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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
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FORM 10-K
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MARK ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
ONE SECURITIES EXCHANGE ACT OF 1934
[X] FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
For the transition period from _____ to _____.
Commission file number 0-24787
AFFILIATED COMPUTER SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0310342
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State or other jurisdiction of
incorporation or organization (I.R.S. Employer Identification No.)
2828 NORTH HASKELL
DALLAS, TEXAS 75204
(Address of principal executive offices)
(Zip Code)
214-841-6111
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of exchange on
Title of each class which registered
--------------------------- --------------------------
Class A common stock, par
value $.01 per share NASDAQ National Market System
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements the past 90 days. Yes X 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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ X ]
As of September 20, 1996, 14,517,588 shares of Class A common stock were
outstanding. The aggregate market value of the 13,433,748 shares of Class A
common voting stock held by nonaffiliates of Affiliated Computer Services, Inc.
as of such date, approximated $809,383,317.
DOCUMENTS INCORPORATED BY REFERENCE: Fiscal 1996 Annual Report to Stockholders
- - Parts I, II, and IV; Proxy Statement for October 28, 1996 Annual Meeting -
Part III.
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AFFILIATED COMPUTER SERVICES, INC.
FORM 10-K
JUNE 30, 1996
<TABLE>
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PAGE
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<S> <C> <C>
PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................ 13
Item 6. Selected Consolidated Financial Data............................. 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 14
Item 8. Financial Statements and Supplementary Data...................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant................ 14
Item 11. Executive Compensation............................................ 14
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 14
Item 13. Certain Relationships and Related Transactions.................... 14
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K........................................................ 15
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Affiliated Computer Services, Inc. (the "Company" or "ACS") is a
nationwide provider of information technology services and electronic funds
transfer ("EFT") transaction processing. The Company's information technology
services include data processing outsourcing, image management and professional
services. The Company's services are provided to customers with time-critical,
transaction-intensive information processing needs.
The Company's data processing outsourcing services are provided to a
variety of commercial customers nationwide, including retailers, healthcare
providers, telecommunications companies, wholesale distributors, manufacturers
and to regional, non-money center financial institutions. The Company utilizes
a variety of proprietary and third party industry-standard software packages
that can be matched with the appropriate hardware platform to provide flexible
and cost-effective solutions to customer requirements. ACS is capitalizing on
the trend toward client-server computing by providing consulting and
transitional outsourcing services, including network and desktop computer
management, to companies that are changing to these distributed platform
environments. The Company offers image management services such as electronic
imaging, document imaging, record storage and retrieval services, micrographics
processing services and high speed data capture services. Beginning in January
1995, ACS expanded its product offerings to include professional services such
as consulting, contract programming and technical support, as well as network
design and systems integration. The Company's EFT transaction processing
business consists primarily of the operation of a proprietary automated teller
machine ("ATM") network consisting of Company owned ATMs as well as ATMs owned
by third parties. According to an industry publication, the Company's
MoneyMakerSM ATM network ("MoneyMaker") is the second largest non-bank ATM
network in the United States. The Company operates a national network of host
and remote data centers that enables ACS to process transactions for its
outsourcing and EFT customers in a rapid, cost-effective manner.
The Company was formed in 1988 as a Delaware corporation and on September
26, 1994 completed an initial public offering ("IPO") of 2.3 million shares of
Class A common stock after having completed a restructuring in connection with
the IPO, which included the spin-off of certain subsidiaries to its
stockholders effective June 30, 1994. The Company completed two secondary
offerings in March 1996 and June 1996 for an aggregate of approximately 4.1
million new shares of Class A common stock, primarily to repay debt incurred
with fiscal 1996 acquisitions, including debt incurred with the acquisition of
The Genix Group, Inc. ("Genix") on June 21, 1996. See "Business -- Information
Technology Services -- Outsourcing Services."
MARKET OVERVIEW
The Company believes that the demand for third-party information
processing services has grown substantially in recent years and will continue
to increase in the future as a result of financial, strategic and technological
factors. These factors include: (i) the desire by businesses to take advantage
of the latest advances in technology without the cost and time commitment
required to maintain an in-house system, (ii) the increasing requirements for
rapid processing and communication of large amounts of data to multiple
locations, (iii) the increasing attention by businesses to control costs,
causing them to compare the fully allocated cost of in-house processing with
the cost of outsourcing and (iv) the desire of organizations to focus on their
primary competencies. According to a published market research report, the size
of the U.S. information systems outsourcing market is estimated to be $22
billion in 1996.
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The Company participates in all segments of the image management market,
primarily as a provider of micrographics products and services, and as a
provider of electronic imaging products and services. According to an industry
trade association, the market for image management products and services was
approximately $6.2 billion in 1996.
As a result of rapid technological change in the Company's markets, the
Company expects continued strong demand for third-party professional
programming and consulting services. Because ACS provides professional services
to customers with mainframe environments as well as with newer client-server
and network applications, the Company believes that it is well-positioned to
expand its services in current locations as well as in new geographic markets.
EFT transaction processing involves the on-line processing of transactions
initiated by a cardholder at a terminal using a debit or credit card issued by
the cardholder's financial institution. Various transactions, including cash
withdrawals, transfers and balance inquiries, are authorized and performed with
immediate posting to the cardholder's accounts. Usage of ATMs located at
financial institutions and retail stores has increased during recent years.
According to an industry publication, there were over 122,000 ATMs deployed in
the United States as of September 1995. Transaction volume has grown in recent
years due to an increase in the number of ATMs deployed, the number of
cardholders and the frequency of use by cardholders.
The Company's revenues from continuing operations derived from information
technology services and EFT transaction processing are shown in the following
table (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Information Technology
Services:
Outsourcing................. $ 182,365 $ 174,136 $ 152,204 $ 118,518 $ 113,765
Image management services... 96,730 65,897 62,871 26,909 -
Professional services....... 48,919 8,703 - - -
--------- --------- --------- --------- ---------
328,014 248,736 215,075 145,427 113,765
EFT Transaction Processing.... 68,495 64,445 55,980 43,637 36,179
--------- --------- --------- --------- ---------
Total..................... $ 396,509 $ 313,181 $ 271,055 $ 189,064 $ 149,944
========= ========= ========= ========= =========
</TABLE>
BUSINESS STRATEGY
The key components of the Company's business strategy include the
following:
o Expand Customer Base - The Company seeks to develop long-term
relationships with its customers by leveraging its expertise with
multiple services and product offerings to provide complete information
technology services. The Company's primary focus is on increasing its
revenues per customer by adding large-volume transaction processing
customers.
o Provide Flexible Information Processing Solutions - The Company
offers custom-tailored information processing solutions using a variety
of proprietary and third-party licensed software on multiple hardware
and systems software platforms. ACS is capitalizing on the trend toward
client-server computing by providing consulting and transitional
outsourcing services, including network
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and desktop computer management, to companies that are changing to these
distributed platform environments.
o Maximize Economies of Scale - The Company's strategy is to develop
and maintain a significant customer and account/transaction base to
create sufficient economies of scale that enable the Company to achieve
competitive unit processing costs.
o Complete Strategic Acquisitions - The Company's acquisition
strategy is to acquire companies that enable the Company to expand its
geographic presence, to expand the products and services offered to
existing customers, and to obtain a presence in new, complementary
markets.
o Invest in Technology - The Company responds to technological
advances and the rapid changes in the requirements of its customers
through the commitment of substantial amounts of its resources to the
operation of multiple hardware platforms, customization of products and
services that incorporate new technology on a timely basis, and the
continuous training of customer service personnel.
o Build Recurring Revenues - The Company seeks to enter into
long-term contracts with customers to provide services that meet their
ongoing information processing needs.
INFORMATION TECHNOLOGY SERVICES
Outsourcing Services
The Company offers a diverse set of outsourcing solutions to businesses
desiring to achieve reductions in data processing costs, improvements in the
quality of data processing or both. The Company's principal outsourcing service
is the delivery of data processing services on a remote basis from host data
centers with sufficient computer processing (mainframe and other) capacity to
deliver significant cost savings to customers. The principal services provided
include both on-line and batch processing of data and network management
assistance. The mission-critical application systems processed by the Company
for its customers include financial, human resources, retail and wholesale
inventory distribution, manufacturing, healthcare management, transportation
management, commercial and residential telephone billing, mortgage portfolio
information and software development systems. See "Sales, Marketing, and
Customer Support." In recent years new client-server platforms (networks of
personal computers and workstations) have been developed that may, for some
applications, provide more flexibility to customers than is available from
mainframe processing. To the extent these new platforms are less costly than
mainframe processing, customers may choose to move portions of their processing
requirements to their own in-house client-server systems. However, the Company
believes mainframe processing services will continue to be important for many
applications and that new opportunities will be presented for outsourcing both
client-server and mainframe platforms for complementary use. During fiscal year
1996, the majority of new outsourcing contracts have included a substantial
amount of client-server, desktop management, mid-range computing and network
management in addition to mainframe outsourcing.
On June 21, 1996, the Company acquired 100% of the stock of Genix, a
nationwide provider of data processing outsourcing services, for approximately
$137.5 million. The Genix acquisition continues the Company's strategy of
acquiring information processing companies to grow its customer base, enhance
its
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service offerings and expand its geographic presence. Genix's three host data
centers will strengthen the Company's presence in the Midwest, Northeast and
Southeast and add customers in its core outsourcing business in new industries,
including the insurance and utility industries, as well as in other industries,
particularly manufacturing, that ACS currently services. Genix's revenues for
the year ended December 31, 1995 were approximately $105 million.
The Company's target market for data processing outsourcing services
consists of medium- to large- sized commercial organizations with time-critical
transaction-intensive information processing needs. The Company provided data
processing outsourcing services to approximately 475 customers as of June 30,
1996, including healthcare providers, telecommunications companies,
manufacturers, retailers, wholesale distributors and transportation and other
commercial companies, as well as to regional, non-money center financial
institutions. The primary geographic market for the Company's data processing
services is the United States, although the Company evaluates international
opportunities from time to time. Because of the high-speed and high-capacity
capabilities of the telecommunications networks available to the Company, host
data centers currently located in Dallas, Texas; Santa Clara, California;
Dearborn, Michigan; Pittsburgh, Pennsylvania and Charlotte, North Carolina are
able to serve customers throughout the United States.
The Company typically outsources a customer's in-house data processing
operations by migrating the processing workload to one of the Company's data
centers over a period of three to six months, and in some instances the Company
acquires the customer's data processing assets and hires certain customer
personnel. In a facilities management arrangement, which is less common,
Company personnel manage and operate a data center on the customer's site. The
customer may, in some instances, maintain and enhance its application programs
and schedule and initiate processing, using computer and network resources
provided by the Company. In other instances, the Company maintains and enhances
application programs for the customer. The Company owns certain proprietary
applications software which the Company uses to provide services to customers,
including telecommunications service providers and wholesale distribution
customers. The software is not licensed to customers or third parties. The
Company also licenses software provided by various software vendors under
perpetual or renewable term licenses. The Company does not believe it is
significantly dependent upon any proprietary software with respect to its
outsourcing services and believes that, as to software licensed to the Company,
sufficient alternative software products are generally available for licensing
by the Company. However, there can be no assurance that the Company will be
able to obtain such alternative software products on a timely basis or without
incurring additional expense. The Company's data center hardware and systems
software platforms are also made available to customers, such as software
development companies, which desire to purchase processing resources on an
as-required basis. The Company processes its customers on a variety of hardware
platforms.
The Company's data processing services are typically priced on a resource
utilization basis rather than on the basis of accounts or transactions
processed. Resources utilized include processing time, professional services,
hardware, data storage and retrieval requirements, and output volume required
for processing.
Image Management Services
The Company began offering image management services as a result of the
1992 acquisition of Dataplex Corporation ("Dataplex"), which was a part of the
Company's strategy to offer complementary services to its outsourcing
customers. The Image Management division ("Image Management") offers services
that convert customer data onto suitable media, stores such data in a secure
environment and retrieves archived data. Image Management also sells a variety
of imaging equipment and supplies to end users.
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Customer information is received in a variety of media such as paper,
microfilm, computer tape, optical disk or CD ROM. Upon receipt, the information
is either duplicated, electronically scanned or converted into another medium,
and then the information is returned to the customer in the desired medium. In
many instances, a copy of the information is stored on microfilm at the
Company's 533-acre records storage and retrieval facility.
Image Management uses several types of hardware and software to deliver
its services, including electronic subscription-based image processors,
microfilm processors and duplicators, rotary, planetary and step-and-repeat
cameras, COM (computer output to microfiche) recorders, optical scanning
equipment and client-server and personal computers. The Company delivers these
services from 36 service centers in 20 states.
Imaging services are generally priced based upon the volume of information
and images (document pages, COM frames, microfilm rolls) processed, stored or
retrieved. Dataplex currently provides services and products to more than
12,600 customers nationwide. Financial institutions represent approximately
one-half of the Image Management customer base. Services generally are provided
under one-year renewable contracts, with the exception of major accounts which
operate under multi-year contracts with initial terms of three years. Imaging
equipment and supplies are sold to customers on an as-needed basis. Microfilm
is the largest component of supplies sales and is sold to customers who use
microfilm in conjunction with other image management services.
In March 1996, the Company acquired a majority interest in Unibase
Technologies, Inc. ("Unibase"), a Utah-based provider of high speed data
capture services. Using state-of-the-art image transmission, storage and
retrieval technology, millions of information records are digitized and
transmitted daily from customer locations nationwide for high-speed conversion
and database update. Founded in 1985, Unibase employs over 1,630 full-time
equivalent employees (as of June 30, 1996) and captures over 1 million
characters of data each day for approximately 60 customers at 13 service
centers in seven states and in Mexico.
Professional Services
Through its purchase in January 1995 of a majority interest in The Systems
Group, Inc. ("TSG"), a Dallas-based professional services provider, the Company
enhanced its ability to offer its customers high quality consulting, contract
programming and technical support services. In September 1995, TSG further
expanded its geographic presence with the acquisition of Technical Directions,
Inc., a San Diego-based professional services provider. Founded in 1988, TSG
currently has approximately 400 employees in offices located in Dallas and
Houston, Texas; Atlanta, Georgia; Chicago, Illinois and San Diego, California.
TSG provides a variety of clients with professional services allowing such
clients the opportunity to use a planned, flexible workforce, either through
staff augmentation or by serving as a client's in-house development staff. Due
to the nature of the work performed, TSG's professional services are generally
offered on an hourly rate basis to a changing client base under short-term
contractual arrangements. TSG's ability to deliver high-level skill sets and
proven methodologies enhance ACS' ability to offer complementary services to
clients and prospects dealing with technological change.
Through the acquisition in August 1995 of Medianet, Inc., based in Austin,
Texas, the Company began to offer back office administration services for
customers' co-op advertising promotion allowance programs. The services
provided by ACS include consultation, market planning and analysis, audit and
payment, reporting, deduction tracking and database management.
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The Company further expanded its professional services offerings with the
purchase in December 1995 of a majority interest in The LAN Company ("Lanco").
Lanco, based in Philadelphia, is a provider of network design and installation
services and document management systems to law firms and other commercial
customers in the Northeast. The acquisition is part of the Company's strategy
to bolster its presence in the local area/wide area network (LAN/WAN) market.
EFT TRANSACTION PROCESSING SERVICES
The Company engages in the EFT transaction processing business both as a
third-party processor for financial institutions and retailers and on the
Company's own behalf. Of the over 6,200 ATMs in MoneyMaker, approximately 990
are owned by the Company and approximately 5,210 are processed on behalf of
other owners. The Company's EFT business is conducted primarily through
MoneyMaker, which has been operated by the Company since its formation in 1988.
Based on an industry publication in November 1995, MoneyMaker is the second
largest non-bank ATM network in the United States. Approximately 100 million
transactions were processed in the network during the year ended June 30, 1996.
The Company also provides ATM maintenance services to MoneyMaker customers, as
well as to owners of ATMs in other networks. In addition, the Company's EFT
processing business includes electronic benefit transfer ("EBT") services
provided primarily to government agencies.
In a typical ATM transaction processed by the Company, a debit or credit
cardholder inserts a card, which is issued by the cardholder's financial
institution (a "Card Issuer"), into an ATM to withdraw funds, obtain a balance
inquiry or transfer funds. The transaction is routed from the ATM to the
Company's data center. The Company's computer then identifies the Card Issuer
by the financial institution identification number contained within the card's
magnetic strip. If the Company maintains the Card Issuer's account balance
information files, the Company authorizes or denies the requested transaction.
If the Company does not maintain the Card Issuer's account balance information
files, the transaction is switched to the Card Issuer or its designated
processor for authorization. Once authorization is received, the authorization
message is routed back to the ATM and the transaction is completed.
Throughout these steps, the Company charges various fees that may be in
addition to any fees that the Card Issuer or other ATM processor might charge
the customer. When the Company processes the transaction for non-Company owned
ATMs and is also the Card Issuer's processor, it receives an authorization fee
from the Card Issuer for authorizing the transaction and updating the
cardholder's account information and a processing fee from the ATM owner. When
the Company is the ATM owner, it receives an interchange fee and an
authorization fee from the Card Issuer and may elect to charge the cardholder a
convenience fee to be added to the transaction withdrawal amount. The Company
also receives a switch fee from the Card Issuer for processing transactions in
which the Card Issuer and the ATM owner are not processed by the same
processor, requiring the transaction to be switched to another network and
routed to another switch for authorization.
The Company markets its EFT services to financial institutions and
retailers, primarily in the southern United States. At June 30, 1996, the
Company processed approximately 900 MoneyMaker ATMs and 1.2 million card
accounts for approximately 355 financial institution customers located in
Arkansas, Louisiana, Mississippi, New Mexico, North Carolina and Texas. ATMs
owned by financial institutions are most often located on the premises of the
financial institutions or its branches. MoneyMaker ATMs owned by ACS are
generally located in retail locations such as convenience stores and grocery
stores. The Company typically signs three- to seven- year contracts with
retailers for the right to place ATMs in retail store locations. In exchange,
the Company pays the retailer a share of the transaction-based fee revenue. At
June 30, 1996 the Company had approximately 990 ATMs in retail locations
throughout 12 states. ACS is
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typically required to provide cash to operate the ATMs it owns. This cash is
provided by borrowings under a revolving ATM cash facility and vault cash
custody arrangements with financial institutions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," in the Company's Fiscal 1996 Annual Report to Stockholders,
which is incorporated herein by reference as Exhibit 13.1 to this Form 10-K.
In fiscal 1993, the Company began to deploy ATM devices throughout the
United States that are capable of operating with a lower volume of transactions
per machine compared to traditional higher volume full service machines.
Utilizing cost-saving features such as retailer cash loading and dial-up
communications, these devices make ATM services financially viable for retail
locations generating less than half the transaction volume of typical ATM
installations. ACS provides its retailers the opportunity to own these devices,
enabling them to receive the associated fees, while paying the Company for
terminal driving services. As of June 30, 1996, approximately 4,320 low-volume
ATMs have been installed in primarily retail sites in 46 states.
Through arrangements with a number of independent sales organizations, ACS
continues to grow its MoneyMaker network through the sale, placement and
processing of a variety of available ATMs. The Company expects a significant
portion of the future growth in its MoneyMaker network will be attributable to
non-Company owned ATMs.
The number of financial institutions for which the Company provides EFT
processing services has grown 41% since June 1993, and the number of ATMs in
the network has quadrupled since June 1993. The following table illustrates the
growth of MoneyMaker since July 1, 1993:
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Banks using MoneyMaker......................... 356 303 275
Total ATMs (1)................................. 6,210 3,042 2,487
Average Monthly Fee-Generating Transactions (1) 8,179,000 10,040,000 9,544,000
</TABLE>
(1) Bank of America Texas, N.A. ("B of A Texas") accounted for approximately
300 ATMs and over 2.2 million average monthly fee-generating transactions
prior to their deconversion, which began in February 1995. As of June 30,
1995, all of the B of A Texas ATMs had been deconverted. See Note 2 of the
Notes to the Company's Consolidated Financial Statements, which are
included in the Company's 1996 Annual Report to Stockholders, which is
incorporated by reference as Exhibit 13.1 to this Form 10-K.
MoneyMaker processing contracts generally provide for an initial term of
three to five years and automatically renew unless notice of non-renewal is
given prior to expiration. Charges for services are based primarily on the
volume of transactions processed and are collected daily. Certain charges are
paid monthly. The Company generally is permitted to raise prices on an annual
basis subject to limits based on a specified consumer price index.
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The Company provides ATM maintenance services to 389 customers, 92 of
which are also EFT processing customers. As of June 30, 1996, the Company's 113
technicians maintained approximately 4,200 ATM terminals of various types in 27
states, approximately half of which are also processed by ACS through
MoneyMaker. In addition to maintenance services, the Company also provides
armored car services for ATM cash replenishment by subcontracting with major
armored car companies. The Company enters into standard ATM maintenance
contracts with its customers that generally provide for a minimum initial term
of three years. The contracts automatically renew for one year at the end of
the initial or any renewal term unless either party elects to cancel the
agreement 60 days prior to the contract's expiration.
The Company provides EBT transaction processing services to a governmental
agency through its subsidiary, ACS Government Services, Inc. ("Government
Services"). EBT systems deliver welfare and other government benefits
electronically using a debit-like card, rather than by check or other printed
vouchers. EBT services are designed to increase the efficiency of government
distribution of welfare and other benefits to recipients and to reduce system
fraud and abuse. Government Services' proprietary software is currently one of
five such software systems certified by the federal government for use in EBT
programs with federal funding. The Company also has a joint venture with a
minority-owned company for further marketing of EBT services to government
agencies.
DATA AND SERVICE CENTERS
The Company's outsourcing, EFT and image management services are provided
through the Company's extensive national data and service center network, which
is comprised of five host data centers, 9 remote data centers, and 49 Image
Management service centers (in 23 states and Mexico), as well as an extensive
telecommunications network.
The Company's multi-platform host data centers have a combined processing
capacity of over 5,000 MIPS (millions of instructions per second). Hardware and
systems software platforms currently operated by the Company include a broad
range of on-line IBM-MVS, IBM-DOS, IBM-VM, IBM-AS400, IBM-RISC 6000, DEC,
Tandem/Guardian and UNIX processing environments. To compete effectively in the
rapidly changing technology market, it is critical that the Company implement
and maintain these multiple hardware and software platforms. The Company
continually plans for testing and implementation of new technology and
emphasizes flexibility in structuring the services it offers using new
technology.
On August 31, 1994, the Company entered into a ten-year software license
with a large provider of mainframe systems and client-service software. The
terms of the license make all of the provider's mainframe systems software
available to the Company and allows the Company's outsourcing customers to
operate these products under the Company's license instead of under separate
licenses maintained by the customers. The Company also is appointed as a
reseller of the provider's client-server software. The Company will pay an
annual license fee composed of fixed minimum fees plus a percentage of the
annual incremental increases in the Company's outsourcing revenues. Also, in
connection with the Genix acquisition, the software provider has alleged that
the Company may have a liability of up to an additional $30 million representing
the present value of a long-term fixed obligation between Genix and this
software provider that was entered into in March 1995. As the alleged obligation
related to duplicate services for which the Company has already contracted, it
is considered to be an unfavorable commitment. Payments related to this
obligation, which are disputed, would be payable over the remaining eight years
of the contract.
The host data centers, together with the remote data centers, are capable
of providing comprehensive data processing services required by ACS' customers.
The Company maintains a disaster recovery plan with certain vendors to provide
alternative data processing sites in the event the Company experiences a
natural disaster or other interruption at one of its data centers.
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The Company also manages data communications and, in some instances, voice
communications for its customers, as well as various local and wide area
networks. The Company maintains a nationwide voice and data network to support
the complex telecommunications requirements of its customer base. The Company
monitors and maintains network lines and circuits on a seven-day, 24-hour basis
from its host data centers. The Company also provides shared hub satellite
transmission services as an alternative to multi-drop and point-to-point hard
line telecommunication networks.
The Company commits substantial amounts of its resources to the operation
of multiple hardware platforms, the customization of third-party software
programs and the training of customer personnel in the use of such hardware and
software in order to stay current with rapid technological changes and changes
in customer requirements.
CUSTOMER BASE
The Company achieves growth in its data processing revenues and customer
base through marketing and acquisitions of other information processing
companies. Customers may be lost at the expiration of a contract due to
conversion to a competing processor or to an in-house system. Prior to contract
expiration, customers may be lost due to business failure or acquisition of a
customer. Except for one customer, which represented 7% of the Company's
revenues for the year ended June 30, 1996, no other customer of the Company
represented over 3% of such revenues.
As of June 30, 1996, the Company had over 13,400 information technology
customers, including approximately 475 outsourcing customers. In addition, the
Company provides EFT Services to approximately 5,070 customers, consisting of
approximately 355 financial institution ATM customers, approximately 4,325
retail ATM customers and approximately 390 ATM maintenance customers.
Approximately 90%, 95% and 94% of the Company's revenues for fiscal 1996,
1995 and 1994, respectively, were recurring. Recurring revenues are defined by
the Company as revenues derived from services that are used by the Company's
customers each year in connection with their ongoing businesses, and
accordingly exclude conversion and deconversion fees, software license fees,
product installation fees and hardware sales.
The Company's five largest customers accounted for approximately 16%, 27%
and 30% of the Company's fiscal 1996, 1995 and 1994 revenues, respectively. B
of A Texas, historically the largest of the five customers, accounted for
approximately 1%, 11% and 14% of revenues in fiscal 1996, 1995 and 1994,
respectively.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets its services and products primarily through separate
sales forces located throughout the United States. In order to enhance its
sales and marketing efforts, the Company hires sales representatives who have
significant experience in the industries to which they will be marketing.
Maintaining separate sales forces for its various service lines allows the
Company's sales representatives to concentrate on particular services, product
technology and customer markets, thereby staying abreast of developments in
these areas.
As of June 30, 1996, the Company's sales force is made up of 29 sales
representatives for outsourcing services, 59 sales representatives for Image
Management services, 22 sales representatives for professional services and 19
sales representatives for EFT transaction processing services. Sales
representatives in the
9
<PAGE> 12
various groups are informed as to all the Company's services and products and
are encouraged to refer prospect leads to the appropriate professionals.
The Company markets its information processing services by designing
custom-tailored solutions that are attractive to the customer in terms of
features, quality of service and price. In addition, the Company sometimes
acquires data processing assets, and, in limited circumstances, makes
investments in securities issued by or provides financial incentives to the
customer. The aggregate amount of such items since the Company's inception
through June 30, 1996 was approximately $23.4 million. These items have been
recorded by the Company at fair market value, with the remainder recorded as
intangible assets, which are then amortized over the term of each contract. The
net book value of such items acquired at June 30, 1996 was $14.5 million.
The Company provides its information processing customers with extensive
support. For its outsourcing customers, the Company provides (i) a technical
support group to assist customers in evaluating their unique needs and in
recommending and implementing solutions, (ii) a production control group to
handle the adaptation of customer application systems to the Company's data
processing centers and (iii) on-site operations analysts to assist with
problems and specific processing needs. The Company makes available to its
outsourcing customers a seven-day, 24-hour help desk to provide network
management assistance and to assist in defining problems, recommending changes
and assigning problem resolution responsibility to an employee of the Company.
Other customer support services such as data storage management, data security
and off-site disaster recovery coordination are offered to all of the Company's
information processing customers through the Company's technical staff.
The Company commits substantial capital and resources to the
customization, enhancement and maintenance of the software systems which
support its outsourcing and image management services. The Company believes
that its commitment to software development and enhancements has been, and will
be, a competitive factor in the outsourcing and image management businesses.
Certain of the licensors of the software systems used by the Company for its
financial services customers provide regulatory and other maintenance services
for the software, and the Company provides such services in some cases.
COMPETITION
ACS faces substantial competition in its outsourcing, image management,
professional services and EFT transaction processing businesses. The most
significant competitive factors are reliability and quality of services,
technical competence and price of services. In connection with certain large
outsourcing contracts, the Company may be required to purchase data processing
assets from the prospective customer or to make an investment in the securities
issued by the prospective customer in order to obtain their contracts. Many of
the Company's competitors have substantially greater resources and thus, may
have a greater ability to obtain customer contracts where sizable asset
purchases or investments are required. In recent years several large hardware
vendors have begun to compete directly in the outsourcing business. To maintain
competitive prices, the Company is required to operate with efficient and low
overhead, and it must acquire and maintain a significant customer base and
account/transaction base to achieve sufficient economies of scale. The
Company's principal outsourcing competitors include Electronic Data Systems
Corporation ("EDS"), Integrated Systems Solutions Corporation (a subsidiary of
IBM), Computer Sciences Corporation, MCI Systemhouse and other regional
competitors.
The Company competes successfully in the image management business by
offering a complete range of services and achieving favorable pricing by
maintaining a significant volume of business with equipment and media
suppliers. Principal image management competitors include numerous small- to
medium- sized local and regional competitors.
10
<PAGE> 13
Competitive factors in the EFT services business are network availability
and response time, terminal location and access to other networks. With respect
to off-premise ATMs, additional factors include percentage and timing of
revenue sharing with retailers providing ATM sites and the ability to provide
cost-efficient ATM cash replenishment and maintenance services. Customer
retention in the EFT services business is closely associated with satisfactory
location and performance of ATMs. Principal EFT competitors include EDS, Deluxe
Data Corporation, large financial institutions and several regional ATM
networks and processors.
EMPLOYEES
As of June 30, 1996, the Company and its subsidiaries had over 5,580
full-time equivalent employees. Approximately 200 production and maintenance
employees in Dataplex's Flora, Mississippi records center are represented by
the Southern Council of Industrial Workers. A collective bargaining agreement
exists, and the Company does not anticipate a work stoppage or strike. Other
than the approximately 200 Dataplex employees, none of the Company's or its
subsidiaries' employees are currently represented by a union, and there have
been no work stoppages or strikes. Management considers it relations with
employees to be good.
GOVERNMENT REGULATION
The Company is not directly subject to federal or state regulations
specifically applicable to financial institutions. As a provider of services to
financial, however, the Company's outsourcing operations are examined from time
to time by various state and federal regulatory agencies. These agencies make
recommendations to the Company regarding various aspects of outsourcing
operations, and generally, the Company implements such recommendations. The
Company also arranges for annual independent examinations of its major data
processing facilities.
The Company's ATM network operations are subject to federal regulations
governing consumers' rights with respect to ATM transactions. Fees charged by
ATM owners are currently regulated, and similar legislation which would regulate
or eliminate certain ATM fees has been proposed by the federal government and by
several states. There can be no assurance whether such regulations or
legislation will be enacted in the future or that existing consumer protection
laws will not be expanded to apply to fees charged in connection with ATM
transactions.
ITEM 2. PROPERTIES
The Company's executive offices and Dallas host data center are located in
a facility of approximately 218,000 square feet in Dallas, Texas. The
facility, which the Company previously leased, was purchased by the Company in
December 1995. In August 1995, the Company purchased a building with
approximately 350,000 square feet on a tract of land adjacent to its
headquarters for use in the expansion of the Company's operations. The Company
also has host data centers in Santa Clara, California; Dearborn, Michigan;
Pittsburgh, Pennsylvania and Charlotte, North Carolina which encompass an
aggregate of 261,000 square feet of space. The Dearborn facility is owned by
the Company, while the other three data centers are leased and have terms which
expire beginning November 1997 and ending April 2011. The Company leases nine
remote data centers with varying expiration terms, ranging from approximately
4,430 square feet to 68,253 square feet and are located in Boston,
Massachusetts; Southgate, Michigan; New York, Pearl River, Woodbury and Utica,
New York and Austin (2) and Houston, Texas. The Company leases 49 Image
Management service centers located throughout the U.S. ranging from 300 square
feet to 56,800 square feet, also with varying expiration terms. In connection
with its Image Management business, the Company owns a records center on 334
acres of land with 38 underground bunkers and leases another 199 acres of land
with 23 underground bunkers in Flora, Mississippi expiring December 2010. The
Company also leases
11
<PAGE> 14
26 other facilities used for office or warehouse space ranging from 450 square
feet to 40,530 square feet with varying expiration terms. All properties leased
or owned by the Company are in good repair and in suitable condition for the
purposes for which they are used.
The Company leases 4 Amdahl mainframes, 15 IBM mainframes, 5 Tandem
mainframes, 7 IBM mid-range computers, 15 Digital Equipment mid-range computers
and 7 Hewlett Packard mid-range computers under operating leases. The initial
terms of the leases range from 36 to 60 months. Approximately 90% of the other
data processing equipment located in the Company's data centers is leased,
generally for terms ranging from 36 to 60 months. ACS believes its computer
equipment, as periodically expanded and upgraded, is adequate for its present
and foreseeable business needs.
ITEM 3. LEGAL PROCEEDINGS
On October 31, 1995, the Fifth District Court of Appeals in Dallas, Texas
(the "Court of Appeals") affirmed the judgment of the trial court in an action
between the Company and Thomas McLaughlin and John Lazovich. The trial court
had rendered a verdict in favor of Messrs. McLaughlin and Lazovich on causes of
action for tortious interference with an acquisition agreement entered into by
Messrs. McLaughlin and Lazovich and First Texas Savings Association in 1986
related to the acquisition of an EBT business. The total amount of the judgment
against the Company, Government Services, Darwin Deason, Chairman and Chief
Executive Officer of the Company, and J. Livingston Kosberg, a former director
of the Company, including interest, is approximately $9.0 million, which
includes $3.0 million in actual damages and $1.5 million in exemplary damages.
The Company has indemnified Mr. Deason and Mr. Kosberg from any liability
arising from the suit. The Company plans to vigorously pursue its appeal of the
judgment, which is pending before the Texas Supreme Court, which granted the
Company's application for Writ of Error in July 1996. The case is set for oral
arguments in October 1996.
On October 10, 1995, the Company filed a counterclaim against National
Convenience Stores, Incorporated ("NCS") alleging that NCS had breached a
contract with the Company and seeking unspecified damages. This counterclaim
was filed in response to an action filed by NCS against the Company in the
101st Judicial District Court in Dallas, Texas seeking a declaratory judgment
that NCS is not contractually obligated to allow the Company to review and
match any third party proposal to process automated teller machines in NCS
stores upon expiration of the contract with the Company, pursuant to its terms,
on December 1, 1995. The Company intends to vigorously oppose this action and
to pursue the claims asserted in the counterclaim.
The Company is subject to certain other legal proceedings, claims and
disputes which arise in the ordinary course of its business. Although the
Company cannot predict the outcomes of these legal proceedings, the Company's
management does not believe these actions will have a material adverse effect
on the Company's financial position, results of operations or liquidity.
However, if unfavorably resolved, these proceedings could have a material
adverse effect on the Company's financial position, results of operations and
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal fourth quarter covered by this report, no matter was
submitted to a vote of security holders of the Company.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A common stock is quoted on the NASDAQ National Market
System under the symbol "ACSA." The following table sets forth the high and
low sales prices of the Company's Class A common stock for the last two fiscal
years.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1996 High Low
- -------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 32 1/4 27 3/4
Second Quarter 38 1/2 28 3/4
Third Quarter 43 33 3/4
Fourth Quarter 53 3/4 41 1/2
Fiscal Year Ended June 30, 1995 High Low
- --------------------------------------------------------------------------------
First Quarter (beginning September 26, 1994) 20 17
Second Quarter 23 1/2 19 1/4
Third Quarter 30 1/2 19 3/4
Fourth Quarter 31 1/2 24 3/4
</TABLE>
On September 20, 1996, the last reported sales price of the Company's
Class A common stock as reported on the NASDAQ National Market System was
$60 1/4 per share.
To date, the Company has not paid any dividends on its common stock. The
Company intends to continue to retain earnings for use in the operation of its
business and, therefore, does not anticipate paying any dividends in the
foreseeable future. Under the terms of the Company's revolving credit
agreement, the Company is permitted to pay dividends in any fiscal year to the
extent that total dividends in such fiscal year do not exceed 50% of the
Company's net income for the preceding fiscal year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" in the Company's Fiscal 1996 Annual Report to
Stockholders, which is incorporated herein by reference as Exhibit 13.1. Any
future determination to pay dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects and such other factors as the Board of
Directors deems relevant.
13
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Fiscal 1996 Annual Report to Stockholders, which is
incorporated herein by reference as Exhibit 13.1.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
AS OF AND FOR THE YEAR ENDED JUNE 30, 1996 1995 1994 1993 1992
- ------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues from continuing operations $396,509 $313,181 $271,055 $189,064 $149,944
Income from continuing operations $ 23,756 $ 17,604 $ 11,925 $ 9,318 $ 4,933
Income per share from continuing
operations $ 1.65 $ 1.37 $ 1.05 $ .82 $ .45
Weighted average shares outstanding 14,440 12,808 11,413 11,384 10,827
BALANCE SHEET DATA:
Working capital $ 49,961 $ 51,602 $ 50,653 $ 28,958 $ 37,325
Total assets $533,605 $225,731 $190,055 $187,301 $106,065
Total long-term debt (less current
portion) $ 57,208 $ 37,940 $ 80,001 $ 61,731 $ 26,856
Cumulative redeemable preferred stock $ 1,100 $ 1,100 $ 1,100 $ 7,081 $ 6,424
Stockholders' equity $302,954 $106,624 $ 48,166 $ 55,437 $ 45,640
</TABLE>
Pursuant to Instruction G(2) to Form 10-K, the information required
in ITEMS 7 AND 8 is incorporated by reference from pages 16 through 32 of
the Company's Fiscal 1996 Annual Report to Stockholders, included in this
Form 10-K--Annual Report as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
ITEMS 10 THROUGH 13 is incorporated by reference from the Company's definitive
proxy statement, which is incorporated herein by reference as Exhibit 28.1.
14
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The consolidated financial statements of the Company as of June 30, 1996
and 1995 and for each of the three years in the period ended June 30, 1996,
together with the report of Price Waterhouse LLP dated July 30, 1996, appear on
pages 16 through 32 of the Company's Fiscal 1996 Annual Report to Stockholders,
Exhibit 13.1 to this Form 10-K -- Annual Report, and are incorporated herein by
reference.
(a) (2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the three years in the
period ended June 30, 1996, together with the report of Price Waterhouse LLP
dated July 30, 1996 appear on pages F-1 and F-2 and are filed as part of this
Form 10-K -- Annual Report.
All other financial statement schedules are omitted for the reason that
they are either not applicable or not required or because the information
required is contained in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits:
2.1 Form of Agreement of Merger between the Company and Services,
filed as Exhibit 2.1 to the Company's Registration Statement on
Form S-1 (Registration No. 33-79394) (the "Form S-1") and
incorporated herein by reference.
2.2 Form of Certificate of Ownership and Merger merging Dataplex
Acquisition Corp. with and into the Company, filed as Exhibit 2.2
to the Company's Form S-1 and incorporated herein by reference.
2.3 Agreement and Plan of Merger, dated as of April 19, 1993, by and
among Dataplex, Mino Acquisition Corporation, Ralph A. Hassall,
Ralph A. Hassall, as Co.-Trustee of The Mino-Micrographics, Inc.
Employees' Stock Ownership Plan & Trust and Mino-Micrographics,
Inc., filed as Exhibit 2.3 to the Company's Form S-1 and
incorporated herein by reference.
2.4 Stock Purchase Agreement, dated June 30, 1993, by and among
Healthtech Acquisition Corporation and the Shareholders of
National Healthtech Corporation, filed as Exhibit 2.4 to the
Company's Form S-1 and incorporated herein by reference.
2.5 Stock Purchase Agreement, dated May 31, 1996, by and between MCN
Investment corporation and the Company, filed as Exhibit 2.5 to
the Company's Form S-3 (Registration No. 333-05639) (the "Form
S-3") and incorporated herein by reference.
15
<PAGE> 18
3.1 Form of Second Amended and Restated Certificate of Incorporation
of the Company, filed as Exhibit 3.1 to the Company's Form S-1
and incorporated herein by reference.
3.2 Form of Certificate of Designations of the Company
Establishing Series A Cumulative Redeemable Preferred Stock,
filed as Exhibit 3.2 to the Company's Form S-1 and incorporated
herein by reference.
3.3 Restated Bylaws of the Company, filed as Exhibit 3.3 to
the Company's Form S-1 and incorporated herein by reference.
4.1 Letter agreement, dated December 12, 1988, between the
Company and The Southland Corporation, filed as Exhibit 4.1 to
the Company's Form S-1 and incorporated herein by reference.
4.2 Warrant to Purchase Shares of Class B Common Stock of
the Company, dated January 3, 1989, issued to The Southland
Corporation, filed as Exhibit 4.2 to the Company's Form S-1 and
incorporated herein by reference.
4.3 Form of New Class A Common Stock Certificate, filed as
Exhibit 4.3 to the Company's Form S-1 and incorporated herein by
reference.
4.4 Settlement Agreement, dated June 17, 1991, by and among FGB,
Affiliated Computer Systems, Inc. and Federal Deposit Insurance
Corporation, in its corporate capacity, Federal Deposit Insurance
Corporation, as receiver for Gibraltar Savings Association, and
Federal Deposit Insurance Corporation, as receiver for First
Texas Savings Association, filed as Exhibit 4.4 to the Company's
Form S-1 and incorporated herein by reference.
4.5 Letter of Election and Transmittal of Sole Holder of Class C
Common Stock of ACS Investors, Inc., filed as Exhibit 4.5 to the
Company's Form S-1 and incorporated herein by reference.
10.1 Amended Stock Option Plan of the Company, filed as Exhibit 10.1
to the Company's Form S-1 and incorporated herein by reference.
10.2 Form of Dataplex Acquisition Corp. 10% Junior Subordinated
Exchange Debenture due January 15, 2000, filed as Exhibit 10.3 to
the Company's Form S-1 and incorporated herein by reference.
10.3 Asset Purchase and Sale Agreement, dated September 14, 1992, by
and between Baxter Healthcare Corporation and the Company, filed
as Exhibit 10.5 to the Company's Form S-1 and incorporated herein
by reference.
10.4 Supplemental Loan Agreement, dated as of March 16, 1990, between
IBM Credit Corporation and Government Services (formerly known as
Transfirst Corporation), in the original principal amount of
$3,500,000, filed as Exhibit 10.6 the Company's Form S-1 and
incorporated herein by reference.
16
<PAGE> 19
10.5 Credit Agreement, dated as of August 11, 1993, between the
Company and NationsBank of Texas, N.A., as amended May 16, 1994,
filed as Exhibit 10.7 to the Company's Form S-1 and incorporated
herein by reference.
10.6 Credit Agreement, dated May 12, 1994, between the Company and
NationsBank of Texas, N.A., filed as Exhibit 10.8 to the
Company's Form S-1 and incorporated herein by reference.
10.7 Note Purchase Agreement, dated as of January 16, 1990, by and
among Dataplex (formerly known as SUBDAC, Inc.), Dataplex
Acquisition Corp. and Saudi International Bank Al-Bank Al-Alami
Al-Saudi Limited, filed as Exhibit 10.9 to the Company's Form S-1
and incorporated herein by reference.
10.8 Agreement for Data Processing Services, dated August 30, 1991, by
and among B of A Texas (formerly known as First Gibraltar Bank,
FSB) and the Company, as modified and amended as of February 1,
1993, filed as Exhibit 10.11 to the Company's Form S-1 and
incorporated herein by reference.
10.9 Off-Premise ATM Agreement, dated August 30, 1991, by and among B
of A Texas (formerly known as First Gibraltar Bank, FSB) and the
Company, filed as Exhibit 10.12 to the Company's Form S-1 and
incorporated herein by reference.
10.10 Lease Agreement, dated December 12, 1988, between the
Company, as tenant, and The Southland Corporation, as landlord,
filed as Exhibit 10.13 to the Company's Form S-1 and incorporated
herein by reference.
10.11 Master Equipment Lease Agreement, dated October 23, 1991, by and
between Amdahl Capital Corporation, as lessor, and the Company,
as lessee, filed as Exhibit 10.14 to the Company's Form S-1 and
incorporated herein by reference.
10.12 Reciprocal Services Agreement, dated June 30, 1994, between the
Company and Precept, filed as Exhibit 10.15 to the Company's Form
S-1 and incorporated herein by reference.
10.13 Tax Sharing Agreement, dated July 1, 1994, between the Company
and Precept, filed as Exhibit 10.16 to the Company's Form S-1 and
incorporated herein by reference.
10.14 Noncompetition Agreement, dated July 1, 1994, between the Company
and Precept, filed as Exhibit 10.17 to the Company's Form S-1 and
incorporated herein by reference.
10.15 Mutual Indemnification Agreement, dated June 30, 1994,
between the Company and Precept, filed as Exhibit 10.18 to the
Company's Form S-1 and incorporated herein by reference.
10.16 Stockholders Tax Indemnification Agreement, dated June
30, 1994, between the Company and the Stockholders named therein,
filed as Exhibit 10.19 to the Company's Form S-1 and incorporated
herein by reference.
10.17 Form of Directors Indemnification Agreement, filed as Exhibit
10.20 to the Company's Form S-1 and incorporated herein by
reference.
17
<PAGE> 20
10.18 Credit Agreement dated December 15, 1995 between Affiliated
Computer Services, Inc., a Delaware corporation, certain Lenders,
Bank One, Texas, N.A., as Documentation Agent and Co-Agent and
First Interstate Bank of Texas N.A., as Administrative Agent and
Co-Agent, filed as Exhibit 10.1 to the Company's Third Quarter
Report on Form 10-Q for the quarter ended March 31, 1996, and
incorporated herein by reference.
*10.19 RESTATED CREDIT AGREEMENT dated June 20, 1996 between Affiliated
Computer Services, Inc., Borrower, Wells Fargo Bank (Texas),
N.A., Agent, Bank One, Texas, N.A., Co-Agent, and Certain Lenders
for $160,000,000 Revolving Facility.
*11.1 Statement regarding computation of per share earnings for each of
the three years in the period ended June 30, 1996.
*13.1 Excerpt of the Fiscal 1996 Annual Report to Stockholders, pages
16 through 32.
*21.1 Subsidiaries of the Company
*23.1 Consent of Price Waterhouse LLP
*27.1 Financial Data Schedule
28.1 The Company's definitive proxy statement for the 1996 Annual
Meeting of Stockholders to be held on October 28, 1996, filed
pursuant to Regulation 14A under the Securities and Exchange Act
of 1934 (Registration Number 000-24782) and incorporated herein
by reference.
* Filed herewith
18
<PAGE> 21
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
in its behalf by the undersigned thereunto duly authorized.
Affiliated Computer Services, Inc.
Date: September 30, 1996
By: /s/ Mark A. King
------------------------
Mark A. King
Executive Vice President
Chief Financial 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 on the 30th day of September 1996.
Signature Title
--------- -----
Director, Chairman of the Board and Chief Executive
/s/ Darwin Deason Officer (Principal Executive Officer)
- -------------------------
(Darwin Deason)
/s/ Jeffrey A. Rich Director, Chief Operating Officer and President
- -------------------------
(Jeffrey A. Rich)
Director, Chief Financial Officer and Executive Vice
/s/ Mark A. King President
- -------------------------
(Mark A. King)
/s/ Henry G. Hortenstine Director, Executive Vice President
- -------------------------
(Henry G. Hortenstine)
Director, Executive Vice President, Secretary and
/s/ David W. Black General Counsel
- -------------------------
(David W. Black)
/s/ Gerald J. Ford Director
- -------------------------
(Gerald J. Ford)
/s/ Joseph P. O'Neill Director
- -------------------------
(Joseph P. O'Neill)
/s/ Frank A. Rossi Director
- -------------------------
(Frank A. Rossi)
19
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Affiliated Computer Services, Inc.
Our audits of the consolidated financial statements referred to in our
report dated July 30, 1996 appearing on page 32 of the Affiliated Computer
Services, Inc. 1996 Annual Report to Stockholders (which report and the
consolidated financial statements included therein are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
July 30, 1996
F-1
<PAGE> 23
AFFILIATED COMPUTER SERVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance
at Beginning Charged to Costs Charged to Balance at End
Description of Period and Expenses Other Accounts Deductions of Period
- ----------- ------------ ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996
Deducted from asset accounts:
Accounts receivable $ 1,792 $ 464 $ 800(1) $ 1,456
Property and equipment 25,228 9,470 3,367(2) 31,331
Computer software 14,734 1,291 334(2) 15,691
Goodwill 5,783 2,826 - 8,609
Other intangible assets 3,039 1,439 - 4,478
------------ ---------------- ------- --------------
Total $ 50,576 $ 15,490 $ 4,501 $ 61,565
============ ================ ======= ==============
Year ended June 30, 1995
Deducted from asset accounts:
Accounts receivable $ 1,551 $ 442 $ 201(1) $ 1,792
Property and equipment 19,769 6,019 560(2) 25,228
Computer software 16,001 2,987 4,254(2) 14,734
Goodwill 3,942 1,841 - 5,783
Other intangible assets 1,995 1,044 - 3,039
------------ ---------------- ------- --------------
Total $ 43,258 $ 12,333 $ 5,015 $ 50,576
============ ================ ======= ==============
Year ended June 30, 1994
Deducted from asset accounts:
Accounts receivable $ 479 $ 1,909 $ 837(1) $ 1,551
Property and equipment 16,001 4,417 649(2) 19,769
Computer software 15,084 917 - 16,001
Goodwill 2,318 1,624 - 3,942
Other intangible assets 1,955 1,515 1,475(2) 1,995
------------ ---------------- ------- --------------
Total $ 35,837 $ 10,382 $ 2,961 $ 43,258
============ ================ ======= ==============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
(2) Retirements
F-2
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT PAGE
NUMBER EXHIBIT NAME NUMBER
- ------- ------------ ------
2.1 Form of Agreement of Merger between the Company and Services,
filed as Exhibit 2.1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-79394) (the "Form S-1") and
incorporated herein by reference.
2.2 Form of Certificate of Ownership and Merger merging Dataplex
Acquisition Corp. with and into the Company, filed as Exhibit
2.2 to the Company's Form S-1 and incorporated herein by
reference.
2.3 Agreement and Plan of Merger, dated as of April 19, 1993, by
and among Dataplex, Mino Acquisition Corporation, Ralph A.
Hassall, Ralph A. Hassall, as Co.-Trustee of The
Mino-Micrographics, Inc. Employees' Stock Ownership Plan &
Trust and Mino-Micrographics, Inc., filed as Exhibit 2.3 to
the Company's Form S-1 and incorporated herein by reference.
2.4 Stock Purchase Agreement, dated June 30, 1993, by and among
Healthtech Acquisition Corporation and the Shareholders of
National Healthtech Corporation, filed as Exhibit 2.4 to the
Company's Form S-1 and incorporated herein by reference.
2.5 Stock Purchase Agreement, dated May 31, 1996, by and between
MCN Investment corporation and the Company, filed as Exhibit
2.5 to the Company's Form S-3 (Registration No. 333-05639)
(the "Form S-3") and incorporated herein by reference.
3.1 Form of Second Amended and Restated Certificate of
Incorporation of the Company, filed as Exhibit 3.1 to the
Company's Form S-1 and incorporated herein by reference.
3.2 Form of Certificate of Designations of the Company
Establishing Series A Cumulative Redeemable Preferred Stock,
filed as Exhibit 3.2 to the Company's Form S-1 and
incorporated herein by reference.
3.3 Restated Bylaws of the Company, filed as Exhibit 3.3 to the
Company's Form S-1 and incorporated herein by reference.
4.1 Letter agreement, dated December 12, 1988, between the Company
and The Southland Corporation, filed as Exhibit 4.1 to the
Company's Form S-1 and incorporated herein by reference.
4.2 Warrant to Purchase Shares of Class B Common Stock of the
Company, dated January 3, 1989, issued to The Southland
Corporation, filed as Exhibit 4.2 to the Company's Form S-1
and incorporated herein by reference.
4.3 Form of New Class A Common Stock Certificate, filed as Exhibit
4.3 to the Company's Form S-1 and incorporated herein by
reference.
<PAGE> 25
4.4 Settlement Agreement, dated June 17, 1991, by and among FGB,
Affiliated Computer Systems, Inc. and Federal Deposit
Insurance Corporation, in its corporate capacity, Federal
Deposit Insurance Corporation, as receiver for Gibraltar
Savings Association, and Federal Deposit Insurance
Corporation, as receiver for First Texas Savings Association,
filed as Exhibit 4.4 to the Company's Form S-1 and
incorporated herein by reference.
4.5 Letter of Election and Transmittal of Sole Holder of Class C
Common Stock of ACS Investors, Inc., filed as Exhibit 4.5 to
the Company's Form S-1 and incorporated herein by reference.
10.1 Amended Stock Option Plan of the Company, filed as Exhibit
10.1 to the Company's Form S-1 and incorporated herein by
reference.
10.2 Form of Dataplex Acquisition Corp. 10% Junior Subordinated
Exchange Debenture due January 15, 2000, filed as Exhibit 10.2
to the Company's Form S-1 and incorporated herein by
reference.
10.3 Asset Purchase and Sale Agreement, dated September 14, 1992,
by and between Baxter Healthcare Corporation and the Company,
filed as Exhibit 10.5 to the Company's Form S-1 and
incorporated herein by reference.
10.4 Supplemental Loan Agreement, dated as of March 16, 1990,
between IBM Credit Corporation and Government Services
(formerly known as Transfirst Corporation), in the original
principal amount of $3,500,000, filed as Exhibit 10.6 the
Company's Form S-1 and incorporated herein by reference.
10.5 Credit Agreement, dated as of August 11, 1993, between the
Company and NationsBank of Texas, N.A., as amended May 16,
1994, filed as Exhibit 10.7 to the Company's Form S-1 and
incorporated herein by reference.
10.6 Credit Agreement, dated May 12, 1994, between the Company and
NationsBank of Texas, N.A., filed as Exhibit 10.8 to the
Company's Form S-1 and incorporated herein by reference.
10.7 Note Purchase Agreement, dated as of January 16, 1990, by and
among Dataplex (formerly known as SUBDAC, Inc.), Dataplex
Acquisition Corp. and Saudi International Bank Al-Bank
Al-Alami Al-Saudi Limited, filed as Exhibit 10.9 to the
Company's Form S-1 and incorporated herein by reference.
10.8 Agreement for Data Processing Services, dated August 30, 1991,
by and among B of A Texas (formerly known as First Gibraltar
Bank, FSB) and the Company, as modified and amended as of
February 1, 1993, filed as Exhibit 10.11 to the Company's Form
S-1 and incorporated herein by reference.
10.9 Off-Premise ATM Agreement, dated August 30, 1991, by and among
B of A Texas (formerly known as First Gibraltar Bank, FSB)
and the Company, filed as Exhibit 10.12 to the Company's Form
S-1 and incorporated herein by reference.
<PAGE> 26
10.10 Lease Agreement, dated December 12, 1988, between the Company,
as tenant, and The Southland Corporation, as landlord, filed
as Exhibit 10.13 to the Company's Form S-1 and incorporated
herein by reference.
10.11 Master Equipment Lease Agreement, dated October 23, 1991, by
and between Amdahl Capital Corporation, as lessor, and the
Company, as lessee, filed as Exhibit 10.14 to the Company's
Form S-1 and incorporated herein by reference.
10.12 Reciprocal Services Agreement, dated June 30, 1994, between
the Company and Precept, filed as Exhibit 10.15 to the
Company's Form S-1 and incorporated herein by reference.
10.13 Tax Sharing Agreement, dated July 1, 1994, between the Company
and Precept, filed as Exhibit 10.16 to the Company's Form S-1
and incorporated herein by reference.
10.14 Noncompetition Agreement, dated July 1, 1994, between the
Company and Precept, filed as Exhibit 10.17 to the Company's
Form S-1 and incorporated herein by reference.
10.15 Mutual Indemnification Agreement, dated June 30, 1994, between
the Company and Precept, filed as Exhibit 10.18 to the
Company's Form S-1 and incorporated herein by reference.
10.16 Stockholders Tax Indemnification Agreement, dated June 30,
1994, between the Company and the Stockholders named therein,
filed as Exhibit 10.19 to the Company's Form S-1 and
incorporated herein by reference.
10.17 Form of Directors Indemnification Agreement, filed as Exhibit
10.20 to the Company's Form S-1 and incorporated herein by
reference.
10.18 Credit Agreement dated December 15, 1995 between Affiliated
Computer Services, Inc., a Delaware corporation, certain
Lenders, Bank One, Texas, N.A., as Documentation Agent and
Co-Agent and First Interstate Bank of Texas N.A., as
Administrative Agent and Co-Agent filed as Exhibit 10.1 to the
Company's Third Quarter Report on Form 10-Q for the quarter
ended March 31, 1996 and incorporated herein by reference.
10.19 RESTATED CREDIT AGREEMENT dated June 20, 1996 between
Affiliated Computer Services, Inc., Borrower, Wells Fargo Bank
(Texas), N.A., Agent, Bank One, Texas, N.A., Co-Agent, and
Certain Lenders for $160,000,000 Revolving Facility
11.1 Statement regarding computation of per share earnings for each
of the three years in the period ended June 30, 1996.
13.1 Excerpt of the Fiscal 1996 Annual Report to Stockholders, pages 16
through 32.
21.1 Subsidiaries of the Company
<PAGE> 27
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
28.1 The Company's definitive proxy statement for the 1996 Annual
Meeting of stockholders to be held on October 28, 1996
pursuant to Regulation 14A under the Securities and Exchange
Act of 1934 (Registration Number 000-24782) and incorporated
herein by reference.
<PAGE> 1
EXHIBIT 10.19
RESTATED CREDIT AGREEMENT
between
AFFILIATED COMPUTER SERVICES, INC.,
Borrower
WELLS FARGO BANK (TEXAS), N.A.,
Agent
BANK ONE, TEXAS, N.A.,
Co-Agent
and
CERTAIN LENDERS
$160,000,000 REVOLVING FACILITY
JUNE 20, 1996
<PAGE> 2
TABLE OF CONTENTS
SECTION 1 DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time References . . . . . . . . . . . . . . . . . . . . 13
1.3 Other References . . . . . . . . . . . . . . . . . . . . 13
1.4 Accounting Principles . . . . . . . . . . . . . . . . . 13
SECTION 2 COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Borrowing Procedure . . . . . . . . . . . . . . . . . . 14
2.3 Letters of Credit . . . . . . . . . . . . . . . . . . . 14
2.5 Borrowing Notices and LC Requests . . . . . . . . . . . 18
2.6 Termination . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3 TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . 18
3.1 Notes and Payments . . . . . . . . . . . . . . . . . . . 18
3.2 Interest and Principal Payments . . . . . . . . . . . . 19
3.3 Interest Options . . . . . . . . . . . . . . . . . . . . 20
3.4 Quotation of Rates . . . . . . . . . . . . . . . . . . . 20
3.5 Default Rate . . . . . . . . . . . . . . . . . . . . . . 20
3.6 Interest Recapture . . . . . . . . . . . . . . . . . . . 21
3.7 Interest Calculations . . . . . . . . . . . . . . . . . 21
3.8 Maximum Rate . . . . . . . . . . . . . . . . . . . . . . 21
3.9 Interest Periods . . . . . . . . . . . . . . . . . . . . 21
3.10 Conversions . . . . . . . . . . . . . . . . . . . . . . 22
3.11 Order of Application . . . . . . . . . . . . . . . . . . 22
3.12 Sharing of Payments, Etc.. . . . . . . . . . . . . . . . 22
3.13 Offset . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.14 Booking Borrowings . . . . . . . . . . . . . . . . . . . 23
3.15 Basis Unavailable or Inadequate for LIBOR . . . . . . . 23
3.16 Additional Costs . . . . . . . . . . . . . . . . . . . . 23
3.17 Change in Laws . . . . . . . . . . . . . . . . . . . . . 25
3.18 Funding Loss . . . . . . . . . . . . . . . . . . . . . . 25
3.19 Foreign Lenders, Participants, and Assignees . . . . . . 25
SECTION 4 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.1 Treatment of Fees . . . . . . . . . . . . . . . . . . . 26
4.2 Agent's Fees . . . . . . . . . . . . . . . . . . . . . . 26
4.3 LC Fees . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 Collateral . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Additional Security and Guaranties . . . . . . . . . . . 27
5.4 Further Assurances . . . . . . . . . . . . . . . . . . . 27
5.5 Release of Collateral . . . . . . . . . . . . . . . . . 27
SECTION 6 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 28
SECTION 7 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 28
7.1 Purpose and Regulations G and U . . . . . . . . . . . . 28
7.2 Corporate Existence, Good Standing, and Authority . . . 29
7.3 Subsidiaries and Names . . . . . . . . . . . . . . . . . 29
7.4 Authorization and Contravention . . . . . . . . . . . . 29
7.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . 29
7.6 Financials and Existing Debt . . . . . . . . . . . . . . 29
7.7 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 30
7.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . 30
Restated Credit Agreement
<PAGE> 3
7.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Environmental Matters . . . . . . . . . . . . . . . . . 30
7.11 Employee Plans . . . . . . . . . . . . . . . . . . . . . 30
7.12 Properties; Liens . . . . . . . . . . . . . . . . . . . 31
7.13 Government Regulations . . . . . . . . . . . . . . . . . 31
7.14 Transactions with Affiliates . . . . . . . . . . . . . . 31
7.15 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.17 Labor Matters . . . . . . . . . . . . . . . . . . . . . 31
7.18 Intellectual Property . . . . . . . . . . . . . . . . . 31
7.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . 32
7.20 Full Disclosure . . . . . . . . . . . . . . . . . . . . 32
SECTION 8 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . 32
8.1 Certain Items Furnished . . . . . . . . . . . . . . . . 32
8.2 Use of Credit . . . . . . . . . . . . . . . . . . . . . 33
8.3 Books and Records . . . . . . . . . . . . . . . . . . . 33
8.4 Inspections . . . . . . . . . . . . . . . . . . . . . . 33
8.5 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.6 Payment of Obligation . . . . . . . . . . . . . . . . . 33
8.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Maintenance of Existence, Assets, and Business . . . . . 34
8.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Environmental Matters . . . . . . . . . . . . . . . . . 34
8.11 Indemnification . . . . . . . . . . . . . . . . . . . . 34
8.12 Chief Executive Office; Material Agreements . . . . . . 35
8.13 Environmental Laws . . . . . . . . . . . . . . . . . . . 35
8.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 36
9.1 Payroll Taxes . . . . . . . . . . . . . . . . . . . . . 36
9.2 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Loans, Advances, Acquisitions and Investments . . . . . 36
9.4 Capital Expenditures . . . . . . . . . . . . . . . . . . 37
9.5 Liens . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Employee Plans . . . . . . . . . . . . . . . . . . . . . 37
9.7 Transactions with Affiliates . . . . . . . . . . . . . . 37
9.8 Compliance with Laws and Documents . . . . . . . . . . . 37
9.9 Issuance of Securities . . . . . . . . . . . . . . . . . 38
9.10 Distributions . . . . . . . . . . . . . . . . . . . . . 38
9.11 Disposition of Assets . . . . . . . . . . . . . . . . . 38
9.12 Mergers, Consolidations, and Dissolutions . . . . . . . 38
9.13 Assignment . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 Fiscal Year and Accounting Methods . . . . . . . . . . . 38
9.15 New Businesses . . . . . . . . . . . . . . . . . . . . . 38
9.16 Government Regulations . . . . . . . . . . . . . . . . . 39
9.17 Strict Compliance . . . . . . . . . . . . . . . . . . . 39
9.18 Deposit of Borrowings . . . . . . . . . . . . . . . . . 39
9.19 Acquisition Consideration . . . . . . . . . . . . . . . 39
SECTION 10 FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . 39
10.1 Net Worth . . . . . . . . . . . . . . . . . . . . . . . 39
10.2 Current Ratio . . . . . . . . . . . . . . . . . . . . . 39
10.3 Funded Debt/EBITDA Ratio . . . . . . . . . . . . . . . . 39
10.4 Fixed-Charge Coverage . . . . . . . . . . . . . . . . . 39
10.5 Interest Coverage Ratio . . . . . . . . . . . . . . . . 39
(ii) Restated Credit Agreement
<PAGE> 4
SECTION 11 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Payment of Obligation . . . . . . . . . . . . . . . . . 39
11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 Debtor Relief . . . . . . . . . . . . . . . . . . . . . 40
11.4 Attachment . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Payment of Judgments . . . . . . . . . . . . . . . . . . 40
11.6 Government Action . . . . . . . . . . . . . . . . . . . 40
11.7 Misrepresentation . . . . . . . . . . . . . . . . . . . 40
11.8 Ownership of Companies . . . . . . . . . . . . . . . . . 40
11.9 Change of Control of Borrower . . . . . . . . . . . . . 41
11.10 Other Funded Debt . . . . . . . . . . . . . . . . . . . 41
11.11 SEC Reporting Requirements . . . . . . . . . . . . . . . 41
11.12 Validity and Enforceability . . . . . . . . . . . . . . 41
11.13 LCs . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.14 Material Agreements . . . . . . . . . . . . . . . . . . 42
11.15 Impairment of Collateral or Ability to Pay . . . . . . . 42
SECTION 12 RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . 42
12.1 Remedies Upon Default . . . . . . . . . . . . . . . . . 42
12.2 Company Waivers. . . . . . . . . . . . . . . . . . . . 43
12.3 Performance by Agent . . . . . . . . . . . . . . . . . . 43
12.4 Not in Control . . . . . . . . . . . . . . . . . . . . . 43
12.5 Course of Dealing . . . . . . . . . . . . . . . . . . . 43
12.6 Cumulative Rights . . . . . . . . . . . . . . . . . . . 43
12.7 Application of Proceeds . . . . . . . . . . . . . . . . 43
12.8 Certain Proceedings . . . . . . . . . . . . . . . . . . 43
12.9 Expenditures by Lenders . . . . . . . . . . . . . . . . 44
12.10 Diminution in Value of Collateral . . . . . . . . . . . 44
SECTION 13 AGENT AND LENDERS . . . . . . . . . . . . . . . . . . . 44
13.1 Agent . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 45
13.3 Proportionate Absorption of Losses . . . . . . . . . . . 45
13.4 Delegation of Duties; Reliance . . . . . . . . . . . . . 46
13.5 Limitation of Agent's Liability . . . . . . . . . . . . 46
13.6 Default . . . . . . . . . . . . . . . . . . . . . . . . 47
13.7 Collateral Matters . . . . . . . . . . . . . . . . . . . 47
13.8 Limitation of Liability . . . . . . . . . . . . . . . . 48
13.9 Relationship of Lenders . . . . . . . . . . . . . . . . 48
13.10 Benefits of Agreement . . . . . . . . . . . . . . . . . 48
SECTION 14 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 48
14.1 Nonbusiness Days . . . . . . . . . . . . . . . . . . . . 48
14.2 Communications . . . . . . . . . . . . . . . . . . . . . 48
14.3 Form and Number of Documents . . . . . . . . . . . . . . 48
14.4 Exceptions to Covenants . . . . . . . . . . . . . . . . 49
14.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . 49
14.6 Governing Law . . . . . . . . . . . . . . . . . . . . . 49
14.7 Invalid Provisions . . . . . . . . . . . . . . . . . . . 49
14.8 Amendments, Consents, Conflicts, and Waivers . . . . . . 49
14.9 Multiple Counterparts . . . . . . . . . . . . . . . . . 50
14.10 Parties . . . . . . . . . . . . . . . . . . . . . . . . 50
14.11 Venue, Service of Process, and Jury Trial . . . . . . . 51
14.12 Confidentiality Obligations . . . . . . . . . . . . . . 52
14.13 Entirety . . . . . . . . . . . . . . . . . . . . . . . . 52
(iii) Restated Credit Agreement
<PAGE> 5
SCHEDULES AND EXHIBITS
Schedule 1 - Lenders and Commitments
Schedule 3.2 - Commitment Reduction Schedule
Schedule 6 - Closing Documents
Schedule 7.3 - Companies and Names
Schedule 7.7 - Company Solvency Schedule
Schedule 7.8 - Litigation
Schedule 7.10 - Environmental Matters
Schedule 7.11 - Employee-Plan Matters
Schedule 7.14 - Affiliate Transactions
Schedule 9.2 - Permitted Debt
Schedule 9.5 - Permitted Liens
Schedule 12.1(c) - MoneyMaker Network ATM Settlement Aggregation Accounts
Exhibit A-1 - Revolving Note
Exhibit A-2 - Swing-Line Note
Exhibit B - Guaranty
Exhibit C-1 - Borrowing Request
Exhibit C-2 - Conversion Notice
Exhibit C-3 - LC Request
Exhibit C-4 - Compliance Certificate
Exhibit D - Opinion of General Counsel to Companies
Exhibit E - [Intentionally Deleted]
Exhibit F - Assignment and Assumption Agreement
(iv) Restated Credit Agreement
<PAGE> 6
RESTATED CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 20, 1996, between AFFILIATED
COMPUTER SERVICES, INC., a Delaware corporation ("BORROWER"), Lenders (defined
below), WELLS FARGO BANK (TEXAS), N.A., as Agent for Lenders, and BANK ONE,
TEXAS, N.A., as Co-Agent for Lenders.
Borrower, certain lenders, Bank One, Texas, N.A., as co-agent and
documentation agent for those lenders, and First Interstate Bank of Texas,
Inc., as co-agent and administrative agent for those lenders, have previously
entered into a Credit Agreement ("EXISTING CREDIT AGREEMENT") providing for a
revolving credit facility (with a subfacility for letters of credit) to
Borrower not to exceed a total outstanding principal amount of $90,000,000 at
any time (the "EXISTING FACILITY").
Borrower has requested that Lenders increase the amount available to
Borrower under the Existing Facility to a principal amount not to exceed
$160,000,000 at any time (with certain subfacilities for letters of credit and
swing-line advances) to be used by Borrower as provided in SECTION 7.1 (the
"REVOLVING FACILITY"). Lenders are willing to extend the requested credit
facility on the terms and conditions of this agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower,
Lenders, Agent, and Co-Agent agree to amend and restate the Existing Credit
Agreement as follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 Definitions. As used in the Loan Documents:
AFFILIATE of a Person means any other individual or entity who
directly or indirectly controls, is controlled by, or is under common control
with that Person. For purposes of this definition (a) "control," "controlled
by," and "under common control with" mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of voting securities or other interests, by contract, or
otherwise), and (b) any individual or entity who beneficially owns, directly or
indirectly, 10% or more (in number of votes) of the securities having ordinary
voting power for the election of directors (or individuals performing similar
functions) of another Person and any individual who is an officer or director
of another Person is conclusively presumed to control that Person.
AGENT means, at any time, Wells Fargo Bank (Texas), N.A. -- or its
successor or assigns appointed under SECTION 13 -- acting as Agent for Lenders
under the Loan Documents.
APPLICABLE MARGIN means, for any day, the margin of interest over
LIBOR that is applicable when LIBOR is determined under this agreement. The
Applicable Margin is subject to adjustment (upwards or downwards, as
appropriate) based on the Funded Debt/EBITDA Ratio as stated in the table
below:
Restated Credit Agreement
<PAGE> 7
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
FUNDED DEBT/ APPLICABLE MARGIN FOR
EBITDA RATIO LIBOR BORROWINGS
- -----------------------------------------------------------------------
<S> <C>
Greater than or equal to 2.50 to 1.00 1.375%
- -----------------------------------------------------------------------
Less than 2.50 to 1.00, but greater than or 1.00%
equal to 2.00 to 1.00
- -----------------------------------------------------------------------
Less than 2.00 to 1.00, but greater than or 0.75%
equal to 1.50 to 1.00
- -----------------------------------------------------------------------
Less than 1.50 to 1.00 0.50%
- -----------------------------------------------------------------------
</TABLE>
The Funded Debt/EBITDA Ratio shall be calculated quarterly on a consolidated
basis for the Companies on the last day of each March, June, September and
December, commencing June 30, 1996, based upon the most recently furnished
Financials under SECTION 8.1 and any related Compliance Certificate, and shall
apply to all Interest Periods commencing after the delivery of such Financials,
until recalculated in accordance with this paragraph. Notwithstanding the
foregoing, if Borrower has made a mandatory prepayment following a Subject
Securities Issuance in accordance with SECTION 3.2(d), the Funded Debt/EBITDA
Ratio may also be recalculated on the date that Borrower delivers such
prepayment by delivering a Compliance Certificate containing the recalculation
of the Funded Debt/EBITDA Ratio assuming that such prepayment had been made at
the end of the prior quarter. If Borrower fails to furnish to Agent any such
Financials and any related Compliance Certificate when required to pursuant to
SECTION 8.1, then the maximum Applicable Margin shall apply to all Interest
Periods commencing after the date upon which such Financials were due until
Borrower furnishes the required Financials and any related Compliance
Certificate to Agent and shall apply from and as of each date of calculation
until the following date of calculation. From the Closing Date until June 30,
1996, the Applicable Margin shall be 0.750%.
APPLICABLE PERCENTAGE means, for any day, a commitment-fee percentage
applicable under SECTION 4.4, subject to adjustment (upwards or downwards, as
appropriate), based on the Funded Debt/ EBITDA Ratio, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
APPLICABLE
FUNDED DEBT/ EBITDA RATIO PERCENTAGE
- -------------------------------------------------------
<S> <C>
Greater than or equal to 2.50 to 1.00 0.375%
- -------------------------------------------------------
Less than 2.50 to 1.00, but greater 0.250%
than or equal to 1.50 to 1.00
- -------------------------------------------------------
Less than 1.50 to 1.00 0.200%
- -------------------------------------------------------
</TABLE>
The Funded Debt/EBITDA Ratio is determined as described in the definition of
APPLICABLE MARGIN and shall apply from and as of the date of calculation until
the following date of calculation. From the Closing Date until June 30, 1996,
the Applicable Percentage shall be 0.250%.
ASSIGNEE is defined in SECTION 14.10(c).
ASSIGNMENT is defined in SECTION 14.10(c).
ATM means any automated teller machine which Borrower (a) operates for
its own account or (b) owns, either directly or beneficially.
2 Restated Credit Agreement
<PAGE> 8
ATM CREDIT AGREEMENT means that certain letter agreement (as amended)
dated as of December 15, 1995, executed between Borrower and Bank One, Texas,
N.A.
ATM FACILITY means the $11,000,000 credit facility extended to
Borrower by Bank One, Texas, N.A. under the terms of the ATM Credit Agreement.
BASE RATE means, for any day, the greater of either (a) the annual
interest rate most recently announced by Wells Fargo Bank, N.A. at its
principal office in San Francisco, California, as its prime rate, with the
understanding that such prime rate is one of its base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference to the prime rate, and is evidenced by the recording of such
prime rate after its announcement in such internal publication or publications
as Wells Fargo Bank, N.A. may designate, automatically fluctuating upward and
downward without special notice to Borrower or any other Person, or (b) the sum
of the Federal-Funds Rate plus 0.5%.
BASE-RATE BORROWING means a Borrowing bearing interest at the Base
Rate.
BORROWER is defined in the preamble to this agreement.
BORROWING means any amount disbursed under the Loan Documents by one
or more Lenders to or on behalf of Borrower under the Loan Documents, including
any Swing-Line Borrowing, either as an original disbursement of funds, a
renewal, extension, or continuation of an amount outstanding, or a payment
under an LC.
BORROWING DATE means the date on which funds are requested by Borrower
in a Borrowing Request.
BORROWING REQUEST means a request, subject to SECTION 2.2(a),
substantially in the form of EXHIBIT C-1.
BUSINESS DAY means (a) for purposes of any LIBOR Borrowing, a day when
commercial banks are open for international business in London, England, and
(b) for all other purposes, any day other than Saturday, Sunday, and any other
day that commercial banks are authorized by Law to be closed in Texas.
CAPITAL EXPENDITURES means expenditures for the acquisition,
construction, improvement or replacement of land, buildings, equipment or other
fixed or capital assets or leaseholds (including, without limitation,
investments in customer's securities or purchases of software or other customer
assets under outsourcing contracts entered into after the Closing Date and
payments under Capital Leases, but excluding expenditures properly chargeable
to repairs or maintenance).
CAPITAL LEASE means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.
CERCLA means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq.
CLOSING DATE means the date agreed to by Borrower and Agent for the
initial Borrowing, which must be a Business Day occurring no later than June
30, 1996.
3 Restated Credit Agreement
<PAGE> 9
CO-AGENT means Bank One, Texas, N.A.
CODE means the Internal Revenue Code of 1986.
COMMITMENT means, at any time and for any Lender, the product of (a)
that Lender's Commitment Percentage multiplied by (b) the Total Commitment then
in effect, which Commitment is subject to reduction and cancellation as
provided in SECTIONS 2.6, 3.2(c), AND 3.2(d).
COMMITMENT PERCENTAGE means, for any Lender, the percentage stated
beside that Lender's name on the most-recently amended SCHEDULE 1.
COMMITMENT REDUCTION AMOUNT means the amount by which the Total
Commitment is permanently reduced in accordance with SECTION 3.2(c), as such
amount may be changed in accordance with SECTION 3.2(d).
COMMITMENT REDUCTION DATE means any date specified on SCHEDULE 3.2
upon which the Total Commitment is to be permanently reduced in accordance with
SECTION 3.2(c).
COMMITMENT USAGE means, at any time, the sum of (a) the Principal Debt
(which includes, without limitation, that Principal Debt under the Swing-Line
Subfacility) plus (b) the LC Exposure.
COMPANIES means, at any time, Borrower and each of its Subsidiaries.
COMPLIANCE CERTIFICATE means a certificate substantially in the form
of EXHIBIT C-4 as signed by a Responsible Officer.
CONVERSION NOTICE means a request, subject to SECTION 3.10,
substantially in the form of EXHIBIT C-2.
CURRENT DATE means any date within 30 days prior to the Closing Date.
CURRENT FINANCIALS, unless otherwise specified: means either (a) the
Companies' consolidated Financials for the fiscal year ended June 30, 1995, or
(b) at any time after annual Financials are first delivered under SECTION 8.1,
the Companies' annual Financials then most recently delivered to Lenders under
SECTION 8.1(a), together with the Companies' quarterly Financials then most
recently delivered to Lenders under SECTION 8.1(b).
CURRENT MATURITIES OF LONG-TERM DEBT means, as of any date, the
aggregate amount of all regularly scheduled principal payments and capitalized
lease payments on all long-term Debt of the Companies that are due and payable
within 12 months of such date.
DEBT means -- of any Person, at any time, and without duplication --
all obligations, contingent or otherwise, which in accordance with GAAP should
be classified upon such Person's balance sheet as liabilities, but in any event
including the sum of the following: (a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes, or similar
instruments; (c) all obligations to pay the deferred purchase price of property
or services except trade accounts payable arising in the ordinary course of
business; (d) all direct or contingent obligations in respect of letters of
credit; (e) liabilities secured (or for which the holder of the Debt has an
existing Right, contingent or otherwise to be so secured) by any Lien existing
on property owned or acquired by that Person; (f) lease obligations that have
4 Restated Credit Agreement
<PAGE> 10
been (or under GAAP should be) capitalized for financial reporting purposes;
plus (g) all guaranties, endorsements, and other contingent obligations for
Debt of others.
DEBTOR LAWS means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments, or similar Laws affecting creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT RATE means, for any day, an annual interest rate equal from
day to day to the lesser of either (a) the then-existing Base Rate plus 3% or
(b) the Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders
holding (directly or indirectly) at least either (a) 66-2/3% of the Total
Commitment while there is no Commitment Usage or (b) 66-2/3% of the Principal
Debt (excluding Principal Debt under the Swing-Line Subfacility) plus the LC
Exposure while there is any Commitment Usage.
DISTRIBUTION means, with respect to any shares of any capital stock or
other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
EBIT means -- EBITDA minus depreciation and amortization expense to
the extent deducted from "Operating Income from Continuing Operations" and
included within the calculation of EBITDA.
EBITDA means -- for any period, on a consolidated basis, and without
duplication -- the sum of (a) the amount of "Operating Income from Continuing
Operations" (calculated in the same manner as such line item in Borrower's
income statement contained in Borrower's 1995 Annual Report for the fiscal year
ended June 30, 1995) for the period (whether positive or negative), plus (b)
depreciation and amortization expense deducted in calculating the amount of
such Operating Income from Continuing Operations, plus (c) non-recurring
expenses incurred in connection with the acquisition of Genix, plus or minus,
as the case may be, (d) any extraordinary items included within "Operating
Income from Continuing Operations." Except as otherwise specifically stated in
this agreement, EBITDA shall be calculated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
FOR PERIOD ENDING EBITDA
- ------------------------------------------------------------------------------------------
<S> <C>
6/30/96 Sum of (i) EBITDA for four consecutive quarters then ended
(excluding any amounts attributable to the operations of
Genix) plus (ii) EBITDA for Genix for quarter then ended
multiplied by 4.
- ------------------------------------------------------------------------------------------
9/30/96 EBITDA for quarter then ended multiplied by 4
- ------------------------------------------------------------------------------------------
12/31/96 EBITDA for two consecutive quarters then ended multiplied
by 2
- ------------------------------------------------------------------------------------------
3/31/97 (EBITDA for three consecutive quarters then ended divided by 3)
multiplied by 4
- ------------------------------------------------------------------------------------------
6/30/97 and thereafter EBITDA for four consecutive quarters then ended
- ------------------------------------------------------------------------------------------
</TABLE>
5 Restated Credit Agreement
<PAGE> 11
EFT LIABILITIES means liabilities related to "electronic funds
transfer" funds owed to MoneyMaker Network members that have been collected by
Borrower, but not paid.
EMPLOYEE PLAN means any employee-pension-benefit plan (a) covered by
Title IV of ERISA and established or maintained by Borrower or any ERISA
Affiliate (other than a Multiemployer Plan) and (b) established or maintained
by Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate
contributes, under the Laws of any foreign country.
ENVIRONMENTAL INVESTIGATION means any environmental site assessment,
investigation, audit, compliance audit, or compliance review conducted at any
time or from time to time -- whether at the request of Agent or any Lender,
upon the order or request of any Tribunal, or at the voluntary instigation of
any Company -- concerning any Real Property or the business operations or
activities of any Company, including, without limitation (a) air, soil,
groundwater, or surface-water sampling and monitoring, and (b) preparation and
implementation of any closure or remedial plans.
ENVIRONMENTAL LAW means any applicable Law that relates to protection
of the environment or to the regulation of any Hazardous Substances, including,
without limitation, CERCLA, the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.), the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et
seq.), the Safe Drinking Water Act (42 U.S.C. Section 201 and Section 300 et
seq.), the Rivers and Harbors Act (33 U.S.C. Section 401 et seq.), the Oil
Pollution Act (33 U.S.C. Section 2701 et seq.), analogous state and local
Laws, and any analogous future enacted or adopted Law.
ENVIRONMENTAL LIABILITY means any liability, loss, fine, penalty,
charge, lien, damage, cost, or expense of any kind to the extent that it
results (a) from the violation of any Environmental Law, (b) from the Release
or threatened Release of any Hazardous Substance, or (c) from actual or
threatened damages to natural resources.
ENVIRONMENTAL PERMIT means any permit, or license, from any Person
defined in CLAUSE (a) of the definition of Tribunal that is required under any
Environmental Law for the lawful conduct of any business, process, or other
activity.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and rules and regulations promulgated thereunder.
ERISA AFFILIATE means any Person that, for purposes of Title IV of
ERISA, is a member of Borrower's controlled group or is under common control
with Borrower within the meaning of Section 414 of the Code (which provisions
are deemed by this agreement to apply to Foreign Persons).
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded
upwards, if necessary, to the nearest 0.01%) determined (which determination is
conclusive and binding, absent manifest error) by Agent to be equal to (a) the
weighted average of the rates on overnight federal-funds transactions with
member banks of the Federal Reserve System arranged by federal-funds brokers on
that day, as published by the Federal Reserve Bank of New York on the next
Business Day, or (b) if those rates are not published for any day, the average
of the quotations at approximately 10:00 a.m. received by Agent from three
federal-funds brokers of recognized standing selected by Agent in its sole
discretion.
6 Restated Credit Agreement
<PAGE> 12
FINAL MATURITY DATE means the earlier of either (a) the date on which
the Obligation is accelerated under SECTION 12.1 or (b) the date on which the
eighth quarterly installment is due under SECTION 3.2(b).
FINANCIALS of a Person means balance sheets, profit and loss
statements, reconciliations of capital and surplus, and statements of cash flow
prepared (a) according to GAAP (subject to year end audit adjustments with
respect to interim Financials) and (b) except as stated in SECTION 1.4, in
comparative form to prior year-end figures or corresponding periods of the
preceding fiscal year or other relevant period, as applicable.
FIXED-CHARGE COVERAGE RATIO means -- for any period, on a consolidated
basis, and without duplication -- the ratio of (a) the sum of (i) EBITDA, minus
(ii) Capital Expenditures (excluding payments under Capital Leases) minus (iii)
Taxes actually paid in cash (each of the foregoing items (i), (ii) and (iii)
calculated for the twelve month period then ending) to (b) the sum of (i)
Interest Expense plus (ii) payments under Capital Leases, plus (iii) cash
dividends paid (each of the foregoing items (i), (ii) and (iii) calculated for
the twelve month period then ending) plus (iv) Current Maturities of Long-Term
Debt.
FOREIGN means, in respect of any Person, organized under the Laws of a
jurisdiction other than -- or domiciled outside of -- the United States of
America or one of its states.
FUNDED DEBT means -- at any time, on a consolidated basis, and without
duplication -- the sum of: (a) all obligations for borrowed money (whether as a
direct obligor on a promissory note, bond, debenture or other similar
instrument, as a contingent obligation for undrawn and uncancelled letters of
credit or similar instruments, as a reimbursement obligor for a drawing under a
letter of credit or similar instrument, or as any other type of obligor), plus
(b) all Capital Lease obligations (other than the interest component of such
obligations) of any Company minus (c) the total-principal amount outstanding
under the ATM Facility, minus (d) the total-principal amount outstanding under
the $3,500,000 promissory note made by ACS Government Services, Inc., payable
to IBM listed on SCHEDULE 9.2, and further described in the corresponding
footnote to that Schedule.
FUNDED DEBT/EBITDA RATIO means -- for any date of determination --
the ratio of Funded Debt at the end of the most recently completed fiscal
quarter to EBITDA for the most recently completed four fiscal quarters.
FUNDING LOSS means any loss, expense, or reduction in yield (but not
any Applicable Margin) that any Lender reasonably incurs because (a) Borrower
fails or refuses (for any reason whatsoever other than a default by Agent or
that Lender claiming that loss, expense, or reduction in yield) to take any
Borrowing that it has requested under this agreement, or (b) Borrower prepays
or pays any Borrowing or converts any Borrowing to a Borrowing of another Type,
in each case, other than on the last day of the applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GENIX means The Genix Group, Inc., a Michigan corporation.
GUARANTY means a guaranty substantially in the form of the attached
EXHIBIT B.
7 Restated Credit Agreement
<PAGE> 13
HAZARDOUS SUBSTANCE means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of Section 101(14) of CERCLA.
INTEREST EXPENSE means, for any period, the aggregate total interest
expense of the Companies paid on a consolidated basis for such period,
including, without limitation, to the extent included in interest expense, the
interest component of capital leases, all commissions, discounts and other fees
and charges owed with respect to letters of credit, commitment fees and net
costs under interest rate protection agreements, all as determined in
conformity with GAAP. Solely for purposes of SECTION 10, Interest Expense
shall not include any non-cash interest expense.
INTEREST PERIOD is determined under SECTION 3.9.
ISSUING LENDER means Wells Fargo Bank (Texas), N.A. or any of its
Affiliates, that issues an LC under this agreement.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LC means a standby letter of credit issued for the account of Borrower
by Issuing Lender under this agreement and under an LC Agreement.
LC AGREEMENT means a letter of credit application and agreement (in
form and substance satisfactory to Agent) submitted and executed by a Company
to Issuing Lender for an LC for the account of Borrower.
LC EXPOSURE means, without duplication, the sum of (a) the total face
amount of all undrawn and uncancelled LCs plus (b) the total unpaid
reimbursement obligations of Borrower under drawings under any LC.
LC REQUEST means a request substantially in the form of EXHIBIT C-3.
LC SUBFACILITY means a subfacility of the Revolving Facility for the
issuance of LCs, as described in SECTION 2.3, under which the LC Exposure may
never (a) collectively exceed $15,000,000 and (b) together with Principal Debt
may never exceed the Total Commitment.
LENDER LIEN means any present or future Lien (subject only to any
applicable Permitted Lien) securing the Obligation and assigned, conveyed, or
granted to or created in favor of Agent for the benefit of Lenders.
LENDERS means the financial institutions -- including, without
limitation, Agent (possibly acting through one or more of its Affiliates for
LCs) in respect of their respective shares of Borrowings (including Swing-Line
Borrowings) and LCs -- named on SCHEDULE 1 or on the most-recently-amended
SCHEDULE 1, if any, delivered by Agent under this agreement, and, subject to
this agreement, their respective successors and permitted assigns (but not any
Participant who is not otherwise a party to this agreement).
8 Restated Credit Agreement
<PAGE> 14
LIBOR means, for a LIBOR Borrowing and for the relevant Interest
Period, the annual interest rate (rounded upward, if necessary, to the nearest
0.01%) equal to the quotient obtained by dividing (a) the rate that deposits in
United States dollars are offered to Agent in the London interbank market at
approximately 11:00 a.m. London time two Business Days before the first day of
that Interest Period in an amount comparable to that LIBOR Borrowing and having
a maturity approximately equal to that Interest Period, by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to the relevant
Interest Period.
LIBOR BORROWING means a Borrowing bearing interest at the sum of LIBOR
plus the Applicable Margin.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds
prior to the claims of other creditors or the owners (other than title of the
lessor under an operating lease).
LITIGATION means any action by or before any Tribunal.
LOAN DOCUMENTS means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) all agreements, documents, and instruments in favor of Agent or Lenders (or
Agent on behalf of Lenders) ever delivered under this agreement or otherwise
delivered in connection with all or any part of the Obligation (other than
Assignments), (c) all LCs and LC Agreements, (d) the letter agreement described
in SECTION 4.2, and (e) all renewals, extensions, and restatements of, and
amendments and supplements to, any of the foregoing.
MAJORITY LENDERS means, at any time, any combination of Lenders
holding (directly or indirectly) at least either (a) 51% of the Total
Commitment while there is not Commitment Usage or (b) 51% of the Principal Debt
(excluding Principal Debt under the Swing-Line Subfacility) plus the LC
Exposure while there is any Commitment Usage.
MATERIAL ADVERSE EVENT means any circumstance or event that,
individually or collectively, is reasonably expected to result (at any time
before the Commitments are fully canceled or terminated and the Obligation is
fully paid and performed) in any (a) material impairment of (i) the ability of
Borrower to perform any of its payment or other material obligations under any
Loan Document, (ii) the ability of Agent or any Lender to enforce any of those
obligations or any of their respective Rights under the Loan Documents, (b)
material and adverse effect on the financial condition of the Borrower
individually, or the Companies as a whole, as represented to Lenders in the
Current Financials most recently delivered before the date of this agreement,
(c) impairment in the ability of any Company to fulfill its obligations under
the terms and conditions of Loan Documents, or (d) Default or Potential
Default.
MATERIAL AGREEMENT means any written or oral agreement, contract,
commitment or understanding under which any Company is obligated to make
payments in excess of $2,000,000 in any fiscal year or is entitled to receive
revenues in any fiscal year in excess of 5% of Borrower's consolidated annual
revenues for such year.
MATURITY DATE means the earlier of June 30, 1999 or the third
anniversary of the Closing Date.
9 Restated Credit Agreement
<PAGE> 15
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, that Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MEMBER BANKS means banks, financial institutions, or other entities
that are members of the MoneyMaker Network, which include the banks, financial
institutions and other entities listed on SCHEDULE 2.2 to the ATM Credit
Agreement, as such schedule is amended, modified, or replaced from time to
time.
MONEYMAKER NETWORK means a proprietary electronic funds transfer
network owned and operated by Borrower that (a) provides authorization for
cardholders of Member Banks to access ATMs, automated teller machines owned or
operated by Member Banks, and automated teller machines owned or operated by
regional, national and international electronic funds transfer networks, and
(b) obtains authorization from regional, national and international electronic
funds transfer networks for their cardholders to access ATMs and automated
teller machines owned or operated by Member Banks.
MOODY'S is defined in SECTION 9.3(b).
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code (or any similar type
of plan established or regulated under the Laws of any foreign country) to
which Borrower or any ERISA Affiliate is making, or has made, or is accruing,
or has accrued, an obligation to make contributions.
NET INCOME of any Person means that Person's profit or loss after
deducting its Tax expense.
NET WORTH means -- at any time and for any Person -- its stockholders'
equity (less the par value of any treasury stock) under GAAP.
1933 ACT means the Securities Act of 1933, as amended.
1934 ACT means the Securities and Exchange Act of 1934, as amended.
NOTES means all of the Revolving Notes and the Swing-Line Note.
OBLIGATION means all present and future (a) Debts, liabilities, and
obligations of any Company to any Co-Agent, any Lender, Issuing Lender and
related to any Loan Document, whether principal, interest, fees, costs,
attorneys' fees, or otherwise, and (b) renewals, extensions, and modifications
of any of the foregoing.
OSHA means the Occupational Safety and Health Act of 1970, 29 U.S.C.
Section 651 et seq.
PARTICIPANT is defined in SECTION 14.10(b).
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED DEBT means Debt described on SCHEDULE 9.2.
PERMITTED LIENS means the Liens described on SCHEDULE 9.5.
10 Restated Credit Agreement
<PAGE> 16
PERSON means any individual, entity, or Tribunal.
POTENTIAL DEFAULT means any event's occurrence or any circumstance's
existence that would -- upon any required notice, time lapse, or both -- become
a Default.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PRO RATA and PRO RATA PART mean, at any time when determined for any
Lender, (a) if there is no Commitment Usage, the proportion (stated as a
percentage) that its Commitment bears to the Total Commitment, or (b) if there
is any Commitment Usage, the proportion that the total Commitment Usage owed to
that Lender bears to the total Commitment Usage owed to all Lenders.
REAL PROPERTY means any land, buildings, fixtures, and other
improvements to land now or in the future directly or indirectly owned by any
Company, leased to or otherwise operated by any Company, or subleased by any
Company to any other Person.
RELEASE means any "release" as defined under any Environmental Law.
REPRESENTATIVES means representatives, officers, directors, employees,
accountants, attorneys, and agents.
RESERVE REQUIREMENT means, for any LIBOR Borrowing and for the
relevant Interest Period, the total reserve requirements (including all basic,
supplemental, emergency, special, marginal, and other reserves required by
applicable Law) actually applicable to Agent's eurocurrency fundings or
liabilities as of the first day of that Interest Period.
RESPONSIBLE OFFICER means Borrower's chairman, president, chief
executive officer, chief financial officer, or treasurer.
REVOLVING FACILITY is defined in the recitals to this agreement and
includes the LC Subfacility and the Swing-Line Subfacility.
REVOLVING NOTE means a promissory note substantially in the form of
the attached EXHIBIT A-1, as renewed, extended, amended, and restated.
RIGHTS means rights, remedies, powers, privileges, and benefits.
S&P is defined in SECTION 9.3(b).
SEC means the Securities and Exchange Commission.
SECURITY DOCUMENTS means, collectively, any security agreement, pledge
agreement, mortgage, deed of trust or other agreement or document, together
with all related financing statements and stock powers, in form and substance
satisfactory to Documentation Agent and its legal counsel, executed and
delivered by any Person in connection with this agreement to create a Lender
Lien on any of its real or personal property, as amended, supplemented or
restated.
SETTLEMENT AGGREGATION ACCOUNTS means any automated teller machine
network ("ATM NETWORK") transaction settlement deposit accounts maintained by
Borrower for the sole purpose of aggregating
11 Restated Credit Agreement
<PAGE> 17
settlement transactions received from ATM Networks, including without
limitation the ATM Network transaction settlement deposit accounts described
on SCHEDULE 12.1(c).
SOLVENT means, as to any Person, that (a) the aggregate fair market
value of its assets exceeds its liabilities, (b) it has sufficient cash flow to
enable it to pay its Debts as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses.
STOCK PURCHASE AGREEMENT means the Stock Purchase Agreement dated May
31, 1996, between Borrower and MCN Investment Corporation, a Michigan
corporation.
SUBSIDIARY of any Person means any entity of which more than 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person. Unless otherwise
specified or the context otherwise requires, "Subsidiary" refers to a
Subsidiary of Borrower.
SUBJECT SECURITIES ISSUANCE is defined in SECTION 3.2(d).
SWING-LINE BORROWING means any Borrowing under the Swing-Line
Subfacility.
SWING-LINE NOTE means a promissory note substantially in the form of
the attached EXHIBIT A-2, as renewed, extended, amended, and restated.
SWING-LINE SUBFACILITY means the facility under the Revolving Facility
described in SECTION 2.4.
TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
TERM LOAN is defined in SECTION 3.2(b)(1).
TERMINATION DATE means the earlier of either (a) the Maturity Date or
(b) the effective date that Lenders' Commitments are fully canceled or
terminated.
TOTAL COMMITMENT means, at any time, the maximum Commitment Usage
allowed under the Revolving Facility, which amount shall initially be
$160,000,000, as such amount may be reduced from time to time pursuant to
SECTIONS 2.6, 3.2(c), AND 3.2(d).
TRIBUNAL means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality, (b)
private arbitration board or panel, or (c) central bank.
TYPE means any type of Borrowing determined with respect to the
applicable interest option.
UCC means the Uniform Commercial Code in effect in any jurisdiction,
the Law of which affects the Collateral or any Lender Lien.
WHOLLY-OWNED SUBSIDIARY means any Company, other than Borrower, with
respect to which 100% of the issued and outstanding shares of capital stock
(excluding shares of capital stock held under employee stock option plans) of
such Company is owned by another Company. Wholly-Owned Subsidiary shall not
include, however, the Companies listed on SCHEDULE 7.7.
12 Restated Credit Agreement
<PAGE> 18
1.2 Time References. Unless otherwise specified, in the Loan
Documents (a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas,
and (b) in calculating a period from one date to another, the word "from" means
"from and including" and the word "to" or "until" means "to but excluding."
1.3 Other References. Unless otherwise specified, in the Loan
Documents (a) where appropriate, the singular includes the plural and vice
versa, and words of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting provisions, (c)
monetary references are to currency of the United States of America, (d)
section, paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy
transmissions, (f) references to "including" mean including without limiting
the generality of any description preceding that word, (g) the rule of
construction that references to general items that follow references to
specific items are limited to the same type or character of those specific
items is not applicable in the Loan Documents, (h) references to any Person
include that Person's heirs, personal representatives, successors, trustees,
receivers, and permitted assigns, (i) references to any Law include every
amendment or supplement to it, rule and regulation adopted under it, and
successor or replacement for it, and (j) references to any Loan Document or
other document include every renewal and extension of it, amendment and
supplement to it, and replacement or substitution for it.
1.4 Accounting Principles. Unless otherwise specified, in the
Loan Documents (a) GAAP determines all accounting and financial terms and
compliance with financial covenants, (b) GAAP in effect on the date of this
agreement determines compliance with financial covenants, (c) otherwise, all
accounting principles applied in a current period must be comparable in all
material respects to those applied during the preceding comparable period, and
(d) while Borrower has any consolidated Subsidiaries (i) all accounting and
financial terms and compliance with reporting covenants must be on a
consolidated basis, as applicable, and (ii) compliance with financial covenants
must be on a consolidated basis.
SECTION 2 COMMITMENT. Subject to the provisions in the Loan Documents,
each Lender severally but not jointly agrees to extend credit to Borrower in
accordance with the following provisions.
2.1 Revolving Facility. Each Lender severally but not jointly
agrees to lend to Borrower its Commitment Percentage of one or more Borrowings
(other than Swing-Line Borrowings) under the Revolving Facility which Borrower
may borrow, repay, and reborrow under this agreement subject to the following
conditions:
(a) Each Borrowing may only be $100,000 or a greater
integral multiple of $100,000 if a Base-Rate Borrowing or $1,000,000
or a greater integral multiple of $100,000 if a LIBOR Borrowing;
(b) Each Borrowing may only occur on a Business Day on or
after the Closing Date and before the Termination Date;
(c) Borrower may advance all or part of the proceeds of
any Borrowing to only those Subsidiaries that have executed a
Guaranty, provided that Borrower may advance proceeds from any
Borrowing or LC to any Person (whether or not such Person is a
Subsidiary that has executed a Guaranty) so long as the aggregate
amount of such advances may never exceed $1,000,000 at anytime
outstanding; and
13 Restated Credit Agreement
<PAGE> 19
(d) The Commitment Usage (whether direct or participated)
owed to any Lender may never exceed that Lender's Commitment.
2.2 Borrowing Procedure. The following procedures apply to
Borrowings other than Swing-Line Borrowings (see SECTION 2.4).
(a) Borrowing Request. Borrower may request a Borrowing
by making or delivering a Borrowing Request (that may be telephonic if
confirmed in writing within two Business Days) to Agent, which is
irrevocable and binding on Borrower. Each Borrowing Request shall
state the Type, amount, and Interest Period for each Borrowing and
which must be received by Agent no later than (i) (if applicable)12:00
p.m. noon on the third Business Day before the Borrowing Date for any
LIBOR Borrowing, or (ii) 12:00 p.m. noon on the Business Day
immediately preceding the Borrowing Date for any Base-Rate Borrowing.
(b) Funding. Each Lender shall remit its Commitment
Percentage of each requested Borrowing to Agent's principal office in
Dallas, Texas, in funds that are available for immediate use by Agent
by 2:00 p.m. on the applicable Borrowing Date. Subject to receipt of
those funds, Agent shall (unless to its actual knowledge any of the
applicable conditions precedent have not been satisfied by Borrower or
waived by the requisite Lenders under SECTION 14.8) make those funds
available to Borrower by (at Borrower's option) (i) wiring the funds to
or for the account of Borrower at the direction of Borrower or (ii)
depositing the funds in Borrower's account (other than a Settlement
Aggregation Account) with Agent.
(c) Funding Assumed. Absent contrary written notice from
a Lender, Agent may assume that each Lender has made its Commitment
Percentage of the requested Borrowing available to Agent on the
applicable Borrowing Date, and Agent may, in reliance upon such
assumption (but shall not be required to), make available to Borrower
a corresponding amount. If a Lender fails to make its Commitment
Percentage of any requested Borrowing available to Agent on the
applicable Borrowing Date, Agent may recover the applicable amount on
demand, (i) from that Lender together with interest, commencing on the
Borrowing Date and ending on (but excluding) the date Agent recovers
the amount from that Lender, at an annual interest rate equal to the
Federal-Funds Rate, or (ii) if that Lender fails to pay its amount
upon demand, then from Borrower. No Lender is responsible for the
failure of any other Lender to make its Commitment Percentage of any
Borrowing available as required by SECTION 2.2(b); however, failure of
any Lender to make its Commitment Percentage of any Borrowing so
available does not excuse any other Lender from making its Commitment
Percentage of any Borrowing so available.
2.3 Letters of Credit.
(a) Conditions. Issuing Lender agrees to issue LCs for
the account of any Company upon Borrower's making or delivering an LC
Request and delivering an LC Agreement, both of which must be received
by Agent and Issuing Lender no later than the second Business Day
before the Business Day on which the requested LC is to be issued, so
long as (i) each LC shall expire within 12 months of its date of issue
(provided, however, that an LC may, at Borrower's request, provide
that it is self-extending upon expiration for a period up to 12 months
unless Agent has given the beneficiary thereunder at least 30 days'
but no more than 120 days' prior written notice to the contrary), (ii)
no LC may expire after the Termination Date, (iii) the LC Exposure
does not exceed the limitations in the definition of LC Subfacility,
and (iv) the
14 Restated Credit Agreement
<PAGE> 20
limitations in SECTION 2.1 are not exceeded. The amount of any
payment by Agent of a draft drawn under an LC shall be included as
part of the Obligation.
(b) Participation. Immediately upon Issuing Lender's
issuance of any LC, Issuing Lender shall be deemed to have sold and
transferred to each other Lender, and each other Lender shall be
deemed irrevocably and unconditionally to have purchased and received
from Issuing Lender, without recourse or warranty, an undivided
interest and participation to the extent of such Lender's Commitment
Percentage in the LC and all applicable Rights of Issuing Lender in
the LC -- other than Rights to receive certain fees provided in
SECTION 4.3 to be for Issuing Lender's sole account.
(c) Reimbursement Obligation of the Companies. To induce
Issuing Lender to issue and maintain LCs, and to induce Lenders to
participate in issued LCs, Borrower agrees to pay or reimburse Issuing
Lender (or cause another Company to pay or reimburse Issuing Lender)
(i) on the first Business Day after Issuing Lender notifies Agent and
Borrower that it has made payment under a LC, the amount paid by
Issuing Lender and (ii) on demand, the amount of any additional fees
Issuing Lender customarily charges for amending LC Agreements, for
honoring drafts under LCs, and for taking similar action in connection
with letters of credit. If Borrower or another Company has not
reimbursed Issuing Lender for any drafts paid by the date on which
reimbursement is required under this section, then Agent is
irrevocably authorized to fund Borrower's reimbursement obligations as
a Base-Rate Borrowing if proceeds are available under the Revolving
Facility and if the conditions in this agreement for such a Borrowing
(other than any notice requirements or minimum funding amounts) have,
to Agent's knowledge, been satisfied. The proceeds of that Borrowing
shall be advanced directly to Issuing Lender to pay Borrower's unpaid
reimbursement obligations. If funds cannot be advanced under the
Revolving Facility, then Borrower's reimbursement obligation shall
constitute a demand obligation. Borrower's obligations under this
section are absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim, or defense to payment
that Borrower may have at any time against Issuing Lender or any other
Person. From the date that Issuing Lender pays a draft under a LC
until Borrower or another Company either reimburses or is obligated to
reimburse Issuing Lender for that draft under this section, the amount
of that draft bears interest payable to Issuing Lender at the rate
then applicable to Base-Rate Borrowings. From the due date of the
respective amounts due under this section, to the date paid (including
any payment from proceeds of a Base-Rate Borrowing), unpaid
reimbursement amounts accrue interest that is payable on demand at the
Default Rate.
(d) General. Issuing Lender shall promptly notify Agent
and Borrower of the date and amount of any draft presented for honor
under any LC (but failure to give notice will not affect Borrower's
obligations under this agreement). Issuing Lender shall pay the
requested amount upon presentment of a draft unless presentment on its
face does not comply with the terms of the applicable LC. When making
payment, Issuing Lender may disregard (i) any default or potential
default that exists under any other agreement and (ii) obligations
under any other agreement that have or have not been performed by the
beneficiary or any other Person (and Issuing Lender is not liable for
any of those obligations). The Companies' reimbursement obligations
to Issuing Lender and Lenders, and each Lender's obligations to
Issuing Lender, under this section are absolute and unconditional
irrespective of, and Issuing Lender is not responsible for, (i) the
validity, enforceability, sufficiency, accuracy, or genuineness of
documents or endorsements (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii)
any dispute by any Company with or any Company's claims, setoffs,
defenses, counterclaims, or other Rights against Issuing Lender, any
Lender, or any other Person,
15 Restated Credit Agreement
<PAGE> 21
or (iii) the occurrence of any Potential Default or Default. However,
nothing in this agreement constitutes a waiver of Borrower's Rights to
assert any claim or defense based upon the gross negligence or willful
misconduct of Lender. Issuing Lender shall promptly pay to Agent for
Agent to promptly distribute reimbursement payments received from
Borrower to all Lenders according to their Pro Rata Part of the
Revolving Facility.
(e) Obligation of Lenders. If a Company fails to
reimburse Issuing Lender as provided in SECTION 2.3(c) by the date on
which reimbursement is due under that section, and funds cannot be
advanced under the Revolving Facility to satisfy the reimbursement
obligations, then Agent shall promptly notify each Lender of such
Company's failure, of the date and amount paid, and of each Lender's
Commitment Percentage of the unreimbursed amount. Each Lender shall
promptly and unconditionally make available to Agent in immediately
available funds its Commitment Percentage of the unpaid reimbursement
obligation, subject to the limitations of SECTION 2.1. Funds are due
and payable to Agent before the close of business on the Business Day
when Agent gives notice to each Lender of such Company's reimbursement
failure (if notice is given before 1:00 p.m.) or on the next
succeeding Business Day (if notice is given after 1:00 p.m.). All
amounts payable by any Lender accrue interest after the due date at
the Federal-Funds Rate from the day the applicable draft or draw is
paid by Agent to (but not including) the date the amount is paid by
the Lender to Agent. Upon receipt of those funds, Agent shall make
them available to Issuing Lender.
(f) Duties of Issuing Lender. Issuing Lender agrees with
each Lender that it will exercise and give the same care and attention
to each LC as it gives to its other letters of credit. Each Lender
and Borrower agree that, in paying any draft under any LC, Issuing
Lender has no responsibility to obtain any document (other than any
documents expressly required by the respective LC) or to ascertain or
inquire as to any document's validity, enforceability, sufficiency,
accuracy, or genuineness or the authority of any Person delivering it.
Neither Issuing Lender nor its Representatives will be liable to any
Lender or any Company for any LC's use or for any beneficiary's acts
or omissions. Any action, inaction, error, delay, or omission taken
or suffered by Issuing Lender or any of its Representatives in
connection with any LC, applicable drafts or documents, or the
transmission, dispatch, or delivery of any related message or advice,
if in good faith and in conformity with applicable Laws and in
accordance with the standards of care specified in the Uniform Customs
and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 (as amended or modified), is
binding upon the Companies and Lenders and, except as provided in
SECTION 2.3(e), does not place Issuing Lender or any of its
Representatives under any resulting liability to any Company or any
Lender. Agent is not liable to any Company or any Lender for any
action taken or omitted, in the absence of gross negligence or willful
misconduct, by Issuing Lender or its Representative in connection with
any LC.
(g) Cash Collateral. On the Termination Date and if
requested by Determining Lenders while a Default exists, Borrower
shall provide Agent, for the benefit of Lenders, cash collateral in an
amount to equal the then-existing LC Exposure.
(h) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY,
PAY, AND SAVE AGENT, ISSUING LENDER, AND EACH OTHER LENDER, AND THEIR
RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR
BE SUBJECT TO AS A CONSEQUENCE OF THE
16 Restated Credit Agreement
<PAGE> 22
ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF ISSUING
LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR
OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE TRIBUNAL.
HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR
ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(i) LC Agreements. Although referenced in any LC, terms
of any particular agreement or other obligation to the beneficiary are
not incorporated into this agreement in any manner. The fees and
other amounts payable with respect to each LC are as provided in this
agreement, drafts under each LC are part of the Obligation, only the
events specified in this agreement as a Default shall constitute a
default under any LC, and the terms of this agreement control any
conflict between the terms of this agreement and any LC Agreement.
(j) Delivery of Letters of Credit. Borrower acknowledges
that each LC will be deemed issued upon delivery to its beneficiary or
Borrower. In the event that Borrower requests any LC be delivered to
Borrower rather than the beneficiary, and Borrower or any other
Company subsequently cancels such LC, Borrower agrees to return it (or
cause it to be returned by another Company) to Agent together with
Borrower's written certification that it has never been delivered to
such beneficiary. In the event any LC is delivered to its beneficiary
pursuant to Borrower's instructions, no cancellation thereof by
Borrower or any other Company shall be effective without written
consent of such beneficiary to Agent and return of such LC to Agent.
2.4 Swing-Line Subfacility.
(a) Conditions. For the convenience of the parties,
Agent, solely for its own account, may make any requested Borrowing
(which request must be made before 1:00 p.m. on the Business Day the
Borrowing is to be made and may be telephonic if confirmed in writing
within two Business Days) of $100,000 (or a greater integral multiple
of $10,000) directly to Borrower as a Swing-Line Borrowing without
requiring each other Lender to fund its Commitment Percentage thereof
unless and until SECTION 2.4(b) is applicable. Swing-Line Borrowings
are subject to the following conditions:
(i) Each Swing-Line Borrowing must occur on a
Business Day before the Termination Date;
(ii) The total Principal Debt for Swing-Line
Borrowings may not exceed $10,000,000, and the Commitment
Usage may not exceed the Total Commitment (as that amount is
reduced and canceled in accordance with this agreement);
(iii) To the extent that a Swing-Line Borrowing
remains outstanding, the first Borrowing Request after
Borrower has received that Swing-Line Borrowing, which
Borrowing Request shall be made no later than 30 Business Days
after that Swing-Line Borrowing, shall be for an amount at
least equal to that Swing-Line Borrowing, and the proceeds of
the requested Borrowing shall be used to reduce the Principal
Debt for Swing-Line Borrowings to zero;
(iv) Each Swing-Line Borrowing is a Base-Rate
Borrowing; and
(v) Each Borrowing under the Swing-Line
Subfacility may be prepaid on same-day telephonic notice from
Borrower to Agent, if notice is received by 2:00 p.m.
17 Restated Credit Agreement
<PAGE> 23
(b) If Borrower fails to repay any Swing-Line Borrowing
within two Business Days after demand by Agent (or upon the
Termination Date), Agent shall promptly notify each Lender of
Borrower's failure and the unpaid amount. No later than the close of
business on the date Agent gives notice (if notice is given before
12:00 noon on any Business Day, or, if made at any other time, on the
next Business Day following the date of notice), each Lender shall
irrevocably and unconditionally purchase and receive from Agent a
ratable participation in such Swing-Line Borrowing and shall make
available to Agent in immediately available funds its Commitment
Percentage of such unpaid amount, together with interest from the date
when its payment was due to, but not including, the date of payment,
at the Default Rate. If a Lender does not promptly pay its amount
upon Agent's demand, and until Lender makes the required payment,
Agent is deemed to continue to have outstanding a Swing-Line Borrowing
in the amount of the Lender's unpaid obligation. Borrower shall make
each payment of all or any part of any Swing-Line Borrowing to Agent
for the ratable benefit of Agent and those Lenders who have funded
their participations in Swing-Line Borrowings under this section (but
all interest accruing on Swing- Line Borrowings before the funding
date of any participation is payable solely to Agent for its own
account).
2.5 Borrowing Notices and LC Requests. Each Borrowing Request
(whether telephonic or written), LC Request, and borrowing request under the
Swing-Line Subfacility, constitutes a representation and warranty by Borrower
that as of the Borrowing Date or the date of issuance of the requested LC, as
the case may be, all of the conditions precedent in SECTION 6 have been
satisfied.
2.6 Termination. Borrower may -- upon giving at least two
Business Days prior written and irrevocable notice to Agent -- terminate all or
part of the Revolving Facility as follows:
(a) Each partial termination of the Revolving Facility
must be in an amount of not less than $5,000,000 or a greater integral
multiple of $1,000,000.
(b) Each partial termination of the Revolving Facility
must be ratable in accordance with each Lender's Commitment
Percentage. At the time of any such termination, Borrower shall pay
to Agent, for the account of each Lender, as applicable, all accrued
and unpaid fees under this agreement, the interest attributable to the
amount of that termination, and any related Funding Loss. Any part of
the Commitments that are terminated may not be reinstated.
SECTION 3 TERMS OF PAYMENT.
3.1 Notes and Payments.
(a) Notes. Principal Debt under the Revolving Facility
(other than Principal Debt under the Swing- Line Subfacility) is
evidenced by the Revolving Notes, one payable to each Lender in the
stated amount of its initial Commitment. Principal Debt under the
Swing-Line Facility shall be evidenced by a Swing-Line Note payable to
Agent in the stated principal amount of $10,000,000.
(b) Payment. Borrower must make each payment and
prepayment on the Obligation to Agent's principal office in Dallas,
Texas in immediately available funds by 1:00 p.m. on the day due;
otherwise, but subject to SECTION 3.8, those funds continue to accrue
interest as if they were received on the next Business Day. Agent
shall promptly pay to each Lender the part of any payment or
prepayment to which that Lender is entitled under this agreement on
the same day Agent receives the funds from Borrower.
18 Restated Credit Agreement
<PAGE> 24
(c) Payment Assumed. Unless Agent has received notice
from Borrower prior to the date on which any payment is due under this
agreement that Borrower will not make that payment in full, Agent may
assume that Borrower has made the full payment due and Agent may, in
reliance upon that assumption, cause to be distributed to each Lender
on that date the amount then due to each Lender. If and to the extent
Borrower does not make the full payment due to Agent, each Lender
shall repay to Agent on demand the amount distributed to that Lender
by Agent together with interest for each day from the date that Lender
received payment from Agent until the date that Lender repays Agent
(unless such repayment is made on the same day as such distribution),
at an interest rate equal to the Federal-Funds Rate.
3.2 Interest and Principal Payments.
(a) Interest. Accrued interest on each LIBOR Borrowing
is due and payable on the last day of its respective Interest Period.
If any Interest Period for a LIBOR Borrowing is greater than three
months, then accrued interest is also due and payable on the date
three months after the commencement of the Interest Period. Until
converted to a LIBOR Borrowing under SECTION 3.10(b), accrued interest
on each Base-Rate Borrowing (including Swing-Line Borrowings) is due
and payable on the last day of each March, June, September, and
December -- commencing on the first of those dates that follows the
Closing Date -- on the Termination Date, and on the Final Maturity
Date (if Borrower has elected to convert the Principal Debt under the
Revolving Facility as provided in SECTION 3.2(b)(1)).
(b) Principal.
(1) Revolving Facility. The Principal Debt is
due and payable on the Termination Date. On the Termination
Date, Borrower shall have the option, upon 90 days prior
written notice to Agent, to convert the Principal Debt to a
Term Loan (all such loans by Lenders being herein collectively
called the "TERM LOAN") to be repaid as follows: in eight
equal quarterly installments on the last day of each March,
June, September and December (commencing on the first of those
dates occurring at least 90 days after the Termination Date),
with all unpaid principal, accrued unpaid interest, and any
applicable Funding Loss becoming finally due and payable on
the Final Maturity Date.
(2) Voluntary Prepayments. Before the occurrence
of the Termination Date or the Final Maturity Date, Borrower
may prepay, without penalty and in whole or in part, the
Principal Debt under the Revolving Facility or Term Loan, so
long as (i) each voluntary partial prepayment must be in a
principal amount not less than $1,000,000 or a greater
integral multiple of $100,000, (ii) Borrower shall give prior
written and irrevocable notice to Agent (A) at least two
Business Days before any prepayment of a LIBOR Borrowing or
(B) at least one Business Day before any prepayment of a
Base-Rate Borrowing, and (iii) Borrower shall pay any related
Funding Loss upon demand. Conversions under SECTION 3.10 are
not prepayments.
(c) Mandatory Prepayment Due to Total Commitment
Reduction. On each Commitment Reduction Date, the Total Commitment
shall be reduced by the Commitment Reduction Amount specified opposite
the respective Commitment Reduction Date on SCHEDULE 3.2. If, after
effecting a reduction of the Total Commitment, the Principal Debt
under the Revolving Facility should exceed the Total Commitment,
Borrower shall, within five (5) Business
19 Restated Credit Agreement
<PAGE> 25
Days, make a prepayment to Agent (with any related Funding Loss) under
the Revolving Facility so that the Principal Debt under the Revolving
Facility no longer exceeds the Total Commitment.
(d) Mandatory Prepayments Due to Securities Issuance.
Borrower may, from time to time, issue its debt or equity securities
(a "SUBJECT SECURITIES ISSUANCE"), provided that Borrower makes a
prepayment and the Total Commitment is reduced as follows:
(i) So long as the Total Commitment is greater
than $125,000,000, Borrower shall make a prepayment to Agent
equal to 100% of the net proceeds from any Subject Securities
Issuance, which mandatory prepayments are payable within three
(3) Business Days after such proceeds are received by
Borrower, at which time the Total Commitment shall be
permanently reduced by the amount of such prepayments,
provided that prepayments under this SECTION 3.2(d) shall not
cause the Total Commitment to be reduced below $125,000,000;
and
(ii) Each of the scheduled Commitment Reduction
Amounts occurring after the date such mandatory prepayments
are received by Agent shall be reduced by an amount equal to
the quotient of (A) the amount by which the Total Commitment
is permanently reduced under SECTION 3.2(d)(i) following
payment of the net proceeds of a Subject Securities Issuance,
divided by (B) the number of remaining Commitment Reduction
Dates as of the time that Agent received the net proceeds of
the Subject Securities Issuance.
For purposes of this section, "NET" means net of (i) transfer,
income, and other Taxes payable in connection with an
applicable transaction, and (ii) professional fees and
expenses, commissions, underwriting discounts and other
expenses incurred in connection with that transaction.
3.3 Interest Options. Borrowings under the Revolving Facility or
Term Loan, as the case may be, shall bear interest as follows:
(a) Revolving Facility and Term Loan. Borrowings under
the Revolving Facility (excluding Swing-Line Borrowings) and the Term
Loan shall bear interest at an annual rate equal to the lesser of
either (i) the Base Rate or LIBOR plus the Applicable Margin (in each
case as designated or deemed designated by Borrower), as the case may
be, or (ii) the Maximum Rate.
(b) Floating Rate Changes. Each change in the Base Rate
and Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.
3.4 Quotation of Rates. Borrower may call Agent before
delivering a Borrowing Request to receive an indication of the interest rates
then in effect, but the indicated rates do not bind Agent or Lenders or affect
the interest rate that is actually in effect when Borrower makes a Borrowing
Request or on the Borrowing Date.
3.5 Default Rate. If permitted by Law, all past-due Principal
Debt, Borrower's past-due payment and reimbursement obligations in connection
with LCs, and past-due interest accruing on any of the foregoing bears
interest from the date due (stated or by acceleration) at the Default Rate
until paid, regardless whether payment is made before or after entry of a
judgment.
20 Restated Credit Agreement
<PAGE> 26
3.6 Interest Recapture. If the designated interest rate
applicable to any Borrowing exceeds the Maximum Rate, the interest rate
on that Borrowing is limited to the Maximum Rate, but any subsequent reductions
in the designated rate shall not reduce the interest rate thereon below the
Maximum Rate until the total amount of accrued interest equals the amount of
interest that would have accrued if that designated rate had always been in
effect. If at maturity (stated or by acceleration), or at final payment of the
Notes, the total interest paid or accrued is less than the interest that would
have accrued if the designated rates had always been in effect, then, at that
time and to the extent permitted by Law, Borrower shall pay an amount equal to
the difference between (a) the lesser of the amount of interest that would have
accrued if the designated rates had always been in effect and the amount of
interest that would have accrued if the Maximum Rate had always been in effect,
and (b) the amount of interest actually paid or accrued on the Notes.
3.7 Interest Calculations. Interest will be calculated on the
basis of actual number of days (including the first day but excluding the last
day) elapsed but computed as if each calendar year consisted of 360 days
(unless the calculation would result in an interest rate greater than the
Maximum Rate, or in the case of interest on Base-Rate Borrowings in which event
interest will be calculated on the basis of a year of 365 or 366 days, as the
case may be). All interest rate determinations and calculations by Agent are
conclusive and binding absent manifest error.
3.8 Maximum Rate. Regardless of any provision contained in any
Loan Document, no Lender is entitled to contract for, charge, take, reserve,
receive, or apply, as interest on all or any part of the Obligation, any amount
in excess of the Maximum Rate, and, if Lenders ever do so, then any excess
shall be treated as a partial prepayment of principal and any remaining excess
shall be refunded to Borrower. In determining if the interest paid or payable
exceeds the Maximum Rate, Borrower and Lenders shall, to the maximum extent
permitted under applicable Law, (a) treat all Borrowings as but a single
extension of credit (and Lenders and Borrower agree that is the case and that
provision in this agreement for multiple Borrowings is for convenience only),
(b) characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (c) exclude voluntary prepayments and their effects, and (d)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the Obligation. However, if the Obligation is
paid in full before the end of its full contemplated term, and if the interest
received for its actual period of existence exceeds the Maximum Amount, Lenders
shall refund any excess (and Lenders may not, to the extent permitted by Law,
be subject to any penalties provided by any Laws for contracting for, charging,
taking, reserving, or receiving interest in excess of the Maximum Amount). If
the Laws of the State of Texas are applicable for purposes of determining the
"Maximum Rate" or the "Maximum Amount," then those terms mean the "indicated
rate ceiling" from time to time in effect under Article 5069-1.04, Title 79,
Revised Civil Statutes of Texas, as amended. Borrower agrees that Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended (which regulates
certain revolving credit loan accounts and revolving triparty accounts), does
not apply to the Obligation.
3.9 Interest Periods. When Borrower requests any LIBOR Borrowing,
Borrower may elect the applicable interest period (each an "INTEREST PERIOD"),
which may be, at Borrower's option, one, two, three, or six months for LIBOR
Borrowings, subject to SECTION 14.1 and the following conditions: (a) the
initial Interest Period for a LIBOR Borrowing commences on the applicable
Borrowing Date or conversion date, and each subsequent Interest Period
applicable to any Borrowing commences on the day when the next preceding
applicable Interest Period expires; (b) if any Interest Period for a LIBOR
Borrowing begins on a day for which no numerically corresponding Business Day
in the calendar month at the end of the Interest Period exists, then the
Interest Period ends on the last Business Day of that calendar month; (c) if
Borrower is required to pay any portion of a LIBOR Borrowing before the end of
its Interest Period in
21 Restated Credit Agreement
<PAGE> 27
order to comply with the payment provisions of the Loan Documents, Borrower
shall also pay any related Funding Loss; and (d) no more than ten Interest
Periods may be in effect at one time.
3.10 Conversions. Subject to the dollar limits of SECTION 2.1(a)
and provided that Borrower may not convert to or select a new Interest Period
for a LIBOR Borrowing at any time when a Default or Potential Default exists,
Borrower may (a) convert a LIBOR Borrowing on the last day of the applicable
Interest Period to a Base-Rate Borrowing, (b) convert a Base-Rate Borrowing at
any time to a LIBOR Borrowing, and (c) elect a new Interest Period for a LIBOR
Borrowing. That election may be made by telephonic request to Agent no later
than 12:00 p.m. noon on the third Business Day before the conversion date or
the last day of the Interest Period, as the case may be (for conversion to a
LIBOR Borrowing or election of a new Interest Period), and no later than 12:00
p.m. noon on the last day of the Interest Period (for conversion to a Base-Rate
Borrowing). Borrower shall provide a Conversion Notice to Agent no later than
two days after the date of the conversion or election. Absent Borrower's
telephonic request for conversion or election of a new Interest Period or if a
Default or Potential Default exists, then, a LIBOR Borrowing shall be deemed
converted to a Base-Rate Borrowing effective when the applicable Interest
Period expires.
3.11 Order of Application.
(a) No Default. If no Default or Potential Default
exists, any payment shall be applied to the Obligation -- except as
otherwise specifically provided in the Loan Documents -- in the order
and manner as Borrower directs.
(b) Default. If a Default or Potential Default exists or
if Borrower fails to give direction, any payment (including proceeds
from the exercise of any Rights) shall be applied in the following
order: (i) to all fees and expenses for which Agent or Lenders have
not been paid or reimbursed in accordance with the Loan Documents (and
if such payment is less than all unpaid or unreimbursed fees and
expenses, then the payment shall be paid against unpaid and
unreimbursed fees and expenses in the order of incurrence or due
date); (ii) to accrued interest on the Principal Debt; (iii) to the
Principal Debt outstanding under the Swing-Line Facility; (iv) to any
LC reimbursement obligations that are due and payable and that remain
unfunded by any Borrowing; (v) to the remaining Principal Debt in the
order as Determining Lenders may elect (but Determining Lenders agree
to apply proceeds in an order that will minimize any Funding Loss);
(vi) to the remaining Obligation in the order and manner Determining
Lenders deem appropriate; and (vii) as a deposit with Agent, for the
benefit of Lenders, as security for and payment of any subsequent LC
reimbursement obligations.
(c) Pro Rata. Each payment or prepayment shall be
distributed to each Lender in accordance with its Pro Rata Part of
that payment or prepayment.
3.12 Sharing of Payments, Etc.. If any Lender obtains any payment
or prepayment with respect to the Obligation (whether voluntary, involuntary,
or otherwise, including, without limitation, as a result of exercising its
Rights under SECTION 3.13) that exceeds the part of that payment or prepayment
that it is then entitled to receive under the Loan Documents, then that Lender
shall purchase from the other Lenders participations that will cause the
purchasing Lender to share the excess payment or prepayment ratably with each
other Lender. If all or any portion of any excess payment or prepayment is
subsequently recovered from the purchasing Lender, then the purchase shall be
rescinded and the purchase price restored to the extent of the recovery.
Borrower agrees that any Lender purchasing a participation from another Lender
under this section may, to the fullest extent permitted by Law, exercise all of
its Rights of payment
22 Restated Credit Agreement
<PAGE> 28
(including the Right of offset) with respect to that participation as fully as
if that Lender were the direct creditor of Borrower in the amount of that
participation.
3.13 Offset. If a Default exists, each Lender is entitled to
exercise (for the benefit of all Lenders in accordance with SECTION 3.12) the
Rights of offset and banker's lien against each and every account (excluding
Settlement Aggregation Accounts) and other property, or any interest therein,
that any Company may now or hereafter have with, or which is now or hereafter
in the possession of, that Lender to the extent of the full amount of the
Obligation owed (directly or participated) to it.
3.14 Booking Borrowings. To the extent permitted by Law, any
Lender may make, carry, or transfer its Borrowings at, to, or for the account
of any of its branch offices or the office or branch of any of its Affiliates.
However, no Affiliate or branch is entitled to receive any greater payment
under SECTION 3.16 than the transferor Lender would have been entitled to
receive with respect to those Borrowings, and a transfer may not be made if, as
a direct result of it, SECTION 3.15 or 3.17 would apply to any of the
Obligation. If any of the conditions of SECTIONS 3.16 or 3.17 ever apply to a
Lender, that Lender shall, to the extent possible, carry or transfer its
Borrowings at, to, or for the account of any of its branch offices or the
office or branch of any of its Affiliates so long as the transfer is consistent
with the other provisions of this section, does not create any burden or
adverse circumstance for that Lender that would not otherwise exist, and
eliminates or ameliorates the conditions of SECTIONS 3.16 or 3.17 as
applicable.
3.15 Basis Unavailable or Inadequate for LIBOR. If, on or before
any date when LIBOR is to be determined for a Borrowing, Agent reasonably
determines that the basis for determining the applicable rate is not available
or any Lender reasonably determines that the resulting rate does not accurately
reflect the cost to that Lender of making or converting Borrowings at that rate
for the applicable Interest Period, then Agent shall promptly notify Borrower
and Lenders of that determination (which is conclusive and binding on Borrower
absent manifest error) and the applicable Borrowing shall bear interest at the
Base Rate. Until Agent notifies Borrower that those circumstances no longer
exist, Lenders' commitments under this agreement to make, or to convert to,
LIBOR Borrowings, as the case may be, are suspended.
3.16 Additional Costs. Each Lender severally and not jointly
agrees to notify Agent, the other Lenders, and Borrower within 180 days after
it has actual knowledge that any circumstances exist that would give rise to
any payment obligation by Borrower under CLAUSES (a) through (c) below.
Although no Lender shall have any liability to Agent, any other Lender, or any
Company for its failure to give that notice, Borrower is not obligated to pay
any amounts under those clauses that arise, accrue, or are imposed more than
180 days before that notice to the extent it is applicable to those amounts.
Any Lender demanding payment of any additional costs under this section must
generally be making similar demand for similar additional costs under credit
agreements to which it is party that contain similar provisions to this
section.
(a) Reserves. With respect to any LIBOR Borrowing (i) if
any change in any present Law, any change in the interpretation or
application of any present Law, or any future Law imposes, modifies,
or deems applicable (or if compliance by any Lender with any
requirement of any Tribunal results in) any requirement that any
reserves (including, without limitation, any marginal, emergency,
supplemental, or special reserves) be maintained (other than any
reserve included in the Reserve Requirement), and if (ii) those
reserves reduce any sums receivable by that Lender under this
agreement or increase the costs incurred by that Lender in advancing
or maintaining any portion of any LIBOR Borrowing, then (iii) that
Lender (through Agent) shall
23 Restated Credit Agreement
<PAGE> 29
deliver to Borrower a certificate setting forth in reasonable detail
the calculation of the amount necessary to compensate it for its
reduction or increase (which certificate is conclusive and binding
absent manifest error), and (iv) Borrower shall pay that amount to
that Lender within five Business Days after demand. The provisions of
and undertakings and indemnification in this CLAUSE (a) survive the
satisfaction and payment of the Obligation and termination of this
agreement.
(b) Capital Adequacy. With respect to any Borrowing or
LC, if any change in any present Law, any change in the interpretation
or application of any present Law, or any future Law regarding capital
adequacy, or if compliance by Issuing Lender or any Lender with any
request, directive, or requirement imposed in the future by any
Tribunal regarding capital adequacy, or if any change in its written
policies or in the risk category of this transaction, in any of the
foregoing events or circumstances, reduces the rate of return on its
capital as a consequence of its obligations under this agreement to a
level below that which it otherwise could have achieved (taking into
consideration its policies with respect to capital adequacy) by an
amount deemed by it to be material (and it may, in determining the
amount, utilize reasonable assumptions and allocations of costs and
expenses and use any reasonable averaging or attribution method), then
(unless the effect is already reflected in the rate of interest then
applicable under this agreement) Agent or that Lender (through Agent)
shall notify Borrower and deliver to Borrower a certificate setting
forth in reasonable detail the calculation of the amount necessary to
compensate it (which certificate is conclusive and binding absent
manifest error), and Borrower shall pay that amount to Agent or that
Lender within five Business Days after demand. Notwithstanding the
foregoing sentence, Borrower shall not be obligated to pay such amount
unless notice thereof is given within 90 Business Days after any such
Lender actually incurs such reduction in its return. Lenders are not
aware of any event which would so reduce their rate of return as of
the date hereof. If any such event giving rights to a demand by any
Lender for compensation under this SECTION 3.16(b) occurs specifically
with respect to such Lender, and generally with respect to national
banks similarly situated for loans of the same classification,
Borrower may elect to prepay the Obligation in full within 120 days
after receipt of the above-described certificate from Agent by giving
written notice to Agent or that Lender through Agent) of such election
not more than five Business Days after receipt of such certificate
from Agent; provided, however, that if Borrower does not prepay the
Obligation within such 120-day period despite having given such
notice, this agreement shall remain in full force and effect as if
such notice was never given. The provisions of and undertakings and
indemnification in this CLAUSE (b) shall survive the satisfaction and
payment of the Obligation and termination of this agreement.
(c) HLT. Neither Borrower nor any Lender is aware of any
circumstances which would result in classifying this transaction as a
"highly leveraged transaction" as of the Closing Date under "HLT"
guidelines promulgated by any Tribunal (including, without limitation,
the Office of the Comptroller of the Currency). If any Tribunal or
any Lender (as it interprets "HLT guidelines" promulgated by any
Tribunal) classifies this transaction as a "highly leveraged
transaction," such Lender (through Agent) shall promptly notify
Borrower of such classification and the applicable interest rate
margin in all contexts shall be increased by 1% as of the date of such
notice.
(d) Taxes. Subject to SECTION 3.19, any Taxes payable by
Agent or any Lender or ruled (by a Tribunal) payable by Agent or any
Lender in respect of this agreement or any other Loan Document shall,
if permitted by Law, be paid by Borrower, together with interest and
penalties, if any, except for Taxes payable on or measured by the
overall net income of Agent or
24 Restated Credit Agreement
<PAGE> 30
that Lender (or Agent or that Lender, as the case may be, together
with any other Person with whom Agent or that Lender files a
consolidated, combined, unitary, or similar Tax return) and except for
interest and penalties incurred as a result of the gross negligence or
willful misconduct of Agent or any Lender. Agent or that Lender
(through Agent) shall notify Borrower and deliver to Borrower a
certificate setting forth in reasonable detail the calculation of the
amount of payable Taxes, which certificate is conclusive and binding
(absent manifest error), and Borrower shall pay that amount to Agent
for its account or the account of that Lender, as the case may be
within five Business Days after demand. If Agent or that Lender
subsequently receives a refund of the Taxes paid to it by Borrower,
then the recipient shall promptly pay the refund to Borrower.
3.17 Change in Laws. If any Law makes it unlawful for any Lender
to make or maintain LIBOR Borrowings, then that Lender shall promptly notify
Borrower and Agent, and (a) as to undisbursed funds, that requested Borrowing
shall be made as a Base-Rate Borrowing, and (b) as to any outstanding Borrowing
(i) if maintaining the Borrowing until the last day of the applicable Interest
Period is unlawful, the Borrowing shall be converted to a Base-Rate Borrowing
as of the date of notice, in which event Borrower will be required to pay any
related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be
converted to a Base-Rate Borrowing as of the last day of the applicable
Interest Period, or (iii) if any conversion will not resolve the unlawfulness,
Borrower shall promptly prepay the Borrowing, without penalty but with related
Funding Loss.
3.18 FUNDING LOSS. BORROWER SHALL INDEMNIFY EACH LENDER AGAINST,
AND PAY TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER. WHEN ANY LENDER
DEMANDS THAT BORROWER PAY ANY FUNDING LOSS, THAT LENDER SHALL DELIVER TO
BORROWER AND AGENT A CERTIFICATE SETTING FORTH IN REASONABLE DETAIL THE BASIS
FOR IMPOSING THE FUNDING LOSS AND THE CALCULATION OF THE AMOUNT, WHICH
CALCULATION IS CONCLUSIVE AND BINDING ABSENT MANIFEST ERROR. THE PROVISIONS OF
AND UNDERTAKINGS AND INDEMNIFICATION IN THIS SECTION SURVIVE THE SATISFACTION
AND PAYMENT OF THE OBLIGATION AND TERMINATION OF THIS AGREEMENT.
3.19 Foreign Lenders, Participants, and Assignees. Each Lender,
Participant (by accepting a participation interest under this agreement), and
Assignee (by executing an Assignment) that is not organized under the Laws of
the United States of America or one of its states (a) represents to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower
with respect to any payments to be made to it in respect of the Obligation and
(ii) it has furnished to Agent and Borrower two duly completed copies of either
U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form
acceptable to Agent and Borrower that entitles it to a complete exemption from
U.S. federal withholding Tax on all interest or fee payments under the Loan
Documents, and (b) covenants to (i) provide Agent and Borrower a new Form 4224,
Form 1001, Form W-8, or other form acceptable to Agent and Borrower upon the
expiration or obsolescence according to Law of any previously delivered form,
duly executed and completed by it, entitling it to a complete exemption from
U.S. federal withholding Tax on all interest and fee payments under the Loan
Documents, and (ii) comply from time to time with all Laws with regard to the
withholding Tax exemption. If any of the foregoing is not true at any time or
the applicable forms are not provided, then Borrower and Agent (without
duplication) may deduct and withhold from interest and fee payments under the
Loan Documents any Tax at the maximum rate under the Code or other applicable
Law, and amounts so deducted and withheld shall be treated as paid to that
Lender, Participant, or assignee, as the case may be, for all purposes under
the Loan Documents.
SECTION 4 FEES.
25 Restated Credit Agreement
<PAGE> 31
4.1 Treatment of Fees. The fees described in this SECTION 4
represent compensation for services rendered and to be rendered separate and
apart from the lending of money or the provision of credit, and (a) are not
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this agreement, (c) are payable in accordance with SECTION 3.1, (d) are
non-refundable, (e) to the fullest extent permitted by Law, bear interest, if
not paid when due, at the Default Rate and (f) are calculated on the basis of a
year of 360 days.
4.2 Agent's Fees. Borrower shall pay to Agent, solely for its own
account, the arrangement fee described in the letter agreement (as it may be
renewed, extended, or modified) dated as of May 31, 1996, between Borrower and
Agent.
4.3 LC Fees. As an inducement for the issuance (including,
without limitation, the extension) of each LC, Borrower agrees to pay to Agent:
(a) For the account of each Lender, according to each
Lender's Commitment Percentage on the day the fee is payable, an
issuance fee, payable quarterly in arrears, equal to a percentage of
the undrawn amount of that LC at the end of each applicable quarterly
period, which percentage is equal to 100% of the Applicable Margin in
effect for LIBOR Borrowings on the first day of the quarterly period
for which a payment is payable;
(b) For the account of Issuing Lender, payable on the
date of issuance, a fronting fee of $300.00; and
(c) For the account of Issuing Lender, amendment,
transfer, negotiation, and other fees as determined and payable in
accordance with Agent's then current fee policy.
4.4 Commitment Fees.
(a) From and after the Closing Date, Borrower shall pay
to Agent a commitment fee for Lenders according to each Lender's
Commitment Percentage. The fee is payable as it accrues on the last
day of each March, June, September, and December -- commencing on June
30, 1996 -- and on the Termination Date. Each payment of the fee is
equal to the following, determined for the calendar quarter (or
portion of a calendar quarter commencing on the date of this agreement
or ending on such later Termination Date) preceding and including the
date it is due: from the Closing Date until the Termination Date, the
product of (i) the Applicable Percentage, times (ii) the amount by
which the average-daily Total Commitment exceed the sum of the
average-daily Commitment Usage, times (iii) a fraction with the number
of days in the applicable quarter or portion of it as the numerator
and 360 as the denominator.
[(b) From and after the Closing Date, Agent agrees to pay
a commitment fee to each Lender (other than Agent) according to each
Lender's Commitment Percentage, as it accrues on the last day of each
March, June, September, and December -- commencing on June 30, 1996 --
and on the Termination Date. Each payment of such fee is equal to the
following, determined for the calendar quarter (or portion of a
calendar quarter commencing on the date of this agreement or ending on
such later Termination Date) preceding and including the date it is
due; from the Closing Date until the Termination Date, the product of
the (i) Applicable Percentage, times (ii) such Lender's Commitment
Percentage, times (iii) the aggregate principal amount of all
Swing-Line Borrowings advanced by Agent to Borrower during the
applicable quarter or portion
26 Restated Credit Agreement
<PAGE> 32
of it, times (iv) a fraction with the number of days in the applicable
quarter or portion of it on which there was Principal Debt under the
Swing-Line Subfacility as the numerator and 360 as the denominator.]
SECTION 5 SECURITY.
5.1 Guaranty. In consideration of the LCs which may be issued by
Issuing Lender under this agreement on behalf of each Company, and in
consideration of the intercompany advances which may be made by Borrower to its
Subsidiaries, and by Borrower's direct Subsidiaries to Borrower's indirect
Subsidiaries, in accordance with SECTION 2.1(c), Borrower shall cause all of
its present and future direct Subsidiaries, and each indirect Subsidiary --
whether now existing or in the future formed or acquired as permitted by the
Loan Documents -- to unconditionally guarantee the full payment and performance
of the Obligation by execution of a Guaranty.
5.2 Collateral. If the Funded Debt/EBITDA Ratio is ever greater
than 2.50 to 1.00, upon 10 days earlier notice, Borrower shall cause the full
payment and performance of the Obligation to be secured by Lender Liens on such
items and types of property then owned or thereafter acquired by any Company,
or any of their present or future Subsidiaries, as may be requested by Agent or
Determining Lenders, in their sole discretion.
5.3 Additional Security and Guaranties. Lender may, without
notice or demand and without affecting any Company's (or any other Person's)
obligations under the Loan Documents, from time to time (a) receive from any
Person and hold collateral for the payment of all or any part of the Obligation
and exchange, enforce, or release such collateral or any part thereof and (b)
accept and hold any endorsement or guaranty of payment of all or any part of
the Obligation and release such endorser or guarantor, or any Person who has
given any other security for the payment of all or any part of the Obligation,
or any other Person in any way obligated to pay all or any part of the
Obligation.
5.4 Further Assurances. Borrower covenants and agrees that the
Lender Liens, when required as described in SECTION 5.2, must be created and
perfected as a condition to funding any Borrowings or issuance of any LC.
Furthermore, Borrower shall -- and shall cause each other appropriate Company
to -- perform the acts, duly authorize, execute, acknowledge, deliver, file,
and record any additional writings, and pay all filings fees and costs as Agent
or Determining Lenders may reasonably deem appropriate or necessary to perfect
and maintain the Lender Liens and preserve and protect the Rights of Agent and
Lenders under any Loan Document.
5.5 Release of Collateral. Agent shall, upon Borrower's written
request and at Borrower's cost and expense, cause the Lender Liens on all
Collateral to be released:
(a) If the conditions described in SECTION 5.2 have
occurred, and after such occurrence Borrower has maintained the Funded
Debt/EBITDA Ratio to be less than 2.00 to 1.00 for two consecutive
fiscal quarters, provided that no Potential Default or Default has
occurred; or
(b) Whenever no Lender has any commitment to extend
credit under any Loan Document, the Obligation has been fully paid and
performed, and all uncancelled and undrawn LCs have been either fully
cash secured or backed by letters of credit acceptable in the sole
discretion of Issuing Lender.
27 Restated Credit Agreement
<PAGE> 33
SECTION 6 CONDITIONS PRECEDENT. No Lender is obligated to fund the
initial Borrowing or issue any LC unless (a) Agent has received all of the
items described in PART A on SCHEDULE 6; (b) Agent and its counsel have
completed due diligence satisfactory to each, including without limitation, a
review of financial projections of Borrower, including statements of income,
balance sheets, and cash flow statements; (c) Agent has received and reviewed
to its satisfaction unaudited financial statements of Borrower for the quarter
ended March 31, 1996, certified by a senior financial officer of Borrower; (d)
the "Initial Purchase Price" (as defined in the Stock Purchase Agreement) for
the acquisition of all issued and outstanding capital stock of Genix does not
exceed a cash payment of $137,500,000; (e) any required approvals or consents,
including without limitation, all approvals and consents required from any
third party or Tribunal in connection with Borrower's acquisition of all issued
and outstanding capital stock of Genix, shall have been obtained and remain in
effect, excluding consents to change in control from customers of Genix (or its
Subsidiaries) under the following material contracts: (1) Alliance License
Agreement between Genix and computer Associates International, Inc, dated as of
March 31, 1995, as amended; and (2) customer contracts listed under subsection
(f) of Schedule 3.13 of the Stock Purchase Agreement, item numbers 2 (Royal
Indemnity), 3 (H.J. Heinz), 4 (American Standard), 5 (Wheeling Pitt), 10
(Borden Foods), 11 (Handelman), 16 Coca Cola Enterprises), and 25 (Remington
Arms); and (f) the legal and capital structure of the Companies, after giving
effect to the acquisition of Genix, shall be satisfactory to Agent and Lenders.
In addition, no Lender is obligated to fund (as opposed to continue or convert)
any Borrowing or issue any LC, and Agent will not be obligated to issue any LC
or fund any Swing-Line Borrowing, as the case may be, unless on the applicable
Borrowing Date or issue date (and after giving effect to the requested
Borrowing or LC), as the case may be: (u) Agent (and Issuing Lender, if
applicable) timely receives a Borrowing Request or LC Request (together with
the applicable LC Agreement), as the case may be; (v) Issuing Lender receives
any applicable LC fee then due and payable; (w) all of the representations and
warranties of the Companies in the Loan Documents are true and correct in all
material respects (unless they speak to a specific date or are based on facts
which have changed by transactions contemplated or expressly permitted by this
agreement); (x) no Material Adverse Event, Default, or Potential Default
exists; (y) none of the matters disclosed in any amendments to SCHEDULES 7.8 or
7.10 are objected to by Determining Lenders; and (z) no limitation in SECTION
2.1 or 2.3 is exceeded. Each Borrowing Request and LC Request, however
delivered, constitutes Borrower's representation and warranty that the
conditions in CLAUSES (w) through (z) above are satisfied. Upon either Agent's
or any Lender's reasonable request, Borrower shall deliver to that Agent or
that Lender evidence substantiating any of the matters in the Loan Documents
that are necessary to enable Borrower to qualify for the Borrowing or LC, as
the case may be. Each condition precedent in this agreement (including,
without limitation, those on SCHEDULE 6) is material to the transactions
contemplated by this agreement, and time is of the essence with respect to each
condition precedent.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Agent and Lenders as follows:
7.1 Purpose and Regulations G and U.
(a) Borrower will use the proceeds of the Revolving
Facility (including the LC Subfacility and the Swing-Line Subfacility)
for (i) the acquisition of all of the issued and outstanding capital
stock of Genix, (ii) the working capital and general corporate
purposes of itself and any Company that has executed a Guaranty, and
(iii) other acquisitions that are permitted under SECTION 9.
(b) No Company is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" within
28 Restated Credit Agreement
<PAGE> 34
the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System, as amended. No part of the proceeds of any LC
draft or drawing or Borrowing will be used, directly or indirectly,
for a purpose that violates any Law, including, without limitation,
Regulations G or U.
7.2 Corporate Existence, Good Standing, and Authority. Each
Company is duly organized, validly existing, and in good standing under the
Laws of its jurisdiction of incorporation. Except where not a Material Adverse
Event, each Company is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction where the nature and
extent of its business and properties require due qualification and good
standing (each of which jurisdictions is identified on SCHEDULE 7.3, as
supplemented from time to time by an amendment to that schedule that is dated,
executed, and delivered by Borrower to Agent and Lenders to reflect changes in
that schedule as a result of transactions permitted by the Loan Documents).
Each Company possesses all requisite authority and power to conduct its
business as is now being conducted and as proposed under the Loan Documents to
be conducted and to own and operate its assets as now owned and operated and as
proposed to be owned and operated under the Loan Documents.
7.3 Subsidiaries and Names. SCHEDULE 7.3 -- as supplemented from
time to time by an amendment to that schedule that is dated, executed, and
delivered by Borrower to Agent and Lenders to reflect changes in that schedule
as a result of transactions permitted by the Loan Documents -- describes (a)
all of Borrower's direct and indirect Subsidiaries, (b) all Companies, (c)
every name or trade name used by each Company during the five-year period
before the date of this agreement, (d) every change of each Company's name
during the four-month period before the date of this agreement, (e) the chief
executive office of each Company, (f) the percentage of shares of outstanding
capital stock of each Subsidiary held by Company, and (g) the Company holding
such stock. All of the outstanding shares of capital stock (or similar voting
interests) of Borrower's Subsidiaries are (a) duly authorized, validly issued,
fully paid, and nonassessable, (b) owned of record and beneficially as
described in that schedule or those writings, free and clear of any Liens,
except Permitted Liens, and (c) not subject to any warrant, option, or other
acquisition Right of any Person or subject to any transfer restriction except
restrictions imposed by securities Laws and general corporate Laws.
7.4 Authorization and Contravention. The execution and delivery
by each Company of each Loan Document to which it is a party and the
performance by it of its obligations under those Loan Documents (a) are within
its corporate power, (b) have been duly authorized by all necessary corporate
action, (c) require no action by or filing with any Tribunal (except any action
or filing that has been taken or made on or before the Closing Date), (d) do
not violate any provision of its charter or bylaws, and (e) do not violate any
provision of Law applicable to it or any material agreement to which it is a
party except violations that individually or collectively are not a Material
Adverse Event.
7.5 Binding Effect. Upon execution and delivery by all parties to
it, each Loan Document will constitute a legal and binding obligation of each
Company party to it, enforceable against it in accordance with that Loan
Document's terms except as that enforceability may be limited by Debtor Laws
and general principles of equity.
7.6 Financials and Existing Debt. The Current Financials were
prepared in accordance with GAAP and present fairly, in all material respects,
the Companies' consolidated financial condition, results of operations, and
cash flows as of, and for the portion of the fiscal year ending on their dates
(subject only to normal year-end adjustments for interim statements). Except
for transactions directly related to, specifically contemplated by, or
expressly permitted by the Loan Documents or as disclosed in the reports
29 Restated Credit Agreement
<PAGE> 35
filed by Borrower pursuant to the Securities and Exchange Act of 1934 and
delivered to Agent and Lenders after the date of the Current Financials, no
material adverse changes have occurred in the Companies' consolidated financial
condition from that shown in the Current Financials.
7.7 Solvency. Except as disclosed on SCHEDULE 7.7, on each
Borrowing Date and the date any LC is issued, each Company, is -- and after
giving effect to the requested Borrowing or LC will be -- Solvent. As of the
Closing Date, the Companies disclosed on SCHEDULE 7.7 are immaterial to
Borrower's consolidated balance sheet.
7.8 Litigation. Except as disclosed on SCHEDULE 7.8 -- as
supplemented from time to time, subject to SECTION 6(e), by an amendment to
that schedule that is dated, executed, and delivered by Borrower to Agent and
Lenders to reflect changes in that schedule -- and matters covered (subject to
reasonable and customary deductible and retention) by insurance or
indemnification agreements (a) no Company is subject to, or aware of the threat
of, any Litigation that is reasonably likely to be determined adversely to any
Company and, if so adversely determined, is a Material Adverse Event, and (b)
no outstanding and unpaid judgments against any Company exist that would be a
Material Adverse Event.
7.9 Taxes. Except as disclosed on SCHEDULE 7.8, (a) all Tax
returns of each Company required to be filed have been filed (or extensions
have been granted) before delinquency, and (b) all Taxes imposed upon each
Company that are due and payable have been paid before delinquency except as
being contested as permitted by SECTION 8.5.
7.10 Environmental Matters. Except as disclosed on SCHEDULE 7.10
- -- as supplemented from time to time, subject to SECTION 6(e), by an amendment
to that schedule that is dated, executed, and delivered by Borrower to Agent
and Lenders to reflect changes in that schedule:
(a) No Company's ownership of its assets violates any
applicable Environmental Law, other than such violations which would
not constitute a Material Adverse Event.
(b) No Company has received notice from any Tribunal that
it has actual or potential Environmental Liability and no Company has
knowledge that it has any Environmental Liability, which actual or
potential Environmental Liability in either case constitutes a
Material Adverse Event.
(c) No Company has received notice from any Tribunal that
any Real Property is affected by, and no Company has knowledge that
any Real Property is affected by, any Release of any Hazardous
Substance which constitutes a Material Adverse Event.
7.11 Employee Plans. Except as disclosed on SCHEDULE 7.11, (a) no
Employee Plan subject to ERISA has incurred an "accumulated funding deficiency"
(as defined in Section 302 of ERISA or Section 512 of the Code), (b) neither
Borrower nor any ERISA Affiliate has incurred liability -- except for
liabilities for premiums that have been paid or that are not past due -- under
ERISA to the PBGC in connection with any Employee Plan, (c) neither Borrower
nor any ERISA Affiliate has withdrawn in whole or in part from participation in
a Multiemployer Plan in a manner that has given rise to a withdrawal liability
under Title IV of ERISA, (d) neither Borrower nor any ERISA Affiliate has
engaged in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code), (e) no "reportable event" (as defined in Section
4043 of ERISA) has occurred excluding events for which the notice requirement
is waived under applicable PBGC regulations, (f) neither Borrower nor any ERISA
Affiliate has any liability, or is subject to any Lien, under ERISA or the Code
to or on account of any
30 Restated Credit Agreement
<PAGE> 36
Employee Plan, (g) each Employee Plan subject to ERISA and the Code complies in
all material respects, both in form and operation, with ERISA and the Code, and
(h) no Multiemployer Plan subject to the Code is in reorganization within the
meaning of Section 418 of the Code.
7.12 Properties; Liens. Each Company has good and marketable title
to all its property reflected on the Current Financials as being owned by it
except for property that is obsolete or that has been disposed of in the
ordinary course of business between the date of the Current Financials and the
date of this agreement or, after the date of this agreement, as permitted by
SECTION 9.11 or SECTION 9.12. No Lien exists on any property of any Company
except Permitted Liens. No Company is party or subject to any agreement,
instrument, or order which in any way restricts any Company's ability to allow
Liens to exist upon any of its assets except relating to Permitted Liens.
7.13 Government Regulations. No Company is subject to regulation
under (a) the Public Utility Holding Company Act 1935, the Federal Power Act,
the Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other Law (other than Regulation X of
the Board Governors of the Federal Reserve System) which regulates the
incurrence of Debt, or (b) a "utility" as defined in Chapter 35 of the Texas
Business and Commerce Code, as amended.
7.14 Transactions with Affiliates. Except for transactions with
other Companies and as otherwise disclosed on SCHEDULE 7.14 or permitted by
SECTION 9.7, no Company is a party to a material transaction with any of its
Affiliates. For purposes of this SECTION 7.14, such transactions are
"material" if they, individually or in the aggregate, require any Company to
pay more than $1,000,000.00 over the course of such transactions.
7.15 Debt. No Company has any Debt except Permitted Debt.
7.16 Leases. Except as disclosed on SCHEDULE 7.8, (a) each Company
enjoys peaceful and undisturbed possession under all leases necessary for the
operation of its properties and assets, and (b) all material leases under which
any Company is a lessee are in full force and effect.
7.17 Labor Matters. (a) No actual or threatened strikes, labor
disputes, slow downs, walkouts, work stoppages, or other concerted
interruptions of operations that involve employees of any Company as of the
date hereof (and, with respect to each repetition of this representation under
SECTION 6, there are no such interruptions which could constitute a Material
Adverse Event), (b) hours worked by and payment made to the employees of any
Company or any predecessor of such Company have not been in violation of the
Fair Labor Standards Act or any other applicable Laws pertaining to labor
matters, (c) all payments due from any Company for employee health and welfare
insurance, including, without limitation, workers compensation insurance, have
been paid or accrued as a liability on its books, (d) the business activities
and operations of each Company are in compliance with OSHA and other applicable
health and safety Laws.
7.18 Intellectual Property. (a) Each Company owns or has the right
to use all material licenses, patents, patent applications, copyrights, service
marks, trademarks, trademark applications and trade names necessary to continue
to conduct its businesses as presently conducted by it and proposed to be
conducted by it immediately after the date of this agreement, (b) each Company
is conducting its business without infringement or claim of infringement of any
license, patent, copyright, service mark, trademark, trade name, trade secret
or other intellectual property right of others, and (c) no infringement or
claim of infringement by others of any material license, patent, copyright,
service mark, trademark, trade name, trade secret or other intellectual
property of any Company exists.
31 Restated Credit Agreement
<PAGE> 37
7.19 Insurance. Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against such casualties and
contingencies and in such types and in such amounts (and with co-insurance and
deductibles) as is customary in the case of same or similar businesses.
7.20 Full Disclosure. Each material fact or condition relating to
the Loan Documents or the financial condition or prospects, business, or
property of the Companies that is a Material Adverse Event has been disclosed
in writing to Agent and Lenders. All information previously furnished to Agent
or any Lender in connection with the Loan Documents was -- and all information
furnished in the future by any Company to Agent or any Lender will be -- true
and accurate in all material respects or based on reasonable estimates on the
date the information is stated or certified.
SECTION 8 AFFIRMATIVE COVENANTS. For so long as any Lender is committed
to lend or issue LCs under this agreement and until the Obligation has been
fully paid and performed, Borrower covenants and agrees with Agent and Lenders
that, without first obtaining Agent's written notice of Determining Lenders'
consent to the contrary:
8.1 Certain Items Furnished. Borrower shall furnish the following
to each Lender:
(a) Annual Financials, Etc. Promptly after preparation
but no later than 90 days after the last day of each fiscal year of
Borrower, Financials showing the Companies' consolidated financial
condition and results of operations as of, and for the year ended on,
that last day, accompanied by (i) the opinion, without material
qualification, of Price Waterhouse LLP or other firm of
nationally-recognized independent certified public accountants
reasonably acceptable to Determining Lenders, based on an audit using
generally accepted auditing standards, that the consolidated portion
of those Financials were prepared in accordance with GAAP and present
fairly, in all material respects, the Companies' consolidated
financial condition and results of operations, and (ii) a Compliance
Certificate.
(b) Quarterly Financials, Etc. Promptly after
preparation but no later than 60 days after the last day of each of
the first three fiscal quarters of Borrower each year, Financials
showing the Companies' consolidated financial condition and results of
operations for that fiscal quarter and for the period from the
beginning of the current fiscal year to the last day of that fiscal
quarter, accompanied by a Compliance Certificate.
(c) Other Reports. Promptly after preparation thereof,
true copies of all reports, statements, documents, plans and other
written communications furnished by or on behalf of Borrower to its
stockholders, the Securities and Exchange Commission, or the PBGC,
and, if requested by Agent, any other Tribunal.
(d) Employee Plans. As soon as possible and within 30
days after Borrower knows that any event which would constitute a
reportable event under Section 4043(b) of Title IV of ERISA with
respect to any Employee Plan subject to ERISA has occurred, or that
the PBGC has instituted or will institute proceedings under ERISA to
terminate that plan, deliver a certificate of a Responsible Officer of
Borrower setting forth details as to that reportable event and the
action which Borrower or an ERISA Affiliate, as the case may be,
proposes to take with respect to it, together with a copy of any
notice of that reportable event which may be required to be filed with
the PBGC, or any notice delivered by the PBGC evidencing its intent to
institute those
32 Restated Credit Agreement
<PAGE> 38
proceedings or any notice to the PBGC that the plan is to be
terminated, as the case may be. For all purposes of this section,
Borrower is deemed to have all knowledge of all facts attributable to
the plan administrator under ERISA.
(e) Other Notices. Notice -- promptly after Borrower
knows -- of (i) the existence and, if requested by Agent, status of
any Litigation that, if determined adversely to any Company, would be
a Material Adverse Event, (ii) any change in any material fact or
circumstance represented or warranted by any Company in any Loan
Document, or (iii) a Default or Potential Default, specifying the
nature thereof and what action the Companies have taken, are taking,
or propose to take.
(f) PART B on SCHEDULE 6. Promptly as they become
available (subject to the other requirements of this agreement), the
items, if any, described in PART B on SCHEDULE 6.
(g) Other Information. Promptly when reasonably
requested by Agent or any Lender, such information (not otherwise
required to be furnished under this agreement) about any Company's
business affairs, assets, and liabilities, and any opinions,
certifications, and documents, in addition to those mentioned herein.
8.2 Use of Credit. Borrower shall -- and shall cause the
Companies to -- use LCs and the proceeds of Borrowings only for the purposes
represented in this agreement.
8.3 Books and Records. Each Company shall maintain books,
records, and accounts necessary to prepare Financials in accordance with GAAP.
8.4 Inspections. Each Company shall allow Agent or any Lender (or
their respective Representatives) to inspect any of its properties, to review
reports, files, and other records and to make and take away copies, to conduct
tests or investigations, and to discuss any of its affairs, conditions, and
finances with its other creditors, directors, officers, employees, or
representatives from time to time, during reasonable business hours, or, after
notice to Borrower, with any creditor of any Company.
8.5 Taxes. Each Company shall promptly pay when due any and all
Taxes except Taxes that are being contested in good faith by lawful proceedings
diligently conducted, against which reserve or other provision required by GAAP
has been made, and in respect of which levy and execution of any Lien
sufficient to be enforced has been and continues to be stayed.
8.6 Payment of Obligation. Each Company shall promptly pay (or
renew and extend) all of its Debt as it becomes due (other than Debt owed to
any Person other than Lenders, the validity or amount of which is being
contested in good faith by appropriate proceedings diligently conducted and a
reserve or other provision required by GAAP has been made).
8.7 Expenses. Promptly after demand accompanied by an invoice
describing the costs, fees, and expenses in reasonable detail, Borrower shall
pay (a) all costs, fees, and expenses paid or incurred by Agent incident to any
Loan Document (including, without limitation, the reasonable fees and expenses
of Agent's counsel in connection with the negotiation, preparation, delivery,
and execution of the Loan Documents and any related amendment, waiver, or
consent) and (b) all reasonable costs and expenses incurred by Agent or any
Lender in connection with the enforcement of the obligations of any Company
under the Loan Documents or the exercise of any Rights under the Loan Documents
(including, without limitation, reasonable allocated costs of in-house counsel,
other reasonable attorneys' fees, and court costs), all of which are part of
the Obligation, bearing interest, (if not paid within ten Business Days after
demand
33 Restated Credit Agreement
<PAGE> 39
accompanied by an invoice describing the costs, fees, and expenses in
reasonable detail) at the Default Rate until paid.
8.8 Maintenance of Existence, Assets, and Business. Each Company
shall (a) maintain its corporate existence and good standing in its state of
incorporation, (b) except where not a Material Adverse Event (i) maintain its
authority to transact business and good standing in all other states, (ii)
maintain all licenses, permits, and franchises (including, without limitation,
Environmental Permits) necessary for its business, (iii) keep all of its
material assets that are useful in and necessary to its business in good
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs and replacements.
8.9 Insurance. Each Company shall, at its cost and expense,
maintain with financially sound, responsible, and reputable insurance companies
or associations -- or, as to workers' compensation or similar insurance, with
an insurance fund or by self-insurance authorized by the jurisdictions in which
it operates -- insurance concerning its properties and businesses against
casualties and contingencies and of types and in amounts (and with co-insurance
and deductibles) as shall be reasonably satisfactory to Agent, with loss
payable to Agent as its interest may appear, and provide Agent with evidence of
such insurance within 30 days after the Closing Date.
8.10 Environmental Matters. Each Company shall (a) operate and
manage its businesses and otherwise conduct its affairs in compliance with all
Environmental Laws and Environmental Permits except to the extent noncompliance
does not constitute a Material Adverse Event, (b) promptly deliver to Agent a
copy of any notice received from any Tribunal alleging that any Company is not
in compliance with any Environmental Law or Environmental Permit if the
allegation constitutes a Material Adverse Event, and (c) promptly deliver to
Agent a copy of any notice received from any Tribunal alleging that any Company
has any potential Environmental Liability if the allegation constitutes a
Material Adverse Event.
8.11 INDEMNIFICATION.
(a) AS USED IN THIS SECTION: (I) "INDEMNITOR" MEANS
BORROWER AND (PURSUANT TO ITS GUARANTY) EACH OTHER COMPANY; (II)
"INDEMNITEE" MEANS AGENT, EACH LENDER, EACH PRESENT AND FUTURE
AFFILIATE OF AGENT OR ANY LENDER, EACH PRESENT AND FUTURE
REPRESENTATIVE OF AGENT, ANY LENDER, OR ANY OF THOSE AFFILIATES, AND
EACH PRESENT AND FUTURE SUCCESSOR AND ASSIGN OF AGENT, ANY LENDER, OR
ANY OF THOSE AFFILIATES OR REPRESENTATIVES; AND (III) "INDEMNIFIED
LIABILITIES" MEANS ALL PRESENT AND FUTURE, KNOWN AND UNKNOWN, FIXED
AND CONTINGENT, ADMINISTRATIVE, INVESTIGATIVE, JUDICIAL, AND OTHER
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, INVESTIGATIONS, SUITS,
PROCEEDINGS, AMOUNTS PAID IN SETTLEMENT, DAMAGES, JUDGMENTS,
PENALTIES, COURT COSTS, LIABILITIES, AND OBLIGATIONS -- AND ALL
PRESENT AND FUTURE COSTS, EXPENSES, AND DISBURSEMENTS (INCLUDING,
WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS' FEES AND EXPENSES
WHETHER OR NOT SUIT OR OTHER PROCEEDING EXISTS OR ANY INDEMNITEE IS
PARTY TO ANY SUIT OR OTHER PROCEEDING) IN ANY WAY RELATED TO ANY OF
THE FOREGOING -- THAT MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST ANY INDEMNITEE AND IN ANY WAY RELATING TO OR ARISING
OUT OF ANY (A) LOAN DOCUMENT, TRANSACTION CONTEMPLATED BY ANY LOAN
DOCUMENT, COLLATERAL, OR REAL PROPERTY, (B) ENVIRONMENTAL LIABILITY IN
ANY WAY RELATED TO ANY COMPANY, PREDECESSOR, COLLATERAL, REAL
PROPERTY, OR ACT, OMISSION, STATUS, OWNERSHIP, OR OTHER RELATIONSHIP,
CONDITION, OR CIRCUMSTANCE CONTEMPLATED BY, CREATED UNDER, OR ARISING
PURSUANT TO OR IN CONNECTION WITH ANY LOAN DOCUMENT, OR (C)
INDEMNITEE'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
34 Restated Credit Agreement
<PAGE> 40
(b) EACH INDEMNITOR SHALL JOINTLY AND SEVERALLY INDEMNIFY
EACH INDEMNITEE FROM AND AGAINST, PROTECT AND DEFEND EACH INDEMNITEE
FROM AND AGAINST, HOLD EACH INDEMNITEE HARMLESS FROM AND AGAINST, AND
ON DEMAND PAY OR REIMBURSE EACH INDEMNITEE FOR, ALL INDEMNIFIED
LIABILITIES.
(c) THE FOREGOING PROVISIONS (I) ARE NOT LIMITED IN
AMOUNT EVEN IF THAT AMOUNT EXCEEDS THE OBLIGATION,(II) INCLUDE,
WITHOUT LIMITATION, REASONABLE FEES AND EXPENSES OF ATTORNEYS AND
OTHER COSTS AND EXPENSES OF LITIGATION OR PREPARING FOR LITIGATION AND
DAMAGES OR INJURY TO PERSONS, PROPERTY, OR NATURAL RESOURCES ARISING
UNDER ANY STATUTORY OR COMMON LAW, PUNITIVE DAMAGES, FINES, AND OTHER
PENALTIES, AND (III) ARE NOT AFFECTED BY THE SOURCE OR ORIGIN OF ANY
HAZARDOUS SUBSTANCE, AND(IV) ARE NOT AFFECTED BY ANY INDEMNITEE'S
INVESTIGATION, ACTUAL OR CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR
WAIVER.
(d) EACH INDEMNITEE IS ENTITLED TO BE INDEMNIFIED UNDER
THE LOAN DOCUMENTS FOR ITS OWN NEGLIGENCE. HOWEVER, NO INDEMNITEE IS
ENTITLED TO BE INDEMNIFIED UNDER THE LOAN DOCUMENTS FOR ITS OWN FRAUD,
GROSS NEGLIGENCE, OR WILFUL MISCONDUCT.
(e) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER
UNDERTAKINGS UNDER THIS SECTION SURVIVE THE FORECLOSURE OF ANY LENDER
LIEN OR ANY TRANSFER IN LIEU OF THAT FORECLOSURE, THE SALE OR OTHER
TRANSFER OF ANY COLLATERAL OR REAL PROPERTY TO ANY PERSON, THE
SATISFACTION OF THE OBLIGATION, THE TERMINATION OF THE LOAN DOCUMENTS,
AND THE RELEASE OF ANY OR ALL LENDER LIENS.
8.12 Chief Executive Office; Material Agreements. Each Company
shall (a) not relocate its chief executive office or place where its books and
records are kept unless prior thereto it gives Agent 30 days prior written
notice of such proposed location (including, without limitation, the name of
the county or parish and state), (b) do or cause to be done all things
necessary or appropriate to keep each Material Agreement in full force and
effect during its stated term (unless the other party thereto has defaulted
thereunder) and keep the Rights of the Companies and Agent and Lenders
thereunder unimpaired, (c) notify Agent of the occurrence of any default under
any Material Agreement, and (d) exercise each and every option, if any, to
renew and extend the term of each Material Agreement prior to the termination
thereof (unless the other party thereto has defaulted thereunder or such
Company determines in good faith that the renewal or extension of such
agreement is economically unsound). In addition, no Company will amend,
modify, surrender, impair, forfeit, cancel, or terminate, or permit the
amendment, modification, surrender, impairment, forfeiture, cancellation, or
termination of, any Material Agreement (other than amendments or modifications
which could not, individually or collectively, have a Material Adverse Effect,
and cancellations or terminations of contracts when the other party thereto has
defaulted thereunder).
8.13 Environmental Laws. Each Company shall conduct its business
so as to comply with all applicable Environmental Laws and shall promptly take
corrective action to remedy any non-compliance with any Environmental Law,
except where failure to so comply or take such action would not reasonably be
expected to have a Material Adverse Effect. Each Company shall maintain a
system which, in its reasonable business judgment, will assure its continued
compliance with Environmental Laws.
8.14 Subsidiaries. Borrower shall cause any new Subsidiary to
execute and deliver a Guaranty to Agent for the benefit of Lenders.
35 Restated Credit Agreement
<PAGE> 41
SECTION 9 NEGATIVE COVENANTS. For so long as any Lender is committed to
lend or issue LCs under this agreement and until the Obligation has been fully
paid and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary:
9.1 Payroll Taxes. No Company may use any proceeds of any
Borrowing to pay the wages of employees unless a timely payment to or deposit
with the United States of America of all amounts of Tax required to be deducted
and withheld with respect to such wages is also made.
9.2 Debt. No Company may have any Debt except Permitted Debt.
9.3 Loans, Advances, Acquisitions and Investments.
(a) Loans and Advances. No Company may, directly or
indirectly, make any loan, advance or extension of credit to, or
purchase or commit to purchase any evidences of Debt of, any other
Person, other than (i) advances by Borrower to a Subsidiary who has
executed a Guaranty; (ii) advances by Borrower to other Persons,
subject to the dollar limitation in SECTION 2.1(c); (iii) advances by
Borrower to a Subsidiary from its own funds, provided that such funds
are not proceeds of Borrowings, (iv) advances by a direct Subsidiary
of Borrower to its Subsidiaries from its own funds, provided that such
funds are not proceeds of Borrowings, (v) advances to Borrower by a
Subsidiary who has executed a Guaranty, and (vi) current trade and
customer accounts receivable which are for goods furnished or services
rendered in the ordinary course of business and are payable in
accordance with customary trade terms.
(b) Acquisitions and Investments. No Company may,
directly or indirectly, make any investment in, or purchase or commit
to purchase any stock or other securities of, or interests in, or
assets of any other Person (including, but not limited to, any new
Subsidiary of any of the Companies), or merge or consolidate with any
Person, other than (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued
by an agency thereof and backed by the full faith and credit of the
United States of America; (ii) marketable direct obligations issued by
any state of the United States of America or any political subdivision
of any such state or any public instrumentality thereof and, at the
time of acquisition, having an investment grade rating obtainable from
either Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("MOODY'S"), and not listed in Credit Watch published by
S&P; (iii) commercial paper, other than commercial paper issued by a
Company, maturing no more than 90 days after the date of creation
thereof and, at the time of acquisition, having an investment grade
rating from either S&P or Moody's; (iv) investment grade domestic and
eurodollar certificates of deposit or time deposits or bankers'
acceptances maturing within one year after the date of acquisition
thereof issued by any commercial bank organized under the laws of the
United States of America or any state thereof or the District of
Columbia having combined capital and surplus of not less than
$250,000,000; (v) common stock, preferred stock, partnership
interests, or any Debt instrument acquired in conjunction with
outsourcing contracts for consideration which does not exceed an
amount equal to 7.5% of the book value of the consolidated assets of
the Companies immediately prior thereto; (vi) common stock for which
there is a public market; (vii) variable rate preferred stock, auction
market preferred stock, remarketed preferred stock, and preferred
stock funds having an investment grade rating from either Moody's or
S&P; (viii) variable rate demand notes or variable rate demand bonds
having an investment grade rating from either Moody's or S&P; (ix)
repurchase agreements collateralized with instruments or securities
described in clauses (i) through (viii) of this SECTION 9.3(b); (x)
other instruments having an
36 Restated Credit Agreement
<PAGE> 42
investment grade rating from either Moody's or S&P; (xi) money market
funds, mutual funds or other funds that invest in instruments or
securities described in clauses (i) through (x) of this SECTION
9.3(b); (xii) any acquisition in which the consideration is paid with
Borrower's common stock; (xiii) any merger or consolidation of a
Subsidiary into another Subsidiary or into Borrower; and (xiv) any
other acquisitions of stock, interests or assets, (or creation of new
Subsidiaries), so long as the aggregate amount of consideration paid
(or capital contributed) by the Companies during each fiscal year set
forth in the table below for such stock, other interests or assets
does not exceed the Maximum Amount for such fiscal year. For purposes
of this SECTION 9.3(b)(xiv), "MAXIMUM AMOUNT" means the "Maximum
Amount" set forth in the table below plus any portion of the previous
fiscal year's Maximum Amount not utilized during that previous fiscal
year.
<TABLE>
<CAPTION>
===============================================
FISCAL YEAR END MAXIMUM AMOUNT
===============================================
<S> <C>
6/30/97 $50,000,000
-----------------------------------------------
6/30/98 $60,000,000
-----------------------------------------------
6/30/99 $70,000,000
-----------------------------------------------
6/30/00 and thereafter $90,000,000
===============================================
</TABLE>
9.4 Capital Expenditures. No Company may make Capital
Expenditures, except (a) Capital Expenditures made with respect to Borrower's
headquarters located at 2828 N. Haskell Ave., 2702 N. Haskell Ave., 3960 N.
Central Expressway, and 3988 N. Central Expressway, Dallas, Texas 75204, and
(b) other Capital Expenditures which are for or related to assets or leaseholds
used or useful in the normal business operations of such Company and which do
not exceed $25,000,000 in the aggregate for all of the Companies in any fiscal
year or $10,000,000 per transaction.
9.5 Liens. No Company may (a) create, incur, or suffer or permit
to be created or incurred or to exist any Lien upon any of its assets except
Permitted Liens or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits any Company from creating or
incurring any Lien on any of its assets (i) except the Loan Documents, (ii) any
lease that places a Lien prohibition on only the property subject to that
lease, and (iii) arrangements and agreements that apply only to property
subject to Permitted Liens.
9.6 Employee Plans. Except as disclosed on SCHEDULE 7.11 or where
not a Material Adverse Event, no Company may permit any of the events or
circumstances described in SECTION 7.11 to exist or occur.
9.7 Transactions with Affiliates. Except as disclosed on SCHEDULE
9.7, no Company may, directly or indirectly, enter into any material
transaction (including, without limitation, the sale or exchange of property or
the rendering of service) with any of its Affiliates, other than transactions
in the ordinary course of business and upon fair and reasonable terms no less
favorable than could be obtained in an arm's-length transaction with a Person
that was not its Affiliate. For purposes of this SECTION 9.7, such
transactions are "material" if they, individually or in the aggregate, require
any Company to pay more than $1,000,000 over the course of such transactions.
9.8 Compliance with Laws and Documents. No Company may (a)
violate the provisions of any Laws (including, without limitation, OSHA and
Environmental Laws) applicable to it or of any material agreement to which it
is a party if that violation alone, or when aggregated with all other
violations, would be a Material Adverse Event, (b) violate in any material
respect any provision of its
37 Restated Credit Agreement
<PAGE> 43
charter or bylaws, or (c) repeal, replace, or amend any provision of its
charter or bylaws if that action would be a Material Adverse Event.
9.9 Issuance of Securities. Borrower may not permit any
Subsidiary to, directly or indirectly, issue, sell, or otherwise dispose of (a)
any of its shares of capital stock or other investment securities of any class,
(b) any securities convertible into or exchangeable for any such shares, or (c)
any carrying Rights, warrants, options or other Rights to subscribe for or
purchase any such shares (other than Rights under existing employee stock
option plans of any Subsidiary or such Subsidiary employee stock option plans
which are hereafter created in the ordinary course of business).
9.10 Distributions. No Company may declare, make, or pay any
Distribution except that (a) Borrower may declare or pay any dividend on or
with respect to any of its capital stock or equity securities during any fiscal
year, (i) if no Default has occurred prior to such declaration or payment, (ii)
such dividend is payable in the form of capital stock of the Borrower, and
(iii) if such dividend is payable in cash, such payment or dividend when
aggregated with all other payments and dividends made during such fiscal year
would not exceed an amount equal to 50% of Borrower's net income for the
preceding fiscal year; and (b) Borrower shall insure that each of its
Subsidiaries declares dividends (subject to applicable Law), or makes cash
advances to Borrower from time to time in aggregate amounts sufficient to
permit Borrower to pay the Obligation as it becomes due and payable.
9.11 Disposition of Assets. No Company may, directly or
indirectly, sell, lease, or otherwise dispose of all or any substantial or
material assets, other than (a) sales of inventory in the ordinary course of
business, (b) sales of equipment for a fair and adequate consideration,
provided that if any such equipment is sold, and a replacement is necessary for
the proper operation of the business of such Company, such Company will replace
such equipment, and (c) other dispositions of assets which do not in the
aggregate exceed $5,000,000 during any fiscal year of Borrower.
9.12 Mergers, Consolidations, and Dissolutions. Except as may be
permitted under SECTION 9.3, no Company may liquidate, wind up, or dissolve or
merge or consolidate with any other Person.
9.13 Assignment. No Company may assign or transfer any of its
Rights, duties, or obligations under any of the Loan Documents.
9.14 Fiscal Year and Accounting Methods. No Company may change its
fiscal year more than once during the term of this agreement, and then only
after giving written notice of its intent to make such change to Agent. No
Company shall change its method of accounting (other than changes with which
the Company's auditors have concurred, or immaterial changes in methods).
9.15 New Businesses. No Company may, directly or indirectly,
engage in any business other than the businesses in which it is presently
engaged, and each Company shall continue to conduct the businesses in which it
is presently engaged in substantially the same fashion (including, without
limitation, its contracts for compute cycles), other than the engagement of a
Company in a new business (through an acquisition of an existing business
otherwise permitted under the terms of this agreement or the formation of a de
novo business otherwise permitted under the terms of this agreement) which
does not require an expenditure or investment by the Companies in excess of an
amount equal to 7.5% of the value of the consolidated assets of the Companies
immediately prior thereto and which does not involve a business which in the
immediately preceding 12 calendar months had gross revenues in excess of an
amount equal to 20% of the consolidated gross revenues of the Companies during
such period.
38 Restated Credit Agreement
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9.16 Government Regulations. No Company may conduct its business
in such a way that it will become (a) subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts
have been amended), or any other Law (other than Regulation X of the Board of
Governors of the Federal Reserve System) which regulates the incurrence of
Debt, or (b) a "utility" as defined in Chapter 35 of the Texas Business and
Commerce Code, as amended.
9.17 Strict Compliance. No Company may indirectly do anything that
it may not directly do under any covenant in any Loan Document.
9.18 Deposit of Borrowings. Borrower may not deposit proceeds of
Borrowings in any Settlement Aggregation Account.
9.19 Acquisition Consideration. The aggregate consideration for
the purchase by Borrower of all issued and outstanding stock of Genix,
including the Initial Purchase Price, and any adjustments following the closing
of the Stock Purchase Agreement shall not exceed $160,000,000.
SECTION 10 FINANCIAL COVENANTS. For so long as any Lender is committed
to lend or issue LCs under this agreement and until the Obligation has been
fully paid and performed, Borrower covenants and agrees with Agent and Lenders
that, without first obtaining Agent's written notice of Determining Lenders'
consent to the contrary, it may not directly or indirectly permit:
10.1 Net Worth. The Companies' Net Worth -- determined as of the
last day of each fiscal quarter of Borrower -- to be less than the sum of (a)
$185,000,000, plus (b) 50% of the Companies' cumulative net income (without
deduction for losses) after March 31, 1996 (commencing with the quarter ending
June 30, 1996), plus (c) the gross proceeds of any Subject Securities Issuance
occurring following the Closing Date.
10.2 Current Ratio. Excluding current assets in the form of cash
borrowed, and the Principal Debt, under the ATM Facility, the ratio of the
Companies' consolidated current assets (excluding assets related to EFT
Liabilities) to consolidated current liabilities (excluding EFT Liabilities) to
ever be less than 1.10 to 1.00.
10.3 Funded Debt/EBITDA Ratio. The Funded Debt/EBITDA Ratio to
ever be more than 3.00 to 1.00.
10.4 Fixed-Charge Coverage. The Fixed-Charge Coverage Ratio for
the most recently completed four fiscal quarters of Borrower as of the last day
of each fiscal quarter of Borrower to ever be less than 1.25 to 1.00.
10.5 Interest Coverage Ratio. The ratio of EBIT to Interest
Expense for the most recently completed four fiscal quarters of Borrower as of
the last day of each fiscal quarter of Borrower to ever be less than 2.50 to
1.00.
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of any one
or more of the following:
11.1 Payment of Obligation. The failure or refusal of Borrower to
pay any portion of the Obligation, as the same becomes due in accordance with
the terms of the Loan Documents.
39 Restated Credit Agreement
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11.2 Covenants.
(a) The failure or refusal of Borrower (and, if
applicable, any other Company) to punctually and properly perform,
observe, and comply with any covenant, agreement, or condition
contained in SECTIONS 8.9 through 8.14, and SECTIONS 9 and 10 (in
their entirety).
(b) The failure or refusal of Borrower (and, if
applicable, any other Company) to punctually and properly perform,
observe, and comply with any covenant, agreement, or condition
contained in any of the Loan Documents to which such Company is a
party, other than covenants to pay the Obligation and the covenants
listed in CLAUSE (a) preceding, and such failure or refusal continues
for a period of ten days after any Company has knowledge thereof (or
for a period of ten days after knowledge of such failure or refusal
would normally have come to the attention of the chief financial
officer of such Company in the ordinary course of business).
11.3 Debtor Relief. Borrower or any other Company (other than
those Companies disclosed on SCHEDULE 7.7) shall not be Solvent, or any Company
(a) fails to pay its Debts generally as they become due, (b) voluntarily seeks,
consents to, or acquiesces in the benefit of any Debtor Relief Law, or (c)
becomes a party to or is made the subject of any proceeding provided for by any
Debtor Relief Law, other than as a creditor or claimant, that could suspend or
otherwise adversely affect the Rights of Agent or any Lender granted in the
Loan Documents (unless, in the event such proceeding is involuntary, the
petition instituting same is dismissed within 60 days after its filing).
11.4 Attachment. The failure of any Company to have discharged
within 30 days after commencement any attachment, sequestration, or similar
proceeding against any material asset of any Company.
11.5 Payment of Judgments. Any Company fails to pay any judgment
or order for the payment of money in excess of $1,000,000 rendered against it
or any of its assets and enforcement proceedings shall have been commenced by
any creditor upon any such judgment or order and remain unstayed.
Notwithstanding the foregoing sentence, it shall not be a Default if the
validity or amount of such judgment or order is being contested in good faith
by lawful proceedings diligently conducted and a reserve or other provision
required by GAAP has been made.
11.6 Government Action. Where it is a Material Adverse Event --
from and after the Closing Date and individually or collectively for all of the
Companies -- (a) a final non-appealable order is issued by any Tribunal
(including, but not limited to, the United States Justice Department) seeking
to cause any Company to divest a significant portion of its assets under any
antitrust, restraint of trade, unfair competition, industry regulation, or
similar Laws, or (b) any Tribunal condemning, seizing, or otherwise
appropriating, or taking custody or control of all or any substantial portion
of any Company's assets.
11.7 Misrepresentation. Any material representation or warranty
made by any Company in any Loan Document at any time proves to have been
materially incorrect when made.
11.8 Ownership of Companies.
(a) One or more Companies fail to own, beneficially and
of record, with power to vote, 100% of the issued and outstanding
shares of capital stock of the Wholly-Owned Subsidiaries.
40 Restated Credit Agreement
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(b) For Borrower's Subsidiaries that are not Wholly-Owned
Subsidiaries, (i) one or more Companies fail to own, beneficially and
of record, with power to vote, more than 50% (or at least the
percentage reflected on SCHEDULE 7.3) of the issued and outstanding
shares of capital stock of such Subsidiaries sufficient to constitute
control of such Subsidiary, or (ii) such Subsidiaries incur Debt to
any Person other than Permitted Debt.
11.9 Change of Control of Borrower. The individuals who, as of the
date of this agreement, constitute the members of Borrower's board of directors
(for purposes of this SECTION 11.9, the "INCUMBENT BOARD") do not constitute or
cease for any reason to constitute at least 66 2/3% of:
(a) Borrower's board of directors; or
(b) The surviving corporation's board of directors in the
event of any merger or consolidation (if permitted by SECTION 9.3(B))
involving Borrower; or
(c) The controlling entity's board of directors, the
comparable body if there is no board of directors, or voting control
if there is no comparable body, in the event that the surviving
corporation under CLAUSE (B) above is directly or indirectly
controlled by that entity.
For purposes of this SECTION 11.9, any individual who becomes a member of the
board of directors or comparable body or who obtains a voting interest, as
applicable under CLAUSES (A), (B), or (C) above, after the date of this
agreement and whose appointment to the board, or nomination for election, was
approved or ratified by a vote of the individuals comprising at least 50% of
the then incumbent board shall thereafter be deemed to be a member of the
incumbent board.
11.10 Other Funded Debt. In respect of any Debt (other than the
Obligation) individually or collectively of at least $500,000 (a) any default
or other event or condition occurs or exists (other than a mandatory prepayment
as a result of disposition of assets if permitted by the Loan Documents) beyond
the applicable grace or cure period, the effect of which is to cause or to
permit any holder of that Funded Debt to cause -- whether or not it elects to
cause -- any of that Funded Debt to become due before its stated maturity or
regularly scheduled payment dates, or (b) any of that Debt is declared to be
due and payable or required to be prepaid by any Company before its stated
maturity. Notwithstanding the foregoing sentence, it shall not be a Default if
the validity or amount of such accelerated Debt is being contested in good
faith by lawful proceedings diligently conducted and a reserve or other
provision required by GAAP has been made.
11.11 SEC Reporting Requirements. Borrower fails to comply with any
applicable reporting requirements of the Securities Exchange Act of 1934, for
which the failure to report would constitute a Material Adverse Event.
11.12 Validity and Enforceability. Once executed, this agreement,
any Note, any LC Agreement, any Guaranty, or any Security Document ceases to be
in full force and effect in any material respect or is declared to be null and
void or its validity or enforceability is contested in writing by any Company
party to it or any Company party to it denies in writing that it has any
further liability or obligations under it except in accordance with that
document's express provisions or as the appropriate parties under SECTION 14.8
below may otherwise agree in writing.
11.13 LCs. The validity or enforceability of any LC or any
provision of this agreement relating to the LC or the LC Exposure shall be
contested by any Company, or a proceeding shall be commenced
41 Restated Credit Agreement
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by any Tribunal seeking to establish the invalidity or unenforceability
thereof, or Borrower shall deny that it or any other Company has any or further
liability or obligation under this agreement relating to any Letters of Credit
and any LC Exposure, or Agent is served with or otherwise subject to a court
order, injunction, or other process or decree restraining or seeking to
restrain it from paying any amount under any LC and either (a) a drawing has
occurred under the LC, and Borrower has refused to reimburse Issuing Lender for
payment, or (b) the expiration date of the LC has occurred, but the Right of
the beneficiary to draw under the LC has been extended past the Revolving
Maturity Date in connection with the pendency of the related court action or
proceeding, and Borrower has failed to deposit with Agent cash collateral in an
amount equal to Issuing Lender's maximum exposure under the LC.
11.14 Material Agreements.
(a) The occurrence of a default under the ATM Credit
Agreement.
(b) The occurrence of a default under any other Material
Agreement which results in the acceleration of payment of any amounts
payable by any Company in excess of $500,000. Notwithstanding the
foregoing sentence, it shall not be a default if the validity or
amount of such accelerated payment is being contested in good faith by
appropriate proceedings diligently conducted and a reserve or other
provision required by GAAP has been made.
11.15 Impairment of Collateral or Ability to Pay. The discovery by
any Lender of information that the prospect of payment or performance of the
Obligation is materially impaired, or that the value of the Collateral has or
will be materially decreased, and the situation giving rise thereto is not
corrected to the satisfaction of Agent and Lenders within 20 days after notice
thereof from Agent to Borrower.
SECTION 12 RIGHTS AND REMEDIES.
12.1 Remedies Upon Default.
(a) Debtor Relief. If a Default exists under SECTION
11.3, the commitment to extend credit under this agreement
automatically terminates, and the entire unpaid balance of the
Obligation automatically becomes due and payable without any action of
any kind whatsoever.
(b) Other Defaults. If any Default exists, subject to
the terms of SECTION 13.5(B), Agent may (with the consent of, and
must, upon the request of, Determining Lenders), do any one or more of
the following: (i) if the maturity of the Obligation has not already
been accelerated under SECTION 12.1(A), declare the entire unpaid
balance of all or any part of the Obligation immediately due and
payable, whereupon it is due and payable; (ii) terminate the
commitments of Lenders to extend credit under this agreement; (iii)
reduce any claim to judgment; (iv) demand payment of an amount equal
to the LC Exposure then existing and retain as collateral for the LC
Exposure any amounts received from any Company, from any property of
any Company, through offset, or otherwise; and (v) exercise any and
all other legal or equitable Rights afforded by the Loan Documents, by
applicable Laws, or in equity.
(c) Offset. If a Default exists, to the extent permitted
by applicable Law, each Lender may exercise the Rights of offset and
banker's lien against each and every account (excluding Settlement
Aggregation Accounts) and other property, or any interest therein,
which any Company may now or hereafter have with, or which is now or
hereafter in the possession of, that Lender to the extent of the full
amount of the Obligation owed to that Lender.
42 Restated Credit Agreement
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12.2 Company Waivers. To the extent permitted by Law, Borrower and
(pursuant to its Guaranty) each other Company waives presentment and demand for
payment, protest, notice of intention to accelerate, notice of acceleration,
and notice of protest and nonpayment, and agrees that its liability with
respect to all or any part of the Obligation is not affected by any renewal or
extension in the time of payment of all or any part of the Obligation, by any
indulgence, or by any release or change in any security for the payment of all
or any part of the Obligation.
12.3 Performance by Agent. If any Company's covenant, duty, or
agreement is not performed in accordance with the terms of the Loan Documents,
Agent may, while a Default exists, at its option (but subject to the approval
of Determining Lenders), perform or attempt to perform that covenant, duty, or
agreement on behalf of that Company (and any amount expended by Agent in its
performance or attempted performance is payable by the Companies, jointly and
severally, to Agent on demand, becomes part of the Obligation, and bears
interest at the Default Rate from the date of Agent's expenditure until paid).
However, Agent does not assume and shall never have, except by its express
written consent, any liability or responsibility for the performance of any
Company's covenants, duties, or agreements.
12.4 Not in Control. Nothing in any Loan Documents gives or may be
deemed to give to Agent or any Lender the Right to exercise control over any
Company's Real Property, other assets, affairs, or management or to preclude or
interfere with any Company's compliance with any Law or require any act or
omission by any Company that may be harmful to Persons or property. Any
"Material Adverse Event" or other materiality or substantiality qualifier of
any representation, warranty, covenant, agreement, or other provision of any
Loan Document is included for credit documentation purposes only and does not
imply or be deemed to mean that Agent or any Lender acquiesces in any non-
compliance by any Company with any Law, document, or otherwise or does not
expect the Companies to promptly, diligently, and continuously carry out all
appropriate removal, remediation, compliance, closure, or other activities
required or appropriate in accordance with all Environmental Laws. Agent's and
Lenders' power is limited to the Rights provided in the Loan Documents. All of
those Rights exist solely -- and may be exercised in any manner calculated by
Agent or Lenders in their respective good faith business judgment -- to
preserve and protect the Collateral and to assure payment and performance of
the Obligation.
12.5 Course of Dealing. The acceptance by Agent or Lenders of any
partial payment on the Obligation is not a waiver of any Default then existing.
No waiver by Agent, Determining Lenders, or Lenders of any Default is a waiver
of any other then-existing or subsequent Default. No delay or omission by
Agent, Determining Lenders, or Lenders in exercising any Right under the Loan
Documents impairs that Right or is a waiver thereof or any acquiescence
therein, nor will any single or partial exercise of any Right preclude other or
further exercise thereof or the exercise of any other Right under the Loan
Documents or otherwise.
12.6 Cumulative Rights. All Rights available to Agent, Determining
Lenders, and Lenders under the Loan Documents are cumulative of and in addition
to all other Rights granted to Agent, Determining Lenders, and Lenders at law
or in equity, whether or not the Obligation is due and payable and whether or
not Agent, Determining Lenders, or Lenders have instituted any suit for
collection, foreclosure, or other action in connection with the Loan Documents.
12.7 Application of Proceeds. Any and all proceeds ever received
by Agent or Lenders from the exercise of any Rights pertaining to the
Obligation shall be applied to the Obligation according to SECTION 3.
12.8 Certain Proceedings. Borrower shall promptly execute and
deliver, or cause the execution and delivery of, all applications,
certificates, instruments, registration statements, and all other documents
43 Restated Credit Agreement
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and papers Agent or Determining Lenders reasonably request in connection with
the obtaining of any consent, approval, registration (other than securities Law
registrations), qualification, permit, license, or authorization of any
Tribunal or other Person necessary or appropriate for the effective exercise of
any Rights under the Loan Documents. Because Borrower agrees that Agent's and
Determining Lenders' remedies at Law for failure of Borrower to comply with the
provisions of this section would be inadequate and that failure would not be
adequately compensable in damages, Borrower agrees that the covenants of this
section may be specifically enforced.
12.9 Expenditures by Lenders. Any sums spent by Agent or any
Lender in the exercise of any Right under any Loan Document is payable by the
Companies to Agent within five Business Days after demand, becomes part of the
Obligation, and bears interest at the Default Rate from the date spent until
the date repaid.
12.10 Diminution in Value of Collateral. Neither Agent nor any
Lender has any liability or responsibility whatsoever for any diminution in or
loss of value of any collateral now or in the future securing payment or
performance of any of the Obligation (other than diminution in or loss of value
caused by their or its own gross negligence or willful misconduct).
SECTION 13 AGENT AND LENDERS.
13.1 Agent.
(a) Appointment. Each Lender appoints Agent (including,
without limitation, each successor to the Agent in accordance with
this SECTION 13) as its nominee and agent to act in its name and on
its behalf (and Agent and each such successor accepts that
appointment): (i) to act as its nominee and on its behalf in and
under all Loan Documents; (ii) to arrange the means whereby its funds
are to be made available to Borrower under the Loan Documents; (iii)
to take any action that it properly requests under the Loan Documents
(subject to the concurrence of other Lenders as may be required under
the Loan Documents); (iv) to receive all documents and items to be
furnished to it under the Loan Documents; (v) to be the secured party,
mortgagee, beneficiary, recipient, and similar party in respect of any
collateral for the benefit of Lenders; (vi) to promptly distribute to
it all material information, requests, documents, and items received
from Borrower under the Loan Documents; (vii) to promptly distribute
to it its ratable part of each payment or prepayment (whether
voluntary, as proceeds of collateral upon or after foreclosure, as
proceeds of insurance thereon, or otherwise) in accordance with the
terms of the Loan Documents; and (viii) to deliver to the appropriate
Persons requests, demands, approvals, and consents received from it.
However, Agent is not required to take any action that exposes Agent
to personal liability or that is contrary to any Loan Document or
applicable Law.
(b) Successor. Agent may assign all of its Rights and
obligations as Agent under the Loan Documents to any of its
Affiliates, which Affiliate shall then be the successor Agent under
the Loan Documents. Agent may also voluntarily resign and shall
resign upon the request of Determining Lenders for cause (i.e., Agent
is continuing to fail to perform its responsibilities under the Loan
Documents). If the initial, or any successor to, Agent ever ceases to
be a party to this agreement or if either of the initial, or any
successor to, Agent ever resigns (whether voluntarily or at the
request of Determining Lenders), then Determining Lenders shall
appoint a successor to Agent from among Lenders (other than the
resigning Agent). If Determining Lenders fail to appoint a successor
to such Agent within 30 days after the resigning Agent has given
notice of resignation or Determining Lenders have removed the
resigning Agent, then the resigning
44 Restated Credit Agreement
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Agent may, on behalf of Lenders, appoint a successor Co-Agent, that
(i) must be a commercial bank having a combined capital and surplus of
at least $1,000,000,000 (as shown on its most recently published
statement of condition), and (ii) must be consented to by Borrower,
which consent shall not be unreasonably delayed or withheld. Upon its
acceptance of appointment as successor Agent, the successor Agent
succeeds to and becomes vested with all of the Rights of the prior
Agent, and the prior Agent is discharged from its duties and
obligations as Agent under the Loan Documents, and each Lender shall
execute the documents that any Lender, the resigning or removed Agent,
or the successor Agent reasonably request to reflect the change.
After Agent's resignation or removal as Agent under the Loan
Documents, the provisions of this section inure to its benefit as to
any actions taken or not taken by it while it was Agent under the Loan
Documents.
(c) Rights as Lender. Agent, in its capacity as a
Lender, has the same Rights under the Loan Documents as any other
Lender and may exercise those Rights as if it were not acting as
Agent. The term "Lender", unless the context otherwise indicates,
includes each Agent. Agent's resignation or removal does not impair
or otherwise affect any Rights that it has or may have in its capacity
as an individual Lender. Each Lender and Borrower agree that Agent is
not a fiduciary for Lenders or for Borrower, but Agent is simply
acting in the capacity described in this agreement to alleviate
administrative burdens for Borrower and Lenders, that Agent has any
duties or responsibilities to Lenders or Borrower except those
expressly set forth in the Loan Documents, and that Agent in its
capacity as a Lender has the same Rights as any other Lender.
(d) Other Activities. Agent or any Lender may now or in
the future be engaged in one or more loan, letter of credit, leasing,
or other financing transactions with Borrower, act as trustee or
depositary for Borrower, or otherwise be engaged in other transactions
with Borrower (collectively, the "OTHER ACTIVITIES") not the subject
of the Loan Documents. Without limiting the Rights of Lenders
specifically set forth in the Loan Documents, neither Agent nor any
Lender is responsible to account to the other Lenders for those other
activities, and no Lender shall have any interest in any other
Lender's activities, any present or future guaranties by or for the
account of Borrower that are not contemplated by or included in the
Loan Documents, any present or future offset exercised by Agent or any
Lender in respect of those other activities, any present or future
property taken as security for any of those other activities, or any
property now or hereafter in Agent's or any other Lender's possession
or control that may be or become security for the obligations of
Borrower arising under the Loan Documents by reason of the general
description of indebtedness secured or of property contained in any
other agreements, documents, or instruments related to any of those
other activities (but, if any payments in respect of those guaranties
or that property or the proceeds thereof is applied by Agent or any
Lender to reduce the Obligation, then each Lender is entitled to share
ratably in the application as provided in the Loan Documents).
13.2 Expenses. Each Lender shall pay its Pro Rata Part of any
reasonable expenses (including, without limitation, court costs, reasonable
attorneys' fees and other costs of collection) incurred by Agent or Issuing
Lender (while acting in such capacity) in connection with any of the Loan
Documents if Agent or such Issuing Lender is not reimbursed from other sources
within 30 days after incurrence. Each Lender is entitled to receive its Pro
Rata Part of any reimbursement that it makes to Agent or Issuing Lender if
Agent or such Issuing Lender is subsequently reimbursed from other sources.
13.3 Proportionate Absorption of Losses. Except as otherwise
provided in the Loan Documents, nothing in the Loan Documents gives any Lender
any advantage over any other Lender insofar as the Obligation is concerned or
relieves any Lender from ratably absorbing any losses sustained
45 Restated Credit Agreement
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with respect to the Obligation (except to the extent unilateral actions or
inactions by any Lender result in Borrower or any other obligor on the
Obligation having any credit, allowance, set off, defense, or counterclaim
solely with respect to all or any part of that Lender's Pro Rata Part of the
Obligation).
13.4 Delegation of Duties; Reliance. Lenders may perform any of
their duties or exercise any of their Rights under the Loan Documents by or
through Agent, and Lenders and Agent may perform any of their duties or
exercise any of their Rights under the Loan Documents by or through their
respective Representatives. Agent, Lenders, and their respective
Representatives (a) are entitled to rely upon (and shall be protected in
relying upon) any written or oral statement believed by them to be genuine and
correct and to have been signed or made by the proper Person and, with respect
to legal matters, upon opinion of counsel selected by Agent or that Lender (but
nothing in this CLAUSE (A) permits Agent to rely on (i) oral statements if a
writing is required by this agreement or (ii) any other writing if a specific
writing is required by this agreement), (b) are entitled to deem and treat each
Lender as the owner and holder of its portion of the Obligation for all
purposes until, written notice of the assignment or transfer is given to and
received by Agent (and any request, authorization, consent, or approval of any
Lender is conclusive and binding on each subsequent holder, assignee, or
transferee of or Participant in that Lender's portion of the Obligation until
that notice is given and received), (c) are not deemed to have notice of the
occurrence of a Default unless a responsible officer of Agent, who handles
matters associated with the Loan Documents and transactions thereunder, has
actual knowledge or Agent has been notified by a Lender or Borrower, and (d)
are entitled to consult with legal counsel (including counsel for Borrower),
independent accountants, and other experts selected by Agent and are not liable
for any action taken or not taken in good faith by it in accordance with the
advice of counsel, accountants, or experts.
13.5 Limitation of Agent's Liability.
(a) Exculpation. Neither Agent nor any of its
respective Affiliates or Representatives will be liable for any action
taken or omitted to be taken by it or them under the Loan Documents in
good faith and believed by them to be within the discretion or power
conferred upon them by the Loan Documents or be responsible for the
consequences of any error of judgment (except for fraud, gross
negligence, or willful misconduct), and neither Agent nor any of its
Affiliates or Representatives has a fiduciary relationship with any
Lender by virtue of the Loan Documents (but nothing in this agreement
negates the obligation of Agent to account for funds received by them
for the account of any Lender).
(b) Indemnity. Unless indemnified to its satisfaction
against loss, cost, liability, and expense, Agent is not compelled to
do any act under the Loan Documents or to take any action toward the
execution or enforcement of the powers thereby created or to prosecute
or defend any suit in respect of the Loan Documents. If a Agent
requests instructions from Lenders, or Determining Lenders, as the
case may be, with respect to any act or action in connection with any
Loan Document, such Agent is entitled to refrain (without incurring
any liability to any Person by so refraining) from that act or action
unless and until it has received instructions. In no event, however,
may Agent or any of its Representatives be required to take any action
that it or they determine could incur for it or them criminal or
onerous civil liability. Without limiting the generality of the
foregoing, no Lender has any right of action against Agent as a result
of Agent's acting or refraining from acting under this agreement in
accordance with instructions of Determining Lenders.
(c) Reliance. Agent is not responsible to any Lender
or any Participant for, and each Lender represents and warrants that
it has not relied upon Agent in respect of, (i) the creditworthiness
of any Company and the risks involved to that Lender, (ii) the
effectiveness,
46 Restated Credit Agreement
<PAGE> 52
enforceability, genuineness, validity, or the due execution of any
Loan Document (except by Agent), (iii) any representation, warranty,
document, certificate, report, or statement made therein (except by
Agent) or furnished thereunder or in connection therewith, (iv) the
adequacy of any collateral now or hereafter securing the Obligation or
the existence, priority, or perfection of any Lien now or hereafter
granted or purported to be granted on the collateral under any Loan
Document, or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Document on the part of any
Company. EACH LENDER AGREES TO INDEMNIFY AGENT AND ITS REPRESENTATIVES
AND HOLD THEM HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S
COMMITMENT PERCENTAGE OF) ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR
INCURRED BY THEM IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THEM UNDER THE LOAN
DOCUMENTS IF AGENT OR ITS REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH
AMOUNTS BY ANY COMPANY. ALTHOUGH AGENT AND ITS REPRESENTATIVES HAVE
THE RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR THEIR OWN
ORDINARY NEGLIGENCE, NEITHER CO-AGENT NOR THEIR RESPECTIVE
REPRESENTATIVES HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS AGREEMENT
FOR THEIR OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT.
13.6 Default. While a Default exists, Lenders agree to promptly
confer in order that Determining Lenders or Lenders, as the case may be, may
agree upon a course of action for the enforcement of the Rights of Lenders.
Agent is entitled to act or refrain from taking any action (without incurring
any liability to any Person for so acting or refraining) unless and until it
has received instructions from Determining Lenders. In actions with respect to
any Company's property, Agent is acting for the ratable benefit of each Lender.
13.7 Collateral Matters.
(a) Each Lender authorizes and directs Agent to enter
into the Loan Documents for the Lender Liens and agrees that any
action taken by Agent concerning any Collateral (with the consent or
at the request of Determining Lenders) in accordance with any Loan
Document, that Agent's exercise (with the consent or at the request of
Determining Lenders) of powers concerning the Collateral in any Loan
Document, and that all other reasonably incidental powers are
authorized and binding upon all Lenders.
(b) Agent is authorized on behalf of all Lenders, without
the necessity of any notice to or further consent from any Lender,
from time to time before a Default or Potential Default, to take any
action with respect to any Collateral or Loan Documents related to
Collateral that may be necessary to perfect and maintain perfected the
Lender Liens upon the Collateral.
(c) Agent has no obligation whatsoever to any Lender or
to any other Person to assure that the Collateral exists or is owned
by any Company or is cared for, protected, or insured or has been
encumbered or that the Lender Liens have been properly or sufficiently
or lawfully created, perfected, protected, or enforced or are entitled
to any particular priority.
(d) Agent shall exercise the same care and prudent
judgment with respect to the Collateral and the Loan Documents as it
normally and customarily exercises in respect of similar collateral
and security documents.
47 Restated Credit Agreement
<PAGE> 53
(e) Lenders irrevocably authorize Agent, at its option
and in its discretion, to release any Lender Lien upon any Collateral
(i) constituting property being disposed of as permitted under any
Loan Document, (ii) constituting property in which no Company owned
any interest at the time the Lender Lien was granted or at any time
after that, (iii) constituting property leased to any Company under a
lease that has expired or been terminated in a transaction permitted
under the Loan Documents or is about to expire and that has not been,
and is not intended by that Company to be, renewed, (iv) consisting of
an instrument evidencing Debt pledged to Agent (for the benefit of
Lenders), if the underlying Debt has been paid in full, or (v) if
approved, authorized, or ratified in writing by Lenders. Upon request
by Agent at any time, Lenders shall confirm in writing Agent's
authority to release particular types or items of Collateral under
this CLAUSE (E).
13.8 Limitation of Liability. No Lender or any Participant will
incur any liability to any other Lender or Participant except for acts or
omissions in bad faith, and neither Co-Agent nor any Lender or Participant will
incur any liability to any other Person for any act or omission of any other
Lender or any Participant.
13.9 Relationship of Lenders. The Loan Documents do not create a
partnership or joint venture among Agent and Lenders or among Lenders.
13.10 Benefits of Agreement. None of the provisions of this section
inure to the benefit of any Company or any other Person except Agent and
Lenders. Therefore, no Company or any other Person is responsible or liable
for, entitled to rely upon, or entitled to raise as a defense -- in any manner
whatsoever -- the failure of a Agent or any Lender to comply with these
provisions.
SECTION 14 MISCELLANEOUS.
14.1 Nonbusiness Days. Any payment or action that is due under any
Loan Document on a non-Business Day may be delayed until the next-succeeding
Business Day (but interest shall continue to accrue on any applicable payment
until payment is in fact made) unless the payment concerns a LIBOR Borrowing,
in which case if the next-succeeding Business Day is in the next calendar
month, then such payment shall be made on the next-preceding Business Day.
14.2 Communications. Unless otherwise specifically provided,
whenever any Loan Document requires or permits any consent, approval, notice,
request, or demand from one party to another, communication must be in writing
(which may be by telex or fax) to be effective and shall be deemed to have been
given (a) if by telex, when transmitted to the appropriate telex number and the
appropriate answer back is received, (b) if by fax, when transmitted to the
appropriate fax number (and all communications sent by fax must be confirmed
promptly thereafter by telephone; but any requirement in this parenthetical
shall not affect the date when the fax shall be deemed to have been delivered),
(c) if by mail, on the third Business Day after it is enclosed in an envelope
and properly addressed, stamped, sealed, and deposited in the appropriate
official postal service, or (d) if by any other means, when actually delivered.
Until changed by notice pursuant to this agreement, the address (and fax
number) for Borrower and Agent are stated beside their respective signatures to
this agreement and for each Lender is stated beside its name on SCHEDULE 1.
14.3 Form and Number of Documents. The form, substance, and number
of counterparts of each writing to be furnished under this agreement must be
satisfactory to Agent and its counsel.
48 Restated Credit Agreement
<PAGE> 54
14.4 Exceptions to Covenants. No Company may take or fail to take
any action that is permitted as an exception to any of the covenants contained
in any Loan Document if that action or omission would result in the breach of
any other covenant contained in any Loan Document.
14.5 Survival. All covenants, agreements, undertakings,
representations, and warranties made in any of the Loan Documents survive all
closings under the Loan Documents and, except as otherwise indicated, are not
affected by any investigation made by any party.
14.6 Governing Law. Unless otherwise stated in any Loan Document,
the Laws of the State of Texas and of the United States of America govern the
Rights and duties of the parties to the Loan Documents and the validity,
construction, enforcement, and interpretation of the Loan Documents.
14.7 Invalid Provisions. Any provision in any Loan Document held
to be illegal, invalid, or unenforceable is fully severable; the appropriate
Loan Document shall be construed and enforced as if that provision had never
been included; and the remaining provisions shall remain in full force and
effect and shall not be affected by the severed provision. Agent, Lenders, and
each Company party to the affected Loan Document agree to negotiate, in good
faith, the terms of a replacement provision as similar to the severed provision
as may be possible and be legal, valid, and enforceable.
14.8 Amendments, Consents, Conflicts, and Waivers.
(a) Determining Lenders. Unless otherwise specifically
provided (i) the provisions of this agreement may be amended,
modified, or waived, only by an instrument in writing executed by
Borrower, Agent, and Determining Lenders (except amendments or
modifications to the limitations set forth in SECTION 9.3(b)(xiv),
which may be made by an instrument in writing executed by Borrower,
Agent, and Majority Lenders) and supplemented only by documents
delivered or to be delivered in accordance with the express terms of
this agreement, and (ii) the other Loan Documents may only be the
subject of an amendment, modification, or waiver that has been
approved by Determining Lenders and Borrower.
(b) All Lenders. Except as specifically otherwise
provided in this SECTION 14.8, any amendment to or consent or waiver
under this agreement or any Loan Document that purports to accomplish
any of the following must be by an instrument in writing executed by
Borrower and Agent and executed (or approved, as the case may be) by
each Lender: (i) extends the due date or decreases the amount of any
scheduled payment or amortization of the Obligation beyond the date
specified in the Loan Documents; (ii) decreases any rate or amount of
interest, fees, or other sums payable to Agent or Lenders under this
agreement (except such reductions as are contemplated by this
agreement); (iii) changes the definition of "COMMITMENT," "COMMITMENT
PERCENTAGE," "DETERMINING LENDERS," "PRO RATA PART" or "TOTAL
COMMITMENT;"; (iv) increases any one or more Lenders' Commitment; (v)
waives compliance with, amends, or fully or partially releases --
except as expressly provided by SECTION 5.5 or any other Loan
Documents -- any Guaranty or Collateral; (vi) changes any Commitment
Reduction Amount or Commitment Reduction Date; or (vii) changes this
CLAUSE (b) or any other matter specifically requiring the consent of
all Lenders under this agreement.
(c) Fees to Agent. Any amendment or consent or waiver
with respect to fees payable solely to Agent under a separate letter
agreement must be executed in writing only by Agent and Borrower.
49 Restated Credit Agreement
<PAGE> 55
(d) LCs. Any LC may be renewed, extended, amended,
replaced, or canceled consistent with the terms of this agreement by
writing executed by the Issuing Lender and Borrower that is first
approved by Agent.
(e) Conflicts. Any conflict or ambiguity between the
terms and provisions of this agreement and terms and provisions in any
other Loan Document is controlled by the terms and provisions of this
agreement.
(f) Waivers. No course of dealing or any failure or
delay by Agent, any Lender, or any of their respective Representatives
with respect to exercising any Right of Agent or any Lender under this
agreement operates as a waiver thereof. A waiver must be in writing
and signed by Agent and Lenders (or Determining Lenders, if permitted
under this agreement) to be effective, and a waiver will be effective
only in the specific instance and for the specific purpose for which
it is given.
14.9 Multiple Counterparts. Any Loan Document may be executed in a
number of identical counterparts (including, at Agent's discretion,
counterparts or signature pages executed and transmitted by fax) with the same
effect as if all signatories had signed the same document. All counterparts
must be construed together to constitute one and the same instrument.
14.10 Parties.
(a) Parties Bound. Each Loan Document binds and inures
to the parties to it, any intended beneficiary of it, and each of
their respective successors and permitted assigns. No Company may
assign or transfer any Rights or obligations under any Loan Document
without first obtaining all Lenders' consent, and any purported
assignment or transfer without Lenders' consent is void. No Lender
may transfer, pledge, assign, sell any participation in, or otherwise
encumber its portion of the Obligation except as permitted by CLAUSES
(b) or (c) below.
(b) Participations. Any Lender may (subject to the
provisions of this section, in accordance with applicable Law, in the
ordinary course of its business, and at any time) sell to one or more
Persons (each a "PARTICIPANT") participating interests in its portion
of the Obligation. The selling Lender remains a "Lender" under the
Loan Documents, the Participant does not become a "Lender" under the
Loan Documents, and the selling Lender's obligations under the Loan
Documents remain unchanged. The selling Lender remains solely
responsible for the performance of its obligations and remains the
holder of its share of the Principal Debt for all purposes under the
Loan Documents. Borrower and Agent shall continue to deal solely and
directly with the selling Lender in connection with that Lender's
Rights and obligations under the Loan Documents, and each Lender must
retain the sole right and responsibility to enforce due obligations of
the Companies. Participants have no Rights under the Loan Documents
except as provided below. Subject to the following, each Lender may
obtain (on behalf of its Participants) the benefits of SECTION 3 with
respect to all participations in its part of the Obligation
outstanding from time to time so long as Borrower is not obligated to
pay any amount in excess of the amount that would be due to that
Lender under SECTION 3 calculated as though no participations have
been made. No Lender may sell any participating interest under which
the Participant has any Rights to approve any amendment, modification,
or waiver of any Loan Document except as to matters in SECTION
14.8(b)(i) and (ii).
50 Restated Credit Agreement
<PAGE> 56
(c) Assignments. Each Lender may make assignments to the
Federal Reserve Bank. Each Lender may also assign to one or more
assignees (each an "ASSIGNEE") all or any part of its Rights and
obligations under the Loan Documents so long as (i) the assignor
Lender and Assignee execute and deliver to Agent and Borrower for
their consent and acceptance (that may not be unreasonably withheld in
any instance and is not required if the Assignee is an Affiliate of
the assigning Lender) an assignment and assumption agreement in
substantially the form of EXHIBIT F (an "ASSIGNMENT") and pay to Agent
a processing fee of $2,500, (ii) the assignment is for an identical
percentage of the assignor Lender's Rights and obligations under the
Term Loan and the Revolving Facility, (iii) the assignment must be for
a minimum total Commitment of $5,000,000 and, if the assigning Lender
retains any Commitment, it must be a minimum total Commitment of
$5,000,000, and (iv) the conditions for that assignment set forth in
the applicable Assignment are satisfied. The Effective Date in each
Assignment must (unless a shorter period is agreeable to Borrower and
Agent) be at least five Business Days after it is executed and
delivered by the assignor Lender and the Assignee to Agent and
Borrower for acceptance. Once that Assignment is accepted by Agent
and Borrower, and subject to all of the following occurring, then, on
and after the Effective Date stated in it (i) the Assignee
automatically becomes a party to this agreement and, to the extent
provided in that Assignment, has the Rights and obligations of a
Lender under the Loan Documents, (ii) the assignor Lender, to the
extent provided in that Assignment, is released from its obligations
to fund Borrowings under this agreement and its reimbursement
obligations under this agreement and, in the case of an Assignment
covering all of the remaining portion of the assignor Lender's Rights
and obligations under the Loan Documents, that Lender ceases to be a
party to the Loan Documents, (iii) Borrower shall execute and deliver
to the assignor Lender and the Assignee the appropriate Notes in
accordance with this agreement following the transfer, (iv) upon
delivery of the Notes under CLAUSE (iii) preceding, the assignor
Lender shall return to Borrower all Notes previously delivered to that
Lender under this agreement, and (v) SCHEDULE 1 is automatically
deemed to be amended to reflect the name, address, telecopy number,
and Commitment of the Assignee and the remaining Commitment (if any)
of the assignor Lender, and Agent shall prepare and circulate to
Borrower and Lenders an amended SCHEDULE 1 reflecting those changes.
Notwithstanding the foregoing, no Assignee may be recognized as a
party to the Loan Documents (and the assigning Lender shall continue
to be treated for all purposes as the party to the Loan Documents)
with respect to the Rights and obligations assigned to that Assignee
until the actions described in CLAUSES (iii) and (iv) have occurred.
The Obligation is registered on the books of Borrower as to both
principal and any stated interest, and transfers of (as opposed to
participations in) principal and interest of the Obligation may only
be made in accordance with this SECTION 14.10.
14.11 Venue, Service of Process, and Jury Trial. BORROWER AND
(PURSUANT TO ITS GUARANTY) EACH COMPANY, IN EACH CASE FOR ITSELF AND ITS
SUCCESSORS AND ASSIGNS, IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN TEXAS, (B) WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR IN THE FUTURE
HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION
WITH ANY LOAN DOCUMENT AND THE OBLIGATION BROUGHT IN THE DISTRICT COURTS OF
DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, DALLAS DIVISION, (C) WAIVES ANY CLAIMS THAT ANY LITIGATION
BROUGHT IN ANY OF THE FOREGOING COURTS HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, (D) CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY
LITIGATION BY THE MAILING OF COPIES OF THAT PROCESS BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND DELIVERY, OR BY DELIVERY BY A
NATIONALLY-RECOGNIZED COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE
UPON DELIVERY OF THE LEGAL PROCESS AT ITS ADDRESS FOR PURPOSES
51 Restated Credit Agreement
<PAGE> 57
OF THIS AGREEMENT, (E) AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY TO
ANY LOAN DOCUMENT ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR
THE OBLIGATION MAY BE BROUGHT IN ONE OF THE FOREGOING COURTS, AND (F) WAIVES TO
THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT.
The scope of each of the foregoing waivers is intended to be all encompassing
of any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including, without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. BORROWER AND (PURSUANT TO ITS GUARANTY) EACH OTHER COMPANY
ACKNOWLEDGES THAT THESE WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND EACH
LENDER'S AGREEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT AGENT AND EACH
LENDER HAS ALREADY RELIED ON THESE WAIVERS IN ENTERING INTO THIS AGREEMENT, AND
THAT AGENT AND EACH LENDER WILL CONTINUE TO RELY ON EACH OF THESE WAIVERS IN
RELATED FUTURE DEALINGS. BORROWER AND (PURSUANT TO ITS GUARANTY) EACH OTHER
COMPANY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THESE WAIVERS WITH
ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY AGREES TO EACH WAIVER
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. The waivers in this section are
irrevocable, meaning that they may not be modified either orally or in writing,
and these waivers apply to any future renewals, extensions, amendments,
modifications, or replacements in respect of the applicable Loan Document. In
connection with any Litigation, this agreement may be filed as a written
consent to a trial by the court.
14.12 Confidentiality Obligations. All nonpublic information
furnished by any Company to Agent or Lenders pursuant to this Agreement (that
is designated by such Company to Agent and Lenders as nonpublic information)
will be treated as confidential, but nothing herein contained shall limit or
impair any Agent's or Lender's Rights (and Agent or Lender shall be entitled)
(a) to disclose the same to any Tribunal, if required to do so, or to any
prospective or actual Assignee or Participant (provided that such prospective
or actual Assignee or Participant agrees to comply with this SECTION 14.12), or
to the respective affiliates, directors, officers, employees, attorneys, and
agents of Agent or Lender or any prospective or actual Assignee or Participant,
(b) to use such information to the extent pertinent to an evaluation of the
Obligation, (c) to enforce compliance for the terms and conditions of the Loan
Documents, or (d) to take any action which Agent or Lender deems necessary to
protect its interests if a Default has occurred and is continuing.
14.13 Entirety. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN BORROWER, LENDERS, AND AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
52 Restated Credit Agreement
<PAGE> 58
EXECUTED as of the date first stated above.
2828 North Haskell AFFILIATED COMPUTER SERVICES, INC.,
Dallas, TX 75204 as Borrower
Attn: Ms. Lee O. Harper,
Treasurer
By /s/ LEE O. HARPER
------------------------------------------
Lee O. Harper, Treasurer
1445 Ross Avenue, Suite 300 WELLS FARGO BANK (TEXAS), N.A.,
Dallas, TX 75202 as Agent and a Lender
Attn: Mr. Todd D. Robichaux,
Vice President
Fax: (214) 740-1543
By /s/ TODD D. ROBICHAUX
------------------------------------------
Todd D. Robichaux, Vice President
1717 Main Street, 4th Floor BANK ONE, TEXAS, N.A.,
Dallas, TX 75201 as Co-Agent and a Lender
Attn: Mr. Alan L. Miller,
Vice President
Fax: (214) 290-2305
By /s/ ALAN L. MILLER
------------------------------------------
Alan L. Miller, Vice President
Signature Page 1 of 2 Pages Restated Credit Agreement
<PAGE> 59
EXECUTED as of the date first stated above.
GUARANTY FEDERAL BANK, F.S.B., UNITED STATES NATIONAL BANK OF
as a Lender OREGON, as a Lender
By /s/ ROBERT S. HAYS By /s/ NATHAN ROSENBAUM
--------------------------------- -------------------------------------
Robert S. Hays Nathan Rosenbaum
Vice President Vice President
NBD BANK, TEXAS COMMERCE BANK NATIONAL
as a Lender ASSOCIATION, as a Lender
By /s/ WILLIAM J. McCAFFREY By /s/ ALLISON W. O'NEAL
--------------------------------- -------------------------------------
William J. McCaffrey Allison W. O'Neal
Second Vice President Vice President
SUNTRUST BANK, ATLANTA, as Lender
By /s/ JENNIFER L. McCLURE
---------------------------------
Jennifer L. McClure
Banking Officer
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Signature Page 2 of 2 Pages Restated Credit Agreement
<PAGE> 1
Exhibit 11.1
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NET INCOME
Income from continuing operations $23,756 $17,604 $11,925
Income from discontinued operations - - 371
------- ------- -------
Income $23,756 $17,604 $12,296
======= ======= =======
PRIMARY
Weighted average number of shares outstanding 14,052 12,239 10,370
Additional weighted average shares from assumed
exercise of dilutive stock options and warrants, net
of shares assumed to be repurchased with exercise
proceeds 388 540 1,043
Additional weighted average shares from assumed
issuance of shares issuable from acquisitions - 29 -
------- ------- -------
14,440 12,808 11,413
======= ======= =======
Earnings Per Share (primary):
Income from continuing operations $ 1.65 $ 1.37 $ 1.05
Income from discontinued operations - - 0.03
------- ------- -------
Net income $ 1.65 $ 1.37 $ 1.08
======= ======= =======
FULLY DILUTED
Weighted average number of shares outstanding 14,052 12,239 10,370
Additional weighted average shares from assumed
exercise of dilutive stock options and warrants, net
of shares assumed to be repurchased with exercise
proceeds 500 615 1,043
Additional weighted average shares from assumed
conversion of preferred stock 23 36 -
Additional weighted average shares from assumed
issuance of escrowed shares - - 3,585
Additional weighted average shares from assumed
issuance of shares issuable from acquisition - 29 -
------- ------- -------
14,575 12,919 14,998
======= ======= =======
Earnings Per Share (fully diluted):
Income from continuing operations $ 1.63 $ 1.36 $ 0.80
Income from discontinued operations - - 0.02
------- ------- -------
Net income $ 1.63 $ 1.36 $ 0.82
======= ======= =======
</TABLE>
<PAGE> 1
AFFILIATED COMPUTER SERVICES, INC. EXHIBIT 13.1
EXCERPT OF THE FISCAL 1996 ANNUAL REPORT TO STOCKHOLDERS
PAGES 16 THROUGH 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Affiliated Computer Services, Inc. (the "Company") derives its
revenues from information technology services and electronic funds transfer
("EFT") transaction processing services in the United States. The Company's
information technology services include data processing outsourcing, image
management services and professional services. A substantial portion of the
Company's revenues is derived from recurring monthly charges to its customers
under service contracts that vary in terms from one to ten years. For the year
ended June 30, 1996, approximately 90% of the Company's revenues were
recurring. Recurring revenues are defined by the Company as revenues derived
from services that are used by the Company's customers each year in connection
with their ongoing businesses, and accordingly exclude conversion and
deconversion fees, software license fees, product installation fees and
hardware sales. The Company has purchased 27 information processing companies
since its inception, which has resulted in geographic expansion, growth and
diversification of the Company's customer base, expansion of services offered
and increased economies of scale. Approximately 57% of the increase in
revenues since 1988 (the year the Company was formed) has been attributable to
these acquisitions.
The Company's former largest customer, First Gibraltar Bank, FSB
("FGB"), was acquired by Bank of America in 1993, and FGB was subsequently
renamed Bank of America Texas, N. A. ("B of A Texas"). In January 1994, B of A
Texas informed the Company that it would not renew its data processing services
agreement with the Company at the end of the contract term on August 31, 1995.
For the years ended June 30, 1996, 1995 and 1994, revenues from B of A Texas
and FGB accounted for approximately 1%, 11% and 14% of the Company's
consolidated revenues, respectively. As a result of the contract expiration,
management of the Company successfully completed a cost reduction program and
eliminated approximately $24 million of direct and indirect costs of the
Company.
Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements, other than statements of historical facts included in this
MD&A regarding the Company's financial position, business strategy and plans
and objectives of management of the Company for future operations, are forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statements of Income expressed as a percentage of revenues from
continuing operations:
<TABLE>
<CAPTION>
Percentage of Revenues
Year Ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from continuing operations 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------
Operating expenses:
Wages and benefits 40.0 34.2 33.6
Services and supplies 25.4 24.8 27.6
Rent, lease and maintenance 19.3 25.6 24.4
Depreciation and amortization 3.8 3.8 3.1
Other operating expenses 1.2 1.5 2.1
- ------------------------------------------------------------------------------------------------------
Total operating expenses 89.7 89.9 90.8
- ------------------------------------------------------------------------------------------------------
Operating income from continuing operations 10.3 10.1 9.2
Interest and other expenses, net 0.2 0.6 1.7
- ------------------------------------------------------------------------------------------------------
Pretax profit from continuing operations 10.1 9.5 7.5
Income tax expense 4.1 3.9 3.1
- ------------------------------------------------------------------------------------------------------
Income from continuing operations 6.0% 5.6% 4.4%
======================================================================================================
</TABLE>
<PAGE> 2
Comparison of Fiscal 1996 to Fiscal 1995
Revenues increased $83.3 million, or 27%, to $396.5 million for fiscal
1996, compared to $313.2 million for fiscal 1995, due primarily to internally
generated sales growth and acquisitions. Excluding revenues from B of A Texas,
fiscal 1996 revenues increased almost 41% over fiscal 1995.
Outsourcing services revenues, excluding B of A Texas, increased 21% due
to an increase in new accounts processed and higher volumes processed for
existing significant commercial outsourcing customers. Fiscal 1996 revenues for
outsourcing services were $182.4 million, which included $3.8 million in
revenues from B of A Texas. Revenues earned from the image management business
line increased 47% to $96.7 million due to the acquisition of Unibase
Technologies, Inc. ("Unibase") in February 1996 and three acquisitions
consummated by Dataplex Corporation, a wholly owned subsidiary of the Company.
Professional services, which was created with the January 1995 acquisition of
The Systems Group, Inc. ("TSG"), contributed $48.9 million to consolidated
revenues, an increase of 462% over fiscal 1995, due to internal growth at TSG
as well as three other acquisitions made during fiscal 1996. Revenues earned
from EFT transaction processing, excluding B of A Texas, increased by 22% due
primarily to an increase in the number of ATMs processed, particularly
low-volume ATMs. Fiscal 1996 revenues for EFT transaction processing were $68.5
million, which included $0.9 million in revenues from B of A Texas.
Total operating expenses were $355.8 million in fiscal 1996, an increase
of 26% over fiscal 1995, which is consistent with the increase in revenues.
Wages and benefits as a percentage of revenues increased due to the growth in
the professional services line of business and the acquisition of Unibase, all
of which are labor intensive businesses. Excluding the effect of these
businesses, wages and benefits were unchanged as a percentage of revenues. The
net 6% decrease in rent, lease and maintenance as a percentage of revenues was
due primarily to the acquisitions in fiscal 1996 of the labor intensive
businesses described above and economies of scale within commercial outsourcing
services. In addition, fiscal 1996 rent, lease and maintenance expense included
$3.0 million of amortization of the B of A Texas accrual compared to $8.5
million of additional expenses accrued in fiscal 1995 (see Note 2 to the
Company's Consolidated Financial Statements which appear elsewhere in this
Annual Report).
Operating income increased $9.2 million, or 29%, in fiscal 1996 compared
to fiscal 1995 due to internal growth and acquisitions. Interest and other net
expenses decreased slightly as a percentage of revenues due to a decrease in
average debt outstanding in fiscal 1996 as a result of the stock offerings
completed by the Company in fiscal 1996 and 1995, offset by an increase in
minority interest expense resulting from certain fiscal 1996 and 1995
acquisitions. The effective tax rates for fiscal 1996 and fiscal 1995 were
approximately 40% and 41%, respectively, and exceeded the statutory rate of 35%
due to certain non-deductible acquisition-related costs and the net effect of
state income taxes.
Comparison of Fiscal 1995 to Fiscal 1994
Revenues increased $42.1 million, or 16%, to $313.2 million for fiscal
1995, compared to $271.1 million for fiscal 1994, due primarily to internally
generated sales growth (almost two-thirds of the increase) with the remainder
(approximately $15.6 million) generated from acquisitions. Excluding revenues
from B of A Texas, fiscal 1995 revenues increased almost 19% over fiscal 1994.
Outsourcing services revenues increased 14%, to $174.1 million due to an
increase in accounts processed and higher volumes processed for existing
significant commercial outsourcing customers. Revenues earned from the image
management business line increased 5% to $65.9 million due to the acquisition
of Microfilm Services Company, Inc. in January 1995. Professional services, a
new line of business for the Company created with the January 1995 acquisition
of TSG, contributed $8.7 million to consolidated revenues. Revenues earned from
the EFT transaction processing business increased by 15% to $64.4 million due
primarily to an increase in the number of ATMs processed, particularly
low-volume ATMs.
Total operating expenses were $281.6 million in fiscal 1995, an increase
of 14% over fiscal 1994. Consistent with the increase in revenues, the overall
increase in operating expenses is due to increases associated with internally
generated sales growth and, to a lesser extent, acquisitions. Total operating
expenses improved as a percentage of revenues to 90% in fiscal 1995 compared to
91% in fiscal 1994 due primarily to increased economies of scale from
internally generated sales growth and the effects of the B of A Texas cost
savings plan. Wages and benefits as a percentage of revenues increased by
approximately
<PAGE> 3
0.5% due to the acquisition of TSG, which is a labor intensive business.
Excluding the acquisition of TSG, wages and benefits declined by approximately
1%. The net decrease in services and supplies and rent, lease and maintenance
as a percentage of revenues (approximately 2%) was due primarily to economies
of scale resulting from the Company's revenue growth, offset slightly by an
increase in the amount of expenses accrued for the B of A Texas contract.
Fiscal 1995 rent, lease and maintenance expense included $8.5 million for the B
of A Texas termination compared to $4.8 million for fiscal 1994 (see Note 2 to
the Company's Consolidated Financial Statements which appear elsewhere in this
Annual Report.) Depreciation and amortization increased as a percentage of
revenues by approximately 0.5% due to the write-off of $1.1 million of
purchased research and development costs associated with two fiscal 1995
acquisitions and increased acquisition amortization.
Operating income from continuing operations increased $6.7 million, or
27%, in fiscal 1995 compared to fiscal 1994. As a percentage of revenues,
operating income increased by 1%. This increase was due to economies of scale
and implementation of the B of A Texas cost savings plan offset by an increase
in the B of A Texas accrual in fiscal 1995 versus fiscal 1994. The economies of
scale resulted from increased outsourcing and EFT processing revenues, which
are generally not accompanied by proportionate increases in headcount or
equipment costs due to the Company's existing infrastructure and available
capacity. Interest and other net expenses as a percentage of revenues decreased
by more than 1% due to decreases in interest costs resulting from the payment
of debt, primarily from proceeds from the Company's initial public offering
("IPO") in September 1994, and because fiscal 1994 included charges of $0.9
million associated with the divestiture of the Company's Hawaii outsourcing
operations. The effective tax rate for fiscal 1995 and fiscal 1994 was
approximately 41% and exceeded the statutory rate of 35% due to certain
non-deductible acquisition- related costs and the net effect of state income
taxes.
Liquidity and Capital Resources
At June 30, 1996, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $34.7 million compared to $49.7 million at June 30,
1995. These liquid assets included $9.1 million ($8.3 million at June 30, 1995)
borrowed under a revolving credit facility (the "ATM Cash Facility") for use in
the Company's automated teller machines ("ATMs"). Working capital of $50.0
million at June 30, 1996 decreased by $1.6 million from the prior year due
primarily to the reclassification from long-term to current of the $9.1 million
note payable due in December 1996 for the ATM Cash Facility.
Net cash provided by operating activities of $6.7 million for fiscal 1996
decreased from $29.8 million in fiscal 1995 due primarily to the growth in
accounts receivable resulting from new and existing customers, a decrease of
$7.4 million in the periods related to the changes in ATM cash balances, and
$5.0 million from the purchase of a one-year supply of imaging film on
favorable price terms. Net cash used in investing activities increased in
fiscal 1996 by $208 million due primarily to $162.6 million paid for eight
acquisitions, including $137.5 million for the purchase of The Genix Group,
Inc. ("Genix"), which was effective June 21, 1996, compared to $9.2 million
paid for six smaller acquisitions in fiscal 1995. Also, investing activities
included an increase of $31.6 million used in the purchase of property,
equipment and software. Property and equipment purchases increased with the
purchase of the Company's headquarters and the purchase and renovation of an
adjacent building (an aggregate of approximately $20 million) and growth
associated with outsourcing services customers. Net cash provided by financing
activities increased $194.2 million due primarily to $170.2 million in net
proceeds received from the Company's secondary stock offerings completed in
March and June 1996, which proceeds were used to pay down debt incurred to fund
fiscal 1996 acquisitions, including debt from the Genix acquisition. Net
long-term debt at June 30, 1996, which increased by almost $20 million over
June 30, 1995, also contributed to the increase in cash provided by financing
activities.
Net cash provided by operating activities was $29.8 million in fiscal
1995 compared with $12.8 million generated in fiscal 1994. The increase is
primarily due to an increase in income from continuing operations for the year
and a decrease in ATM cash provided under the ATM Cash Facility. Net cash used
in investing activities decreased by $4.7 million for fiscal 1995 compared to
the prior year. The decrease was primarily due to additional net proceeds
generated from the sale of marketable securities during 1995 of $13.9 million.
These proceeds financed increases in capital expenditures associated with
growth from outsourcing services customers, an increase in the number of ATMs
owned and operated by the Company and six acquisitions during fiscal 1995. Net
cash provided by financing activities decreased by $6.7 million
<PAGE> 4
in fiscal 1995 compared to fiscal 1994, as borrowings declined by $6.6 million
under the ATM Cash Facility.
In December 1995, the Company refinanced its revolving line of credit
facility (the "Credit Facility") and ATM Cash Facility, and in June 1996,
amended its Credit Facility in connection with the acquisition of Genix. As
amended, the Credit Facility provides funds, including letters of credit, of up
to $125 million on an unsecured basis. Maximum amounts available under the
Credit Facility will be reduced on a quarterly basis beginning June 1997 to $90
million by June 1999, at which time the Company will have an option to convert
the outstanding principal balance to a two year note payable in equal quarterly
installments. The Company intends to renew the ATM Cash Facility in December
1996, the current due date. At June 30, 1996, $67.6 million and $1.9 million
were available for use under the Credit Facility and ATM Cash Facility,
respectively. In August 1995, the Company amended its vault cash custody
agreement with a financial institution, which replaced a similar facility that
expired August 31, 1995 with the B of A Texas contract. This amendment
increased the amount of funds available to $50 million and extended the term to
July 1997. The amount of cash outstanding under this facility was approximately
$33.4 million as of June 30, 1996. This cash is neither an asset nor a
liability of the Company and therefore is not recorded on the accompanying
balance sheets.
In connection with the Genix acquisition and related purchase price
allocation, the Company may have a liability of up to an additional $30 million
representing the present value of a long-term fixed obligation between Genix
and a software vendor that was entered into in March 1995. As the obligation
related to duplicate services for which the Company has already contracted, it
is considered to be an unfavorable commitment, of which approximately $5
million is reflected as current and $25 million as long-term. Payments related
to this obligation are payable over the remaining eight years of the contract.
The Company's management believes that available cash and cash
equivalents, together with cash generated from operations and available
borrowings under its various credit facilities, will provide adequate funds for
the Company's anticipated needs, including working capital expenditures and ATM
vault cash requirements. Management also believes that cash provided by
operations will be sufficient to satisfy all existing debt obligations as they
become due. The Company intends to continue its growth through acquisitions and
from time to time to engage in discussions with potential acquisition
candidates. As the size and financial resources of the Company increase,
however, additional acquisition opportunities requiring significant commitments
of capital may arise. In order to pursue such opportunities, the Company may be
required to incur debt or to issue additional potentially dilutive securities
in the future. No assurance can be given as to the Company's future acquisition
and expansion opportunities and how such opportunities would be financed.
<PAGE> 5
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $25,627 $41,476
ATM cash 9,100 8,250
Accounts receivable, net of allowance for doubtful
accounts of $1,456 and $1,792, respectively 99,270 42,325
Inventory 10,938 6,294
Prepaid expenses and other current assets 16,099 7,389
Deferred taxes 7,790 8,645
- ----------------------------------------------------------------------------------------------------
Total current assets 168,824 114,379
Property and equipment, net 84,911 23,463
Purchased computer software, net of accumulated
amortization of $15,691 and $14,734, respectively 4,946 3,219
Goodwill, net of accumulated amortization of
$8,609 and $5,783, respectively 245,693 69,293
Other intangible assets, net of accumulated amortization
of $4,478 and $3,039, respectively 12,040 6,078
Long-term investments and other assets 11,495 5,116
Deferred taxes 5,696 4,183
- ----------------------------------------------------------------------------------------------------
Total assets $533,605 $225,731
====================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $15,976 $4,360
Accrued compensation and benefits 19,815 9,856
Other accrued liabilities 58,466 32,124
Income taxes payable 3,340 234
Notes payable and current portion of long-term debt 11,609 5,763
Current portion of unearned revenue 9,657 10,440
- ----------------------------------------------------------------------------------------------------
Total current liabilities 118,863 62,777
Long-term debt 57,208 37,940
Unearned revenue 2,053 2,713
Other long-term liabilities 51,427 14,577
- ----------------------------------------------------------------------------------------------------
Total liabilities 229,551 118,007
- ----------------------------------------------------------------------------------------------------
Cumulative redeemable preferred stock 1,100 1,100
- ----------------------------------------------------------------------------------------------------
Stockholders' equity:
Class A common stock, $.01 par value,
17,196 shares authorized, 14,480 shares and
8,488 shares outstanding, respectively 145 85
Class B common stock, $.01 par value,
4,804 shares authorized, 3,202 and 4,804
shares outstanding, respectively 32 48
Additional paid-in capital 251,944 79,312
Retained earnings 50,833 27,179
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 302,954 106,624
- ----------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4, 7 and 14)
Total liabilities and stockholders' equity $533,605 $225,731
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
Consolidated Statements of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from continuing operations $396,509 $313,181 $271,055
Expenses:
Wages and benefits 158,619 106,966 91,117
Services and supplies 100,625 77,613 74,947
Rent, lease and maintenance 76,412 80,250 66,075
Depreciation and amortization 15,031 11,847 8,524
Other operating expenses 5,070 4,963 5,582
- ------------------------------------------------------------------------------------------------------
Total operating expenses 355,757 281,639 246,245
- ------------------------------------------------------------------------------------------------------
Operating income from continuing operations 40,752 31,542 24,810
Interest and other expenses, net 833 1,755 4,598
- ------------------------------------------------------------------------------------------------------
Pretax profit from continuing operations 39,919 29,787 20,212
Income tax expense 16,163 12,183 8,287
- ------------------------------------------------------------------------------------------------------
Income from continuing operations 23,756 17,604 11,925
Discontinued operations:
Income from discontinued operations, net of taxes -- -- 371
- ------------------------------------------------------------------------------------------------------
Net income $23,756 $17,604 $12,296
======================================================================================================
Earnings per common and common equivalent share:
Continuing operations $1.65 $1.37 $1.05
Discontinued operations -- -- .03
- ------------------------------------------------------------------------------------------------------
Net income $1.65 $1.37 $1.08
======================================================================================================
Weighted average shares outstanding 14,440 12,808 11,413
======================================================================================================
Earnings per common share assuming full dilution:
Continuing operations $1.63 $1.36 $.80
Discontinued operations -- -- .02
- ------------------------------------------------------------------------------------------------------
Net income $1.63 $1.36 $.82
======================================================================================================
Weighted average shares outstanding assuming full dilution 14,575 12,919 14,998
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock
Class A Class B Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 5,565 $56 4,804 $48 $38,040 $17,293 $55,437
Conversion of subsidiary
stock to Company stock 30 447 447
Spin-Off of Precept Business
Products, Inc. (20,014) (20,014)
Net income 12,296 12,296
- -------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 5,595 56 4,804 48 38,487 9,575 48,166
Net proceeds of initial
public offering 2,300 23 32,171 32,194
Issuance of compensatory
stock options 2,521 2,521
Exercise of stock options
and related tax benefits 580 6 4,810 4,816
Stock issued in connection
with acquisitions 13 1,323 1,323
Net income 17,604 17,604
- -------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 8,488 85 4,804 48 79,312 27,179 106,624
Conversion of shares 1,602 16 (1,602) (16) --
Net proceeds of secondary
stock offerings 4,072 41 169,740 169,781
Exercise of stock options
and related tax benefits 253 2 3,028 3,030
Other, net 65 1 (136) (102) (237)
Net income 23,756 23,756
- -------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 14,480 $145 3,202 $32 $251,944 $50,833 $302,954
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 8
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $23,756 $17,604 $12,296
- -----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15,031 11,847 8,524
Loss on marketable securities -- 11 746
Recognition of stock option compensation 45 680 750
Other 26 -- (9)
Changes in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in ATM cash (850) 6,550 (14,800)
(Increase) decrease in accounts receivable (20,111) (7,609) 1,773
Increase in inventory (4,886) (889) (199)
Increase in prepaid expenses and other current assets (3,037) (1,141) (2,071)
(Increase) decrease in deferred taxes 4,916 (5,930) (4,545)
(Increase) decrease in other long-term assets (1,280) (1,100) 1,485
Increase (decrease) in accounts payable 3,207 (124) (2,240)
Increase in accrued compensation and benefits 56 1,338 1,231
Increase (decrease) in other accrued liabilities (822) 4,924 1,543
Increase (decrease) in income taxes payable 3,087 (2,940) 3,403
Increase (decrease) in other long-term liabilities (5,152) 7,878 3,547
Increase (decrease) in unearned revenue (7,324) (1,347) 1,324
- -----------------------------------------------------------------------------------------------------------------------
Total adjustments (17,094) 12,148 462
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,662 29,752 12,758
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, equipment and computer software, net (43,404) (11,826) (6,595)
Payments for acquisitions, net of cash acquired (162,630) (9,204) --
Additions to other intangible assets (6,311) (150) (131)
Proceeds from sale of marketable securities -- 14,354 7,214
Purchases of marketable securities -- -- (6,730)
Net advances to discontinued operations -- -- (5,074)
Other, net (2,528) -- (236)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (214,873) (6,826) (11,552)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 189,800 -- 21,676
Repayments of long-term debt (170,973) (33,938) (31,681)
Proceeds from issuance of common stock, net of issuance costs 170,228 33,310 --
Proceeds from the exercise of stock options and related tax benefits 3,146 5,319 --
Net borrowings (repayments) of ATM debt 850 (6,550) 14,800
Other, net (689) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 192,362 (1,859) 4,795
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (15,849) 21,067 6,001
Cash and cash equivalents at beginning of year 41,476 20,409 14,408
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $25,627 $41,476 $20,409
=======================================================================================================================
</TABLE>
See non-cash activities disclosed in Notes 3, 4, 5, 7 and 13. The accompanying
notes are an integral part of these consolidated financial statements.
<PAGE> 9
Notes to Consolidated Financial Statements
1. Business and Summary of Significant Accounting Policies
Description of business and basis of presentation
Affiliated Computer Services, Inc. (the "Company"), which was
incorporated on June 8, 1988, is primarily engaged in providing information
technology services and electronic funds transfer ("EFT") transaction
processing services in the United States. Information technology services
include data processing outsourcing, image management services and professional
services.
The consolidated financial statements are comprised of the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company's fiscal year
ends on June 30. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
Cash, cash equivalents and ATM cash
Cash and cash equivalents consist primarily of short-term investments in
commercial paper, Eurodollars, securities purchased under agreements to resell
and short-term U.S. treasury bills. Such investments have an initial maturity
of three months or less. ATM cash represents cash borrowed under a revolving
credit agreement and restricted for use in Company-owned automated teller
machines ("ATMs").
Inventory
Inventories consist primarily of micrographics supplies and equipment and
ATM and computer maintenance parts, which are recorded at the lower of cost
(first-in, first-out) or market (net realizable value).
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which for equipment range primarily from three to seven years and for buildings
and improvements up to forty years.
Purchased computer software
Purchased computer software and internally developed computer software
purchased through acquisitions are amortized using the straight-line method
over expected useful lives which range from two to six years. With respect to
costs incurred to develop software for its information processing services that
is not purchased through acquisitions, the Company's policy is to capitalize
such costs only after technological feasibility has been established. No such
software development costs have been capitalized in the accompanying financial
statements.
Goodwill
Goodwill represents the excess of the purchase price over the fair value
of net assets acquired and is amortized using the straight-line method over the
expected useful lives which range from ten to forty years. It is the Company's
policy to periodically review the net realizable value of its intangible
assets, including goodwill, through an assessment of the estimated future cash
flows related to such assets. Each business unit to which these intangible
assets relate is reviewed to determine whether future cash flows over the
remaining estimated useful life of the asset provide for recovery of the
assets. In the event that assets are found to be carried at amounts which are
in excess of estimated gross future cash flows, then the intangible assets are
adjusted for impairment to a level commensurate with a discounted cash flow
analysis of the underlying assets.
Other intangible assets
Other intangible assets consist primarily of customer contracts, which
are recorded at cost and amortized using the straight-line method over the
contract terms, which range from three to ten years.
Long-term investments
Long-term investments consist of equity investments and are accounted for
using either the cost or the equity method, as determined on a case-by-case
basis. It is the Company's policy to periodically review the
<PAGE> 10
net realizable value of its long-term investments through an assessment of the
recoverability of the carrying amount of each investment. Each investment is
reviewed to determine if events or changes in circumstances of the issuer have
occurred which indicate that the recoverability of the carrying amount may be
uncertain. In the event that an investment is found to be carried at an amount
in excess of its recoverable amount, the asset is adjusted for impairment to a
level commensurate with the recoverable amount of the underlying asset.
Revenue recognition
Information processing revenue is recorded as services are performed.
Revenue from annual maintenance contracts is deferred and recognized ratably
over the maintenance period. Image management services and supplies revenues
earned in excess of related billings are accrued, whereas billings in excess of
revenues earned are deferred until the related services are provided. Revenues
earned from the Company's five largest customers each year together comprise
16%, 27% and 30% of revenues from continuing operations for the years ended
June 30, 1996, 1995 and 1994, respectively. Trade accounts receivable from
these customers aggregated $11,232,000 at June 30, 1996 and $8,646,000 at June
30, 1995.
Income taxes
Deferred income taxes provided in the accompanying financial statements
are determined based on the difference between financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the years
in which such differences are expected to reverse.
Income per common and common equivalent share
On September 26, 1994, the Company completed an initial public offering
(the "IPO") to sell shares of its Class A common stock. Earnings per common and
common equivalent share are based on the weighted average number of common
shares outstanding during the period plus common equivalent shares arising from
stock options and warrants, if dilutive. Stock options granted with exercise
prices below the IPO price during the twelve-month period preceding the initial
filing date of the IPO have been included in the calculation of common
equivalent shares, using the treasury stock method and the IPO price of $16.00
per share, as if they were outstanding for the year ended June 30, 1994. Stock
options granted and warrants issued more than twelve months prior to the IPO
have been included in the computations, using the treasury stock method and the
IPO price of $16.00 per share, only when their effect would be dilutive.
Earnings per common share assuming full dilution reflects the effects
(when greater than 3% dilution) of common shares contingently issuable upon the
exercise of options, warrants and the conversion of cumulative redeemable
preferred stock in periods in which such exercise or conversion would cause
dilution. The fully diluted per share computation for the year ended June 30,
1994 reflects the effect of escrowed shares which were contingently issuable to
First Madison Bank, formerly First Gibraltar Bank, FSB. Such shares were
escrowed to secure the Company's obligation to purchase shares of its stock in
connection with a put right held by First Madison Bank. Upon consummation of
the Company's IPO, the put right and the related escrowed shares were canceled.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes accounting and reporting
standards for stock-based employee compensation plans. As permitted by the
standard, the Company expects to continue to account for such arrangements
under APB Opinion No. 25 and apply SFAS 123 on a disclosure basis only.
Accordingly, adoption of the standard will not affect the Company's results of
operations or financial position.
2. Non-renewal of Largest Customer Contract
The Company's former largest customer, First Gibraltar Bank, FSB ("FGB"),
was acquired by Bank of America in 1993, and FGB was subsequently renamed Bank
of America Texas, N. A. ("B of A Texas"). In January 1994, B of A Texas
informed the Company that it would not renew its data processing services
agreement with the Company at the end of the contract term on August 31, 1995.
Revenues earned from B of A Texas and FGB were $4.6 million, $35.1 million and
$37.2 million for the years ended June 30, 1996, 1995 and 1994, respectively.
Expenses directly related to services provided to this former customer,
<PAGE> 11
excluding any allocable expenses of the Company's fixed costs for such items as
shared computing, customer support functions, occupancy and selling, general
and administrative, were $0.8 million, $7.4 million and $9.5 million for the
fiscal years ended June 30, 1996, 1995 and 1994, respectively.
In conjunction with the contract expiration, the Company expected to
incur various non-recurring expenses primarily associated with the termination
or renegotiation of a computer lease. Such costs were estimated to aggregate
$16.1 million, of which $13.3 million had been accrued through May 1995, when
the Company determined that the computer lease would not need to be terminated
or renegotiated, as a new customer contract was signed which replaced computer
capacity previously utilized for the B of A Texas contract. Accordingly, the
Company ceased recording any additional accrual. Services to the new customer
began in September 1995, at which point the existing accrual began to amortize
over the remaining term of the computer lease, which expires February 1999. For
the year ended June 30, 1996, $3.2 million of such accrual was amortized
(reduction to expenses) to rent, lease and maintenance compared to $8.5 million
and $4.8 million expensed in the years ended June 30, 1995 and 1994,
respectively.
3. Reorganization
On June 30 and July 5, 1994, the Company completed a series of
transactions (collectively, the "Reorganization") designed to restructure the
Company for the IPO. The transactions included the reclassification of the
Company's capital stock, the merger of certain Company subsidiaries into the
Company and the spin-off of Precept Business Products, Inc. ("Precept") to the
Company's stockholders on a pro rata basis (the "Spin-Off"). All share and per
share amounts in the accompanying financial statements have been adjusted to
give effect to the Reorganization.
The distribution of Precept's stock was structured to qualify for
tax-free treatment under the Internal Revenue Code of 1986, and is subject to
certain conditions. The businesses distributed consist of various business
support services unrelated to information processing and have been accounted
for as discontinued operations in the 1994 consolidated statement of income.
Third party revenues, revenues from affiliates and total revenues from Precept
were $50,108,000, $13,764,000 and $63,872,000, respectively, for the year ended
June 30, 1994, while income before taxes, income tax expense and net income
were $654,000, $283,000 and $371,000, respectively, for the same period.
4. Acquisitions
During fiscal years 1996 and 1995, the Company acquired eight and six
information processing services businesses, respectively, which have been
included in the accompanying consolidated statements of income from the
respective acquisition dates. Assuming the acquisitions made during fiscal year
1996 and 1995 had occurred as of July 1, 1995 or 1994, respectively, pro forma
unaudited condensed consolidated results of operations are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Revenues $ 536,044 $ 496,633
======================================================================================================
Operating income $ 57,176 $ 47,706
======================================================================================================
Net income $ 24,577 $ 18,442
======================================================================================================
Earnings per common and common equivalent share $ 1.70 $ 1.44
======================================================================================================
Weighted average shares outstanding 14,440 12,847
======================================================================================================
</TABLE>
The above pro forma information is not necessarily indicative of the
actual results that would have been achieved had these acquisitions occurred as
of the dates noted above and is not necessarily indicative of future results.
In connection with these acquisitions, which were accounted for as
purchases, assets acquired, liabilities assumed and net purchase price in
fiscal 1996 were approximately $257,493,000, $95,144,000 and
<PAGE> 12
$162,349,000, respectively, while 1995 acquisitions aggregated $21,518,000,
$5,159,000 and $16,359,000, respectively.
Of the acquisitions during fiscal year 1995, the Company financed a
portion of the aggregate purchase price through the issuance of $3.3 million of
seller-financed notes and 78,000 shares of unregistered Class A common stock
(65,000 shares of which were issued in February 1996). Included in results of
operations for the year ended June 30, 1995 is a charge to depreciation and
amortization expense of approximately $1.1 million representing the write-off
of software research and development costs purchased in two of the
acquisitions.
In connection with the acquisition of The Genix Group, Inc. ("Genix") and
the related purchase price allocation, the Company may have a liability of up
to an additional $30 million representing the present value of a long-term
fixed obligation between Genix and a software vendor that was entered into in
March 1995. As the obligation related to duplicate services for which the
Company has already contracted, it is considered to be an unfavorable
commitment, of which approximately $5 million is reflected as current and $25
million as long-term. Payments related to this obligation are payable in
approximately equal installments over the remaining eight years of the
contract. The Company also identified as part of the purchase price allocation
certain operating leases of Genix where the present value of the future lease
payments is in excess of comparable market values of the related equipment.
Accordingly, a liability of approximately $18 million, $5 million of which is
classified as current, was recorded at the acquisition date.
The Company is obligated to make certain contingent payments to former
owners based on the achievement of specified profit levels in conjunction with
certain of its acquisitions. As of June 30, 1996, the maximum aggregate amount
of these contingent payments is approximately $6.3 million. Any such payments
would result in a corresponding increase in goodwill; however, no such
contingent payments have been earned to date.
5. Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 18,323 $ 343
Buildings and improvements 17,408 6,884
Computer equipment 26,297 14,846
Furniture and fixtures 30,226 16,098
Operating systems software 20,395 10,149
Construction in progress 3,593 371
- --------------------------------------------------------------------------------
116,242 48,691
Accumulated depreciation and amortization (31,331) (25,228)
- --------------------------------------------------------------------------------
$ 84,911 $23,463
================================================================================
</TABLE>
In connection with an outsourcing contract signed in March 1995, the
Company acquired assets with a fair market value of approximately $2,521,000,
including property, equipment and computer software of $2,237,000. Liabilities
assumed were $35,000, and unearned revenue of $2,486,000 was recorded which
will be recognized ratably over a three-year period.
In connection with an outsourcing contract signed in March 1994, the
Company acquired assets with a fair market value of $3,952,000, including
property and equipment of $1,205,000, and assumed liabilities of $1,450,000.
The net consideration received of $2,502,000 has been recorded as unearned
revenue, and both the revenue and the depreciation expense are being recognized
ratably over the three-year term of the outsourcing contract.
6. Long-term Investments
<PAGE> 13
Long-term investments consist primarily of investments in preferred stock
accounted for at cost, as these securities are not considered marketable equity
securities. The preferred stock investments accrue cumulative dividends ranging
from 5% to 10%, which are generally paid through in-kind shares issued on a
quarterly basis. Dividend income recognized from such securities, which is
reflected in the financial statements as a component of interest and other
expenses, was approximately $1,513,000 during the year ended June 30, 1996.
7. Notes Payable and Long-term Debt
A summary of notes payable and long-term debt follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured $125,000 revolving credit agreement, payable
to a bank, due in June 1999 (A) $46,800 $16,237
Secured $11,000 ($12,000 at June 30, 1995) revolving
ATM cash credit agreement ("ATM Cash Facility"),
payable to a bank, due in December 1996 (B) 9,100 8,250
10% junior subordinated debentures, payable to former shareholders
of a subsidiary, due January 2000, interest payable semiannually (C) 826 7,344
Note payable to a corporation (D) -- 3,500
Other notes payable to individuals and corporations, interest rates
ranging from 6% to 15%, due through 2002 6,394 7,955
Capitalized lease obligations at various interest rates, payable through 2001 5,697 417
- ----------------------------------------------------------------------------------------------------------
68,817 43,703
Less current portion (11,609) (5,763)
- ----------------------------------------------------------------------------------------------------------
$ 57,208 $37,940
==========================================================================================================
</TABLE>
Maturities of notes payable and long-term debt at June 30, 1996 follows (in
thousands):
<TABLE>
<CAPTION>
Year ending June 30:
- ----------------------------------------------------------------------------------------------------------
<S> <C>
1997 $11,609
1998 3,862
1999 49,092
2000 2,063
2001 1,590
Thereafter 601
- ----------------------------------------------------------------------------------------------------------
$68,817
==========================================================================================================
</TABLE>
(A) The Company refinanced its revolving line of credit ("Credit
Facility") balance of $24.3 million in December 1995 with two financial
institutions to extend the term of the agreement and to change to an
unsecured facility. In March 1996, borrowings under the Credit Facility
of $43.1 million were repaid with proceeds from the Company's March
secondary common stock offering. The Credit Facility was subsequently
amended in June 1996 in connection with the Company's acquisition of
Genix to increase the Credit Facility to $160 million, which in the same
month was reduced to $125 million upon completion of the Company's June
secondary common stock offering. Of the $138.7 million borrowed in June
1996 to fund the acquisition of Genix, $91.9 million was repaid in June.
The Credit Facility, as amended, provides for a mandatory pro rata
facility reduction on a quarterly basis beginning in June 1997 that will
reduce the outstanding principal balance and maximum borrowings of the
Credit Facility to $90 million by June 1999. In June 1999, the Company
can elect to convert the outstanding principal balance under the Credit
Facility to a two year installment note, payable in equal quarterly
installments. Interest on the Credit Facility is payable monthly at LIBOR
(5.48% at June 30, 1996) plus 0.5% to 1.25%, or the bank's base rate, as
elected by the Company.
<PAGE> 14
The Credit Facility contains covenants which require that the Company
comply with certain negative, affirmative, and financial covenants
customary in notes of this nature, including but not limited to the
maintenance of current and fixed charge ratios, limitations on
acquisitions and minimum net worth requirements. The agreement also
has provisions which would permit acceleration of the maturity of the
borrowings after the occurrence of certain defined events of default.
(B) The ATM Cash Facility was refinanced in conjunction with the Credit
Facility in December 1995. Interest is due quarterly at the bank's
overnight interest rate (5.50% at June 30, 1996) plus 0.5%,
collateralized by cash restricted for use in Company-owned ATMs.
(C) In January 1994, a subsidiary of the Company issued 10% junior
subordinated debentures in the principal amount of $6,344,000 in
exchange for all outstanding shares of 12% cumulative Series A
preferred stock with equal redemption value. Interest on the
debentures was payable semiannually in cash, or by issuing additional
debentures (this option expired June 1995). The Company elected to
pay interest for the year ended June 30, 1995 and for the six months
ended June 30, 1994 by issuing additional debentures in the principal
amount of $681,000 and $317,000, respectively. The debentures were
called for redemption on March 15, 1996 at their face value plus
accrued and unpaid interest. As of June 30, 1996, $6,516,000 in
principal amount had been redeemed.
(D) The Company's $3,500,000 note payable to a corporation was an
obligation of ACS Government Services, Inc. ("ACSGS"), a subsidiary
of the Company, for which the corporation had recourse only to ACSGS.
ACSGS and the note holder had been in a dispute since 1990 over
whether the amount was actually owed, although the note holder had
not taken any collection action in over five years. ACSGS and the
Company believe that the applicable statute of limitations has
expired; therefore, during fiscal 1996 the note balance was reduced
to zero, which resulted in a credit to interest and other expenses of
$3,500,000.
Interest expense of $2,680,000, $4,449,000 and $5,864,000 was incurred
during the years ended June 30, 1996, 1995 and 1994, respectively, net of
capitalized interest of $313,000 during the year ended June 30, 1996. Cash
payments for interest for the years ended June 30, 1996, 1995 and 1994 were
$3,387,000, $3,040,000 and $4,823,000, respectively. Interest income was
$1,653,000, $2,260,000, and $1,935,000 for the years ended June 30, 1996, 1995
and 1994, respectively.
At June 30, 1996, the Company had outstanding letters of credit of
approximately $10,557,000, which are being maintained primarily as collateral
for an appeal bond related to an outstanding judgment (see Note 14).
The Company's cash custody agreement with a financial institution expires
July 31, 1997 and provides the Company with up to $50,000,000 of the financial
institution's vault cash for use in Company-owned ATMs located in Texas. At
June 30, 1996, approximately $33,401,000 was in use under the agreement. The
cash is owned by the financial institution and consequently not recorded on the
Company's accompanying balance sheets.
8. Income Taxes
Income tax expense (benefit) from continuing operations is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 6,586 $11,302 $ 10,658
State 1,126 2,903 1,996
Tax reduction credited to paid-in capital
from exercise of stock options 2,994 5,142 --
- ------------------------------------------------------------------------------------------------------
Total current expense 10,706 19,347 12,654
- ------------------------------------------------------------------------------------------------------
Deferred:
Federal 4,630 (6,079) (3,706)
State 827 (1,085) (661)
- ------------------------------------------------------------------------------------------------------
Total deferred expense (benefit) 5,457 (7,164) (4,367)
- ------------------------------------------------------------------------------------------------------
Total expense for income taxes $ 16,163 $12,183 $ 8,287
======================================================================================================
</TABLE>
<PAGE> 15
At June 30, 1996, the Company had available unused net operating loss
carryforwards ("NOLs"), net of Internal Revenue Code Section 382 limitations,
of approximately $5,124,000, which expire in years 2002 through 2010. The
utilization of prior NOLs from acquired companies have reduced goodwill by
$214,000 for the year ended June 30, 1994.
At June 30, 1996, the Company had an unused capital loss carryforward,
net of Section 382 limitations, of approximately $842,000, which will expire in
1998. The loss carryforward has been fully reserved due to capital loss
restrictions.
The Company's deferred tax assets (liabilities) consist of the following
(in thousands):
<TABLE>
<CAPTION>
June 30, 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses not yet deductible for tax purposes $13,427 $13,406
Stock option compensation expense 416 558
Loss carryforwards 2,460 877
Investment basis differences 648 662
Other 94 244
- ------------------------------------------------------------------------------------------------------
Total deferred tax assets 17,045 15,747
- ------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization (2,896) (2,140)
- ------------------------------------------------------------------------------------------------------
Deferred tax assets valuation allowance (663) (779)
- ------------------------------------------------------------------------------------------------------
Net deferred tax assets $13,486 $12,828
======================================================================================================
</TABLE>
The valuation allowance at June 30, 1996 exists principally due to tax
benefits of acquired corporations for which realization of any future benefit
is uncertain due to Section 382 limitations. The valuation allowance for
deferred tax assets decreased by $116,000 and $190,000 during the years ended
June 30, 1996 and 1994, respectively, due to the utilization of previously
reserved NOLs and changes in facts and circumstances with respect to the
realization of future tax benefits of certain investments which caused such
realizations to be more likely than not.
Income tax expense from continuing operations varies from the amount
computed by applying the statutory federal income tax rate to income before
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at the federal statutory rate $13,972 $10,425 $7,074
Increase (decrease) resulting from:
Excess of book basis over tax basis of
companies 711 553 496
State income taxes (net of federal benefit) 1,324 1,275 868
Other 156 (70) (151)
- ------------------------------------------------------------------------------------------------------
Total expense for income taxes $16,163 $12,183 $8,287
======================================================================================================
</TABLE>
Federal and state income tax payments during the years ended June 30,
1996, 1995 and 1994 were approximately $4,891,000, $15,697,000 and $11,782,000,
respectively.
9. Cumulative Redeemable Preferred Stock
The Company's Series A preferred stock, which consisted of 1,000 issued
and outstanding shares with a par value of $1,100 per share and accrued
cumulative dividends of 9%, was redeemed for cash in July 1996 at par value
plus accrued and unpaid dividends.
10. Common Stock
<PAGE> 16
The Company's Class B common stock is entitled to ten votes per share.
Class B shares are convertible, at the holder's option, into Class A shares,
but until converted carry significant transfer restrictions.
In January 1989, the Company issued warrants to purchase 396,594
additional shares of Class A common stock to a data processing customer. The
warrants are exercisable at an aggregate price of $4,700,000 plus $230,000 for
each year that elapses after December 31, 1988, plus interest at 10% per annum.
At June 30, 1996, the exercise price was $30.01 per share. Shares may be
purchased in increments through January 1999, the date on which the warrant
agreement expires. However, there have been no shares purchased to date.
11. Employee Benefit Plans
Effective September 2, 1988, the Company established a nonqualified
compensatory stock option plan for certain of its employees. The plan was
amended and restated on May 24, 1994. Under the amended plan, the Company
reserved 1,850,000 shares of Class A common stock (as adjusted to give effect
to the Reorganization) for awards to employees at exercise prices determined by
the Board of Directors of the Company. Of the options granted during fiscal
1996, 200,000 are subject to shareholder approval at the annual shareholder
meeting, where the Company will seek to reserve an additional number of shares
of Class A common stock for grant under this plan. Options generally vest over
five years and, if issued subsequent to the IPO date, are exercisable five
years from the date of the grant. Options issued prior to the IPO date are
fully vested and exercisable. Options expire ten years from the date of grant.
The Company recognized $45,000, $680,000 and $750,000 of compensation
expense for the years ended June 30, 1996, 1995 and 1994, respectively,
primarily from the issuance of stock options to certain key employees where the
option exercise price was below the market price of the Company's Class A
common stock on the day prior to issuance and from the repricing of certain
existing stock options in connection with the IPO.
Option activity for the years ended June 30, 1994, 1995 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
Option Price
Options Per Share
- ------------------------------------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1993 1,097,628 $.01 - $9.55
Granted 32,280 $1.43
Canceled (29,368) $.15 - $9.55
- ------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1994 1,100,540 $.01 - $9.55
Granted 416,184 $16.00 - $22.50
Exercised (579,061) $.01 - $9.54
Canceled (56,269) $.01 - $16.00
- ------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1995 881,394 $.01 - $22.50
Granted 586,212 $29.25 - $46.25
Exercised (253,293) $.01 - $1.43
Canceled (12,500) $16.00 - $29.50
- ------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1996 1,201,813 $.14 - $46.25
======================================================================================================
Exercisable at June 30, 1996 217,917 $.14 - $2.66
======================================================================================================
</TABLE>
The Company's 401(k) plan, as defined by the United States Internal
Revenue Code, allows participants to contribute a percentage of their
compensation. The plan also allows for a discretionary matching contribution by
the Company as determined by the Company's Board of Directors. There were no
contributions made by the Company to the plan during the years ended June 30,
1996, 1995 and 1994.
During the year ended June 30, 1996, the Company adopted an employee
stock purchase plan which allows eligible employees to purchase Company Class A
common stock at a 15% discount to market value. The stock is purchased by the
plan in the open market, and Company contributions during fiscal 1996, which
were charged to additional paid-in capital, were $135,000.
<PAGE> 17
12. Financial Instruments
As of June 30, 1996 and 1995, the fair values of the Company's revolving
credit balances and other variable-rate debt instruments approximated the
related carrying values. The fair values of the Company's fixed-rate debt
instruments also approximated the related carrying values, as determined based
upon relative changes in the Company's variable borrowing rates, whether the
borrowings occurred recently or if the borrowings were repaid after the fiscal
year ended.
The fair value of the cumulative redeemable preferred stock is deemed to
approximate book value based on the Company's redemption of this issue in July
1996.
13. Related Party Transactions
In March 1994, the Company paid $4,900 to acquire a 49% interest in
TransFirst, Inc. ("TransFirst"), a minority- owned provider of data processing
and electronic benefits services for state and local governments. Concurrently,
the Company sold TransFirst two existing service contracts in exchange for
notes receivable totaling $2,200,000. The notes bear interest at a bank's prime
rate and are due in a lump-sum payment in February 2004. The Company accounts
for its investment under the equity method. Equity earnings for the years ended
June 30, 1996 and 1995 and for the period from March 1994 to June 1994 were not
significant.
Effective April 1996, the Company sold its wholly owned interest in ACS
Merchant Services, Inc. ("Merchant Services"), a start-up operation of the EFT
business line, to a former officer and director of the Company for
consideration in the form of a note receivable of $500,000. There was no gain
or loss recognized on the sale. Simultaneously with the sale, the Company
contributed an additional $1,500,000 and the unpaid balance of an intercompany
note due from Merchant Services of approximately $712,000 in exchange for 1,000
shares of Merchant Services 5% cumulative convertible preferred stock, which is
convertible after 5 years into approximately 55% of Merchant Services common
stock on a fully diluted basis.
14. Commitments and Contingencies
The Company has various operating lease agreements for data processing
equipment and facilities. A summary of the lease commitments under
noncancelable operating leases at June 30, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Year ending June 30:
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 50,177
1998 39,154
1999 27,747
2000 14,472
2001 6,675
Thereafter 10,825
- -------------------------------------------------------------------------------
$ 149,050
===============================================================================
</TABLE>
Lease expense for data processing equipment and facilities was
$40,773,000, $36,894,000 and $32,903,000 for the years ended June 30, 1996,
1995 and 1994, respectively.
In December 1992, a judgment was rendered against the Company, jointly
and severally with certain other affiliated defendants, in the amount of
approximately $6,500,000. The Company has posted an appeal bond for the amount
of the judgment plus required post judgment interest (see Note 7). In fiscal
1995 and 1993, the Company recorded charges in other operating expenses for an
aggregate amount which it believes is adequate to sustain any loss in
settlement of this matter. The reserve is included in other accrued
liabilities. The Company intends to vigorously pursue its appeal of the
judgment, which is pending before the Texas Supreme Court, which court granted
the Company's application for Writ of Error in July 1996. The case is set for
oral arguments in October 1996.
<PAGE> 18
Included in interest and other expenses in fiscal 1996 is a charge of
$3,800,000 relating to planned divestitures of certain community bank
processing groups within Texas and Louisiana that are part of the Company's
financial services outsourcing business. In June 1996, the Company signed
letters of intent to sell three such groups with historical annual revenues of
approximately $10 million and in August 1996 closed on the disposition of these
groups.
The Company is subject to certain other legal proceedings, claims and
disputes which arise in the ordinary course of its business. Although the
Company cannot predict the outcomes of these legal proceedings, the Company's
management does not believe these actions will have a material adverse effect
on the Company's financial position, results of operations or liquidity.
However, if unfavorably resolved, these proceedings could have a material
adverse effect on the Company's financial position, results of operations and
liquidity.
15. Quarterly Results of Operations (unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Fiscal 1996 Fiscal 1995
Quarter Ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
- -----------------------------------------------------------------------------------------------------------------------
1996 1996 1995 1995 1995 1995 1994 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $116,801 $99,062 $91,352 $89,294 $89,543 $80,700 $72,338 $70,600
Operating income 12,479 9,948 8,392 9,933 9,140 7,143 7,870 7,389
Net income 7,288 5,735 5,072 5,661 5,076 4,459 4,295 3,774
Primary earnings per share $ .45 $ .41 $ .37 $ .41 $ .38 $ .34 $ .32 $ .33
</TABLE>
<PAGE> 19
Report of Independent Accountants
To the Board of Directors and Stockholders of Affiliated Computer
Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of Affiliated Computer Services, Inc. and its subsidiaries at June 30,
1996 and 1995 and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Dallas, Texas
July 30, 1996
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY STATE OF INCORPORATION
<S> <C>
ACS National Systems, Inc. Delaware
City Data Processing, Inc. Oklahoma
ACS Government Services, Inc. Texas
Healthcare Acquisition Corporation Delaware
National Healthtech Corporation California
The Monterrey Group, Inc. California
Dataplex Corporation Louisiana
Mino-Micrographics, Inc. Texas
Intellifile, Inc. Nevada
ACS Eastern Services, Inc. Delaware
Promotional Services Acquisition Corporation Delaware
Wolf Benefits, Inc. Texas
McCoy, Myers & Association, Inc. Texas
Technical Directions, Inc. (formerly The Systems Group, Texas
Inc.) California
Technical Directions, Inc.
The Genix Group, Inc. Michigan
MCN Computer Services, Inc. Michigan
Genix Corporation Delaware
The Genix Group Ltd. United Kingdom
LAN Acquisition Corporation Pennsylvania
The LAN Company, Inc. Pennsylvania
Unibase Technologies, Inc. Nevada
Unibase Data Entry, Inc. Nevada
Unibase Technologies de Mexico, S.A. de C.V. Mexico
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-86426) of Affiliated Computer Services, Inc. of
our report dated July 30, 1996, appearing on page 32 of the Annual Report to
Stockholders, which is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page F-1 of this Form 10-K.
Price Waterhouse LLP
Dallas, Texas
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,627
<SECURITIES> 0
<RECEIVABLES> 99,270
<ALLOWANCES> 1,456
<INVENTORY> 10,938
<CURRENT-ASSETS> 168,824
<PP&E> 84,911
<DEPRECIATION> 31,331
<TOTAL-ASSETS> 533,605
<CURRENT-LIABILITIES> 118,863
<BONDS> 57,208
1,100
0
<COMMON> 177
<OTHER-SE> 302,777
<TOTAL-LIABILITY-AND-EQUITY> 533,605
<SALES> 0
<TOTAL-REVENUES> 396,509
<CGS> 0
<TOTAL-COSTS> 355,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,680
<INCOME-PRETAX> 39,919
<INCOME-TAX> 16,163
<INCOME-CONTINUING> 23,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,756
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.63
</TABLE>
