8
200 Rise 14.6
100 Rise 6.4
50 Rise 2.6
25 Rise 1.0
Base Scenario
25 Decline (1.0)
50 Decline (2.0)
100 Decline (3.9)
200 Decline (7.8)
300 Decline (11.7)
- ------------------------------------------------------------------------
</TABLE>
Computations in the table above are based on assumptions about amounts of
funds held in client trusts and the relative levels of short-term market
interest rates within U.S. and Canadian markets and should not be relied on
as precise indicators of future expected results. Included in the
computations are the effects of interest rate changes on income and expense
related to all short-term and floating rate assets and liabilities owned or
issued by Ceridian or its subsidiaries, including interest rate collar
contracts. See also the sections entitled "Payroll and Tax Filing Services"
in Note A, ACCOUNTING POLICIES and "Interest Rate Collars" in Note K,
COMMITMENTS AND CONTINGENCIES.
Page 13 of the Ceridian Annual Report
<PAGE>
YEAR 2000 MATTERS
Year 2000 issues which may potentially impact Ceridian relate not only to
Ceridian's own internal systems, software and products, but also to the
compliance efforts and readiness of third parties. The year 2000 issues are
different for each of Ceridian's businesses, as each business generally has
separate systems, software and products. Ceridian has identified the
information technology ("IT") and non-IT systems, software and products in
each of its businesses which could be affected by the year 2000, and has
assessed the efforts required to remediate or replace them. Ceridian has also
identified versions of its services and products that will not be made
compliant and is assisting customers in upgrading or migrating to year 2000
compliant versions. Most of Ceridian's major or key systems, software and
products have been remediated or replaced and significant testing has
commenced; the remaining systems, software and products are scheduled to be
remediated or replaced in the first half of 1999. During 1999, Ceridian will
continue to test, implement changes and make necessary refinements.
Management expects that the systems, software and products for which Ceridian
has responsibility currently are year 2000 ready or will be ready on a timely
basis.
Ceridian has contacted many customers, vendors, governmental agencies and
other third parties with whom it deals to identify potential issues Ceridian
might encounter if those third parties are not year 2000 compliant. These
communications are also used to elicit the status of such third parties' year
2000 readiness, and to clarify which year 2000 issues are the responsibility
of Ceridian and which are the responsibility of the third party. Because of
the complexity of the year 2000 issue, the differing states of readiness of
these third parties and the number of non-Ceridian systems with which
Ceridian interfaces, Ceridian expects these communications to continue
throughout 1999. Key vendors to Ceridian and its customers which support the
ability of Ceridian to provide its services include telecommunications and
electrical companies.
A significant portion of Ceridian's year 2000 readiness efforts have occurred
or are occurring in connection with system upgrades or replacements that were
otherwise planned (but perhaps accelerated due to the year 2000) or which
have significant improvements and benefits unrelated to year 2000. Examples
include various internal hardware systems and financial software and aspects
of various processing systems. These costs are being capitalized as
appropriate.
Year 2000 costs for Ceridian's systems, software and products, which were
expensed as incurred, were $17.7 million in 1998. Such expenses are estimated
to be between $14 million and $16 million in 1999. In addition, capitalizable
replacement costs for year 2000 efforts were $3.7 million in 1998. Such
capitalizable replacement costs are estimated to be between $6 million and $7
million in 1999. Ceridian has not yet estimated year 2000 costs for periods
after 1999.
The year 2000 remediation of customers' customized software that facilitates
the use of Ceridian's payroll services is the customers' responsibility. As
part of Ceridian's customer service efforts, it is assisting customers in
their remediation effort. Ceridian's costs, and the related amount and
percentage of cost recoveries for these efforts, will be highly dependent on
the extent to which customers utilize these services, compared to performing
their own remediation.
Based on current expectations, neither the costs incurred for year 2000
readiness efforts, nor the delay or deferral of certain development projects
that might have otherwise been undertaken in the absence of year 2000
readiness efforts, are expected to have a material effect on Ceridian's
financial position or results of operation. Such costs generally have been
funded by the re-deployment of both IT and non-IT financial and personnel
resources. In addition, year 2000 issues have been addressed as part of
re-engineering or replacement efforts. As a result, Ceridian anticipates
non-year 2000 benefits such as improved efficiencies, operations and services
as part of those efforts.
Page 14 of the Ceridian Annual Report
<PAGE>
Ceridian does not anticipate that year 2000 issues and risks, including the
most reasonably likely worst case year 2000 scenario, it will encounter will
be significantly different than those encountered by other providers of
information services, including Ceridian's competitors. Although Ceridian
believes its remediation, replacement and testing efforts will address all of
the year 2000 issues for which Ceridian is responsible, to the extent these
efforts are not successful, additional remediation efforts would be necessary
together with additional customer service efforts and expenditures. If third
parties fail in their compliance efforts, Ceridian could also be impacted and
required to provide additional customer service efforts. In such an event,
Ceridian could incur additional costs and experience a negative impact on
revenues.
Business continuity and related contingency plans for each of Ceridian's
businesses are being prepared and refined as appropriate. These plans focus
on matters which appear to be Ceridian's most likely year 2000 risks,
additional customer support efforts by Ceridian that would be necessary if
customers, vendors or other third parties are not year 2000 compliant, or if
a year 2000 issue should not be timely detected in Ceridian's own readiness
efforts; the ability to process transactions or customer calls at other
Ceridian processing or call centers in the event a location is unable to
operate; the availability of emergency remediation teams in the event a year
2000 issue is not timely detected in Ceridian's remediation efforts; backup
power sources at certain locations; and enhanced disaster recovery plans.
Ceridian's cost and timetable estimates for its year 2000 efforts reflect
certain assumptions and are subject to potentially significant estimation
uncertainties that could cause actual results to differ materially. Factors
which could impact these estimates include: the availability of appropriate
technology personnel; the rate and magnitude of related labor costs; the
successful identification of all aspects of Ceridian's systems, software and
products that require remediation or replacement; the extent of testing
required; the costs of Ceridian's efforts to assist certain customers in the
remediation of their customized code; the amount of cost recoveries from
those efforts; and the success of third parties in their year 2000 compliance
efforts. Due to the complexity and pervasiveness of the year 2000 issue, and
in particular the uncertainty regarding the compliance efforts of numerous
third parties, no assurance can be given that these estimates will be
achieved, and actual results could differ materially.
CAUTIONARY FACTORS THAT COULD AFFECT FUTURE RESULTS
Ceridian's future results of operations and the forward-looking statements
contained in this Annual Report, in other Ceridian filings with the
Securities and Exchange Commission, in press releases and in other Ceridian
publications, and made by Ceridian management, are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Important factors
known to Ceridian that could cause such material differences are discussed in
the following paragraphs.
INTEREST RATE CHANGES AND INVESTMENT INCOME FROM CUSTOMER DEPOSITS.
Ceridian's payroll and tax filing business derives significant revenue and
earnings from the investment of customer deposits temporarily held pending
remittance to tax filing authorities or the customer's employees. Ceridian
receives this investment income in lieu of additional fees that would
otherwise be payable by these customers. During 1998, the average yield was
5.88%. Changes in interest rates will affect Ceridian's revenue and earnings
from this source, are difficult to predict and could be significant. Ceridian
has sought to lessen the impact of interest rate decreases by entering into a
series of interest rate collar transactions (see Note K, COMMITMENTS AND
CONTINGENCIES and the market risk disclosure above). There can be no
assurance as to the terms on which Ceridian will be able to obtain collars in
the future, or to what extent any decrease in investment income would be
offset by the use of such collars.
EFFORTS TO EXPAND LOCAL FUELING MARKET. During 1998, Comdata experienced
increases in customer accounts and revenue from its local fueling business.
However, there can be no assurance that the products and services for the
local fueling market will achieve the desired level of
Page 15 of the Ceridian Annual Report
<PAGE>
market acceptance, or that Comdata will achieve the projected levels of
revenue and earnings from these products in 1999 and beyond.
ABILITY TO INCREASE REVENUE FROM CROSS-SELLING EFFORTS AND NEW PRODUCTS. A
portion of Ceridian's anticipated future revenue growth in each of its
business segments is attributable to the continued selling of additional
products and services to its existing customer base and the planned
introduction of new or enhanced product and service offerings. The degree to
which Ceridian is successful in these efforts will depend on a variety of
factors, including product and service selection, effective sales and
marketing efforts, the level of market acceptance and the avoidance of
difficulties or delays in development or introduction. There can be no
assurance that Ceridian will achieve its revenue growth objectives from
cross-selling efforts and new products.
ABILITY TO IMPROVE OPERATING MARGINS IN HUMAN RESOURCE SERVICES. Ceridian's
ability to improve profit margins in its HRS businesses will depend on
factors such as the degree to which and the speed with which Ceridian is able
to increase operational efficiencies and reduce operating costs in those
businesses, and the level of customer retention in those businesses (see
"Customer Retention" below). Delays or difficulties in implementing process
improvements, such as those designed to reduce printing, telecommunication
and customer service costs, or installing new products and services and in
consolidating various functions could adversely affect the timing or
effectiveness of cost reduction and margin improvement efforts.
CUSTOMER RETENTION. Customer retention is an important factor in the amount
and predictability of revenue and profits in each of Ceridian's businesses.
Customer retention is dependent on a number of factors, including customer
satisfaction, offerings by competitors, Ceridian customer service levels, and
price. In providing certain services, particularly payroll processing and tax
filing services, Ceridian incurs installation and conversion costs in
connection with new customers that must be recovered before the contractual
relationship provides incremental profit. The longer Ceridian is able to
retain a customer, the more profitable that contract is likely to be to
Ceridian.
EFFECTING SYSTEM UPGRADES AND CONVERSIONS. Ceridian is in the process of
transitioning to new data processing systems and/or software in several of
its business units, including systems that process customer data and internal
management information systems. The successful implementation of these new
systems is critical to the effective delivery of products and services and
the efficient operation of Ceridian's businesses. Problems or delays with the
installation or initial operation of the new systems could disrupt or
increase costs in connection with the delivery of services and with
operations planning, financial reporting and management.
REQUIRED YEAR 2000 EFFORTS. Ceridian's year 2000 efforts, and the
uncertainties and factors which could cause actual results to differ
materially from its cost and timetable estimates, are described above under
"Year 2000 Matters."
CONSOLIDATION IN RADIO BROADCASTING INDUSTRY. The recent consolidation in the
radio broadcasting industry could put pressure on the pricing of Arbitron's
radio ratings service, from which Arbitron derives a substantial majority of
its total revenue. While Ceridian has experienced some success in offsetting
the revenue impact of any concessions by providing ratings to additional
stations within a radio group and by providing additional software and other
services, there can be no assurance as to the degree to which it will be able
to continue to do so.
ABILITY TO ADAPT TO CHANGING TECHNOLOGY. As a provider of information
management and data processing services, Ceridian must adapt and respond to
technological advances offered by competitors and technological requirements
of customers in order to maintain and improve upon its competitive position.
There can be no assurance that new products and
Page 16 of the Ceridian Annual Report
<PAGE>
product enhancements can be developed and released within the time frames and
at costs envisioned by Ceridian. Significant delays, difficulties or added
costs in introducing new products or enhancements, either through internal
development, acquisitions or cooperative relationships with other companies,
could have a material adverse effect on the market acceptance of Ceridian's
products and services and the results of operations of Ceridian's businesses
generally.
ACQUISITION RISKS. Ceridian expects that it will continue to make
acquisitions of, investments in and strategic alliances with complementary
businesses, products and technologies to enable it to add products and
services for its core customer base and for adjacent markets, and to expand
each of its businesses geographically. However, implementation of this
strategy entails a number of risks, including entry into markets in which
Ceridian may have limited or no experience, diversion of management's
attention from Ceridian's core businesses, potential loss of key employees or
customers of the acquired businesses, additional year 2000 efforts, and
difficulties in assimilating the operations and products of an acquired
business or in realizing projected efficiencies and cost savings. Integration
of acquisitions, and obtaining anticipated revenue synergies or cost
reductions, are also a risk in many acquisitions. To the extent Ceridian must
utilize purchase accounting for acquisitions, and given the financial
characteristics of information services businesses, it may be difficult for
Ceridian to avoid having acquisitions of such businesses be dilutive of
earnings per share.
COMPETITIVE CONDITIONS. Because the markets Ceridian serves are large and
attractive, new competitors could decide to enter these markets, and thereby
intensify the highly competitive conditions that already exist. These new
entrants could offer new technologies (see "Ability to Adapt to Changing
Technology" above) or a different service model, or could treat the services
provided by a Ceridian business as one component of a larger product/service
offering, thereby enabling them to reduce prices on the component offered by
Ceridian. Any of these or similar developments could have a material adverse
impact on Ceridian's business and results of operations.
OTHER FACTORS. Trade, monetary and fiscal policies, and political and
economic conditions may substantially change, with corresponding impacts on
the industries which Ceridian serves, particularly more economically
sensitive industries such as trucking. Such changes could also affect
employment levels, with a corresponding impact on Ceridian's payroll
processing and tax filing businesses. Ceridian's future operating results may
also be adversely affected by adverse judgments, settlements, unanticipated
costs or other effects of legal and administrative proceedings now pending or
that may be instituted in the future.
Page 17 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
REPORT OF MANAGEMENT
The consolidated financial statements and other related financial information
of Ceridian published in this Annual Report were prepared by Ceridian
management, which acknowledges its responsibility therefor. Such statements
and information were prepared in accordance with generally accepted
accounting principles and were necessarily based in part on reasonable
estimates, giving due consideration to materiality.
Ceridian maintains a system of internal controls which, in the opinion of
management, provides reasonable assurance that assets are adequately
safeguarded, that financial records accurately reflect all transactions and
can be relied upon in all material respects in the preparation of financial
statements, and that Ceridian's business is conducted in compliance with its
policy on business ethics. The control system is supported by written
policies and procedures, and its effectiveness is monitored by a regular
program of internal auditing.
Our independent auditors, KPMG Peat Marwick LLP, in their audit of
Ceridian's consolidated financial statements, considered the internal control
structure of Ceridian to gain a basic understanding of the accounting system
in order to design an effective and efficient audit approach, not for the
purpose of providing assurance on the system of internal control.
The Audit Committee, consisting of outside directors, is responsible to
the Board of Directors for reviewing the financial controls and reporting
practices and for recommending appointment of the independent auditors. The
Audit Committee meets periodically with representatives of the internal audit
department and the independent auditors, both with and without Ceridian
management being present.
/s/ Lawrence Perlman
Lawrence Perlman
Chairman and Chief Executive
Officer
/s/ Ronald L. Turner
Ronald L. Turner
President and Chief Operating
Officer
/s/ J. R. Eickhoff
John R. Eickhoff
Executive Vice President and
Chief Financial Officer
Page 18 of the Ceridian Annual Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders of
Ceridian Corporation:
We have audited the accompanying consolidated balance sheets of Ceridian
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ceridian
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 20, 1999
Page 19 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data)
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Revenue $ 1,162.1 $1,074.8 $ 942.6
Cost of revenue 551.5 527.6 456.9
------------- ------------ ------------
Gross profit 610.6 547.2 485.7
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 316.0 308.0 285.1
Research and development 77.8 59.6 52.5
Other expense (income) (6.8) 309.3 0.2
------------- ------------ ------------
EARNINGS (LOSS) BEFORE INTEREST AND TAXES 223.6 (129.7) 147.9
- ------------------------------------------------------------------------------------------------------------------------
Interest income 10.4 2.3 3.0
Interest expense (4.3) (11.2) (9.7)
------------- ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 229.7 (138.6) 141.2
Income tax provision (benefit) 65.3 (174.0) 5.7
------------- ------------ ------------
EARNINGS FROM CONTINUING OPERATIONS 164.4 35.4 135.5
- ------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Gain on sale 25.4 386.3 --
Earnings from operations -- 50.7 46.4
------------- ------------ ------------
NET EARNINGS $ 189.8 $ 472.4 $ 181.9
------------- ------------ ------------
------------- ------------ ------------
BASIC EARNINGS PER SHARE
Continuing operations $ 1.14 $ 0.23 $ 0.90
Net earnings $ 1.32 $ 3.01 $ 1.24
DILUTED EARNINGS PER SHARE
Continuing operations $ 1.11 $ 0.22 $ 0.84
Net earnings $ 1.29 $ 2.96 $ 1.12
SHARES USED IN CALCULATIONS (IN THOUSANDS)
Basic 144,070 156,835 135,841
Diluted 147,597 159,481 161,938
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 20 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------
1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 101.8 $ 268.0
Trade and other receivables
Trade, less allowance of $21.7 and $10.5 343.4 277.1
Other 41.1 40.4
--------------- ---------------
Total 384.5 317.5
--------------- ---------------
Current portion of deferred income taxes 127.8 117.6
Other current assets 19.6 17.0
--------------- ---------------
Total current assets 633.7 720.1
------------------------------------------------------------------------------------------------------------------
Investments and advances 3.0 8.7
Property, plant and equipment, net 91.3 79.6
Goodwill and other intangibles, net 377.5 244.3
Software and development costs, net 26.1 9.7
Prepaid pension cost 103.4 96.7
Deferred income taxes, less current portion 53.4 81.9
Other noncurrent assets 1.3 2.3
------------------------------------------------------------------------------------------------------------------
Total assets $ 1,289.7 $ 1,243.3
--------------- ---------------
--------------- ---------------
------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current portion of long-term obligations $ 0.3 $ 2.2
Accounts payable 65.0 57.8
Drafts and settlements payable 111.0 111.9
Customer advances 13.6 9.9
Deferred income 25.4 35.9
Accrued taxes 76.2 79.8
Employee compensation and benefits 74.4 66.1
Other accrued expenses 70.8 115.2
--------------- ---------------
Total current liabilities 436.7 478.8
------------------------------------------------------------------------------------------------------------------
Long-term obligations, less current portion 54.2 0.8
Deferred income taxes 3.6 --
Restructure reserves, less current portion 29.0 30.8
Employee benefit plans 74.1 69.1
Deferred income and other noncurrent liabilities 41.5 75.5
------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.50 par, authorized 200,000,000 shares,
issued 161,685,596 80.8 80.8
Additional paid-in capital 1,110.5 1,112.6
Accumulated deficit (136.8) (326.6)
Treasury common stock, 18,171,620 and 13,801,852 shares (390.8) (271.0)
Accumulated other comprehensive income (13.1) (7.5)
--------------- ---------------
Total stockholders' equity 650.6 588.3
------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,289.7 $ 1,243.3
--------------- ---------------
--------------- ---------------
------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 21 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 189.8 $ 472.4 $ 181.9
Adjustments to reconcile net earnings to net cash provided by (used for)
operating activities:
Earnings from discontinued operations -- (50.7) (46.4)
Gain on sale of discontinued operations (25.4) (386.3) --
Deferred income tax provision (benefit) 58.1 (175.0) 1.2
Impairment loss from asset write-offs -- 204.4 --
Depreciation and amortization 51.2 58.4 53.8
Restructure reserves utilized (2.9) (21.1) (14.9)
Other (1.4) (2.6) (4.1)
Decrease (Increase) in trade and other receivables (33.1) (54.4) 19.7
Increase (Decrease) in accounts payable (11.2) 7.0 (15.2)
Increase (Decrease) in drafts and settlements payable (0.9) (26.5) (7.9)
Increase (Decrease) in employee compensation and benefits 8.8 8.0 7.7
Increase (Decrease) in accrued taxes (21.3) 10.4 2.3
Increase (Decrease) in other current assets and liabilities (49.2) 70.6 (6.7)
------------- -------------- ------------
Net cash provided by (used for) operating activities 162.5 114.6 171.4
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expended for property, plant and equipment (46.2) (44.2) (34.5)
Expended for software and development costs (16.9) (37.8) (46.3)
Proceeds from sales of businesses and assets 50.5 596.7 9.0
Expended for business acquisitions, less cash acquired (232.9) (30.0) (30.9)
------------- -------------- ------------
Net cash provided by (used for) investing activities (245.5) 484.7 (102.7)
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit and overdrafts, net 57.2 (133.1) (60.0)
Repayment of other debt (0.4) (11.2) (4.5)
Preferred dividends -- -- (13.0)
Repurchase of common stock (182.0) (279.8) (18.2)
Proceeds from exercise of stock options and other 42.0 21.7 30.2
------------- -------------- ------------
Net cash provided by (used for) financing activities (83.2) (402.4) (65.5)
-------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED (USED) (166.2) 196.9 3.2
Cash and equivalents at beginning of year 268.0 71.1 67.9
------------- -------------- ------------
Cash and equivalents at end of year $ 101.8 $ 268.0 $ 71.1
------------- -------------- ------------
------------- -------------- ------------
-------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------
INTEREST AND INCOME TAXES PAID (REFUNDED) 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------
Interest paid $ 4.2 $ 11.5 $ 10.0
Income taxes paid $ 17.6 $ 2.9 $ 2.1
Income taxes refunded $ (0.2) $ (0.1) $ (11.6)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 22 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in millions, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Amount Shares
---------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Beginning balance $ 4.7 47,200
Conversion to common stock (4.7) (47,200)
-------------- ---------------
Ending balance $ -- --
- ---------------------------------------------------------------------------------- ----------------------------------------------
COMMON SHARES ISSUED
Beginning balance $ 80.8 $ 79.8 $ 67.3 161,685,596 159,579,254 134,650,744
Conversion of preferred stock -- -- 10.4 -- -- 20,767,990
Exercises of stock options -- 0.2 1.3 -- 345,904 2,504,944
Restricted stock awards, net -- -- -- -- 6,400 10,608
Employee Stock Purchase Plan -- -- 0.1 -- 123,114 210,348
Acquisitions -- 0.8 0.7 -- 1,630,924 1,396,336
Settle directors' benefits -- -- -- -- -- 38,284
--------------------------------------- ----------------------------------------------
Ending balance - issued $ 80.8 $ 80.8 $ 79.8 161,685,596 161,685,596 159,579,254
- ---------------------------------------------------------------------------------- ----------------------------------------------
TREASURY STOCK - COMMON SHARES
Beginning balance $ (271.0) $ (0.4) $ (1.6) (13,801,852) (42,392) (95,872)
Repurchases (164.8) (297.0) (18.2) (6,746,284) (15,172,302) (783,028)
Exercises of stock options 57.8 21.7 19.1 2,804,050 1,148,452 856,366
Restricted stock awards, net (17.1) (6.3) (3.0) (630,522) (345,250) (132,500)
Employee Stock Purchase Plan 4.3 6.6 3.3 202,988 355,224 137,930
Acquisitions -- 4.4 -- -- 254,416 (25,288)
--------------------------------------- ----------------------------------------------
Ending balance - treasury $ (390.8) $ (271.0) $ (0.4) (18,171,620) (13,801,852) (42,392)
- ---------------------------------------------------------------------------------- ----------------------------------------------
COMMON SHARES OUTSTANDING 143,513,976 147,883,744 159,536,862
- ---------------------------------------------------------------------------------- ----------------------------------------------
----------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Beginning balance $1,112.6 $1,071.5 $1,051.1
Conversion of preferred stock -- -- (5.7)
Exercises of stock options (21.3) (8.0) 5.6
Tax benefit from stock options 13.3 28.6 --
Restricted stock awards, net 5.6 8.9 11.0
Employee Stock Purchase Plan 0.3 0.9 3.0
Acquisitions -- 10.7 5.6
Settle directors' benefits -- -- 0.9
---------------------------------------
Ending balance $1,110.5 $1,112.6 $1,071.5 COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------- ----------------------------------------------
ACCUMULATED DEFICIT 1998 1997 1996
----------------------------------------------
Beginning balance $ (326.6) $ (798.7) $ (963.9)
Net earnings 189.8 472.4 181.9 $ 189.8 $ 472.4 $ 181.9
Preferred stock dividends -- -- (13.0)
Acquisitions by pooling -- (0.3) (3.7)
---------------------------------------
Ending balance $ (136.8) $ (326.6) $ (798.7)
- ----------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION:
Beginning balance $ 2.0 $ 0.4 $ (2.4)
Rate changes, net (5.6) 0.1 2.8 (5.6) 0.1 2.8
Disposition of investment -- 1.5 -- -- 1.5 --
---------------------------------------
Ending balance (3.6) 2.0 0.4
---------------------------------------
PENSION LIABILITY ADJUSTMENT:
Beginning balance $ (9.5) $ (6.3) $ (5.2)
Pension liability increase -- (3.2) (1.1) -- (3.2) (1.1)
---------------------------------------
Ending balance (9.5) (9.5) (6.3)
---------------------------------------
Total ending balance $ (13.1) $ (7.5) $ (5.9)
- ---------------------------------------------------------------------------------- ----------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 650.6 $ 588.3 $ 346.3 $ 184.2 $ 470.8 $ 183.6
- ---------------------------------------------------------------------------------- ----------------------------------------------
--------------------------------------- ----------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Page 23 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three years ended December 31, 1998
(Dollars in millions, except per share data)
INDEX TO NOTES
<TABLE>
<CAPTION>
<S> <C>
24 A. Accounting Policies
27 B. Supplementary Data to
Statements of Operations
28 C. Segment Data
30 D. Income Taxes
31 E. Capital Assets
32 F. Retirement Plans
34 G. Stock Plans
36 H. Financing
37 I. Leasing
38 J. Investing Activity
39 K. Commitments and
Contingencies
40 L. Legal Matters
</TABLE>
A. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements of Ceridian Corporation ("Ceridian")
include the accounts of all majority owned subsidiaries.
As further discussed in Note B, Computing Devices International ("CDI"),
a division of Ceridian sold in December 1997, is presented as discontinued
operations.
Investments in other affiliated companies where Ceridian has significant
influence are accounted for by the equity method. Other investments are
accounted for by the cost method.
All material intercompany transactions have been eliminated from the
consolidated financial statements.
SUBSEQUENT EVENT - STOCK SPLIT
On January 20, 1999, Ceridian announced a 2-for-1 stock split in the form of
a 100% stock dividend payable February 26, 1999 to holders of record on
February 10, 1999. All share and per share amounts and the carrying value of
common stock in the accompanying consolidated financial statements have been
restated to give effect to the stock split.
NEW ACCOUNTING PRONOUNCEMENTS
FAS 130, "Reporting Comprehensive Income," became effective for Ceridian in
1998. Comprehensive income is defined as the change in stockholders' equity
resulting from other than stockholder investments and distributions. For
Ceridian, comprehensive income consists of net earnings or loss plus changes
in foreign currency translation adjustment and pension liability adjustment
as displayed in the accompanying Statements of Stockholders' Equity.
Amounts recognized in net earnings (loss) which previously were reported
as other comprehensive income (loss) are reclassified to avoid duplication.
The effect of deferred income taxes on other comprehensive income (loss) is
not material.
FAS 131, "Disclosures about Segments of an Enterprise and Related
Information," replaces previously existing disclosure requirements for
industry and geographic segments with requirements for annual and quarterly
disclosure of information about reportable operating segments and certain
geographic data as presented in Note C.
FAS 132, "Employers' Disclosures about Pensions and other Postretirement
Benefits," revised only the disclosure requirements for such plans as
presented in Note F.
AICPA Statements of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," and 98-5,
"Reporting on the Costs of Start-Up Activities," have been adopted in 1998
without any material effect on accounting for those costs.
FAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
will be effective for Ceridian in January 2000. Ceridian is currently
reviewing the potential impact of this accounting standard.
STOCK-BASED COMPENSATION
Ceridian accounts for stock-based compensation under APB Opinion No. 25 and
related interpretations. Therefore, compensation expense is not recorded with
respect to Ceridian's fixed stock option and employee stock purchase plans,
and compensation expense for performance-based restricted stock awards is
recorded based on the stock price at time of vesting or estimated future
vesting. Ceridian also reports under the disclosure-only provisions of FAS
123, "Accounting for Stock-Based Compensation."
Page 24 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CHANGES IN PRESENTATION
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
CASH AND SHORT-TERM INVESTMENTS
Investments which are readily convertible to cash within three months of
purchase are classified in the balance sheet as cash equivalents.
Investments, if any, with longer maturities are considered available-for-sale
under FAS 115 and reported in the balance sheet as short-term investments.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and depreciated for
financial statement purposes using straight-line and accelerated methods at
rates based on the estimated lives of the assets, which are generally as
follows:
<TABLE>
<CAPTION>
- --------------------------- -----------
<S> <C>
Buildings 40 years
Building improvements 5-15 years
Machinery and equipment 3-8 years
Computer equipment 3-6 years
- --------------------------- -----------
</TABLE>
Repairs and maintenance are expensed as incurred. Gains or losses on
dispositions are included in results of operations.
EARNINGS (LOSS) PER SHARE
Basic earnings per share represents earnings, reduced by any dividends on
preferred stock ($13.0 in 1996), divided by the weighted average number of
common shares outstanding for the reporting period as presented on the
accompanying Statements of Operations. Diluted earnings per share represents
earnings divided by the sum of the weighted average number of common shares
outstanding plus shares derived from potentially dilutive securities. For
Ceridian, potentially dilutive securities include "in the money" fixed stock
options and shares of restricted stock outstanding (3,527,000 in 1998,
2,646,000 in 1997 and 5,329,000 in 1996) and the amount of common shares
which would be added by conversion of convertible preferred stock or debt
(20,767,990 in 1996). The number of shares added for stock options and
restricted stock is determined by the treasury stock method, which assumes
exercise or vesting of these securities and the use of any proceeds from
these actions to repurchase a portion of these shares at the average market
price for the period. When a loss from continuing operations occurs,
potentially dilutive securities are not included in the calculation of loss
per share. The number of option shares excluded from the calculation of
potentially dilutive securities because the exercise price exceeded the
average market price were 341,000 in 1998, 5,492,000 in 1997 and 587,000 in
1996.
GOODWILL AND OTHER INTANGIBLES
Goodwill, which represents the excess purchase price over the fair value of
net assets of businesses acquired, is assigned to operating units based on
the benefits derived from the acquisition and amortized on a straight-line
basis over the expected periods to be benefited, ranging up to 40 years.
Other intangible assets represents amounts assigned to intangible assets
at the time of a purchase acquisition and includes such items as customer
lists and bases, technology, covenants not to compete, trademarks and other
rights. Such costs are generally amortized on a straight-line basis over
periods ranging up to seven years.
Recorded amounts are regularly reviewed and recoverability assessed. The
review considers factors such as whether the amortization of the goodwill and
other intangible assets for each operating unit over its remaining life can
be recovered through forecasted undiscounted cash flows.
SOFTWARE AND DEVELOPMENT COSTS
Ceridian capitalizes purchased software which is ready for service and
development costs for marketable software incurred from the time the
preliminary project stage is completed until the software is ready for use.
Under the provisions of SOP 98-1, Ceridian capitalizes costs associated with
software developed or obtained for internal use when both the preliminary
project stage is completed and Ceridian management has authorized further
funding for the project which it deems probable will be completed and used to
perform the function intended. Capitalized costs include only (1) external
direct costs of materials and services consumed in developing or obtaining
internal-use software, (2) payroll and payroll-related costs for employees
who are directly associated with and who devote time to the internal-use
software project, and (3) interest costs incurred, when material, while
developing internal-use software. Capitalization of such costs ceases no
later than the point at which the project is substantially complete and ready
for its intended purpose.
Research and development costs and other computer software maintenance costs
related to software development are expensed as incurred. Software development
costs are amortized using the straight-line method over a range of
Page 25 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
three to seven years, but not exceeding the expected life of the product.
The carrying value of software and development costs is regularly
reviewed by Ceridian, and a loss is recognized when the value of estimated
undiscounted cash flow benefit related to the asset falls below the
unamortized cost.
INCOME TAXES
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences between
such income and that recognized for tax return purposes. Ceridian and its
eligible subsidiaries file a consolidated U.S. federal income tax return.
Certain subsidiaries which are consolidated for financial reporting are not
eligible to be included in the consolidated U.S. federal income tax return
and separate provisions for income taxes have been determined for these
entities. Except for selective dividends, Ceridian intends to reinvest the
unremitted earnings of its non-U.S. subsidiaries and postpone their
remittance indefinitely. Accordingly, no provision for U.S. income taxes was
required on such earnings during the three years ended December 31, 1998.
REVENUE RECOGNITION
Services revenue is recognized when the services are performed and billable,
except for certain services provided by Comdata and revenue which is
recognized as earned from the investment of customer funds collected for
payment of payroll and taxes.
Revenue from Comdata funds transfer and regulatory permit services consists
of the transaction fees charged to customers. Such revenue does not include
the costs of goods and services for which funds are advanced by Comdata
(e.g., fuel purchased, permit provided or face amount of the Comchek
purchased and cashed). However, Comdata pays the issuing agent (e.g., truck
stop or state agency) for the full cost of the goods and services provided
and, accordingly, bills the customer for such cost as well as the transaction
fee. As a result, Ceridian's accounts receivable includes both the cost of
the goods and services purchased and the transaction fees. Ceridian's drafts
and settlements payable includes the amount due to the issuing agent for the
cost of the goods and services. Revenue is recognized for the amount of the
transaction fee at the time the goods and services are purchased.
PAYROLL AND TAX FILING SERVICES
In connection with its U.S. payroll tax filing services, Ceridian collects
funds for payment of taxes due, holds such funds in trust until payment is
due, remits the funds to the appropriate taxing authority, files federal,
state and local tax returns, handles related regulatory correspondence and
amendments, and selectively absorbs regulatory charges for certain penalties
and interest. For such services, Ceridian derives its payroll tax filing
revenue from fees charged and from investment income it receives on tax
filing deposits temporarily held pending remittance on behalf of customers to
taxing authorities. The trust invests primarily in high quality
collateralized short-term investments or top tier commercial paper. The trust
also invests in U.S. Treasury and Agency securities, AAA rated asset-backed
securities and corporate securities rated A3/A- or better.
The aggregate amount of collected but unremitted funds varies significantly
during the year and averaged $1,320.1 in 1998, $1,376.1 in 1997 and $1,151.1
in 1996. The amount of such funds at December 31, 1998 and 1997, was $2,142.2
and $1,697.0, respectively.
As a result of the acquisition of Canadian payroll services businesses in
early 1998, Ceridian handles payroll as well as tax filing funds for its
Canadian customers. Ceridian collects funds for payment to clients' employees
and tax authorities and holds these funds in trust until remitted. The
Canadian trust invests in securities issued by the government and provinces
of Canada, highly rated Canadian banks and corporations, asset backed trusts
and mortgages. Ceridian earns income from the trust and charges fees for
services similar to those provided in the U.S. The aggregate balance in U.S.
dollars for the Canadian trust as of December 31, 1998 was $562.8, with an
annual average outstanding balance of $397.1.
TRANSLATION OF FOREIGN CURRENCIES
Local currencies have been determined to be functional currencies for
Ceridian's international operations. Foreign currency balance sheets are
translated at the end-of-period exchange rates and earnings statements at the
average exchange rates for each period. The resulting translation gains or
losses are recorded as "foreign currency translation adjustment" in the
stockholders' equity section of the balance sheet. Gains and losses from
translation of assets and liabilities denominated in other than the
functional currency of the operation are recorded in results of operations as
"other expense (income)."
Page 26 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
B. SUPPLEMENTARY DATA TO STATEMENTS OF OPERATIONS
UNUSUAL CHARGES (GAINS)
The 1998 unusual gains of $9.2 ($5.8 after tax) are related primarily to the
sale in fourth quarter of land not used in operations. The 1997 unusual
charges include $13.0 in first quarter in connection with a litigation
settlement, $150.0 in third quarter in connection with the termination of a
payroll processing software development project, and $144.6 in fourth
quarter, due principally to asset write-offs. The largest portion of these
charges relates to an aggregate impairment loss from asset write-offs of
$204.4.
As a result of the software development project termination, Ceridian
recorded non-recurring charges to other expense (income) of $150.0 in third
quarter 1997. These charges include an impairment loss of $116.9 for the
write-off of assets and related costs of $33.1, of which $7.8 and $13.5
remained unpaid at December 31, 1998 and 1997, respectively. The payments of
$5.7 in 1998 and $19.6 in 1997 largely relate to severance, contract
termination penalties, unused facilities and incremental costs to convert
beta customers to the ongoing system as originally anticipated under the
project termination plan.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
OTHER EXPENSE (INCOME) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation expense
(income) $ 0.1 $ 0.1 $ (1.4)
Loss (Gain) on sale of assets (0.3) 0.3 (0.4)
Unusual charges (gains) (9.2) 307.6 --
Minority interest and equity in operations
of affiliates 3.0 3.9 2.5
Other expense (income) (0.4) (2.6) (0.5)
---------- -----------------------
Total $ (6.8) $ 309.3 $ 0.2
---------- -----------------------
---------- -----------------------
- -------------------------------------------------------------------------------
</TABLE>
The fourth quarter 1997 charges of $144.6 consist of $87.5 of asset
write-offs and $57.1 in accrued liabilities, of which $33.5 and $48.9
remained unpaid at December 31, 1998 and 1997, respectively. The asset
write-offs include $64.8 of goodwill and other intangible assets, $11.7 of
hardware and software in Comdata, and a $11.0 loss on the sale of Comdata's
gaming services business, which sale closed in January 1998. In accordance
with the original plans of action initiated, payments applied against fourth
quarter 1997 accrued liabilities were $15.4 in 1998 and $8.2 in 1997 and
included planned expenditures related to excess facilities and severance
costs, contract negotiation costs and costs associated with legal and
administrative proceedings involving Ceridian.
DISCONTINUED OPERATIONS
On December 31, 1997, Ceridian sold substantially all of the net assets of
CDI, which comprised its defense electronics segment. As a result, the gain
from this sale, along with the financial position, results of operations and
cash flows of CDI are separately presented as discontinued operations and
eliminated from continuing operations amounts in the accompanying
consolidated financial statements and notes. The gain at the time of sale
amounted to $386.3 or $2.42 per diluted share ($2.46 per basic share). The
gain was increased by $25.4 or $0.18 per diluted or basic share in fourth
quarter 1998, due to a reduction of estimated accruals related to this sale.
The earnings from CDI operations were $0.32 per diluted or basic share in
1997 and $0.28 per diluted share ($0.34 per basic share) in 1996.
Page 27 of the Ceridian Annual Report
<PAGE>
C. SEGMENT DATA
Ceridian operates in the information services industry principally in the U.S
and provides products and services to the human resources, transportation and
media information markets. Its business segments include Human Resource
Services, Comdata and Arbitron. These businesses collect, manage and analyze
data and process transactions on behalf of customers, report information
resulting from such activities to customers, and provide customers with
related software applications and services. The technology-based products and
services of these businesses are typically provided through long-term
customer relationships that result in a high level of recurring revenue. The
business segments are distinguished primarily by reference to the markets
served and the nature of the services provided. Selected business segment
information is provided in an accompanying table.
Human Resource Services offers a broad range of services and software
designed to help employers more effectively manage their work forces and
information that is integral to human resource processes. These products and
services include transaction-oriented administrative services and software
products, primarily in areas such as payroll processing, tax filing and
benefits administration as well as management support software and services
in areas such as skills management, regulatory compliance, employee training
and employee assistance programs. Revenue from payroll and tax filing
services also includes investment income earned by Ceridian from deposits
temporarily held pending remittance on behalf of customers to taxing
authorities and customers' employees. These activities are conducted
primarily in the U.S. and through subsidiaries in the UK and, beginning in
1998, Canada.
<TABLE>
<CAPTION>
- ------------------------------------ ----------- ----------- ----------
GEOGRAPHIC DATA 1998 1997 1996
- ------------------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
U.S. OPERATIONS
Revenue $1,034.0 $1,029.3 $905.2
Property, plant and equipment 82.3 74.9 74.6
NON-U.S. OPERATIONS
Revenue $ 128.1 $ 45.5 $ 37.4
Property, plant and equipment 9.0 4.7 2.7
- ------------------------------------ ----------- ----------- ----------
</TABLE>
Comdata provides transaction processing and decision support services to
the transportation industry, primarily trucking companies, truck stops and
truck drivers, in both the long haul and local markets in the U.S. These
services primarily involve the use of a proprietary funds transfer card which
facilitates truck driver transactions and provides transaction control and
trip information for trucking firms. Additionally, Comdata provides
assistance in obtaining regulatory permits and other compliance services,
driver relations services, local fueling services and discounted
telecommunications services in its markets.
Arbitron provides media and marketing information (primarily radio
audience measurement) to broadcasters, advertising agencies, advertisers and,
through a joint venture, newspaper and magazine publishers and TV
broadcasters. Arbitron also provides software applications that give
customers access to Arbitron's database and, through a joint venture,
measurement data concerning consumer retail behavior and media usage. These
activities are conducted primarily in the U.S.
The Other segment includes the unallocated amounts related to corporate
center operations. The assets of corporate center operations include cash and
equivalents as well as deferred income tax and pension assets.
Ceridian measures business segment results by reference to earnings
before interest and taxes ("EBIT"), adjusted for unusual gains and losses. In
1998, adjustments included unusual gains related primarily to the disposition
of land not used in the business. In 1997, adjustments included charges of
$13.0 for a litigation settlement, $150.0 for termination of a payroll
software development project and $144.6 due principally to goodwill and other
asset write-offs. Expenses incurred by corporate center operations are
charged or allocated to the business segments.
Revenue from sales between business segments is not material. The
operations of Ceridian are conducted primarily in the U.S and revenue from
sales between U.S. and non-U.S. entities is not material. Non-U.S. operations
in Canada and the UK relate largely to the Human Resource Services segment.
Geographic data for or at the end of each of the last three years, presented
above, is determined by reference to the location of operation.
Page 28 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------
BUSINESS SEGMENTS Years Ended December 31,
-----------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HUMAN RESOURCE SERVICES
Revenue $ 700.3 $ 578.6 $ 490.3
EBIT before unusual charges and gains $ 100.6 $ 68.1 $ 33.7
Unusual (charges) gains -- (223.5) --
------------- -------------- --------------
EBIT $ 100.6 $ (155.4) $ 33.7
Total assets $ 471.5 $ 229.5 $ 373.4
Depreciation and amortization $ 40.0 $ 43.0 $ 43.2
Expended for property, plant & equipment $ 35.8 $ 24.3 $ 21.4
- --------------------------------------------- ------------- -------------- --------------
COMDATA
Revenue $ 267.3 $ 331.0 $ 299.2
EBIT before unusual charges and gains $ 52.4 $ 57.2 $ 68.3
Unusual (charges) gains -- (41.0) --
------------- -------------- --------------
EBIT $ 52.4 $ 16.2 $ 68.3
Total Assets $ 398.6 $ 434.1 $ 370.8
Depreciation and amortization 13.4 17.0 11.7
Expended for property, plant & equipment 6.7 18.1 10.5
- --------------------------------------------- ------------- -------------- --------------
ARBITRON
Revenue 194.5 165.2 153.1
EBIT before unusual charges and gains 61.4 52.7 45.9
Unusual (charges) gains -- (5.0) --
------------- -------------- --------------
EBIT 61.4 47.7 45.9
Total assets 66.8 49.7 44.6
Depreciation and amortization 4.7 3.9 4.0
Expended for property, plant & equipment 1.2 1.2 1.8
- --------------------------------------------- ------------- -------------- --------------
OTHER
Revenue -- -- --
EBIT before unusual charges and gains -- -- --
Unusual (charges) gains 9.2 (38.2) --
------------- -------------- --------------
EBIT 9.2 (38.2) --
Total assets 352.8 530.0 227.8
Depreciation and amortization (6.9) (5.5) (5.1)
Expended for property, plant & equipment 2.5 0.6 0.8
- --------------------------------------------- ------------- -------------- --------------
TOTAL CERIDIAN
Revenue 1,162.1 1,074.8 942.6
EBIT before unusual charges and gains 214.4 178.0 147.9
Unusual (charges) gains 9.2 (307.7) --
------------- -------------- --------------
EBIT 223.6 (129.7) 147.9
Total assets 1,289.7 1,243.3 1,016.6
Depreciation and amortization 51.2 58.4 53.8
Expended for property, plant & equipment 46.2 44.2 34.5
</TABLE>
Page 29 of the Ceridian Annual Report
<PAGE>
D. INCOME TAXES
Ceridian has U.S. net operating loss carryforwards and future tax deductions
of $344.4 and $193.3, respectively, which will be available to offset regular
taxable U.S. income during the carryforward period (through 2013). The tax
benefits of these items are reflected in the accompanying table of deferred
tax asset and liability. If not used, these carryforwards will begin to
expire in 2005.
In 1998, Ceridian realized a $18.5 tax benefit related to the difference
between its tax and financial reporting basis in a subsidiary that was
disposed of during fourth quarter.
Under tax sharing agreements existing at the time of the disposition of
certain former operations of Ceridian, Ceridian remains subject to income tax
audits in various jurisdictions for the years 1985-1992. Ceridian considers
its tax accruals adequate to cover any U.S. and international tax
deficiencies not recoverable through deductions in future years.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
COMPONENTS OF EARNINGS AND TAXES FROM 1998 1997 1996
CONTINUING OPERATIONS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS (LOSS) BEFORE INCOME TAXES
U.S. $ 218.5 $ (134.1) $ 145.4
International 11.2 (4.5) (4.2)
----------- ----------- ------------
Total $ 229.7 $ (138.6) $ 141.2
----------- ----------- ------------
----------- ----------- ------------
INCOME TAX PROVISION (BENEFIT)
Current
U.S. $ 4.2 $ -- $ 2.7
State and other 3.0 1.0 1.8
----------- ----------- ------------
7.2 1.0 4.5
----------- ----------- ------------
Deferred
U.S. 54.2 32.8 0.8
U.S. valuation reserve benefit -- (207.8) --
State and other 3.9 -- 0.4
----------- ----------- ------------
58.1 (175.0) 1.2
----------- ----------- ------------
Total $ 65.3 $ (174.0) $ 5.7
----------- ----------- ------------
----------- ----------- ------------
- ---------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------
EFFECTIVE RATE RECONCILIATION 1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
U.S. statutory rate 35% 35% 35%
----------- ----------- ------------
----------- ----------- ------------
Income tax provision (benefit) at
U.S. statutory rate $ 80.4 $ (48.5) $ 49.4
Alternative minimum tax -- -- 3.5
State income taxes, net 1.4 1.0 2.2
Goodwill 3.1 44.7 3.3
Benefit of net operating loss -- (175.0) (48.7)
carryforwards
Benefit from sale of business (18.5) -- --
Other (1.1) 3.8 (4.0)
- ---------------------------------------------------------------------------------
Income tax provision (benefit) $ 65.3 $ (174.0) $ 5.7
----------- ----------- ------------
----------- ----------- ------------
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
TAX EFFECT OF ITEMS THAT COMPRISE A SIGNIFICANT PORTION OF THE NET DEFERRED
TAX ASSET AND LIABILITY
- -----------------------------------------------------------------------------------
December 31,
-----------------------------------
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Asset
Net operating loss carryforwards $ 120.5 $ 153.3
Restructuring and other accruals 66.9 62.2
Other 17.7 2.5
--------------- -------------
Total 205.1 218.0
--------------- -------------
Deferred Tax Liability
Employment related accruals (21.1) (14.0)
Other (2.8) (4.5)
--------------- -------------
Total (23.9) (18.5)
--------------- -------------
NET DEFERRED TAX ASSET $ 181.2 $ 199.5
--------------- -------------
--------------- -------------
NET DEFERRED TAX ASSET (U.S.)
Current portion $ 127.8 $ 117.6
Noncurrent portion 53.4 81.9
--------------- -------------
Total $ 181.2 $ 199.5
--------------- -------------
--------------- -------------
DEFERRED TAX LIABILITY
(INTERNATIONAL) $ 3.6 $ --
--------------- -------------
--------------- -------------
</TABLE>
Page 30 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
E. CAPITAL ASSETS (Dollars in millions, except per share data)
- ------------------------------------------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Land $ 1.2 $ 1.5
Machinery and equipment 189.8 185.7
Buildings and improvements 42.1 42.9
Construction in progress 4.0 4.3
-------------- --------------
237.1 234.4
Accumulated depreciation (145.8) (154.8)
-------------- --------------
Property, plant and equipment, net $ 91.3 $ 79.6
-------------- --------------
-------------- --------------
- -----------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLES
Goodwill $ 358.4 $ 228.7
Accumulated amortization (36.4) (38.7)
-------------- --------------
Goodwill, net 322.0 190.0
-------------- --------------
Other intangible assets 77.0 64.5
Accumulated amortization (21.5) (10.2)
-------------- --------------
Other intangible assets, net 55.5 54.3
-------------- --------------
Goodwill and other intangible assets, net $ 377.5 $ 244.3
-------------- --------------
-------------- --------------
- -----------------------------------------------------------------------------------------------------------
SOFTWARE AND DEVELOPMENT COSTS
Purchased software $ 31.9 $ 31.1
Software development costs 24.5 15.5
-------------- --------------
56.4 46.6
Accumulated amortization (30.3) (36.9)
-------------- --------------
Software and development costs, net $ 26.1 $ 9.7
-------------- --------------
-------------- --------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------------------
DEPRECIATION AND AMORTIZATION 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization
of property, plant and equipment $ 32.2 $ 33.3 $ 31.5
Amortization of goodwill 12.0 13.5 11.1
Amortization of other intangibles 10.1 7.6 6.3
Amortization of software and development costs 4.8 10.6 11.0
Pension credit (7.9) (6.6) (6.1)
------------- -------------- --------------
Total $ 51.2 $ 58.4 $ 53.8
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
Page 31 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
F. RETIREMENT PLANS
The following information is presented under the new disclosure requirements
of FAS 132. Prior year information has been restated to conform with the new
requirements.
PENSION BENEFITS
Ceridian maintains a defined benefit pension plan for U.S. employees which
closed to new participants effective January 1, 1995. Assets of the plan
consist principally of equity securities, U.S. government securities, and
other fixed income obligations and do not include securities issued by
Ceridian. Benefits under the plan are calculated on maximum or career average
earnings and years of participation in the plan. Employees participate in
this plan by means of salary reduction contributions. Certain former
employees are inactive participants in the plan. Retirement plan funding
amounts are based on independent consulting actuaries' determination of the
Employee Retirement Income Security Act of 1974 funding requirements.
The funded status of the plan at September 30, 1998 and 1997 measurement
dates and the changes in funded status for the annual periods then ended are
shown in the accompanying tables, along with the net periodic pension cost
and assumptions used in calculations for each of the last three years.
Ceridian also sponsors a nonqualified supplemental retirement plan. The
projected benefit obligations at September 30, 1998 and 1997 for this plan
were $23.5 and $23.4, respectively, and the net periodic pension cost was
$2.8 for 1998, $2.3 for 1997 and $2.2 for 1996. The related intangible asset
included in prepaid pension cost was $2.0 at December 31, 1998 and $3.3 at
December 31, 1997. The cost recognized by Ceridian with respect to its
defined contribution retirement plans was $8.9 in 1998, $6.7 in 1997 and $5.4
in 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
FUNDED STATUS OF DEFINED BENEFIT September 30,
----------------------------
RETIREMENT PLAN AT MEASUREMENT DATE 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED BENEFIT OBLIGATION $ 550.0 $ 524.3
CHANGE IN PROJECTED BENEFIT OBLIGATION DURING THE
PERIOD
At beginning of period $ 542.7 $ 549.1
Service cost 2.0 1.7
Interest cost 42.1 42.6
Actuarial (gain) loss 27.1 35.3
Benefits paid (46.2) (86.0)
------------- --------------
At end of period $ 567.7 $ 542.7
------------- --------------
CHANGE IN FAIR VALUE OF PLAN ASSETS DURING THE PERIOD
At beginning of period $ 620.3 $ 573.6
Actual return on plan assets (21.6) 132.7
Benefits paid (46.2) (86.0)
------------- --------------
At end of period $ 552.5 $ 620.3
------------- --------------
FUNDED STATUS OF PLAN $ (15.2) $ 77.6
Unrecognized net loss 105.8 3.3
Unrecognized prior service cost 12.5 16.0
Unrecognized net transition asset (1.7) (3.5)
------------- --------------
Net pension asset recognized
in the consolidated balance sheet $ 101.4 $ 93.4
------------- --------------
------------- --------------
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
ASSUMPTIONS USED IN CALCULATIONS 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.00% 7.75% 7.75%
Rate of compensation increase 4.00% 4.50% 4.50%
Expected return on plan assets 9.50% 9.50% 9.50%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
NET PERIODIC PENSION COST (CREDIT) 1998 1997 1996
- ---------------------------------------------------------------------------------
Service cost $ 2.0 $ 1.7 $ 1.6
Interest cost 42.1 42.5 39.7
Expected return on plan assets (53.8) (53.1) (48.9)
Net amortization and deferral 1.8 2.3 1.5
-------- ------- -------
Total $ (7.9) $ (6.6) $ (6.1)
-------- ------- -------
-------- ------- -------
- ---------------------------------------------------------------------------------
</TABLE>
Page 32 of the Ceridian Annual Report
<PAGE>
POSTRETIREMENT BENEFITS
Ceridian provides health care and life insurance benefits for eligible
retired employees, including individuals who retired from operations of
Ceridian that were subsequently sold or discontinued. Ceridian sponsors
several health care plans in the U.S. for both pre- and post-age 65 retirees.
Company contributions to these plans differ for various groups of retirees
and future retirees. Employees hired on or after January 1, 1992 may enroll
at retirement in company-sponsored plans with no company subsidy. Employees
hired before and retiring after that date may enroll in plans that subsidize
pre-age 65 coverage only. Employees who retired prior to 1992 are subject to
various cost-sharing policies depending on when retirement began and
eligibility for Medicare. This is a closed group. Most retirees outside the
United States are covered by governmental health care programs, and
Ceridian's cost is not significant.
The following tables present the amounts and changes in the aggregate
benefit obligation at the beginning and end of and for each of the last two
years and the components of net periodic postretirement benefit cost for the
plans for the last three years. Ceridian does not prefund these costs.
The assumed health care cost trend rate used in measuring the benefit
obligation is 10% for pre-age 65 and 6% for post-age 65 in 1998, declining at
a rate of 1% per year to an ultimate rate of 5.75% in 2003 for pre-age 65 and
in 1999 for post-age 65. A one percent increase in this rate would increase
the benefit obligation at December 31, 1998 by $3.3 and the aggregate service
and interest cost for 1998 by $0.3. A one percent decrease in this rate would
decrease the benefit obligation at December 31, 1998 by $2.8 and the
aggregate service and interest cost for 1998 by $0.2. The weighted average
discount rate used in determining the benefit obligation at December 31, 1998
and 1997 is 7.0%.
<TABLE>
<CAPTION>
- ----------------------------------------
FUNDED STATUS OF POSTRETIREMENT
HEALTH CARE AND LIFE PLANS
- ----------------------------------------
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
CHANGE IN BENEFIT
OBLIGATION
At beginning of year $44.9 $50.1
Service cost 0.1 0.2
Interest cost 3.0 3.6
Participant contributions 1.6 1.9
Actuarial loss (gain) 0.1 (1.5)
Special termination -- (3.4)
benefits
Benefits paid (5.1) (6.0)
-------------
At end of year $44.6 $44.9
-------------
-------------
CHANGE IN PLAN ASSETS
At beginning of year $ -- $ --
Company contributions 3.5 4.1
Participant contributions 1.6 1.9
Benefits paid (5.1) (6.0)
-------------
At end of year $ -- $ --
-------------
FUNDED STATUS OF PLAN
Benefit obligation, net $44.6 $44.9
Unrecognized actuarial 6.5 6.3
loss
Other adjustments -- 0.4
-------------
At end of year $51.1 $51.6
----- ------
- ----------------------------------------
Current portion $6.0 $6.0
Noncurrent portion 45.1 45.6
-------------
Total $51.1 $51.6
----- ------
----- ------
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------
NET PERIODIC POSTRETIREMENT BENEFIT COST
- ----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 0.1 $ 0.2 $ 0.2
Interest cost 3.0 3.6 3.4
Actuarial gain (0.2) (0.1) --
amortization
Other 0.4 (0.6) 0.3
- ----------------------------------------------
Net periodic
benefit cost $ 3.3 $ 3.1 $ 3.9
----- ----- -----
----- ----- -----
- ----------------------------------------------
</TABLE>
Page 33 of the Ceridian Annual Report
<PAGE>
G. STOCK PLANS
During the three-year period ended December 31, 1998, Ceridian provided
stock-based compensation plans for directors, officers and other employees.
The 1996 Director Performance Incentive Plan authorizes the issuance of up to
250,000 shares in connection with awards of stock options and non-performance
restricted stock to non-employee directors of Ceridian. An annual grant of an
option to purchase 4,000 shares (3,000 shares before 1998) is made to each
eligible director with such grants becoming fully exercisable six months
after the date of grant. The exercise price of the options is the fair market
value of the underlying stock at the date of grant, and the options expire in
ten years. A one-time award of non-performance restricted shares is made to
each outside director when the director first joins the Board. The number of
shares awarded will have a fair market value equal to two and one-half times
(four times before 1998) the then current annual retainer paid to
non-employee directors. The restrictions on transfer will ordinarily lapse
ratably over a five-year period.
The 1993 Long-Term Incentive Plan as amended ("1993 LTIP") authorizes the
issuance until December 31, 1999 of up to 18,000,000 common shares in
connection with awards of stock options and restricted stock to executives
and other key employees. Options remain outstanding under a predecessor plan
subject to similar terms. The 1994 Stock Option Plan expired at the end of
1998.
Stock options awarded under these plans generally vest annually over a
three-year period, have 10-year terms and have an exercise price that may not
be less than the fair market value of the underlying stock at the date of
grant.
Under the terms of the 1993 LTIP, senior executives were awarded
performance restricted shares which became eligible to vest in installments
during 1996, 1997 and 1998 for executives still employed by Ceridian on the
vesting dates. Vesting occurred only to the extent that the total return to
holders of Ceridian common stock over two, three and four year performance
periods ending on April 30 in those years met certain prescribed levels as
compared to other companies in the S&P 500.
Of these shares, 503,240 vested during 1996, 11,196 during 1997 and
82,152 during 1998. Shares which had not yet vested as of the end of the
final performance period were forfeited and returned as treasury stock.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
STOCK PLANS WEIGHTED-
OPTION PRICE AVAILABLE AVERAGE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT EXERCISE PRICE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At December 31, 1995 $ 0.89 - $22.75 11,383,516 4,727,058 6,002,306 $10.65
- --------------------------------------------------------------------------------------------------
Authorized 250,000
EAS conversion 3.09 100,654 98,466
Granted 18.63 - 26.13 3,121,850 (3,121,850) 23.76
Became exercisable 1.33 - 23.63 2,239,004
Exercised 0.89 - 20.63 (3,361,310) (3,361,310) 7.06
Canceled 1.33 - 25.38 (634,484) (7,216) 539,256 15.69
Expired 10.53 (7,102) (7,102) (36,000) 10.53
ESPP purchases (348,278)
Restricted stock, 127,892
net
Directors' (38,284)
retirement
Performance units (40,000)
- --------------------------------------------------------------------------------------------------
At December 31, 1996 $ 0.89 - $26.13 10,603,124 3,688,900 3,335,042 $15.28
- --------------------------------------------------------------------------------------------------
Authorized 6,000,000
Granted 15.32 - 22.38 4,505,500 (4,505,500) 20.13
Became exercisable 1.33 - 26.13 2,938,656
Exercised 1.33 - 22.38 (1,494,356) (1,494,356) 9.08
Canceled 1.33 - 25.38 (1,353,580) (70,420) 1,262,382 21.13
Expired 8.08 (13,494) (13,494) 8.08
ESPP purchases (478,338)
Restricted stock, 338,850
net
Performance units 12,000
forfeited
- --------------------------------------------------------------------------------------------------
At December 31, 1997 $ 0.89 - $26.13 12,247,194 5,049,286 5,964,436 $17.18
- --------------------------------------------------------------------------------------------------
AUTHORIZED 3,006,000
GRANTED 18.63 - 33.16 5,109,000 (5,109,000) 27.42
BECAME EXERCISABLE 4.43 - 28.10 2,200,162
EXERCISED 0.89 - 26.13 (2,804,050) (2,804,050) 13.00
CANCELED 6.47 - 33.16 (1,058,196) (82,194) 980,448 20.68
EXPIRED 5.92 (2,280) (2,280) (360,062) 5.92
ESPP PURCHASES (202,988)
RESTRICTED STOCK, 630,522
NET
PERFORMANCE UNITS 8,000
FORFEITED
- --------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998 $ 3.09 - $33.16 13,491,668 4,360,924 4,917,356 $21.65
- --------------------------------------------------------------------------------------------------
COMMON SHARES RESERVED FOR FUTURE ISSUANCE AT DECEMBER 31, 1998 WERE 18,409,024.
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 34 of the Ceridian Annual Report
<PAGE>
During 1998, Ceridian reserved 1,000,000 common shares for a new
stock-based compensation plan for certain employees in its UK operations.
The employee plans also provide for the accelerated exercisability of
options and the accelerated lapse of transfer restrictions on restricted
stock if a participant's employment terminates for specified reasons within
two years of a change of control of Ceridian.
The Employee Stock Purchase Plan ("ESPP"), as amended in 1998, provides
for the issuance of up to 3,000,000 shares of newly issued or treasury common
stock of Ceridian to eligible employees. The purchase price of the stock to
plan participants is 85% of the lesser of the fair market value on either the
first day or the last day of the applicable three-month offering period.
As reported in Note A, Ceridian adopted the disclosure-only provisions of
FAS 123 and continues to account for stock-based compensation as in prior
years. Therefore, no expense is recorded with respect to Ceridian's stock
option or employee stock purchase plans, and compensation expense (credit) of
$(3.3) in 1998, $(2.4) in 1997, and $7.2 in 1996 was included in continuing
operations in connection with restricted stock awards.
The following disclosure is provided with respect to the provisions of
FAS 123. Ceridian employs the Black-Scholes option pricing model for
determining the fair value of stock option grants, restricted stock awards
and ESPP purchases, as presented in an accompanying table. Weighted average
exercise prices for stock option activity and options outstanding at December
31, 1998, 1997 and 1996 are included in the Stock Plans table on the previous
page.
Further information on outstanding and exercisable stock options by
exercise price range as of the end of the current year is disclosed in an
accompanying table. Ceridian is required to report the pro forma effect on
net earnings and earnings per share which would have resulted if the fair
value method of accounting for stock-based compensation issued in those years
had been adopted. The application of the fair value method would have
resulted in the determination of compensation cost for grants of stock
options and purchases under the ESPP and would have eliminated from the
related compensation cost the revaluation to market price of unvested awards
of restricted stock. Such compensation cost would then be allocated to the
related period of service. The results of this calculation and the
assumptions used appear in the accompanying pro forma table.
- ------------------------------------------------------------------------------
STOCK OPTION INFORMATION AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- ------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 3.09 - $9.57 1,421,784 4.74 $ 8.01 1,377,360 $ 7.99
$10.53 - $18.63 1,408,172 6.75 $14.57 957,964 $13.47
$19.94 - $20.00 1,804,296 8.80 $20.00 527,840 $20.00
$20.32 - $21.25 1,970,328 7.89 $21.12 540,532 $20.95
$21.32 - $25.07 1,940,356 7.86 $23.89 907,890 $23.96
$25.19 - $26.91 781,132 9.28 $26.41 9,338 $25.75
$27.41 - $27.41 3,385,400 9.81 $27.41 -- $ --
$27.69 - $33.16 780,200 9.55 $29.12 40,000 $28.10
- -------------------------------------------------------------------------------------
$ 3.09 - $33.16 13,491,668 8.17 $21.65 4,360,924 $15.80
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PRO FORMA EFFECT OF FAIR VALUE ACCOUNTING 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
On compensation cost $14.1 $9.9 $11.4
On diluted earnings per share $0.10 $0.06 $0.07
- ------------------------------------------ ---------- ---------- --------
WEIGHTED-AVERAGE ASSUMPTIONS
Expected lives in years 4-8 4-8 4-8
Expected volatility 34.5% 32.7% 26.0%
Expected dividend rate -- -- --
Risk-free interest rate 4.8% 5.3% 6.0%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
WEIGHTED AVERAGE FAIR VALUES OF GRANTS, AWARDS AND PURCHASES
- -------------------------------------------------------------------------------------
1998 1997 1996
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stock options 5,109,000 $8.82 4,505,500 $6.90 3,121,850 $6.73
Restricted stock
awards -- -- -- -- 172,000 $15.65
ESPP 202,988 $1.08 478,338 $2.40 348,278 $2.21
- -------------------------------------------------------------------------------------
</TABLE>
Page 35 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
H. FINANCING
During first quarter 1998 and in connection with the purchases of two payroll
services businesses in Canada, Ceridian entered into two revolving credit
arrangements which expire on July 31, 2002 with Canadian banks through a
Canadian subsidiary. The initial borrowings amounted to $70.4 in the
aggregate, carry interest rates of approximately 5.5% and had an aggregate
outstanding amount at December 31, 1998 of $53.9. Other borrowing activities
during 1998 primarily involved small revolving credit or overdraft credit
lines of subsidiaries.
In July 1997, Ceridian entered into a $250.0 revolving credit facility
with a commercial bank syndicate. The credit facility is unsecured and has a
final maturity of July 31, 2002. The full amount of the credit facility may
be utilized for revolving loans and up to $75.0 of the credit facility may be
used to obtain standby letters of credit. The pricing of the credit facility
for both loans and letters of credit is determined based on Ceridian's senior
unsecured debt ratings. At December 31, 1998 and 1997, there were no
revolving loans and $2.9 in letters of credit outstanding under the facility.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
December 31,
----------------------------
DEBT OBLIGATIONS 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreements and overdrafts $ 53.9 $ 1.9
Other long-term debt obligations 0.6 1.1
------------ ------------
Total debt obligations 54.5 3.0
Less short-term debt and current portions
of long-term debt 0.3 2.2
------------ ------------
Long-term obligations, less current portions $ 54.2 $ 0.8
============ ============
- -----------------------------------------------------------------------------------
</TABLE>
Under the terms of the credit facility, Ceridian's consolidated debt must
not exceed its stockholders' equity as of the end of any fiscal quarter, and
the ratio of Ceridian's EBIT to interest expense on a rolling four quarter
basis must be at least 2.75 to 1. The credit facility also limits liens,
subsidiary debt, contingent obligations, operating leases, minority equity
investments and divestitures. At December 31, 1998, Ceridian was in
compliance with all covenants contained in the credit facility.
During 1997, Ceridian made payments of $144.3 on outstanding debt,
including repaying all amounts outstanding under its domestic revolving
credit facility, under three supplemental six month promissory notes given to
three of the banks that are parties to the revolving credit facility and
under certain debt obligations assumed as a result of acquisitions.
Page 36 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
I. LEASING
Ceridian conducts a substantial portion of its operations in leased
facilities. Most of these leases contain renewal options and require payments
for taxes, insurance and maintenance. Ceridian remains secondarily liable for
future rental obligations related to assigned leases totaling $13.4 at
December 31, 1998. Ceridian does not anticipate any material non-performance
by the assignees of these leases.
Virtually all leasing arrangements for equipment and facilities are
operating leases and the rental payments under these leases are charged to
operations as incurred. The amounts in the accompanying tables do not include
assigned leases or obligations recorded as liabilities.
The amounts of rental expense and sublease income for each of the three
years ended December 31, 1998 appear in the Rental Expense table.
<TABLE>
<CAPTION>
- ---------------------------------------------
RENTAL EXPENSE 1998 1997 1996
- ---------------------------------------------
<S> <C> <C> <C>
Rental expense $38.6 $38.8 $39.2
Sublease rental
income (2.2) (1.7) (1.6)
----- ----- -----
Net rental expense $36.4 $37.1 $37.6
===== ===== =====
- ---------------------------------------------
</TABLE>
Future minimum noncancelable lease payments on operating leases existing
at December 31, 1998, and which have an initial term of more than one year,
are described in the Future Minimum Lease Payments table.
<TABLE>
<CAPTION>
- --------------------------------------
FUTURE MINIMUM LEASE PAYMENTS
- --------------------------------------
<S> <C>
1999 $37.9
2000 31.8
2001 27.0
2002 19.7
2003 13.4
Thereafter 48.2
- --------------------------------------
</TABLE>
Page 37 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
J. INVESTING ACTIVITY
During first quarter 1998, Ceridian, through a Canadian subsidiary, acquired
the payroll services businesses of two Canadian banks for a total cash
payment of $140.7 of which $70.4 was borrowed from the sellers. The
acquisitions resulted in the recording of $123.5 of goodwill. Pre-acquisition
revenue for these operations was approximately $65.0 in 1997. Substantially
all of the 1998 revenue for these businesses was reported in Ceridian's
revenue. In November 1998, Ceridian acquired the work-life services business
of Work/Family Directions, Inc., which had estimated pre-acquisition revenue
of approximately $52.0 in 1998 and $57.0 in 1997. The acquisition resulted in
a cash payment of $77.5 and the recording of $66.5 of goodwill. In May 1998,
Ceridian purchased certain assets of Tapscan, Inc., a developer of software
for broadcasters, agencies and advertisers, to be associated with its
Arbitron operations. The acquisition of Tapscan and other minor purchase
acquisitions made during 1998 resulted in cash payments totaling $14.7,
deferred payment obligations of $3.0 and goodwill of $13.6.
In January 1998, Ceridian's Comdata subsidiary exchanged its gaming
services business for First Data Corporation's NTS transportation services
business and $50.5 in cash. The net cash inflow from the exchange was $30.1
and the net reduction in goodwill was $44.1. During the year, Ceridian sold
its Resumix and Tesseract operations, along with other smaller businesses and
assets. The aggregate net cash proceeds from these sales was $19.4 with no
material gain or loss. In connection with the sale of Resumix, Ceridian
received a 15 percent equity interest in the successor company in the form of
1,499,900 shares of preferred stock with a liquidation preference of $4.10
per share. In addition, Ceridian received an interest bearing note for $22.8.
The note calls for annual principal payments of $4.5 beginning in August 2002
with the balance payable in August 2005. Ceridian will recognize gain on the
note receivable as principal payments are funded and on the preferred shares
when a ready market develops.
On December 31, 1997, Ceridian sold its Computing Devices International
division. Further information on this transaction is provided in Note B. Also
during 1997, Ceridian acquired or invested in seven small businesses. The
three acquisitions associated with Comdata included a provider of cash
advance services to the gaming industry, a fuel management services provider
and the step acquisition of the remaining interest in International Automated
Energy Systems ("IAES"), a provider of fuel management and payment systems
for local trucking fleets. The two acquisitions associated with Human
Resource Services included a provider of human resources management and
benefits software and a provider of interactive, self service applications to
facilitate human resources administration. Arbitron acquired a market
research firm in the UK and invested in a company that seeks to gather data
regarding credit card usage. With one exception, all the acquisitions were
accounted for by the purchase method. The aggregate consideration for these
acquisitions and investments consisted of $30.0 in cash, assumption of $8.6
of debt and 1,885,340 shares of Ceridian's common stock. Goodwill recorded
for these transactions was $40.2.
During 1996, Ceridian acquired or invested in nine small businesses,
using both the pooling and purchase methods of accounting. The six
acquisitions associated with Human Resource Services included providers of
employee assistance and work-life services, a payroll processor in the UK, a
provider of time and attendance software and providers of human resource
management software and expert systems. The two acquisitions associated with
Comdata included a provider of funds transfer and fuel purchase services and
a provider of permit and vehicle escort services to trucking companies.
Comdata also made a minority investment in IAES. The aggregate consideration
for these acquisitions and investments and related advances consisted of
$30.9 in cash and 1,396,336 shares of Ceridian's common stock.
Page 38 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
K. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
In 1995, Comdata extended its contract arrangements with IBM Global Services
("IBM"), the successor to Integrated Systems Solutions Corporation, for
substantially all data processing functions for a term of ten years. The
agreement provided for a minimum monthly payment of $1.6 in 1996 and $1.4
thereafter. In early 1998, the agreement was amended and IBM assumed certain
additional responsibilities and duties for and on behalf of Comdata. Under
the terms of the 1998 amendment, the minimum monthly fee is $1.6 in 1998 and
$1.8 in 1999 and thereafter. The amount of expense incurred under these
contract arrangements was $20.8 in 1998, $17.6 in 1997 and $16.0 in 1996.
Cancellation of the agreement for convenience in 1999 would require payment
of a termination fee of $8.6.
Under a Telecommunications Services Agreement with WorldCom, renewed in
1995 and amended in 1996, Comdata agreed to purchase a minimum of $13.0 of
long distance services and 80% of such services (as defined) up to $24.0 each
year until 2003. In September 1997, Comdata entered into a new
Telecommunications Services Agreement with WilTel (WorldCom's wholesale
services subsidiary) which replaced the WorldCom agreement. Under the 1997
Agreement, Comdata agreed to purchase a minimum of $1.1 of such services each
month until January 2003. Comdata is able to terminate its minimum purchase
commitment at such time as it has purchased an aggregate of $45.0 in services
under the 1997 Agreement. Cancellation of the 1997 Agreement for convenience
would result in a cancellation charge equal to 12.5% of the average monthly
revenue during the last 12 months times the number of full months remaining
in the term of such Agreement. Purchases charged to expense under the current
contract and its predecessors amounted to $17.1 in 1998, $20.3 in 1997 and
$22.5 in 1996.
INTEREST RATE COLLARS
During 1998, Ceridian maintained in effect an average notional amount of
collars of $833.4 for the purpose of hedging interest rate risk on invested
customer deposits held in its U.S. tax filing trust. The counterparties to
these arrangements are commercial banks with debt ratings of A or better.
Under current accounting standards, neither the collar arrangements nor the
related trust investments and offsetting liability to customers are reflected
in Ceridian's balance sheets. These arrangements, which do not require
collateral, require the banks to pay Ceridian the amount by which a certain
index of short-term interest rates falls below a specified floor strike
level. Alternatively, when that index exceeds a specified cap strike level,
Ceridian is required to pay out the excess above the cap strike level.
At December 31, 1998, Ceridian had ten collar transactions in effect with an
aggregate notional amount of $900.0, remaining terms of 5 to 56 months, floor
strike levels ranging from 5% to 6% (averaging 5.28%) and cap strike levels
ranging from 5.97% to 8.18% (averaging 7.13%). The risk of accounting loss
through non-performance by the counterparties under any of these arrangements is
considered negligible.
Page 39 of the Ceridian Annual Report
<PAGE>
EXHIBIT 13.03
L. LEGAL MATTERS
SECURITIES LITIGATION
Ceridian and ten of its current and former executive officers are named as
defendants in a consolidated class action complaint filed by five Ceridian
shareholders in U.S. District Court in Minnesota. The lawsuit arises out of
Ceridian's announcement, on August 26, 1997, that it had decided to terminate
further development of its CII payroll processing software system. The named
plaintiffs, who purport to act on behalf of a class of purchasers of Ceridian
common stock during the period from January 23, 1996 to August 26, 1997,
allege that the defendants violated federal and state securities laws and
state consumer fraud laws by publicly disseminating false and misleading
statements regarding Ceridian and concealing adverse information about
Ceridian, with the effect of artificially inflating the market price of
Ceridian's common stock, and by selling Ceridian common stock while in
possession of material non-public information about Ceridian. The
consolidated complaint alleges that the defendants provided false and
misleading information regarding the development of the CII system and the
impact that system would have on Ceridian's future operations, concealed
problems with the development of the CII system and improperly capitalized
the costs of the CII development effort, thereby overstating Ceridian's
financial results during the development period. The complaint does not
specify an amount of damages claimed. Ceridian believes that the complaint is
without merit and intends to vigorously defend this action.
OTHER MATTERS
During 1998, Comdata resolved by settlement the examination on behalf of the
various states with regard to unmatched transactions. The settlement did not
have a material adverse effect on Ceridian's financial position or results of
operations.
Ceridian is also involved in a number of other judicial and
administrative proceedings considered normal in the nature of its current and
past operations, including employment-related disputes, contract disputes and
tort claims. Final disposition of some of these proceedings may not occur for
several years. In the opinion of management, the final disposition of these
proceedings will not, considering the merits of the claims and available
reserves, have a material adverse effect on Ceridian's financial position or
results of operations.
Page 40 of the Ceridian Annual Report
<PAGE>
<TABLE>
<CAPTION>
Exhibit 13.04
SUPPLEMENTARY QUARTERLY DATA (Unaudited) (Dollars in millions, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
4TH 3RD 2ND 1ST 4th 3rd 2nd 1st
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 309.6 $ 286.1 $ 284.1 $ 282.3 $ 282.5 $ 266.6 $ 261.8 $ 263.9
Cost of revenue 150.4 137.2 135.0 128.9 138.9 132.4 130.2 126.1
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 159.2 148.9 149.1 153.4 143.6 134.2 131.6 137.8
Selling, general and
administrative 78.5 77.7 79.3 80.5 73.5 79.8 79.2 75.5
Research and development 20.0 20.1 20.3 17.4 20.2 13.3 11.9 14.2
Other expense (income) (1) (9.2) 0.6 1.2 0.6 144.4 150.4 1.0 13.5
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE
INTEREST AND TAXES 69.9 50.5 48.3 54.9 (94.5) (109.3) 39.5 34.6
Interest income 2.5 2.7 2.5 2.7 0.9 0.4 0.5 0.5
Interest expense (1.0) (1.1) (1.5) (0.7) (5.1) (2.0) (2.0) (2.1)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 71.4 52.1 49.3 56.9 (98.7) (110.9) 38.0 33.0
Income tax provision
(benefit) (2) 7.3 18.9 18.0 21.1 (174.8) (0.8) 1.0 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS 64.1 33.2 31.3 35.8 76.1 (110.1) 37.0 32.4
Discontinued operations (3)
Gain on sale 25.4 -- -- -- 386.3 -- -- --
Earnings from operations -- -- -- -- 11.4 16.4 11.5 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 89.5 $ 33.2 $ 31.3 $ 35.8 $ 473.8 $ (93.7) $ 48.5 $ 43.8
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (4)(5)
BASIC
Continuing operations $ 0.45 $ 0.23 $ 0.22 $ 0.25 $ 0.51 $ (0.70) $ 0.23 $ 0.20
Net earnings $ 0.62 $ 0.23 $ 0.22 $ 0.25 $ 3.17 $ (0.59) $ 0.30 $ 0.28
DILUTED
Continuing operations $ 0.44 $ 0.23 $ 0.21 $ 0.24 $ 0.50 $ (0.70) $ 0.23 $ 0.20
Net earnings $ 0.61 $ 0.23 $ 0.21 $ 0.24 $ 3.12 $ (0.59) $ 0.30 $ 0.27
SHARES USED IN CALCULATIONS (5)
(IN THOUSANDS)
Basic 143,234 144,020 144,931 144,110 149,382 158,378 160,384 159,197
Diluted 147,154 147,520 148,601 147,195 152,103 158,378 162,900 162,030
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK-PER SHARE
Market price ranges (5)(6)
High 36 32 1/4 30 7/8 27 13/16 23 7/8 22 13/16 21 13/16 21 1/4
Low 24 24 1/4 25 5/16 21 3/4 17 5/8 16 1/16 14 3/4 16 1/8
No cash dividends have been declared on common stock during the periods presented.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes fourth quarter 1998 unusual gains of $9.2 and 1997 unusual charges
of $144.6 in fourth quarter, $150.0 in third quarter and $13.0 in first
quarter as described in Note B.
(2) For information on a fourth quarter 1998 unusual tax benefit and the fourth
quarter 1997 FAS 109 tax benefit, see Note D.
(3) For information on discontinued operations, see Note B.
(4) For information on the calculation of earnings (loss) per share, see Note
A.
(5) Reflects a 2-for-1 stock split in the form of a 100% stock dividend
announced January 20, 1999 and effective for holders of record on February
10, 1999.
(6) From the New York Stock Exchange - Composite Transactions Listing.
Page 41 of the Ceridian Annual Report
<PAGE>
CERIDIAN CORPORATION
SUBSIDIARIES
MARCH 15, 1999
<TABLE>
<CAPTION> STATE OR
OTHER JURISDICTION
SUBSIDIARIES AND THEIR AFFILIATES: OF INCORPORATION
- ---------------------------------- ------------------
<S> <C>
Ceridian Canada Holdings, Inc. Delaware
Ceridian Canada Ltd. Canada
Ceridian Performance Partners Ltd. Canada
Ceridian Holdings U.K. Limited United Kingdom
Centre-file Limited (f/k/a Datacarrer Limited) United Kingdom
CSW Research Limited United Kingdom
Ceridian Performance Partners Limited United Kingdom
(f/k/a Letterallied Limited)
Ceridian Infotech (India) Private Limited India
Ceridian Small Business Solutions, Inc. New Jersey
(f/k/a Minidata Services, Inc.)
Ceridian Tax Service, Inc. Delaware
Comdata Network, Inc. Maryland
Archco, Inc. Minnesota
Comdata Network Inc. of California California
Comdata Telecommunications Services, Inc. Delaware
International Automated Energy Systems, Inc. Florida
Permicom Permits Services, Inc. Canada
Partnership Group, Inc., The Pennsylvania
Scarborough Research (General Partnership) Delaware
Stored Value Systems, Inc. Delaware
User Technology Services Inc. New York
Web Northstar Interactive Corp. New York
</TABLE>
Certain subsidiaries, which in the aggregate would not constitute a significant
subsidiary, are omitted from this listing.
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
of Ceridian Corporation:
We consent to incorporation by reference in Registration Statements Nos.
33-49601, 33-61551, 33-34035, 2-97570, 33-56833, 33-54379, 33-56325, 33-62319,
33-64913, 333-01793, 333-01887, 333-03661, 333-28069, 333-58143, 333-58145,
333-66643 and 333-50757 on Form S-8 of Ceridian Corporation of our reports
dated January 20, 1999. Such reports relate to the consolidated financial
statements and related financial statement schedule of Ceridian Corporation
and subsidiaries as of December 31, 1998 and 1997 and for each of the years
in the three-year period ended December 31, 1998 and are included or
incorporated by reference in the 1998 Annual Report on Form 10-K of Ceridian
Corporation.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 25, 1999
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Ceridian Corporation (the "Company"), a
Delaware corporation, does hereby make, nominate and appoint GARY M. NELSON and
JOHN R. EICKHOFF, and each of them, to be my attorney-in-fact for three months
from the date hereof, with full power and authority to execute for and on behalf
of the undersigned the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended; provided that such
Form 10-K is first reviewed by the Audit Committee of the Board of Directors of
the Company and by my attorney-in-fact, and his name, when thus signed, shall
have the same force and effect as though I had manually signed such Form 10-K.
I have signed this Power of Attorney as of February 3, 1999.
/s/ Bruce R. Bond
-------------------------
Bruce R. Bond
/s/ Nicholas D. Chabraja
-------------------------
Nicholas D. Chabraja
/s/ Ruth M. Davis
-------------------------
Ruth M. Davis
/s/ Robert H. Ewald
-------------------------
Robert H. Ewald
/s/ Richard G. Lareau
-------------------------
Richard G. Lareau
/s/ Ronald T. LeMay
-------------------------
Ronald T. LeMay
/s/ George R. Lewis
-------------------------
George R. Lewis
/s/ Ronald A. Matricaria
-------------------------
Ronald A. Matricaria
/s/ Lawrence Perlman
-------------------------
Lawrence Perlman
/s/ Ronald L. Turner
-------------------------
Ronald L. Turner
/s/ Carole J. Uhrich
-------------------------
Carole J. Uhrich
/s/ Paul S. Walsh
-------------------------
Paul S. Walsh
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 101,800
<SECURITIES> 0
<RECEIVABLES> 406,200
<ALLOWANCES> 21,700
<INVENTORY> 0
<CURRENT-ASSETS> 633,700
<PP&E> 237,100
<DEPRECIATION> 145,800
<TOTAL-ASSETS> 1,289,700
<CURRENT-LIABILITIES> 436,700
<BONDS> 54,200
0
0
<COMMON> 80,800<F1>
<OTHER-SE> 569,800
<TOTAL-LIABILITY-AND-EQUITY> 1,289,700
<SALES> 0
<TOTAL-REVENUES> 1,162,100
<CGS> 0
<TOTAL-COSTS> 551,500
<OTHER-EXPENSES> (6,800)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,300
<INCOME-PRETAX> 229,700
<INCOME-TAX> 65,300
<INCOME-CONTINUING> 164,400
<DISCONTINUED> (25,400)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,800
<EPS-PRIMARY> 1.32<F1>
<EPS-DILUTED> 1.29<F1>
<FN>
<F1>
EPS and Common Stock reflect the effect of a 2-for-1 stock split in the form
of a 100% stock dividend.
</FN>
</TABLE>
