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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 ONE ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number 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 (I.R.S. Employer Identification No.)
incorporation or organization
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
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Class A common stock, par
value $.01 per share New York Stock Exchange
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 24, 1997, 29,495,859 shares of Class A common stock were
outstanding. The aggregate market value of the 29,430,047 shares of Class A
common voting stock held by nonaffiliates of Affiliated Computer Services, Inc.
as of such date, approximated $796,450,647.
DOCUMENTS INCORPORATED BY REFERENCE: Information required by Part III of this
document is incorporated by reference to certain portions of the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders to be
held on or about December 16, 1997 (to be filed).
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AFFILIATED COMPUTER SERVICES, INC.
FORM 10-K
JUNE 30, 1997
<TABLE>
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PAGE
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<S> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . 11
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 12
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 16
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 16
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 16
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K . . . . . . . . . 17
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Affiliated Computer Services, Inc. (the "Company" or "ACS") based in
Dallas, Texas and with offices throughout the United States and in Europe and
Mexico, provides information technology services and electronic funds transfer
("EFT") processing. The Company's information technology services include data
processing outsourcing, image management solutions and professional services.
The Company's services are provided to customers with time-critical,
transaction-intensive information processing needs. ACS' revenues from
continuing operations increased from $189.1 million in fiscal 1993 to $624.5
million in fiscal 1997, and income from continuing operations increased from
$9.3 million to $38.5 million during the same period.
The Company's data processing outsourcing services are provided to a
variety of customers nationwide, including retailers, healthcare providers,
telecommunications companies, wholesale distributors, manufacturers, utilities,
financial institutions and insurance companies. The Company utilizes a variety
of 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. ACS' professional services include 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 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.
ACS was formed in 1988 to participate in the trend to outsource information
processing to third parties to enable businesses to focus on core operations,
respond to rapidly changing technologies and reduce data processing expenses.
The Company's business strategy is to continue to lower its unit processing
costs by expanding its customer base through both internal marketing and the
acquisition of complementary companies. Since inception, the Company has
completed 33 acquisitions, which have resulted in geographic expansion, growth
and diversification of the Company's customer base, expansion of services and
products offered, and increased economies of scale. Approximately two-thirds
of the increase in the Company's revenues for the five years ended June 30,
1997 has been attributable to acquisitions. The Company's marketing efforts
focus on developing long-term relationships with customers that choose to
outsource various information processing requirements, as well as on expanding
services offered to existing customers.
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 increasing complexity in the systems
environment, (ii) 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, (iii) the increasing requirements for rapid
processing and communication of large amounts of data to multiple locations,
(iv) 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 (v) 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 $26 billion in
1997.
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
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industry trade association, the market for image management products and
services was approximately $9.5 billion in 1997.
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.
According to a published market trend forecast, the worldwide market for
professional/information technology services, excluding Year 2000 compliance
services, was $118 billion in 1995 and is projected to grow to $258 billion by
the year 2000.
EFT transaction processing involves the on-line processing of transactions
initiated by a consumer at a terminal using a debit or credit card issued by
the consumer's financial institution. Various transactions, including cash
withdrawals, transfers and balance inquiries, are authorized and performed with
immediate posting to the consumer'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 153,000 ATMs deployed in
the United States as of December 31, 1996. 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:
<TABLE>
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Year ended June 30,
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1997 1996 1995 1994 1993
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(in thousands)
<S> <C> <C> <C> <C> <C>
Information Technology Services:
Outsourcing $ 293,349 $ 182,365 $ 174,136 $ 152,204 $ 118,518
Image management services 145,540 96,730 65,897 62,871 26,909
Professional services 92,702 48,919 8,703 - -
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531,591 328,014 248,736 215,075 145,427
EFT Transaction Processing 92,942 68,495 64,445 55,980 43,637
----------- ----------- ----------- ----------- -----------
Total $ 624,533 $ 396,509 $ 313,181 $ 271,055 $ 189,064
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</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 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 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.
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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 and/or improvements in
the quality of data processing. 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.
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 500 customers as of June 30,
1997, including retailers, healthcare providers, telecommunications companies,
wholesale distributors, manufacturers, utilities, financial institutions and
insurance companies. 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, its primary host data centers located in Dallas, Texas; Rancho
Cordova, California; 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
operation 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. In
most instances, the customer maintains and enhances its application programs
and schedules and initiates 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. 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' data on a variety of hardware platforms.
The Company's commercial data processing services are typically provided
pursuant to multi-year contracts and 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.
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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. In addition, recent advances in
technology have made mainframe platforms, in the Company's view, more
cost-competitive with client-server systems. During fiscal year 1997, the
majority of new outsourcing contracts have included substantial applications of
client-server technology, desktop management, mid-range computing and network
management in addition to mainframe outsourcing.
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.
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
40 service centers in 24 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
12,500 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 for high-speed conversion and
database update. As of June 30, 1997, Unibase employed over 2,700 full-time
equivalent employees and captured over 150 million characters of data each day
for approximately 125 customers at 17 service centers in 11 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 professional services.
Today, the Company's professional services include contract programming,
technical support, marketing support, as well as network design and
installation services. These services are generally priced to customers on a
time and materials basis. The Company further expanded its geographic presence
with the acquisition of Technical Directions, Inc., a San Diego-based
professional services provider, in September 1995 and Wesson, Taylor, Wells &
Associates, Inc., a Charlotte, North Carolina based staff-augmentation
business, in March 1997. TSG was renamed Technical Directions, Inc. ("TDI") in
1996 and currently has approximately 590 employees in offices located in Dallas
and Houston, Texas; Atlanta, Georgia; Chicago, Illinois; San Diego, California;
Charlotte and Raleigh, North Carolina; Phoenix, Arizona and Philadelphia,
Pennsylvania.
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TDI 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, TDI's professional services are generally
offered on an hourly rate basis to a changing client base under short-term
contractual arrangements. TDI'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 its acquisition of Medianet, Inc. in August 1995 and Pinpoint
Marketing, Inc. in September 1996, the Company has built a leadership position
in the trade marketing service industry. The Company's proprietary software
supports program planning and development and administration of co-op
advertising, incentive, fulfillment and other promotional programs that build
brand equity and increase market share to over 100 clients, including many
Fortune 100 companies.
The Company further expanded its professional services offerings with the
purchase of a majority interest in The LAN Company ("Lanco") in December 1995
and Intelligent Solutions, Inc. ("ISI") in March 1997. 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. ISI is a Washington, D.C. based provider of client-server solutions,
primarily to the U.S. Congress, the White House and other Executive Branch
agencies. These acquisitions are part of the Company's strategy to bolster its
presence in the local area/wide area network 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. The Company's EFT business is conducted primarily through
its MoneyMaker(SM )ATM network, which has been operated by the Company since
its formation in 1988. Based on an industry publication, the Company's
MoneyMaker(SM) ATM network is the second largest non-bank ATM network in the
United States. Of the 11,281 ATMs in the MoneyMaker(SM )ATM network as of June
30, 1997, 1,065 are owned by the Company and 10,216 are processed by the Company
on behalf of other owners. Approximately 124 million ATM and point-of-sale
transactions were processed in the network during the year ended June 30, 1997
(up from 102 million during the year ended June 30, 1996). The Company also
provides ATM maintenance services to its MoneyMaker(SM )ATM network 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. Recently, certain legislation and
regulations have been proposed which, if enacted, may affect such fees charged
by the Company or may reduce the number of ATMs operated, thereby affecting
revenues generated by the Company from ATM-related transactions.
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The Company markets its EFT services to financial institutions and
retailers, primarily in the southern United States. At June 30, 1997, the
Company processed 1,181 MoneyMaker(SM) network ATMs and approximately 1.5
million card accounts for approximately 370 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 institution or its branches. MoneyMaker(SM) 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, 1997 the Company had approximately 1,065 ATMs in retail
locations throughout 11 states. ACS is 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 addition to the high volume, full service ATMs described above, the
Company deploys alternative 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. The
Company's retail customers own these devices, enabling them to receive the
associated fees, while paying the Company for terminal driving services. As of
June 30, 1997, approximately 9,020 low volume ATMs had been installed in
primarily retail sites in 48 states.
Through arrangements with a number of independent sales organizations, ACS
continues to grow its EFT 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 ATM network will be attributable to non-Company owned
ATMs.
The number of financial institutions for which the Company provides EFT
processing services has grown 34% since June 1994, and the number of ATMs in
the network has more than quadrupled since June 1994. The following table
illustrates the growth of the Company's MoneyMaker(SM) ATM network since July
1, 1994:
<TABLE>
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As of and for the
Year ended June 30,
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1997 1996 1995
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<S> <C> <C> <C>
Financial Institutions using MoneyMaker(SM) 369 356 303
ATMs:
At Financial Institutions 1,181 759 618
At Retail Locations 10,100 5,451 2,424
------------- ------------- ----------
Total ATMs 11,281 6,210 3,042
Average Monthly ATM Transactions 9,653,000 8,179,000(1) 10,040,000
</TABLE>
(1) Bank of America Texas, N.A. ("B of A Texas") accounted for approximately
300 ATMs and over 2.2 million average monthly 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 12 of the Notes to the
Company's Consolidated Financial Statements.
MoneyMaker(SM) ATM network 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.
As of June 30, 1997, the Company provided ATM maintenance services to 423
customers, 98 of which were also EFT processing customers. As of June 30, 1997,
the Company's 155 technicians maintained approximately 6,300 ATM
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terminals of various types in 28 states, approximately one-half of which were
also processed by ACS through its MoneyMaker(SM) ATM network. In addition to
maintenance services, the Company 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 governmental
agencies 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.
DATA AND SERVICE CENTERS
The Company's outsourcing, EFT and electronic image management services are
provided through the Company's extensive national data and service center
network, which comprises 4 host data centers, 10 remote data centers, and 55
image management service centers (in 28 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 4,400 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.
In August 1994, the Company entered into an enterprise-wide ten-year
software license with a large provider of mainframe systems and client-server
software. The terms of the license make all of the provider's mainframe systems
software available to the Company and allow 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 pays an annual
license fee composed of fixed minimum fees plus a percentage of the annual
incremental increases in the Company's outsourcing revenues. The Company has
also entered into six additional multi-year software license agreements with
various providers. These agreements, which vary in term, generally provide
favorable pricing and added functionality.
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.
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
7
<PAGE> 10
conversion to a competing processor or to an in-house system. Prior to contract
expiration, customers may be lost due to, among other things, business failure
or acquisition. For the year ended June 30, 1997, no customer of the Company
represented over 5% of the Company's revenues.
As of June 30, 1997, the Company had over 14,000 information technology
customers, including approximately 500 outsourcing customers. In addition, the
Company provides EFT Services to approximately 9,370 customers, consisting of
369 financial institution ATM customers, approximately 8,580 retail ATM
customers and 423 ATM maintenance customers.
Approximately 88%, 90% and 95% of the Company's revenues for fiscal 1997,
1996 and 1995, 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 15%, 16%
and 27% of the Company's fiscal 1997, 1996 and 1995 revenues, 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, 1997, the Company's sales force included 21 sales
representatives for outsourcing services, 36 sales representatives for image
management services, 40 sales representatives for professional services and 23
sales representatives for EFT transaction processing services.
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 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.
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
8
<PAGE> 11
overhead, and it must acquire and maintain a significant customer base and
account/transaction base to achieve sufficient economies of scale. The
Company's competition for outsourcing contracts consists of (i) the first-tier
outsourcers, including Electronic Data Systems Corporation ("EDS") and Computer
Sciences Corporation, (ii) mid-sized divisions of large corporations, such as
MCI, Lockheed-Martin and GE Capital and (iii) other smaller, regional
competitors.
The market for contract programming and staff-augmentation is fragmented
and highly competitive, with limited barriers to entry. Within its local
markets, TDI actively competes with small specialized firms as well as with
large competitors with a wider range of staffing services. The Company believes
that the key competitive factors in obtaining and retaining clients include the
ability to understand job requirements, deliver appropriate skill sets in a
timely manner and price services effectively. The Company must also compete for
qualified personnel through competitive wages and by maintaining a consistent
demand for the skills recruited.
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.
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, 1997, the Company and its subsidiaries had over 7,030
full-time equivalent employees. Approximately 176 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 176 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 its 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 institutions, however, the Company's outsourcing and EFT 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 its operations, and generally, the Company implements such
recommendations. The Company also arranges for an annual independent
examination 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. However, if such legislation were enacted,
the number of ATMs operated nationwide (or within the geographic areas affected
by the legislation) could be significantly reduced. This could adversely affect
the Company's revenues and income as they relate to the Company's EFT
transaction processing business.
ITEM 2. PROPERTIES
The Company's executive offices are located in Dallas, Texas at a facility
of approximately 587,000 square feet, which also houses a host data center and
other operations. The Company also has primary host data centers in Rancho
Cordova, California; Pittsburgh, Pennsylvania and Charlotte, North Carolina
which encompass an aggregate of 198,000
9
<PAGE> 12
square feet of space. These latter three data centers are leased and have
terms that expire beginning November 1999 and ending April 2011. The Company
leases seven remote data centers with varying expiration terms, ranging from
approximately 4,430 square feet to 56,800 square feet which are located in
Boston, Massachusetts; New York (2), Woodbury and Utica, New York; Austin,
Texas and Salt Lake City, Utah. The Company leases 55 image management service
centers located throughout the United States ranging from 277 square feet to
27,746 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 storage bunkers and leases another 199 acres of land
with 23 underground storage bunkers in Flora, Mississippi expiring December
2010. The Company also leases 49 other facilities used for office or warehouse
space ranging from 450 square feet to 68,253 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.
ITEM 3. LEGAL PROCEEDINGS
On February 21, 1997, the Texas Supreme Court, in a unanimous decision,
overturned a lower court judgment against the Company, its Chairman and a
former director. The judgment originated from a matter styled ACS Investors,
Inc. et al v. Thomas McLaughlin and John Lazovich, where the trial court
rendered a verdict in favor of Messrs. McLaughlin and Lazovich on causes of
action for tortious interference with a 1986 agreement related to the
acquisition of an EBT business. The total amount of the judgment was
approximately $9.5 million, including pre- and post-judgment interest. The
Company pursued its appeal of the judgment through the Fifth District Court of
Appeals in Dallas, Texas and then with the Texas Supreme Court, culminating in
the favorable decision in February 1997. The plaintiffs' motion for
reconsideration by the Texas Supreme Court was subsequently denied.
Eighteen former employees of Gibraltar Savings Association and/or First
Texas Savings Association (collectively, "GSA/FTSA") have brought suit in Texas
state court alleging entitlement to 336,864 shares of the Company's Class A
common stock pursuant to options issued to GSA/FTSA employees in 1988 in
connection with a former data processing services agreement between GSA/FTSA
and the Company. The Company has received demands from two other former
GSA/FTSA employees with respect to similarly situated options covering 38,801
shares of the Company's Class A common stock, and there are seven other former
GSA/FTSA employees who were issued similarly situated options allegedly
covering 129,631 shares of the Company's Class A common stock. The per share
exercise price for each of these options, as adjusted for the Company's 1994
reclassification and its 1996 two-for-one stock split, is alleged to be $.38.
The Company believes that it has meritorious defenses to all or substantial
portions of these matters and plans to vigorously defend against them.
However, should the proceedings not be favorably resolved, the Company may be
subject to a material non-cash charge.
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. On March 12, 1997 the Company added NationsBank as a
defendant in the counterclaim. The Company intends to vigorously oppose this
action and to pursue the claims asserted in the counterclaim.
In addition to the foregoing, 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.
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A common stock is traded on the New York Stock Exchange
("NYSE") under the symbol "AFA." 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 as reported on the Nasdaq Stock Market's National Market through February
1997 and thereafter on the NYSE, and have been retroactively adjusted for the
two-for-one stock split which occurred in November 1996.
<TABLE>
<S> <C> <C>
Fiscal year ended June 30, 1997 High Low
- ----------------------------------------------------------------------------
First Quarter 32 21 1/8
Second Quarter 32 24 3/4
Third Quarter 30 1/4 19 1/2
Fourth Quarter 28 5/8 20 3/4
Fiscal year ended June 30, 1996 High Low
- ----------------------------------------------------------------------------
First Quarter 16 1/8 13 7/8
Second Quarter 19 1/4 14 3/8
Third Quarter 21 1/2 16 7/8
Fourth Quarter 26 7/8 20 3/4
</TABLE>
On September 24, 1997, the last reported sales price of the Company's Class
A common stock as reported on the New York Stock Exchange was $27 1/16 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 its unsecured revolving credit agreement
with Wells Fargo Bank (Texas), National Association and Bank One, Texas N.A. as
amended (the "Credit Facility"), the Company is prohibited from paying
dividends in any fiscal year in a total amount that would exceed 50% of the
Company's net income for the preceding fiscal year. 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.
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<PAGE> 14
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 elsewhere in this document.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
As of and for the year ended June 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA: (1)
Revenues $ 624,533 $ 396,509 $ 313,181 $ 271,055 $ 189,064
Income from continuing operations $ 38,510 $ 23,756 $ 17,604 $ 11,925 $ 9,318
Earnings per share $ 1.05 $ 0.82 $ 0.69 $ 0.52 $ 0.41
Weighted average shares outstanding 36,567 28,880 25,616 22,826 22,768
BALANCE SHEET DATA:
Working capital $ 65,787 $ 49,961 $ 51,602 $ 50,653 $ 28,958
Total assets $ 577,427 $ 533,605 $ 225,731 $ 190,055 $ 187,301
Total long-term debt
(less current portion) $ 89,534 $ 57,208 $ 37,940 $ 80,001 $ 61,731
Cumulative redeemable
preferred stock $ -- $ 1,100 $ 1,100 $ 1,100 $ 7,081
Stockholders' equity $ 348,548 $ 302,954 $ 106,624 $ 48,166 $ 55,437
</TABLE>
(1) At the end of fiscal 1994, the Company completed a reorganization and
spin-off of certain businesses unrelated to information processing,
which were accounted for as discontinued operations. The results
reflected herein are from continuing operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company derives its revenues from information technology services and
electronic funds transfer ("EFT") transaction processing services primarily in
the United States. The Company's information technology services include data
processing outsourcing, image management solutions and professional services. A
substantial portion of the Company's revenues is derived from recurring monthly
charges to its customers under service contracts with initial terms that vary
from one to ten years. For the year ended June 30, 1997, approximately 88% 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. From inception through June 30,
1997, the Company has purchased 33 information processing companies, 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 two-thirds of the increase in revenues since 1988 (the year the
Company was formed) has been attributable to these acquisitions. On September
21, 1997, the Company announced plans to acquire and merge with an information
technology company with reported revenues exceeding $300 million for its fiscal
year ended June 30, 1997. The merger is expected to close during the
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<PAGE> 15
Company's second fiscal quarter and is intended to be treated as a pooling of
interests (see Note 15 to the Company's Consolidated Financial Statements).
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 of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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. These forward-looking statements
rely on a number of assumptions concerning future events and are subject to a
number of uncertainties and other factors, many of which are outside of the
Company's control, that could cause actual results to materially differ from
such statements. While the Company believes that the assumptions concerning
future events are reasonable, it cautions that there are inherent difficulties
in predicting certain important factors, especially the timing and magnitude of
technological advances; the performance of recently acquired businesses; the
prospects for future acquisitions; the possibility that a current customer
could be acquired or otherwise be affected by a future event that would
diminish their information technology requirements; the competition in the
information technology industry and the impact of such competition on pricing,
revenues and margins; the degree to which business entities continue to
outsource information technology and business processes; uncertainties
surrounding budget reductions or changes in funding priorities or existing
government programs and the cost of attracting and retaining highly skilled
personnel.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's Consolidated
Statements of Income expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Percentage of Revenues
Year ended June 30,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
-------- -------- --------
Operating expenses:
Wages and benefits 38.0 40.0 34.2
Services and supplies 23.7 25.4 24.8
Rent, lease and maintenance 20.3 19.3 25.6
Depreciation and amortization 5.1 3.8 3.8
Other operating expenses 1.5 1.2 1.5
-------- -------- --------
Total operating expenses 88.6 89.7 89.9
-------- -------- --------
Operating income 11.4 10.3 10.1
Interest and other expenses, net 1.0 0.2 0.6
-------- -------- --------
Pretax profit 10.4 10.1 9.5
Income tax expense 4.2 4.1 3.9
-------- -------- --------
Net income 6.2% 6.0% 5.6%
======== ======== ========
</TABLE>
COMPARISON OF FISCAL 1997 TO FISCAL 1996
Revenues increased $228.0 million, or 58%, to $624.5 million for fiscal 1997.
Revenues from acquisitions contributed $170.9 million, while revenues from
internally generated sales contributed $57.1 million to the overall increase.
Outsourcing services revenues increased 61% over fiscal 1996, primarily as a
result of the effect of a full year's contribution of The Genix Group, Inc.
("Genix") which was acquired in June 1996. In addition, a portion of the
increase was attributable to new contracts signed in fiscal 1997 and the effect
of a full year's contribution from contracts signed in fiscal 1996. Revenues
from the image management business line increased 50% to $145.5 million, as a
result of the effect of a full year's contribution of Unibase Technologies,
Inc. ("Unibase") which was acquired in February 1996 and the subsequent revenue
growth in that subsidiary. Revenues from professional services increased 90%
to $92.7 million primarily due to four acquisitions completed in fiscal 1997.
Revenues generated by EFT services increased 36% to $92.9 million due to an 82%
increase in the number of automated teller machines ("ATMs") processed,
primarily low volume ATMs located in retail establishments.
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<PAGE> 16
Total operating expenses increased $197.4 million, or 55%, to $553.1
million for fiscal 1997, as a result of the Company's higher revenues. The
changes from year to year in the various operating expense categories, as a
percentage of revenues, are primarily due to the mix of acquired companies
across ACS' four business lines. Acquisitions in the professional services and
image management business lines are relatively more labor intensive, such that
wages and benefits as a percentage of revenues will generally increase while
the other operating expense categories will reflect a corresponding decrease.
Acquisitions in the outsourcing business line, such as Genix, will have a
larger proportion of expenses related to computer hardware and software and,
therefore, rent, lease and maintenance as a percentage of revenues will
increase, while the other operating expense categories will reflect a
corresponding decrease. Wages and benefits expense and services and supplies
expense, as a percentage of revenues, decreased from fiscal 1996 due primarily
to the Genix acquisition. Rent, lease and maintenance expense, as a percentage
of revenues, increased due to the Genix acquisition and increased demand for
data processing in the outsourcing services business line. Depreciation and
amortization expense, as a percentage of revenues, increased due to the Genix
acquisition and six acquisitions completed in fiscal 1997. During fiscal 1997,
the Company recorded a charge of $6.0 million ($4.6 million in other operating
expenses and $1.4 million in depreciation and amortization) relating to the
consolidation of two of its mainframe data centers and the upgrading of certain
computer hardware and software to newer technology. Also, during fiscal 1997,
the Texas Supreme Court, in a unanimous decision, overturned a lower court's
judgment against the Company for which the Company had previously accrued
approximately $6 million. During the third quarter of fiscal 1997, the Company
reversed this accrual to other operating expenses.
Operating income for fiscal 1997 increased $30.7 million, or 75%, to
$71.4 million. Operating income as a percentage of revenues for fiscal 1997
was 11.4% compared with 10.3% for fiscal 1996. Interest and other expenses
increased as a percentage of revenues as a result of debt incurred to finance
the Genix acquisition as well as the acquisitions completed in fiscal 1997.
The effective tax rates for fiscal 1997 and fiscal 1996 were 41% and 40%,
respectively, and exceeded the federal statutory rate of 35% due to certain
non-deductible acquisition-related costs and the net effect of state income
taxes.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
In August 1995, the Company ceased providing services to its largest
customer at that time, Bank of America Texas, N.A. ("B of A Texas") at the
expiration of their contract, due to their migration of data processing and EFT
transaction processing from the Company to their parent's systems. For the
years ended June 30, 1996 and 1995, revenues from B of A Texas accounted for
approximately 1% and 11% of the Company's consolidated revenues, respectively.
In connection with 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 (see Note 12 to the
Company's Consolidated Financial Statements).
Revenues increased $83.3 million, or 27%, to $396.5 million for fiscal
1996, 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 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",
later named Technical Directions, Inc.), contributed $48.9 million to
consolidated revenues, an increase of 462% over fiscal 1995, due to the full
year effect of the TSG acquisition 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, primarily 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.
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<PAGE> 17
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 was
reduced by $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 12 to the
Company's Consolidated Financial Statements).
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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's liquid assets, consisting of cash and
cash equivalents, totaled $21.3 million compared to $34.7 million at June 30,
1996. These liquid assets included $6.7 million and $9.1 million borrowed under
a revolving credit facility (the "ATM Cash Facility") for use in the Company's
owned ATMs at June 30, 1997 and 1996, respectively. Working capital of $65.8
million at June 30, 1997 increased by $15.8 million from the prior year due
primarily to fiscal 1997 net cash flows from operating activities and the
acquisitions completed during fiscal 1997 which were partially funded by debt.
Net cash provided by operating activities of $62.0 million for fiscal
1997 increased from $6.7 million in fiscal 1996 due primarily to increased
earnings, improved collections of accounts receivable, reduction of inventory
and tax savings generated by the fiscal 1996 acquisition of Genix. Net cash
used in investing activities decreased in fiscal 1997 by $112.7 million due
primarily to $36.7 million paid for six acquisitions, compared to $162.6
million paid for eight acquisitions in fiscal 1996. Also in fiscal 1997,
investing activities included $31.6 million in payments relating to prior year
acquisitions, including a one-time cash settlement in the amount of $23 million
to resolve a software license dispute with a software vendor that resulted from
the Genix acquisition. In addition, capital expenditures decreased $5.2
million from the prior year because fiscal 1996 capital expenditures included
$20.0 million for the purchase and renovation of the Company's headquarters.
Net cash from financing activities decreased by $163.2 million from fiscal 1996
as a result of the $170.2 million in net proceeds received from the Company's
secondary stock offerings in fiscal 1996.
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 $7.4 million
reduction in 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 $208.0 million due primarily
to $162.6 million paid for eight acquisitions, including $137.5 million for the
purchase of 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 for 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.
15
<PAGE> 18
Subsequent to June 30, 1997, the Company expanded its unsecured revolving
credit agreement (the "Credit Facility") from $125 million to $200 million and
amended the terms to extend through July 2002. Borrowings under the Credit
Facility as of June 30, 1997 were $82.7 million. After giving effect to the
expanded Credit Facility and outstanding letters of credit, the Company , as of
June 30, 1997, would have had approximately $106.2 million available for use
under the Credit Facility. The Company has an ATM Cash Facility of $11
million, of which $6.7 million was outstanding at June 30, 1997. This facility
expires December 1997. The Company also has two vault cash custody agreements
with financial institutions which provide up to $52 million in cash for use in
the Company-owned ATMs. The amount of cash outstanding under the cash custody
agreements at June 30, 1997 was approximately $28 million and is not an asset
or liability of the Company, and therefore is not recorded on the accompanying
consolidated balance sheet. Recently enacted federal regulations governing
financial institutions' cash requirements have allowed financial institutions
to significantly reduce their vault cash reserves. Accordingly, this may limit
the Company's ability to secure similar cash custody agreements when its
current arrangements expire in July 1998 and January 1999. In September 1997,
the Company redeemed its preferred stock investment in a customer, resulting in
cash proceeds of $12.7 million which were used to pay down long-term debt (see
Note 4 to the Company's Consolidated Financial Statements).
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
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)
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.
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Reference is made to the listing on page 19 of all financial statements
filed as a part of this report.
(a) (2) Financial Statement Schedule
Reference is made to the listing on page 19 of the schedule filed as a
part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June 30,
1997. On August 20, 1997, the Company filed a Current Report on Form 8-K
reporting adoption by the Company's Board of Directors of a Stockholders'
Rights Plan. Additionally, on September 25, 1997, the Company filed a
Current Report on Form 8-K reporting the signing of a definitive agreement
to acquire and merge with Computer Data Systems, Inc.
(c) Exhibits
Reference is made to the Index to Exhibits beginning on page 38 for a list
of all exhibits filed as part of this report.
17
<PAGE> 20
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 29, 1997
By: /s/ Mark A. King
----------------------------------
Mark A. King
Executive Vice President and
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 29th day of September 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Director, Chairman of the Board and
/s/ Darwin Deason Chief Executive Officer (Principal Executive Officer)
------------------------------------------
(Darwin Deason)
/s/ Jeffrey A. Rich Director, Chief Operating Officer and President
------------------------------------------
(Jeffrey A. Rich)
Director, Chief Financial Officer and
/s/ Mark A. King Executive Vice 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/ Joseph P. O'Neill Director
------------------------------------------
(Joseph P. O'Neill)
/s/ Frank A. Rossi Director
------------------------------------------
(Frank A. Rossi)
</TABLE>
18
<PAGE> 21
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Statements (Item 14(a)(1))
Consolidated Balance Sheets at June 30, 1997 and 1996 . . . . . . . . . . . . . . . 21
Consolidated Statements of Income for each of the three years
in the period ended June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Changes in Stockholders' Equity for
each of the three years in the period ended June 30, 1997 . . . . . . . . . . . 23
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 25
Financial Statement Schedule (Item 14(a)(2))
Schedule II - Valuation and Qualifying Accounts
for each of the three years in the period ended June 30, 1997 . . . . . . . . . 37
</TABLE>
All other schedules have been omitted because the required information is
included in the financial statements or notes thereto or because they are
not required.
19
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Affiliated Computer Services,
Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 19, present fairly, in all
material respects, the financial position of Affiliated Computer Services, Inc.
and its subsidiaries at June 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997, 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.
PRICE WATERHOUSE LLP
Dallas, Texas
July 30, 1997, except as to Note 4, Note 13
and Note 15, which are as of
September 21, 1997
20
<PAGE> 23
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,667 $ 25,627
ATM cash 6,650 9,100
Accounts receivable, net of allowance for doubtful
accounts of $1,784 and $1,456, respectively 111,385 99,270
Inventory 9,915 10,938
Prepaid expenses and other current assets 17,097 16,099
Deferred taxes 8,475 7,790
-------- --------
Total current assets 168,189 168,824
Property and equipment, net 103,005 84,911
Purchased computer software, net of accumulated
amortization of $8,818 and $15,691, respectively 3,672 4,946
Goodwill, net of accumulated amortization of
$15,467 and $8,609, respectively 273,268 245,693
Other intangible assets, net of accumulated amortization
of $6,943 and $4,478, respectively 17,892 12,040
Long-term investments and other assets 11,401 11,495
Deferred taxes -- 5,696
-------- --------
Total assets $577,427 $533,605
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,031 $ 15,976
Accrued compensation and benefits 17,710 19,815
Other accrued liabilities 52,217 58,466
Income taxes payable 433 3,340
Notes payable and current portion of long-term debt 10,692 11,609
Current portion of unearned revenue 8,319 9,657
-------- --------
Total current liabilities 102,402 118,863
Long-term debt 89,534 57,208
Unearned revenue 1,191 2,053
Deferred taxes 11,054 --
Other long-term liabilities 24,698 51,427
-------- --------
Total liabilities 228,879 229,551
-------- --------
Cumulative redeemable preferred stock -- 1,100
-------- --------
Stockholders' equity:
Class A common stock, $.01 par value,
75,000 shares authorized, 29,496 shares and
28,960 shares outstanding, respectively 295 145
Class B common stock, $.01 par value,
6,406 shares authorized and outstanding 64 32
Additional paid-in capital 258,853 251,944
Retained earnings 89,336 50,833
-------- --------
Total stockholders' equity 348,548 302,954
-------- --------
Commitments and contingencies (Notes 2, 5, 11, 13 and 14)
Total liabilities and stockholders' equity $577,427 $533,605
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE> 24
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues $624,533 $396,509 $313,181
Operating expenses:
Wages and benefits 237,538 158,619 106,966
Services and supplies 147,933 100,625 77,613
Rent, lease and maintenance 127,042 76,412 80,250
Depreciation and amortization 31,266 15,031 11,847
Other operating expenses 9,345 5,070 4,963
-------- -------- --------
Total operating expenses 553,124 355,757 281,639
-------- -------- --------
Operating income 71,409 40,752 31,542
Interest and other expenses, net 6,414 833 1,755
-------- -------- --------
Pretax profit 64,995 39,919 29,787
Income tax expense 26,485 16,163 12,183
-------- -------- --------
Net income $ 38,510 $ 23,756 $ 17,604
======== ======== ========
Earnings per common and common equivalent share $ 1.05 $ .82 $ .69
======== ======== ========
Weighted average shares outstanding 36,567 28,880 25,616
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
22
<PAGE> 25
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
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, 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
Stock split 14,538 145 3,204 32 (177) --
Exercise of stock options
and related tax benefits 69 1,125 1,125
Stock issued in connection
with acquisitions 409 5 6,166 6,171
Other, net (205) (7) (212)
Net income 38,510 38,510
------ -------- ----- ---- --------- --------- ---------
Balance at June 30, 1997 29,496 $ 295 6,406 $ 64 $ 258,853 $ 89,336 $ 348,548
====== ======== ===== ==== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE> 26
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 38,510 $ 23,756 $ 17,604
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 31,266 15,031 11,847
Recognition of stock option compensation -- 45 680
Other 23 26 11
Changes in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in ATM cash 2,450 (850) 6,550
Increase in accounts receivable (439) (20,111) (7,609)
(Increase) decrease in inventory 4,220 (4,886) (889)
Increase in prepaid expenses and other current assets (1,136) (3,037) (1,141)
Change in deferred taxes 17,697 4,916 (5,930)
Increase in other long-term assets (1,376) (1,280) (1,100)
Increase (decrease) in accounts payable (6,960) 3,207 (124)
Increase (decrease) in accrued compensation and benefits (2,871) 56 1,338
Increase (decrease) in other accrued liabilities (6,761) (822) 4,924
Increase (decrease) in income taxes payable (3,315) 3,087 (2,940)
Increase (decrease) in other long-term liabilities (6,595) (5,152) 7,878
Decrease in unearned revenue (2,696) (7,324) (1,347)
--------- --------- ---------
Total adjustments 23,507 (17,094) 12,148
--------- --------- ---------
Net cash provided by operating activities 62,017 6,662 29,752
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, equipment and computer software, net (38,242) (43,404) (11,826)
Payments for acquisitions, net of cash acquired (68,340) (162,630) (9,204)
Additions to other intangible assets (2,921) (6,311) (150)
Proceeds from sale of marketable securities -- -- 14,354
Proceeds from note receivable 4,611 -- --
Proceeds from sale of banking units 2,704 -- --
Other, net -- (2,528) --
--------- --------- ---------
Net cash used in investing activities (102,188) (214,873) (6,826)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 59,211 189,800 --
Repayments of long-term debt (27,732) (170,973) (33,938)
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 1,285 3,146 5,319
Net borrowings (repayments) of ATM debt (2,450) 850 (6,550)
Other, net (1,103) (689) --
--------- --------- ---------
Net cash provided by (used in) financing activities 29,211 192,362 (1,859)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (10,960) (15,849) 21,067
Cash and cash equivalents at beginning of year 25,627 41,476 20,409
--------- --------- ---------
Cash and cash equivalents at end of year $ 14,667 $ 25,627 $ 41,476
========= ========= =========
</TABLE>
See supplemental cash flow information in Notes 2, 3, 5, 6 and 11.
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE> 27
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
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" or "ACS"), which was
incorporated on June 8, 1988, is engaged in providing information technology
services and electronic funds transfer ("EFT") processing services primarily in
the United States. Information technology services include data processing
outsourcing, image management solutions 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,
network computer hardware and ATM and computer maintenance parts, which are
generally recorded at the lower of cost or market (net realizable value) using
the first-in, first-out method.
Property and equipment
Property and equipment are recorded at cost. The cost of property and
equipment held under capital leases, primarily computer equipment, is equal to
the lower of the net present value of the minimum lease payments or the fair
value of the leased property at the inception of the lease. 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 five 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. Such
amounts are not significant.
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 undiscounted 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.
25
<PAGE> 28
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term investments
Long-term investments consist of equity investments and are accounted for
using either the cost or the equity method, as appropriate. It is the Company's
policy to periodically review the 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 15%, 16%
and 27% of revenues for the years ended June 30, 1997, 1996 and 1995,
respectively. Trade accounts receivable from these customers aggregated
$16,025,000 at June 30, 1997, and $11,232,000 at June 30, 1996.
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
Earnings per share is calculated using the weighted average number of common
shares outstanding during each period, adjusted for the impact of dilutive
common stock equivalents using the treasury stock method of accounting.
Primary and fully diluted earnings per common and common equivalent share are
not materially different for each year presented. During fiscal 1997, the
Company issued additional Class A and Class B common stock in connection with a
two-for-one stock split in the form of a 100% stock dividend. As a result, all
references to the number of shares and per share amounts in the accompanying
financial statements for fiscal 1996 and fiscal 1995 have been restated to
reflect the stock split (see Note 8).
In February 1997, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The
Statement is effective for financial statements issued for periods ending after
December 15, 1997 and specifies new standards for the computation and
presentation of earnings per share. The Company's adoption of this standard
will result in the dual presentation of "basic" and "diluted" earnings per
share on the face of the Company's statement of income. Diluted earnings per
share calculated using the new standard is not expected to materially differ
from primary earnings per share previously presented.
Stock-based compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes accounting and reporting
standards for stock-based employee compensation plans. As permitted by the
standard, the Company has elected not to adopt the fair value based method of
accounting for stock-based employee compensation and will continue to account
for such arrangements under Accounting Principles Board Opinion No. 25 ("APB
25") and apply SFAS 123 on a disclosure basis only. Accordingly, adoption of
the standard has not affected the Company's results of operations or financial
position (see Note 9).
26
<PAGE> 29
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
From inception through June 30, 1997, the Company has acquired 33 businesses
in the information technology services industry. The Company's recent
acquisition activity is summarized as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Acquisitions completed:
Outsourcing services -- 1 3
Image management services 2 4 2
Professional services 4 3 1
---------- --------- ---------
Total 6 8 6
========== ========= =========
Purchase consideration (in thousands):
Cash paid $ 36,707 $ 153,849 $ 10,937
Amounts due sellers of acquired businesses 2,002 6,700 3,350
Stock issued 6,171 -- 1,324
Liabilities assumed 9,605 95,144 5,159
Other 559 1,800 748
---------- --------- ---------
Fair value of assets acquired
(including intangibles) $ 55,044 $ 257,493 $ 21,518
========== ========= =========
</TABLE>
In September 1996, the Company acquired 100% of the stock of Pinpoint
Marketing, Inc., a marketing services company. In March 1997, the Company
acquired 100% of the stock of Wesson, Taylor, Wells & Associates, Inc., an
information technology professional services company and 100% of the stock of
Intelligent Solutions, Inc., a network integration services company. The
Company made three other acquisitions during fiscal 1997 which have also been
included in the Company's consolidated financial statements from the effective
date of the acquisition. Fiscal 1997 revenues and earnings of the acquirees
prior to the effective dates of the six acquisitions are not material to the
financial results of ACS. As a result, pro forma disclosures related to the
pre-acquisition operations are not presented. The Company financed a portion of
the aggregate purchase price for these acquisitions through the issuance of
408,567 shares of unregistered Class A common stock. All the acquisitions made
by the Company have been accounted for using the purchase method of accounting.
In connection with the acquisition of The Genix Group, Inc. ("Genix") and the
related purchase price allocation, the Company recorded a $30,000,000 liability
as of June 30, 1996, related to software license issues with a software vendor.
During the third quarter of fiscal 1997, the Company agreed to a one-time cash
settlement with the vendor, resulting in the obligation being reduced to
$23,000,000, which was paid in April 1997. The Company also assessed and
adjusted other assets and liabilities recorded in connection with the Genix
acquisition, resulting in an immaterial adjustment of net assets, including
goodwill.
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. During fiscal 1997, the Company paid $4,685,000 in
contingent consideration related to acquisitions made in prior years. As of
June 30, 1997, the maximum aggregate amount of the outstanding contingent
obligations is approximately $7,811,000, none of which has been earned to date.
Any such payments would result in a corresponding increase in goodwill.
27
<PAGE> 30
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Land $ 18,256 $ 18,323
Buildings and improvements 28,525 17,408
Computer equipment 41,088 26,297
Furniture and fixtures 32,977 30,226
Operating systems software 24,996 20,395
Construction in progress 5,211 3,593
--------- --------
151,053 116,242
Accumulated depreciation and amortization (48,048) (31,331)
--------- --------
$ 103,005 $ 84,911
========= ========
</TABLE>
In connection with an outsourcing contract signed in December 1996, the
Company acquired assets with a fair market value of $1,433,000, including
property and equipment of $1,045,000, and assumed liabilities of the same
amount. 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.
The Company acquired three host data centers in connection with its purchase
of Genix in June 1996. Subsequent to June 30, 1997 the Company is closing one
of these facilities, located in Dearborn, Michigan, as a result of a
consolidation of the data center operations. This facility is held for sale
and has a net book value of $7,364,000 which approximates fair value.
4. LONG-TERM INVESTMENTS
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 $1,285,000 and $1,513,000 during fiscal 1997 and
1996, respectively.
In January 1992, the Company paid $7,500,000 in connection with signing a
long-term data processing contract and the acquisition of 7,500 shares of the
customer's Class C preferred stock. Based on an independent appraisal, the
Company allocated a portion of the purchase price, $3,220,000, to the preferred
stock and the remainder to customer contracts. Since the purchase date, the
customer's quarterly dividends have generally been paid in-kind with additional
shares of preferred stock, resulting in a cost basis of $5,647,000 as of June
30, 1997. In September 1997, the customer redeemed the preferred stock,
including accumulated dividends, for $12,694,000 in cash.
28
<PAGE> 31
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt follows (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Unsecured $125,000 revolving credit agreement, payable
to banks, due in June 1999 (A) $ 82,700 $ 46,800
Secured $11,000 ATM cash credit agreement
("ATM Cash Facility"), payable to a bank, due
in December 1997 (B) 6,650 9,100
10% junior subordinated debentures, payable to former shareholders
of a subsidiary, due January 2000 (C) 507 826
Other notes payable to individuals and corporations, interest rates
ranging from 6% to 10%, due through 2002 5,978 6,394
Capitalized lease obligations at various interest rates, payable through 2001 4,391 5,697
--------- ---------
100,226 68,817
Less current portion (10,692) (11,609)
--------- ---------
$ 89,534 $ 57,208
========= =========
</TABLE>
Maturities of notes payable and long-term debt at June 30, 1997 follows (in
thousands):
<TABLE>
<CAPTION>
Year ending June 30:
--------------------
<S> <C>
1998 $ 10,692
1999 2,170
2000 43,330
2001 43,228
2002 714
Thereafter 92
---------
$ 100,226
=========
</TABLE>
(A) The Company amended its revolving credit agreement ("Credit Facility") in
July 1997 to increase available commitments from $125 million to $200
million, extend the due date from June 1999 to July 2002 and lower the
interest rate. Interest on the Credit Facility for fiscal 1998 will be
payable monthly at LIBOR (5.72% at June 30, 1997) plus 0.3% to 0.875%, or
the bank's base rate, as elected by the Company. Prior to amendment,
interest on the Credit Facility was payable monthly at LIBOR plus 0.5% to
1.25%.
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 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) Interest on the ATM cash facility is due quarterly at the bank's
overnight interest rate (6.25% at June 30, 1997) 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,
1997, $6,835,000 in principal amount had been redeemed.
29
<PAGE> 32
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest expense of $6,726,000, $2,680,000 and $4,449,000 was incurred during
the years ended June 30, 1997, 1996 and 1995, respectively, net of capitalized
interest of $300,000 and $313,000 during the years ended June 30, 1997 and
1996, respectively. Cash payments for interest for the years ended June 30,
1997, 1996 and 1995 were $6,917,000, $3,387,000 and $3,040,000 respectively.
Interest income was $1,013,000, $1,653,000 and $2,260,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.
At June 30, 1997, the Company had outstanding letters of credit of
approximately $11,144,000 of which $9,006,000 was being maintained as
collateral for an appeal bond related to a judgment which has been recently
overturned (see Note 13). Subsequent to June 30, 1997, this letter of credit
was released by the financial institution upon receiving the appropriate order
from the Court.
The Company's cash custody agreements with two financial institutions provide
the Company with up to $52 million of the financial institutions' vault cash
for use in Company-owned ATMs. At June 30, 1997, approximately $28,216,000 was
in use under the agreements. The cash is owned by the financial institutions
and is consequently not recorded on the Company's accompanying balance sheets.
The cash custody agreements expire July 31, 1998 and January 12, 1999.
6. INCOME TAXES
Income tax expense (benefit) is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Federal $ 8,033 $ 6,586 $ 11,302
Foreign 39 -- --
State 1,522 1,126 2,903
Tax reduction credited to paid-in capital
from exercise of stock options 1,291 2,994 5,142
-------- -------- --------
Total current expense 10,885 10,706 19,347
-------- -------- --------
Deferred:
U.S. Federal 13,753 4,630 (6,079)
Foreign -- -- --
State 1,847 827 (1,085)
-------- -------- --------
Total deferred expense (benefit) 15,600 5,457 (7,164)
-------- -------- --------
Total expense for income taxes $ 26,485 $ 16,163 $ 12,183
======== ======== ========
</TABLE>
At June 30, 1997, the Company had available unused domestic net operating
loss carryforwards ("NOLs"), net of Internal Revenue Code Section 382
limitations, of approximately $4,796,000, which expire in years 2002 through
2010. In addition, the Company had $80,000 of foreign NOLs which will not
expire or be limited unless a future significant change in stock ownership or
business operations occurs. At June 30, 1997, 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.
30
<PAGE> 33
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's deferred tax assets (liabilities) consist of the following (in
thousands):
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses not yet deductible for tax purposes $ 8,970 $ 13,427
Stock option compensation expense 242 416
Loss carryforwards 2,735 2,460
Investment basis differences 532 648
Other -- 94
-------- --------
Total deferred tax assets 12,479 17,045
-------- --------
Deferred tax liabilities:
Depreciation and amortization (14,387) (2,896)
Other (158) --
-------- --------
Total deferred tax liabilities (14,545) (2,896)
Deferred tax assets valuation allowance (513) (663)
-------- --------
Net deferred tax assets (liabilities) $ (2,579) $ 13,486
======== ========
</TABLE>
The significant increase in the deferred tax liability for depreciation and
amortization is due to the Genix acquisition which was effective June 21, 1996.
The seller of Genix and ACS elected to treat the sale of Genix stock as a
transaction taxed as if it were a sale of assets under Internal Revenue Code
Section 338(h)(10). As a result, ACS is able to amortize the intangible assets
acquired over substantially shorter lives for tax than for book purposes.
The valuation allowance at June 30, 1997 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 $150,000 and $116,000 during the years ended
June 30, 1997 and 1996, 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 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,
-------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income tax expense at the U.S. Federal statutory rate $ 22,748 $ 13,972 $ 10,425
Increase (decrease) resulting from:
Excess of book basis over tax basis of
companies 864 711 553
State income taxes (net of federal benefit) 2,213 1,324 1,275
Other 661 156 (70)
Lower rates on earnings of foreign operations (1) -- --
-------- -------- ---------
Total expense for income taxes $ 26,485 $ 16,163 $ 12,183
======== ======== =========
</TABLE>
Undistributed deficits of non-U.S. subsidiaries for which U.S. taxes have not
been provided are included in consolidated retained earnings in the amount of
$104,000 at June 30, 1997. If such earnings were distributed, U.S. income
taxes would be partially reduced by available credits for taxes paid to the
jurisdictions in which the income was earned.
Federal and state income tax payments during the years ended June 30, 1997,
1996 and 1995 were approximately $10,705,000, $4,891,000 and $15,697,000,
respectively.
31
<PAGE> 34
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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.
8. COMMON STOCK
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 793,188 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, 1997, the exercise price was $16.81 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.
In November 1996, the Company issued additional Class A and Class B common
stock in connection with a two-for-one stock split in the form of a 100% stock
dividend. The stated par value of each share was not changed from $.01. All
references in the accompanying financial statements to the number of shares and
per share amounts for fiscal 1996 and fiscal 1995 have been restated to reflect
the stock split.
9. EMPLOYEE BENEFIT PLANS
Under the Company's 1988 Employee Stock Option Plan, the Company has reserved
6,000,000 shares of Class A common stock for issuance to key employees at
exercise prices determined by the Board of Directors. Generally, the options
vest in varying increments over a five year period, expire ten years from the
date of grant and are issued at exercise prices no less than 100% of the fair
market value of the Company's Class A common stock at the time of the grant.
As reported in Note 1, the Company has elected to adopt the disclosure-only
provisions of SFAS 123 and will continue to account for stock-based employee
compensation plans in accordance with APB 25. As a result, no compensation
cost has been recognized in fiscal 1997 for its stock option or employee stock
purchase plan.
Pro forma information regarding net income and earnings per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
stock-based compensation plans under the fair value method. The fair value of
each option grant was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in fiscal 1997 and 1996, respectively: dividend yield 0% for both years,
volatility 37.6% for both years, risk-free interest rates of 6.42% and 6.07%
and expected life of 5.5 years for both years. The average fair values of the
options granted during fiscal 1997 and 1996 are estimated as $9.60 and $8.46,
respectively.
32
<PAGE> 35
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had compensation cost for the Company's stock-based compensation plans been
determined in accordance with SFAS 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net income
As reported $ 38,510 $ 23,756
Pro forma 36,926 22,735
Earnings per common and common equivalent share
As reported $ 1.05 $ .82
Pro forma 1.02 .79
</TABLE>
Since stock-based compensation issued prior to fiscal 1996 is not included in
the pro forma calculation, the effects of applying SFAS 123 in this pro forma
disclosure will not be comparable with those in subsequent years. The pro
forma impact on earnings can be expected to increase as a greater percentage of
outstanding stock options represent awards made after fiscal 1995.
Option activity for the years ended June 30, 1995, 1996 and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
Option Price
Options per Share
----------- -----------------
<S> <C> <C>
Outstanding at June 30, 1994 2,201,080 $.01 - $4.78
Granted 832,368 $8.00 - $11.25
Exercised (1,158,122) $.01 - $4.77
Canceled (112,538) $.01 - $8.00
----------
Outstanding at June 30, 1995 1,762,788 $.01 - $11.25
Granted 1,172,424 $14.63 - $23.13
Exercised (506,586) $.01 - $.72
Canceled (25,000) $8.00 - $14.75
----------
Outstanding at June 30, 1996 2,403,626 $.01 - $23.13
Granted 606,960 $19.63 - $26.87
Exercised (128,690) $.01 - $1.33
Canceled (129,186) $8.00 - $20.62
----------
Outstanding at June 30, 1997 2,752,710 $.07 - $26.87
==========
Exercisable at June 30, 1997 339,504 $.07 - $.72
==========
</TABLE>
Further information regarding the Company's outstanding and exercisable stock
options by exercise price range as of June 30, 1997 is disclosed below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
$ .07 - $ .72 339,504 3.01 $ .64 339,504 $ .64
$ 8.00 - $ 11.25 742,682 7.62 $ 9.97 - -
$14.63 - $ 21.13 1,260,524 9.07 $ 18.31 - -
$23.13 - $ 26.87 410,000 8.99 $ 23.22 - -
- ----------------- ----------- -------- --------- ----------- ------
$ .07 - $ 26.87 2,752,710 7.92 $ 14.61 339,504 $ .64
================= =========== ======== ========= =========== ======
</TABLE>
Under the 1995 Employee Stock Purchase Plan, a maximum of 1,000,000 shares of
Class A common stock can be issued to substantially all full-time employees.
Through payroll deductions, eligible participants may purchase the stock at a
15% discount to market value. The stock is purchased by the plan in the open
market, and Company
33
<PAGE> 36
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contributions for the years ended June 30, 1997 and 1996, which were charged to
additional paid-in capital, were $205,000 and $135,000, respectively.
The Company has a contributory retirement and savings plan which covers all
employees and meets the requirements of Section 401(k) of the Internal Revenue
Code. 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 three years ended June
30, 1997.
10. FINANCIAL INSTRUMENTS
As of June 30, 1997 and 1996, 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.
11. RELATED PARTY TRANSACTIONS
In July 1994, the Company completed the spin-off of Precept Business
Products, Inc. ("Precept") to the Company's stockholders on a pro-rata basis.
The businesses distributed consisted of various business support services
unrelated to information processing and were accounted for as discontinued
operations. Precept continues to sell business forms and supplies and provide
courier services to the Company. Trade accounts between the Company and Precept
were immaterial for all years presented.
Effective April 1996, the Company sold 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. Simultaneous
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.
The Company provides guarantees to two banks on Merchant Services debt up to
$7,500,000.
12. NON-RENEWAL OF CUSTOMER CONTRACT
In January 1994, Bank of America Texas, N.A. ("B of A Texas"), the Company's
largest customer at that time, 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. 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, 1997, $3.8
million of such accrual was amortized (reduction to expenses) to rent, lease
and maintenance, compared to $3.2 million amortized and $8.5 million expensed
in the years ended June 30, 1996 and 1995, respectively.
34
<PAGE> 37
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Year ending June 30:
--------------------
<S> <C>
1998 $ 57,386
1999 44,760
2000 26,203
2001 12,465
2002 4,820
Thereafter 12,206
---------
$ 157,840
=========
</TABLE>
Lease expense for data processing equipment and facilities was $57,227,000,
$40,773,000 and $36,894,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
In connection with an outsourcing agreement signed in May 1997, the Company
assumed operating leases totaling $3,541,000 for equipment and computer
software.
During fiscal 1997 the Texas Supreme Court, in a unanimous decision,
overturned a lower court's judgment against the Company for which the Company
had previously accrued approximately $6 million. During the third quarter of
fiscal 1997, the Company reversed this accrual to other operating expenses.
Eighteen former employees of Gibraltar Savings Association and/or First Texas
Savings Association (collectively, "GSA/FTSA") have brought suit in Texas state
court alleging entitlement to 336,864 shares of the Company's Class A common
stock pursuant to options issued to GSA/FTSA employees in 1988 in connection
with a former data processing services agreement between GSA/FTSA and the
Company. The Company has received demands from two other former GSA/FTSA
employees with respect to similarly situated options covering 38,801 shares of
the Company's Class A common stock, and there are seven other former GSA/FTSA
employees who were issued similarly situated options allegedly covering 129,631
shares of the Company's Class A common stock. The per share exercise price for
each of these options, as adjusted for the Company's 1994 reclassification and
its 1996 two-for-one stock split, is alleged to be $.38. The Company believes
that it has meritorious defenses to all or substantial portions of these
matters and plans to vigorously defend against them. However, should the
proceedings not be favorably resolved, the Company may be subject to a material
non-cash charge.
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.
14. OTHER CHARGES
During the third quarter of fiscal 1997, the Company recorded a charge of
$6,019,000 ($4,577,000 in other operating expenses and $1,442,000 in
depreciation and amortization) relating to the consolidation of two of its
mainframe data centers and the upgrading of certain computer hardware and
software to newer technology. The charge included the write-down of related
assets and the recognition of obligations for which the Company would derive no
future benefit.
In fiscal 1996, the Company recorded a charge of $3,800,000 relating to
planned divestitures of certain community bank processing groups within Texas
and Louisiana. These groups were part of the Company's financial services
outsourcing business and had historical annual revenues of approximately
$18,000,000. These
35
<PAGE> 38
AFFILIATED COMPUTER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
divestitures were substantially completed in fiscal 1997 and resulted in net
cash proceeds of approximately $2,704,000. An additional charge of $250,000
was included in interest and other expenses in fiscal 1997 to complete the
dispositions.
15. SUBSEQUENT EVENT
On September 21, 1997, the Company announced the signing of a definitive
agreement to acquire and merge with Computer Data Systems, Inc. ("CDSI"), a
provider of information technology solutions to government and private industry
customers. Based in Rockville, Maryland, CDSI has approximately 3,900
employees and reported revenues of $304.4 million for its fiscal year ended
June 30, 1997.
Under the terms of the agreement, stockholders of CDSI will receive
approximately 11.0 million shares of ACS common stock, which represents an
exchange ratio of 1.759 shares of ACS Class A common stock for each share of
CDSI common stock. The transaction, which is structured to be tax-free to CDSI
shareholders and accounted for as a pooling of interests, is expected to close
during the Company's second quarter and is subject to certain regulatory
approvals as well as approval by the stockholders of each company.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996
---------------------------------------- -----------------------------------------
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
1997 1997 1996 1996 1996 1996 1995 1995
-------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $173,807 $156,389 $150,004 $144,333 $116,801 $99,062 $91,352 $89,294
Operating income 20,276 18,520 16,859 15,754 12,479 9,948 8,392 9,933
Net income 10,809 10,038 9,130 8,533 7,288 5,735 5,072 5,661
Primary earnings per share $ .29 $ .28 $ .25 $ .23 $ .22 $ .21 $ .18 $ .21
Weighted average shares
outstanding 36,899 36,371 36,577 36,462 32,458 28,000 27,656 27,504
</TABLE>
36
<PAGE> 39
AFFILIATED COMPUTER SERVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
Balance Balance
at Beginning Charged to Costs at End
Description of Period and Expenses Deductions of Period
- ------------------------------ --------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1997
Deducted from asset accounts:
Accounts receivable $ 1,456 $ 987 $ 659 (1) $ 1,784
Property and equipment 31,331 18,969 2,252 (2) 48,048
Computer software 15,691 2,432 9,305 (2) 8,818
Goodwill 8,609 7,195 337 (2) 15,467
Other intangible assets 4,478 2,669 204 (2) 6,943
---------- -------- ---------- --------
Total $ 61,565 $ 32,252 $ 12,757 $ 81,060
========== ======== ========== ========
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
========== ======== ========== ========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
(2) Retirements
37
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
------ ------------
<S> <C>
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 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.
*2.4 Agreement and Plan of Merger, dated as of September 20, 1997, by and among the Company, ACS
Acquisition Corp. and Computer Data Systems, Inc.
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 A 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.
</TABLE>
38
<PAGE> 41
<TABLE>
<S> <C>
4.6 Rights Agreement, dated August 11, 1997, between the Company and ChaseMellon Shareholder
Services, L.L.C, as Rights Agent, filed as Exhibit 4.1 to the Company's Report on Form 8-K
dated August 20, 1997 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 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 Form of Directors Indemnification Agreement, filed as Exhibit 10.20 to the Company's Form S-
1 and incorporated herein by reference.
10.12 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.
10.13 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 filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by
reference.
</TABLE>
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*10.14 FIRST AMENDMENT TO RESTATED CREDIT AGREEMENT dated July 29, 1997 between Affiliated Computer
Services, Inc., Borrower; Wells Fargo Bank (Texas) N.A., Agent; Bank One, Texas, N.A., Co-
Agent; and Certain Lenders of $160,000,000 Revolving Facility.
*10.15 Form of Severance Agreement by and between the Company and Certain Executive Officers of the
Company.
* 11.1 Statement regarding computation of per share earnings for each of the three years in the
period ended June 30, 1997.
* 21.1 Subsidiaries of the Company
* 23.1 Consent of Price Waterhouse LLP
* 27.1 Financial Data Schedule
</TABLE>
* Filed herewith
40
<PAGE> 1
EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AFFILIATED COMPUTER SERVICES, INC.,
A DELAWARE CORPORATION,
ACS ACQUISITION CORP.,
A MARYLAND CORPORATION,
AND
COMPUTER DATA SYSTEMS, INC.,
A MARYLAND CORPORATION
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Closing; Closing Date; Effective Time . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.03. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.04. Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.05. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of Securities . . . . . . . . 3
SECTION 2.02. Exchange and Surrender of Certificates . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . 6
SECTION 3.02. Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.04. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.05. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . 8
SECTION 3.06. Permits; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.07. SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.09. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.10. Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.12. Tax Matters; Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.13. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.14. Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.16. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.17. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.19. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.20. Certain Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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SECTION 3.21. Principal Customers; Competing Interests . . . . . . . . . . . . . . . . . . . 21
SECTION 3.22. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.23. Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.24. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.25. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.26. Federal Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.27 Parent Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.01. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.02. Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.04. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.05. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . 25
SECTION 4.06. Permits; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.07. SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.09. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.10. Tax Matters; Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.11. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.12. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.13. Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.14. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.15. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.16. Employee Benefit Plans; Labor Matters . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.17. Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.18. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.19. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.20. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.21. Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.22. Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.02. Negative Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.03. Affirmative and Negative Covenants of Parent . . . . . . . . . . . . . . . . . 36
SECTION 5.04. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.02. Registration Statement; Proxy Statements . . . . . . . . . . . . . . . . . . . 39
SECTION 6.03. Appropriate Action; Consents; Filings . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.04. Affiliates; Pooling; Tax Treatment . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.05. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.06. NYSE Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.07. Comfort Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.08. Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.09. Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.10. Indemnification; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This Agreement . . . . . . . . . 45
SECTION 7.02. Additional Conditions to Obligations of the Parent Companies . . . . . . . . . 46
SECTION 7.03. Additional Conditions to Obligations of the Company . . . . . . . . . . . . . . 47
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.04. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.05. Fees, Expenses and Other Payments . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements . . . . . . . . . . 53
SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.03. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.04. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.06. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.07. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.08. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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SECTION 9.09. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 9.10. Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . 56
SECTION 9.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.13. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.14. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
EXHIBITS
Exhibit A Company Affiliate's Agreement
</TABLE>
iv
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September __, 1997
(this "Agreement"), is by and among Affiliated Computer Services, Inc., a
Delaware corporation ("Parent"), ACS Acquisition Corp., a Maryland corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and Computer Data
Systems, Inc., a Maryland corporation (the "Company"). Parent and Merger Sub
are sometimes referred to herein as the "Parent Companies."
WHEREAS, the parties hereto desire that Merger Sub, upon the terms and
subject to the conditions of this Agreement and in accordance with the Maryland
General Corporation Law ("Maryland Law"), merge with and into the Company (the
"Merger"), and pursuant thereto, the issued and outstanding shares of common
stock, $0.10 par value, of the Company ("the Company Common Stock") not owned
directly or indirectly by the Company or the Parent Companies or their
respective subsidiaries be converted into the right to receive shares of Class
A common stock, $0.01 par value, of Parent (the "Parent Common Stock"), as set
forth herein;
WHEREAS, the Board of Directors of the Company has determined that the
Merger is advisable and in the best interests of the Company and its
stockholders and has authorized the execution of this Agreement and the
consummation of the transactions contemplated hereby;
WHEREAS, the Board of Directors of Parent has determined that the
Merger is fair to, and in the best interests of, Parent and its stockholders
and has approved and adopted this Agreement and the transactions contemplated
hereby;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted
this Agreement and Parent, as the sole stockholder of Merger Sub, will adopt
this Agreement promptly after the execution hereof by the parties hereto;
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
1
<PAGE> 7
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Maryland Law, at
the Effective Time (as defined in Section 1.02 of this Agreement), Merger Sub
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation"). Certain terms used in this Agreement are defined in Section
9.03 hereof.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this
Agreement shall have been terminated pursuant to Section 8.01, and subject to
the satisfaction or waiver of the conditions set forth in Article VII, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Hughes &
Luce, L.L.P., 1717 Main Street, Dallas, Texas as soon as practicable (but in
any event within two business days) after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other date, time and place as
Parent and the Company may agree; provided, that the conditions set forth in
Article VII shall have been satisfied or waived at or prior to such time. The
date on which the Closing takes place is referred to herein as the "Closing
Date." As promptly as practicable on the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing Articles of Merger with the
State Department of Assessments and Taxation of the State of Maryland, in such
form as required by, and executed in accordance with the relevant provisions
of, Maryland Law (the date and time of such filing, or such later date or time
agreed upon by Parent and the Company and set forth therein, being the
"Effective Time"). For all Tax purposes, the Closing shall be effective at the
end of the day on the Closing Date.
SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Maryland Law.
SECTION 1.04. Articles of Incorporation; Bylaws. At the Effective
Time, the charter of the Company, as in effect immediately prior to the
Effective Time, shall be the charter of the Surviving Corporation and
thereafter shall continue to be its charter until amended as provided therein
and pursuant to Maryland Law. At the Effective Time, the bylaws of the
Company, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation and thereafter shall continue to be its
bylaws until amended as provided therein and pursuant to Maryland Law.
SECTION 1.05. Directors and Officers. In connection with the
Merger, the parties hereto shall take such actions as may be necessary or
appropriate to cause (i) the directors of Merger Sub immediately prior to the
Effective Time to be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold office in accordance with the charter
and bylaws of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified; (ii) the officers of
the Company immediately prior to the Effective Time to be the officers of the
Surviving Corporation immediately after the Effective
2
<PAGE> 8
Time, each to hold office in accordance with the bylaws of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified; and (iii) the directors of the Company immediately
prior to the Effective Time (each such director having resigned from the CDSI
board of directors as of the Effective Time) to be advisory directors of the
Surviving Corporation immediately after the Effective Time, each to hold office
in accordance with the bylaws of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified. In
connection with the Merger, at the Effective Time or immediately thereafter,
Parent shall take such action as may be necessary or appropriate to cause
Clifford Kendall and Peter Bracken to be directors of Parent immediately after
the Effective Time (and, in the event a staggered board is approved at the 1997
Annual Meeting of Stockholders, for two-year and one-year terms, respectively),
each to hold office in accordance with the charter and bylaws of Parent, in
each case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
further action on the part of the Parent Companies, the Company or their
respective stockholders:
(a) Subject to the other provisions of this Article II,
each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Company Common Stock
described in Section 2.0l(b) of this Agreement) shall be converted
into the right to receive 1.759 shares of Parent Common Stock (the
"Exchange Ratio"). Notwithstanding the foregoing, if between the date
of this Agreement and the Effective Time the outstanding shares of
Parent Common Stock or Company Common Stock shall have been changed
into a different number of shares or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
(b) Notwithstanding any provision of this Agreement to
the contrary, each share of Company Common Stock owned by Parent or
any direct or indirect wholly owned subsidiary of Parent or of the
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be
made with respect thereto.
(c) All shares of the Company Common Stock shall cease to
be outstanding and shall automatically be canceled and retired, and
each certificate previously evidencing the Company Common Stock
outstanding immediately prior to the Effective Time (other than
Company Common Stock described in Section 2.01(b) of this
3
<PAGE> 9
Agreement) ("Converted Shares") shall thereafter represent the right
to receive, subject to Section 2.02(e) of this Agreement, that number
of shares of Parent Common Stock determined pursuant to the Exchange
Ratio and, if applicable, cash pursuant to Section 2.02(e) of this
Agreement (the "Merger Consideration"). The holders of certificates
previously evidencing Converted Shares shall cease to have any rights
with respect to such Converted Shares except as otherwise provided
herein or by law. Such certificates previously evidencing Converted
Shares shall be exchanged for certificates evidencing whole shares of
Parent Common Stock upon the surrender of such Certificates in
accordance with the provisions of Section 2.02 of this Agreement,
without interest. No fractional shares of Parent Common Stock shall be
issued in connection with the Merger and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.02(e) of this Agreement.
(d) Each share of common stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one share of common
stock, par value $0.10 per share, of the Surviving Corporation.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) As soon as practicable after the Effective Time, each
holder of a certificate previously evidencing Converted Shares shall
be entitled, upon surrender thereof to Parent or an exchange agent
designated by Parent (as specified in the letter of transmittal
described in Section 2.02 (c)), to receive in exchange therefor a
certificate or certificates representing the number of whole shares of
Parent Common Stock into which the Converted Shares so surrendered
shall have been converted as aforesaid, in such denominations and
registered in such names as such holder may request. Each holder of
Converted Shares who would otherwise be entitled to a fraction of a
share of Parent Common Stock shall, upon surrender of the certificate
or certificates representing such shares held by such holder as
aforesaid, be paid an amount in cash in accordance with the provisions
of Section 2.02(e). Until so surrendered and exchanged, each
certificate previously evidencing Converted Shares shall represent
solely the right to receive Parent Common Stock and cash in lieu of
fractional shares that the holder thereof is entitled to receive
hereunder. Unless and until any such certificates shall be so
surrendered and exchanged, no dividends or other distributions payable
to the holders of record of Parent Common Stock as of any time on or
after the Effective Time shall be paid to the holders of such
certificates previously evidencing Converted Shares; provided,
however, that, upon any such surrender and exchange of such
certificates, there shall be paid to the record holders of the
certificates issued and exchanged therefor (i) the amount, without
interest thereon, of dividends and other distributions, if any, with a
record date on or after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other
distributions, if any, with a record date on or after the Effective
Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Parent Common
Stock. Notwithstanding the foregoing, except as
4
<PAGE> 10
otherwise provided by applicable law, no party hereto (or Parent's
exchange agent) shall be liable to any former holder of Converted
Shares for any cash, Parent Common Stock or dividends or distributions
thereon delivered to a public official pursuant to applicable
abandoned property, escheat or similar law.
(b) All shares of Parent Common Stock issued upon the
surrender for exchange of certificates previously representing
Converted Shares in accordance with the terms hereof (including any
cash paid pursuant to Section 2.02 (e)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Converted
Shares. At and after the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of Company Common Stock that was outstanding immediately
prior to the Effective Time. If, after the Effective Time,
certificates which previously evidenced Converted Shares are presented
to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article II.
(c) As promptly as practicable after the Effective Time,
Parent will send or cause to be sent to each record holder of Company
Common Stock at the Effective Time a letter of transmittal and other
appropriate materials for use in surrendering certificates as
contemplated hereby.
(d) If any certificate for shares of Parent Common Stock
is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the certificate so surrendered
shall be properly endorsed, with signatures guaranteed, and otherwise
in proper form for transfer and that the person requesting such
exchange shall have paid to Parent or its exchange agent any transfer
or other taxes required by reason of the issuance of a certificate for
shares of Parent Common Stock in any name other than that of the
registered holder of the certificate surrendered, or established to
the satisfaction of Parent or its transfer agent that such tax has
been paid or is not payable.
(e) No certificates or scrip evidencing fractional shares
of Parent Common Stock shall be issued upon the surrender for exchange
of certificates, and such fractional share interests will not entitle
the owner thereof to any rights of a stockholder of Parent. In lieu of
any such fractional shares, each holder of a certificate previously
evidencing Converted Shares, upon surrender of such certificate for
exchange pursuant to this Article II, shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by
multiplying (a) the per share closing price as reported on the New
York Stock Exchange (the "NYSE") Composite Tape of Parent Common Stock
on the date of the Effective Time (or, if shares of Parent Common
Stock do not trade on the NYSE on such date, the first date of trading
of Parent Common Stock on the NYSE after the Effective Time) by (b)
the fractional interest to which such holder would otherwise be
entitled (after taking into account all Converted Shares held of
record by such holder at the Effective Time).
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(f) Parent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any
former holder of Converted Shares such amounts as Parent (or any
affiliate thereof) is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld
by Parent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of the
Converted Shares in respect of which such deduction and withholding
was made by Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent Companies
that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each
of the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary,
other than where the failure to be so duly qualified and in good standing could
not reasonably be expected to have a Company Material Adverse Effect. The term
"Company Material Adverse Effect" as used in this Agreement shall mean any
change or effect that, individually or when taken together with all other such
changes or effects (but after giving effect to application of insurance
proceeds or other rights of indemnification in respect of such change or
effect), could reasonably be expected to be materially adverse to the business,
operations, assets, financial condition results of operations or prospects of
the Company and its subsidiaries, taken as a whole. Schedule 3.01 of the
disclosure schedule delivered to Parent by the Company on the date hereof (the
"Company Disclosure Schedule") sets forth, as of the date of this Agreement, a
true and complete list of all the Company's directly or indirectly owned
subsidiaries, together with the jurisdiction of incorporation or organization
of each subsidiary and the percentage of each subsidiary's outstanding capital
stock or other equity interests owned by the Company or another subsidiary of
the Company. Except as set forth in Schedule 3.01 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries owns an equity
interest in any other partnership or joint venture arrangement or other
business entity.
SECTION 3.02. Charter and Bylaws. The Company has heretofore
furnished or made available to Parent complete and correct copies of the
charter and the bylaws or the equivalent organizational documents, in each case
as amended or restated, of the Company and each of its subsidiaries. Except as
set forth in Schedule 3.02 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries is in violation of any of the provisions of
its charter or bylaws (or equivalent organizational documents).
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SECTION 3.03. Capitalization.
(a) The authorized capital stock of the Company consists
of 30,000,000 shares of Company Common Stock, of which as of July 1,
1997 (i) 6,260,311 shares were issued and outstanding, (ii) 431,617
shares were reserved for future issuance pursuant to outstanding stock
options ("Stock Options") granted pursuant to the 1991 Long Term
Incentive Plan (the "Option Plan") and (iii) 314,437 shares were
reserved for future issuance pursuant to stock options eligible for
grant pursuant to the Option Plan. Except as described in this
Section 3.03 or in Schedule 3.03(a) of the Company Disclosure Schedule,
as of the date of this Agreement, no shares of capital stock of the
Company are reserved for any purpose. Except as described in Schedule
3.03(a) of the Company Disclosure Schedule, each of the outstanding
shares of capital stock of, or other equity interests in, each of the
Company and its subsidiaries is duly authorized, validly issued, and,
in the case of shares of capital stock, fully paid and nonassessable,
and has not been issued in violation of (nor are any of the authorized
shares of capital stock of, or other equity interests in such entities
subject to) any preemptive or similar rights created by statute, the
charter or bylaws (or the equivalent organizational documents) of the
Company or any of its subsidiaries, or any agreement to which the
Company or any of its subsidiaries is a party or bound, and such
outstanding shares or other equity interests owned by the Company or a
subsidiary of the Company are owned free and clear of all security
interests, liens, claims, pledges, agreements, limitations on the
Company's or such subsidiary's voting rights, charges or other
encumbrances of any nature whatsoever.
(b) Except as set forth in Section 3.03(a) above or in
Schedule 3.03(b)(i) to the Company Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or
commitments of any character to which the Company or any of its
subsidiaries is a party relating to the issued or unissued capital
stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to grant, issue or sell any shares
of the capital stock of the Company or any of its subsidiaries, by
sale, lease, license or otherwise. Except as set forth in Schedule
3.03(b)(ii) to the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its
subsidiaries to (A) repurchase, redeem or otherwise acquire any shares
of the Company Common Stock or other capital stock of the Company, or
the capital stock or other equity interests of any subsidiary of the
Company; or (B) (other than advances to subsidiaries in the ordinary
course of business) provide material funds to, or make any material
investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations
of, any subsidiary of the Company or any other person. Except as
described in Schedule 3.01 or Schedule 3.03(b)(iii) to the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries
(x) directly or indirectly owns, (y) has agreed to purchase or
otherwise acquire or (z) holds any interest convertible into or
exchangeable or exercisable for 5% or more of the capital stock of any
corporation, partnership, joint venture or other business association
or entity (other than the subsidiaries of the Company set forth in
Schedule 3.01 of the Company Disclosure Schedule). Except as set
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<PAGE> 13
forth in Schedule 3.03(b)(iv) of the Company Disclosure Schedule and
except for any agreements, arrangements or commitments between the
Company and its subsidiaries or between such subsidiaries, there are
no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on the revenues or earnings, or
calculated in accordance therewith, of the Company or any of its
subsidiaries. There are no voting trusts, proxies or other agreements
or understandings to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound with
respect to the voting of any shares of capital stock of the Company or
any of its subsidiaries.
(c) The Company has delivered or made available to Parent
complete and correct copies of (i) the Option Plan and the forms of
Stock Options issued pursuant to the Option Plan, including all
amendments thereto and (ii) all Stock Options which are not in the
respective forms thereof provided under clause (i) above. Schedule
3.03(c) to the Company Disclosure Schedule sets forth a complete and
correct list of all outstanding Stock Options, including any not
granted pursuant to the Option Plan, setting forth as of the date
hereof (i) the number and type of Stock Options outstanding, (ii) the
exercise price of each outstanding Stock Option, (iii) the number of
Stock Options exercisable, and (iv) assuming no amendment or waiver of
the terms thereof, the number of Stock Options which will become
exercisable on account of the Merger or any other transaction
contemplated hereby.
SECTION 3.04. Authority. The Company has all requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby
(subject to, with respect to the Merger, the approval of the Merger by the
stockholders of the Company as described in Section 3.16 hereof). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby (subject to, with respect to the Merger,
the approval of the Merger by the stockholders of the Company as described in
Section 3.16 hereof). This Agreement has been duly executed and delivered by
the Company and, assuming the due authorization, execution and delivery thereof
by the Parent Companies, constitutes the legal, valid and binding obligation of
the Company.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.05 of the Company
Disclosure Schedule, the execution and delivery of this Agreement by
the Company does not, and the consummation of the transactions
contemplated hereby will not (i) conflict with or violate the charter
or bylaws, or the equivalent organizational documents, in each case as
amended or restated, of the Company or any of its subsidiaries, (ii)
conflict with or violate any federal, state, foreign or local law,
statute, ordinance, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to the Company or any of its
subsidiaries or by which any of their respective properties is bound
or subject or (iii)
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result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation
of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by or to which the Company or
any of its subsidiaries or any of their respective properties is bound
or subject, except in the case of clauses (ii) and (iii) where such
conflict, violation, breach, default, right, requirement, lien or
encumbrance could not reasonably be expected to have a Company
Material Adverse Effect. The Board of Directors of the Company has
taken all actions necessary under Maryland Law, including approving
the transactions contemplated by this Agreement and taking appropriate
actions under any stockholder protection laws applicable to the
Company or any of its subsidiaries, to ensure that restrictions on
business combinations or the owning or voting of the capital stock of
the Company or any of its subsidiaries do not, and will not apply with
respect or as a result of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by the
Company does not, and consummation of the transactions contemplated
hereby will not, require the Company to obtain any consent, license,
permit, approval, waiver, authorization or order of, or to make any
filing with or notification to, any governmental or regulatory
authority, domestic or foreign (collectively, "Governmental
Entities"), except for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
state securities or blue sky laws ("Blue Sky Laws"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and those matters referenced in Schedule 3.05(b) of the
Company Disclosure Schedule, and the filing and recordation of
appropriate merger documents as required by Maryland Law.
SECTION 3.06. Permits; Compliance. Except as set forth in Schedule
3.06 of the Company Disclosure Schedule, each of the Company and its
subsidiaries is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Except as set forth
in Schedule 3.06 of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries is in material conflict with, or in material default or
violation of (a) any Law applicable to the Company or any of its subsidiaries
or by or to which any of their respective properties is bound or subject or (b)
any of the Company Permits. Except as set forth in Schedule 3.06 of the
Company Disclosure Schedule, since June 30, 1995, neither the Company nor any
of its subsidiaries has received from any Governmental Entity any written
notification with respect to possible material conflicts, defaults or
violations of Laws.
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SECTION 3.07. SEC Reports; Financial Statements.
(a) Since June 30, 1995, the Company and its subsidiaries
have filed all forms, reports, statements and other documents required
to be filed with the Securities and Exchange Commission (the "SEC")
including, without limitation, (l) all Annual Reports on Form l0-K,
(2) all Quarterly Reports on Form l0-Q, (3) all proxy statements
relating to meetings of stockholders (whether annual or special), (4)
all Current Reports on Form 8-K and (5) all other reports, schedules,
registration statements or other documents (collectively referred to
as the "Company SEC Reports"). The Company SEC Reports, including all
the Company SEC Reports filed after the date of this Agreement and
prior to the Effective Time, (i) were or will be prepared in all
material respects in accordance with the requirements of applicable
Law and (ii) did not at the time they were filed, or will not at the
time they are filed, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the
Company SEC Reports filed prior to the Effective Time (i) have been or
will be prepared in accordance with the published rules and
regulations of the SEC and generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except (A) to the extent required by changes in generally accepted
accounting principles, (B) as may be indicated in the notes thereto,
or (C) for consolidated financial statements included in Quarterly
Reports on Form 10-Q, which are not prepared in accordance with GAAP)
and (ii) fairly present or will fairly present the consolidated
financial position of the Company and its subsidiaries as of the
respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated (including reasonable
estimates of normal and recurring year-end adjustments), except that
(x) any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments and (y) any pro forma
financial statements contained in such consolidated financial
statements are not necessarily indicative of the consolidated
financial position of the Company and its subsidiaries as of the
respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated.
SECTION 3.08. Absence of Certain Changes or Events. Except as
disclosed in the Company SEC Reports filed prior to the date of this Agreement
or as contemplated by this Agreement or as set forth in Schedule 3.08 of the
Company Disclosure Schedule, since June 30, 1997, the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been:
(i) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any material assets of the Company or any of its
subsidiaries; (ii) any material change by the Company or its subsidiaries in
their accounting methods, principles or practices (other than changes
contemplated by GAAP or applicable SEC regulations); (iii) except for dividends
by a subsidiary of the Company to the Company or another subsidiary of the
Company, dividends
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paid by a subsidiary prior to the time it became a subsidiary, and except for
regular semi-annual dividends with respect to the Company Common Stock in an
amount not to exceed $0.07 per share, any declaration, setting aside or payment
of any dividends or distributions in respect of shares of the Company Common
Stock or the shares of stock of, or other equity interests in, any majority
owned subsidiary of the Company, or any redemption, purchase or other
acquisition by the Company or any of its subsidiaries of any of the Company's
securities or any of the securities of any subsidiary of the Company; (iv) any
increase in the benefits under, or the establishment or amendment of, any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other employee benefit plan, or any increase in the
compensation payable or to become payable to directors, officers or employees
of the Company or its subsidiaries, except for (A) increase in salaries or
wages payable or to become payable in the ordinary course of business and
consistent with past practice or (B) the granting of stock options pursuant to
the Option Plans in the ordinary course of business to employees of the Company
or its subsidiaries who are not directors or executive officers of the Company;
(v) any revaluation by the Company or any of its subsidiaries of any of their
assets, including the writing down of the value of inventory or the writing
down or off of notes or accounts receivable, other than in the ordinary course
of business and consistent with past practices; (vi) any entry by the Company
or any of its subsidiaries into any commitment or transaction material to the
Company and its subsidiaries, taken as a whole (other than this Agreement and
the transactions contemplated hereby or other than in the ordinary course of
business); (vii) any material increase in indebtedness for borrowed money; or
(viii) any Company Material Adverse Effect.
SECTION 3.09. Absence of Litigation. Except as set forth in
Schedule 3.09 of the Company Disclosure Schedule, there is no claim, action,
suit, litigation, proceeding, arbitration or, to the knowledge of the Company,
investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries or any
properties or rights of the Company or any of its subsidiaries (except for
claims, actions, suits, litigation, proceedings, arbitrations or investigations
which could not reasonably be expected to have a Company Material Adverse
Effect), and neither the Company nor any of its subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of the Company, continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Government Entity or arbitrator, including,
without limitation, cease-and-desist or other orders.
SECTION 3.10. Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 3.10 to the Company
Disclosure Schedule is a complete and correct list of all "employee
benefit plans" (as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), all plans or policies providing
for "fringe benefits" (including but not limited to vacation, paid
holidays, personal leave, employee discount, educational benefit or
similar programs), and each other bonus, incentive compensation,
deferred compensation, profit sharing, stock,
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severance, retirement, health, life, disability, group insurance,
employment, stock option, stock purchase, stock appreciation right,
supplemental unemployment, layoff, consulting, or any other similar
plan, agreement, policy or understanding (whether written or oral,
qualified or nonqualified, currently effective or terminated), and any
trust, escrow or other agreement related thereto, which (a) is or has
been established, maintained or contributed to by the Company or any
ERISA Affiliate and with respect to which the Company or any ERISA
Affiliate has any liability, or (b) provides benefits, or describes
policies or procedures applicable, to any officer, employee, director,
former officer, former employee or former director of the Company or
any ERISA Affiliate, or any dependent thereof, regardless of whether
funded (each, an "Employee Plan," and collectively, the "Employee
Plans").
(b) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, no written or oral representations have
been made to any employee or officer or former employee or officer of
the Company or its subsidiaries promising or guaranteeing any coverage
under any employee welfare plan for any period of time beyond the end
of the current plan year (except to the extent of coverage required
under Code Section 4980B). Except as set forth in Schedule 3.10 of
the Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment
or vesting, or increase the amount of compensation (including amounts
due under Employee Plans) due to any employee, officer, former
employee or former officer of the Company, or its subsidiaries.
(c) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, all employees of the Company and its
subsidiaries are terminable at the will of the Company, and neither
the Company, nor any present or former director, or officer, employee
or agent of the Company has made any binding commitments of the
Company or any of its subsidiaries, written or verbal, to any present
or former director, officer, agent or employee concerning his term,
condition, benefits or employment.
(d) With respect to each Employee Plan, the Company
has furnished or made available to Buyer true, correct and complete
copies of (i) the plan documents and summary plan description; (ii)
the most recent determination letter received from the Internal
Revenue Service; (iii) the annual reports required to be filed for the
three most recent plan years of each such Employee Plan; (iv) all
related trust agreements, insurance contracts or other funding
agreements which implement such Employee Plan; and (v) all other
documents, records or other materials related thereto reasonably
requested by Buyer.
(e) The Retirement Plan for Employees of Computer
Data Systems, Inc., the 401(k) Savings Plan for Employees of Computer
Data Systems, Inc., the Supplemental Deferred Compensation Plan and
the Supplementary Benefit Plan for Computer Data Systems, Inc.
Non-Exempt Employees Assigned to Central Zone Contract No.
GS04K96DED0100 are (i) the only employee pension benefit plans
maintained by the Company or any ERISA Affiliate that are intended to
qualify under
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Code Section 401; and (ii) meet the qualification requirements of the
Code in form and operation; and such plans, and each trust (if any)
forming a part thereof, has received a favorable determination letter
from the Internal Revenue Service as to the qualification under the
Code of such plan and the tax-exempt status of such related trust,
and, except as set forth in Schedule 3.10 to the Company Disclosure
Statement, nothing has occurred since the date of such determination
letter that may adversely affect the qualification of such plan or the
tax-exempt status of such related trust. Except as set forth in
Schedule 3.10 of the Company Disclosure Schedule, all Employee Plans
purporting to qualify for special tax treatment under any provision of
the Code, including, without limitation, Code Sections 79, 105, 106,
125, 127, 129, 132, 421 or 501(c)(9) meet the requirement of such
sections in form and in operation. All reports, returns or filings
required by any government agency have been timely filed in accordance
with all applicable requirements, except as could not reasonably be
expected to have a Company Material Adverse Effect.
(f) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, no condition exists that would subject
the Company, any ERISA Affiliate or Parent to any excise tax, penalty
tax or fine related to any Employee Plan, except as could not
reasonably be expected to have a Company Material Adverse Effect.
(g) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, there are no agreements which will or may
provide payments to any officer, employee, stockholder, or highly
compensated individual which, in connection with or as a result of the
Merger and the transactions contemplated by this Agreement, will be
"parachute payments" under Code Section 280G that are nondeductible to
the Company or subject to tax under Code Section 4999 for which the
Company or any ERISA Affiliate would have withholding liability.
(h) There is no Employee Plan that is subject to Part
3 of Title I of ERISA or Title IV of ERISA; each Employee Plan has
been operated in all material respects in compliance with ERISA, the
Code and all other applicable laws; none of the Employee Plans is a
"multiple employer plan" or "multiemployer plan" (as described or
defined in ERISA or the Code), nor has the Company or any ERISA
Affiliate ever contributed or been required to contribute to any such
plan; there are no material unfunded liabilities existing under any
Employee Plans, and each Employee Plan could be terminated as of the
Closing Date without any material liability to the Parent, the Company
or any ERISA Affiliate.
(i) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, there are no material actions, suits,
claims, audits, or investigations pending or, to the knowledge of the
Company, threatened against, or with respect to, any of the Employee
Plans or their assets, other than benefit claims in the normal course
of plan operations; and except as set forth in Schedule 3.10 of the
Company Disclosure Schedule and except as could not reasonably be
expected to have a Company Material Adverse Effect, all contributions
required to be made to the Employee Plans have been made.
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(j) Neither the Company nor any of its subsidiaries
is a party to any collective bargaining or other labor union contract.
No collective bargaining agreement is being negotiated by the Company
or any of its subsidiaries. Except as set forth in Schedule 3.10 of
the Company Disclosure Schedule, the Company and its subsidiaries are
in compliance in all material respects with all applicable laws
respecting employment, employment practices and wages and hours.
There is no pending or threatened labor dispute, strike or work
stoppage against the Company or any of its subsidiaries which may
materially interfere with the respective business activities of the
Company or any of its subsidiaries. None of the Company, its
subsidiaries or any of their respective representatives or employees
has committed any material unfair labor practices in connection with
the operation of the respective businesses of the Company or its
subsidiaries, and there is no material pending or threatened charge or
complaint against the Company or any of its subsidiaries by the
National Labor Relations Board or any comparable state agency.
(k) Except as set forth in Schedule 3.10 of the
Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is a party to or is bound by any severance agreements,
programs, policies, plans or arrangements, whether or not written.
Schedule 3.10(d) of the Company Disclosure Schedule sets forth, and
the Company has provided or made available to Parent true and correct
copies of, (i) all employment agreements with officers or employees of
the Company or its subsidiaries; (ii) all agreements with consultants
of the Company or its subsidiaries obligating the Company or any
subsidiary to make annual cash payments in an amount exceeding
$50,000; and (iii) all non-competition agreements with the Company.
(l) Set forth on Schedule 3.10 of the Company
Disclosure Schedule is a complete listing of all employee benefit
plans that are currently being reviewed by the Internal Revenue
Service or Department of Labor under an Amnesty Program. Amnesty
Program includes, but is not limited to any voluntary or involuntary
entry into the Voluntary Compliance Resolutions programs (VCR),
Closing Agreement Programs (CAP), or any other amnesty-type programs.
SECTION 3.11. Taxes.
(a) Except for such matters as would not have a Company
Material Adverse Effect, and except as set forth on Schedule 3.11(a)
to the Company Disclosure Schedule, (i) all returns and reports ("Tax
Returns") of or with respect to any Tax which is required to be filed
on or before the Closing Date by or with respect to the Company or any
its subsidiaries have been or will be duly and timely filed, (ii) all
items of income, gain, loss, deduction and credit or other items
required to be included in each such Tax Return have been or will be
so included and all information provided in each such Tax Return is
true, correct and complete in all material respects, (iii) all Taxes
which have become or will become due with respect to the period
covered by each such Tax Return have been or will be timely paid in
full, (iv) all withholding Tax requirements imposed on or with respect
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to the Company or any of its subsidiaries have been or will be
satisfied in full in all material respects, and (v) no penalty,
interest or other charge is or will become due with respect to the
late filing of any such Tax Return or late payment of any such Tax,
except where such penalty, interest or charge could not reasonably be
expected to have a Company Material Adverse Effect.
(b) All Tax Returns of or with respect to the Company or
any of its subsidiaries, with unexpired or extended statutes of
limitations, which have not been audited by the applicable
governmental authority are set forth in Schedule 3.11(b) to the
Company Disclosure Schedule.
(c) Except as set forth on Schedule 3.11(c) to the
Company Disclosure Schedule, there is not in force any extension of
time with respect to the due date for the filing of any Tax Return of
or with respect to the Company or any its subsidiaries or any waiver
or agreement for any extension of time for the assessment, collection
or payment of any Tax of or with respect to the Company or any of its
subsidiaries.
(d) There are no pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against the
Company or any of its subsidiaries for or with respect to any Taxes,
no assessment, deficiency or adjustment has been assessed or, to the
Company's knowledge, proposed with respect to any Tax Return of or
with respect to the Company or any of its subsidiaries, and there is
no reasonable basis on which any claim for material Taxes can be
asserted against the Company or any of its subsidiaries, other than
those disclosed on Schedule 3.11(d) to the Company Disclosure Schedule
(true and correct copies of all such audit or similar reports having
been made available to Parent) or which could not reasonably be
expected to have a Company Material Adverse Effect.
(e) Except as set forth in Schedule 3.11(e) to the
Company Disclosure Schedule, the total amounts set up as liabilities
for current and deferred Taxes in the financial statements referred to
in Section 3.07 of this Agreement are sufficient, in accordance with
GAAP, to cover in all material respects the payment of all Taxes,
whether or not assessed or disputed, which are, or are hereafter found
to be, or to have been, due by or with respect to the Company and any
of its subsidiaries up to and through the periods covered thereby.
(f) The Company has previously delivered or made
available to Parent true and complete copies of each written Tax
allocation or sharing agreement and a true and complete description of
each unwritten Tax allocation or sharing arrangement affecting the
Company or any of its subsidiaries.
(g) Except for statutory liens for current Taxes not yet
due, no material liens for Taxes exist upon the assets of any of the
Company or its subsidiaries.
(h) Neither the Company nor any of its subsidiaries will
be required to include any amount in income for any taxable period
beginning after [July 1, 1997] as a result of
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a change in accounting method for any taxable period ending on or
before [June 30, 1997] or pursuant to any agreement with any Tax
authority with respect to any such taxable period.
(i) Except as set forth on Schedule 3.11(i) to the
Company Disclosure Schedule, none of the property of the Company or
any of its subsidiaries is held in an arrangement for which
partnership Tax Returns are being filed, and neither the Company nor
any of its subsidiaries owns any interest in any controlled foreign
corporation (as defined in section 957 of the Code), passive foreign
investment company (as defined in section 1296 of the Code) or other
entity the income of which is required to be included in the income of
the Company or such subsidiary.
(j) Except as set forth on Schedule 3.11(j) to the
Company Disclosure Schedule, none of the property of the Company or
any of its subsidiaries is subject to a safe-harbor lease (pursuant to
Section 168(f) (8) of the Internal Revenue Code of 1954 as in effect
after the Economic Recovery Tax Act of 1981 and before the Tax Reform
Act of 1986) or is "tax-exempt use property" (within the meaning of
Section 168(h) of the Code) or "tax-exempt bond financed property"
(within the meaning of Section 168(g)(5) of the Code).
(k) Except as set forth on Schedule 3.11(k) to the
Company Disclosure Schedule, none of the transactions contemplated by
this Agreement will result in any Tax liability or the recognition of
any item of income or gain to the Company or any of its subsidiaries.
(l) Neither the Company nor any of its subsidiaries has
made an election under Section 341(f) of the Code.
(m) Except as set forth in Schedule 3.11 of the Company
Disclosure Schedule, neither the Company nor any subsidiary has ever
been a member of an affiliated group of corporations (as defined in
Section 1504(a) of the Internal Revenue Code) other than the group of
which the Company is currently the common parent.
(n) Except as set forth in Schedule 3.11 of the Company
Disclosure Schedule, neither the Company nor any subsidiary is or has
ever been subject to Taxes in any jurisdiction outside the United
States.
SECTION 3.12. Tax Matters; Pooling.
(a) Neither the Company nor, to the knowledge of the
Company, any of its affiliates has taken or agreed to take any action
that would prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code or (b)
being treated for financial accounting purposes as a "pooling of
interests" in accordance with GAAP and the rules, regulations and
interpretations of the SEC (a "Pooling Transaction").
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(b) To the knowledge of the Company, there is no plan or
intention by any stockholder of the Company who owns five percent or
more of the Company Common Stock, and there is no plan or intention on
the part of any of the remaining stockholders of the Company Common
Stock, to sell, exchange or otherwise dispose of a number of shares of
Parent Common Stock to be received in the Merger that would reduce the
Company stockholders' ownership of Parent Common Stock to a number of
shares having a value, as of the Effective Time, of less than 45
percent of the value of all of the Company Common Stock (including
shares of the Company Common Stock exchanged for cash in lieu of
fractional shares of Parent Common Stock) outstanding immediately
prior to the Effective Time.
(c) Immediately following the Merger, the Company will
hold at least 90 percent of the fair market value of its net assets
and at least 70 percent of the fair market value of its gross assets
held immediately prior to the Merger. For purposes of this
representation, amounts used by the Company to pay Merger expenses and
all redemptions and distributions made by the Company will be included
as assets of the Company immediately prior to the Merger.
(d) The Company and the holders of the Company Common
Stock will each pay their respective expenses, if any, incurred in
connection with the Merger.
(e) There is no intercorporate indebtedness existing
between the Company and Parent or between the Company and Merger Sub
that was issued, acquired, or will be settled at a discount.
(f) The Company is not an investment company as defined
in Section 368(a) (2) (F) (iii) and (iv) of the Code.
(g) The Company is not under the jurisdiction of a court
in a title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.13. Affiliates. Schedule 3.13 to the Company Disclosure
Schedule identifies all persons who the Company considers to be affiliates of
the Company under Rule 145 of the Securities Act. Concurrently with the
execution and delivery of this Agreement, the Company has delivered to Parent
an executed letter agreement, substantially in the form of Exhibit A hereto,
from certain of such persons identified on Schedule 3.13 to the Company
Disclosure Schedule and will deliver to Parent within ten days after the date
of this Agreement an executed letter agreement, substantially in the form of
Exhibit A hereto, from each of the other persons identified on Schedule 3.13 to
the Company Disclosure Schedule.
SECTION 3.14. Certain Business Practices. None of the Company, any
of its subsidiaries or any directors or officers, or to the knowledge of the
Company any agents or employees, of the Company or any of its subsidiaries has
individually or in the aggregate in any material respect (i) used any funds for
unlawful contributions, gifts, entertainment or other
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unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
SECTION 3.15. Environmental Matters. Except for matters disclosed
in Schedule 3.15 of the Company Disclosure Schedule and except for matters that
could not reasonably be expected to result, individually or in the aggregate
with all other such matters, in liability to the Company or any of its
subsidiaries in excess of $750,000, (i) the properties, operations and
activities of the Company and its subsidiaries are in compliance with all
applicable Environmental Laws; (ii) the Company and its subsidiaries and the
properties and operations of the Company and its subsidiaries are not subject
to any existing, pending or, to the knowledge of the Company, threatened
action, suit, claim, investigation, inquiry or proceeding by or before any
governmental authority under any Environmental Laws; (iii) all notices,
permits, licenses, or similar authorizations, if any, required to be obtained
or filed by the Company or any of its subsidiaries under any Environmental Laws
in connection with any aspect of the business of the Company or its
subsidiaries, including without limitation those relating to the treatment,
storage, disposal or release of a hazardous or otherwise regulated substance,
have been duly obtained or filed and will remain valid and in effect after the
Merger, and the Company and its subsidiaries are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations; (iv) the Company and its subsidiaries have satisfied and are
currently in compliance with all financial responsibility requirements
applicable to their operations and imposed by any governmental authority under
any Environmental Laws, and the Company and its subsidiaries have not received
any notice of noncompliance with any such financial responsibility
requirements; (v) to the Company's knowledge, there are no physical or
environmental conditions existing on any property of the Company or its
subsidiaries or resulting from the Company's or such subsidiaries' operations
or activities, past or present, at any location, that would give rise to any
on-site or off-site remedial obligations imposed on the Company or any of its
subsidiaries under any Environmental Laws or that would impact the soil,
groundwater or surface water or human health (to the extent of exposure to
hazardous substances); (vi) to the Company's knowledge, since the effective
date of the relevant requirements of applicable Environmental Laws and to the
extent required by such applicable Environmental Laws, all hazardous or
otherwise regulated substances generated by the Company and its subsidiaries
have been transported only by carriers authorized under Environmental Laws to
transport such substances and wastes, and disposed of only at treatment,
storage, and disposal facilities authorized under Environmental Laws to treat,
store or dispose of such substances and wastes; (vii) there has been no
exposure of any person or property to hazardous substances or any pollutant or
contaminant, nor has there been any release of hazardous substances, or any
pollutant or contaminant into the environment by the Company or its
subsidiaries or in connection with their properties or operations that could
reasonably be expected to give rise to any claim against the Company or any of
its subsidiaries for damages or compensation; and (viii) subject to
restrictions necessary to preserve any attorney client privilege, the Company
and its subsidiaries have made available to Parent all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters in the possession of the
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Company or its subsidiaries relating to any of the current or former properties
or operations of the Company and its subsidiaries.
For purposes of this Agreement, the term "Environmental Laws" shall
mean any and all laws, statutes, ordinances, rules, regulations, or orders of
any Governmental Entity pertaining to health (to the extent of exposure to
hazardous substances) the environment currently in effect in any and all
jurisdictions in which the Company and its subsidiaries own property or conduct
business, including without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Oil Pollution Act of 1990 ("OPA"), any
state laws implementing the foregoing federal laws, and all other environmental
conservation or protection laws. For purposes of this Agreement, the terms
"hazardous substance" and "release" have the meanings specified in CERCLA and
RCRA and shall include petroleum and petroleum products, radon and PCB's, and
the term "disposal" has the meaning specified in RCRA; provided, however, that
to the extent the laws of the state in which the property is located establish
a meaning for "hazardous substance," "release," or "disposal" that is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
SECTION 3.16. Vote Required. The only vote of the holders of any
class or series of the Company capital stock necessary to approve the Merger is
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of the Company Common Stock.
SECTION 3.17. Brokers. Except as set forth in Schedule 3.17 to the
Company Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
SECTION 3.18. Insurance. Except as set forth in Schedule 3.18 to
the Company Disclosure Schedule, the Company and each of its subsidiaries are
currently insured, and during each of the past five calendar years have been
insured, for reasonable amounts against such risks as companies engaged in a
similar business and similarly situated would, in accordance with good business
practice, customarily be insured.
SECTION 3.19. Properties. Except as set forth on Schedule 3.19 to
the Company Disclosure Schedule and except for liens arising in the ordinary
course of business after the date hereof and properties and assets disposed of
in the ordinary course of business after June 30, 1997, the Company and its
subsidiaries have good and marketable title, free and clear of all liens (other
than liens that could not reasonably be expected to have a Company Material
Adverse Effect), to all their material properties and assets, whether tangible
or intangible, real, personal or mixed, reflected in the June 30, 1997
consolidated balance sheet (as previously provided to
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Parent) as being owned by the Company and its subsidiaries as of the date
thereof or purported to be owned on the date hereof. All buildings, and all
fixtures, equipment and other property and assets which are material to its
business on a consolidated basis, held under leases by any of the Company or
its subsidiaries are held under valid instruments enforceable by the Company or
its subsidiaries in accordance with their respective terms. Substantially all
of the Company's and its subsidiaries' equipment in regular use has been well
maintained and is in good and serviceable condition, except for failures to be
in good and serviceable condition that could not reasonably be expected to have
a Company Material Adverse Effect.
SECTION 3.20. Certain Material Contracts.
(a) Schedule 3.20(a) to the Company Disclosure Schedule
lists each of the following agreements and arrangements (whether
written or oral and including all amendments thereto) to which the
Company or any of its subsidiaries is a party or a beneficiary or by
which the Company or any of its subsidiaries is bound that are
material, directly or indirectly, to the business of the Company and
any of its subsidiaries, taken as a whole (collectively, the "Material
Contracts") (i) any supply, distribution or other agreements or
arrangements pursuant to which the Company or its subsidiaries sell or
distribute any products or services and which is not cancelable within
30 days notice without penalty that reasonably could be expected to
result in fiscal year 1997 or 1998 revenues in excess of $5,000,000;
(ii) any warranty agreements or arrangements under which the Company
or any of its subsidiaries has any liability with a value in excess of
$250,000; (iii) any capital or operating leases or conditional sales
agreements relating to vehicles or equipment with a value in excess of
$250,000; (iv) any agreements or arrangements pursuant to which the
Company or any of its subsidiaries is entitled or obligated to acquire
any assets from a third party in excess of $250,000; (v) material
insurance policies currently in effect; (vi) any agreement evidencing,
securing or otherwise relating to any indebtedness for which the
Company or any of its subsidiaries has any liability in excess of
$250,000, (vii) any agreement with or for the benefit of any
stockholder, director, officer or employee of the Company or any of
its subsidiaries, or any affiliate or family member thereof (other
than employee benefit plans, benefit arrangements and other
compensatory arrangements referred to in Section 3.10); and (viii) any
other agreement or arrangement (other than contracts for the purchase
or sale of goods or services in the ordinary course of business in
connection with the performance of the Company's contracts) pursuant
to which the Company or any of its subsidiaries could be required to
make or be entitled to receive aggregate payments in excess of
$250,000 and which is not cancelable within 30 days notice without
penalty.
(b) The Company and its subsidiaries have performed all
of their obligations under each Material Contract and there exists no
breach or default (or event that with notice or lapse of time would
constitute a breach or default) under any Material Contract, except as
could not reasonably be expected to have a Company Material Adverse
Effect.
(c) Except as set forth in Schedule 3.20 of the Company
Disclosure Schedule, on the date hereof and on the Closing Date, each
Material Contract is valid, binding and
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in full force and effect and enforceable in all material respects in
accordance with its respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance or other similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of
equity. Except as set forth in Schedule 3.20 of the Company
Disclosure Schedule, there has been no termination or, to the
Company's knowledge, threatened termination or notice of default under
any Material Contract. The Company has delivered or made available to
Parent a copy of each written Material Contract.
(d) Except as set forth in Schedule 3.20(d) to the
Company Disclosure Schedule, no consent of any person is required in
connection with the transactions contemplated by this Agreement in
order to preserve the rights of the Company or any of its subsidiaries
under or to prevent any disadvantage to the Company or any of its
subsidiaries in respect of any Material Contract after the Effective
Time.
SECTION 3.21. Principal Customers; Competing Interests. The
Company has made available to Parent a list of the ten largest customers by
dollar volume of sales for fiscal year 1997 of the Company and its subsidiaries
(the "Largest Customers"), with the amount of revenues attributable to each
such customer, for the Company's 1996 and 1997 fiscal years. Except as
described in such Schedule 3.21, none of the Largest Customers has terminated
or materially altered its relationship with the Company since the beginning of
the Company's 1996 fiscal year, or, to the Company's knowledge, threatened to
do so or otherwise notified the Company of any intention to do so, and there
has been no material dispute with any of the Largest Customers since the
beginning of the Company's 1996 fiscal year. Except as described in such
Schedule 3.21, none of the Company, any of its subsidiaries, any director,
officer or stockholder of any of the foregoing owns, directly or indirectly, an
interest in any entity that is a competitor, customer or supplier of the
Company or any of its subsidiaries or that otherwise has business dealings with
the Company or any of its subsidiaries that are material to the Company and its
subsidiaries taken as a whole, other than the beneficial ownership of not more
than 1% of the voting securities of any such entity that are publicly traded.
SECTION 3.22. Intellectual Property Rights. There are no
registered patents, trademarks, service marks, trade names or copyrights, or
applications for or licenses (to or from the Company or any of its
subsidiaries) with respect to any of the foregoing that are material to the
Company and its subsidiaries taken as a whole, that (a) are owned by the
Company or any of its subsidiaries, or with respect to which the Company or any
of its subsidiaries has any rights, or (b) are used, whether directly or
indirectly, by the Company or any of its subsidiaries, other than as set forth
on Schedule 3.22 to the Company Disclosure Schedule. Except as set forth in
Schedule 3.22 of the Company Disclosure Schedule, the Company and its
subsidiaries have the right to use the trademarks and trade names set forth on
such Schedule 3.22 and any other computer software and software licenses,
intellectual property, proprietary information, trade secrets, trademarks,
trade names, copyrights, material and manufacturing specifications, drawings
and designs used by the Company or any of its subsidiaries and material to the
operation of the business of the Company or any of its subsidiaries
(collectively, "Intellectual Property"), without infringing on or otherwise
acting adversely to the rights or claimed rights of
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any person, except to the extent such infringement or actions adverse to
another's rights or claimed rights could not reasonably be expected to have a
Company Material Adverse Effect. Except as set forth on Schedule 3.22 to the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
obligated to pay any royalty or other consideration material to the Company and
its subsidiaries taken as a whole to any person in connection with the use of
any Intellectual Property. Except as set forth in Schedule 3.22 of the Company
Disclosure Schedule and as could not reasonably be expected to have a Company
Material Adverse Effect, to the Company's knowledge, no other person is
infringing on the rights of the Company and its subsidiaries in any of their
Intellectual Property.
SECTION 3.23. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of the Company and no statement by the Company or other information contained
in the Company Disclosure Schedule, any side letters delivered or entered into
by the Company pursuant to this Agreement or any document incorporated therein
by reference as of the date of such representation, warranty, statement or
document, contains any untrue statement of material fact, or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which such statements were made (but after
taking into account (i) all such representations, warranties, statements or
documents and (ii) the information included in the Company's reports filed with
the SEC on or after July 1, 1996), not misleading.
SECTION 3.24. Opinion of Financial Advisor. The Company has
received the opinion of Legg Mason Wood, Incorporated to the effect that, as of
the date of delivery of such opinion, the Merger Consideration to be received
by the holders of the Company Common Stock in the Merger is fair, from a
financial point of view, to such holders.
SECTION 3.25. [Reserved]
SECTION 3.26. Federal Government Contracts.
(a) Except as set forth in Schedule 3.26 to the Company
Disclosure Schedule, (i) none of the federal government contracts of
the Company or its subsidiaries have been terminated for default or
convenience; (ii) no show cause or cure notices, as defined by each
contract or applicable federal regulation, have been issued; and (iii)
neither the Company nor its subsidiaries have received any notices to
cure any defaults of the contracts. In addition, to the Company's
knowledge, there are no material delivery or performance problems or
issues on the part of the Company or its subsidiaries.
(b) Except as set forth in Schedule 3.26 to the Company
Disclosure Schedule, none of the Company's federal government
contracts, to the Company's knowledge, are anticipated to be
terminated for convenience or discontinued for any reason including
for lack of funding or federal budget constraints.
(c) All information, data, representations, statements
and certificates as submitted or provided to the government (the
"Information") relative to federal
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government contracts of the Company or any of its subsidiaries were
current, complete and accurate in all material respects as of the date
made (including particularly invoices, claims or other requests for
payments and any certificate regarding procurement integrity "or
certificates of current cost and pricing data"), in each case to the
extent of any open statute of limitations.
SECTION 3.27. Parent Stock Ownership. Neither the Company nor any
of its subsidiaries beneficially owns any shares of Parent Common Stock of
other securities convertible into or exchangeable for Parent Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
The Parent Companies hereby represent and warrant to the Company that:
SECTION 4.01. Organization and Qualification. Each of the Parent
Companies is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing could not be reasonably expected to have a
Parent Material Adverse Effect. The term "Parent Material Adverse Effect" as
used in this Agreement shall mean any change or effect that, individually or
when taken together with all other such changes or effects (but after giving
effect to application of insurance proceeds or other rights of indemnification
in respect of such change or effect), could reasonably be expected to be
materially adverse to the business, operations, assets, financial condition, or
results of operations of Parent and its subsidiaries, taken as a whole.
SECTION 4.02. Charter and Bylaws. Parent has heretofore furnished
or made available to the Company a complete and correct copy of the charter and
bylaws, as amended or restated, of each of the Parent Companies. Except as set
forth in Schedule 4.02 of the disclosure schedule delivered to the Company by
Parent on the date hereof (the "Parent Disclosure Schedule"), none of the
Parent Companies is in violation of any of the provisions of its charter or
bylaws.
SECTION 4.03. Capitalization.
(a) The authorized capital stock of Parent consists of
(i) 75,000,000 shares of Parent Common Stock, of which as of June 30,
1997, (x) 29,495,497 shares were issued and outstanding, (y) no shares
were held in treasury and (z) 2,752,710 shares were reserved for
future issuance pursuant to outstanding stock options and 6,405,686
shares were reserved for future issuance upon conversion of shares of
Class B common stock, par value $0.01 per share, of Parent (the "Class
B Common Stock"); (ii) 6,405,686 shares
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of Class B Common Stock of which all such shares were issued and
outstanding; and (iii) 3,000,000 shares of preferred stock, par value
$0.01 per share ("Parent Preferred Stock"), of which no shares are
issued and outstanding. Except as described in this Section 4.03 or
in Schedule 4.03(a) of the Parent Disclosure Schedule, as of the date
of this Agreement, no shares of capital stock of Parent are reserved
for any purpose. The outstanding shares of capital stock of Parent
are duly authorized, validly issued, fully paid and nonassessable, and
have not been issued in violation of (nor are any of the authorized
shares of capital stock of Parent subject to) any preemptive or
similar rights created by statute, the charter or bylaws of Parent, or
any agreement to which Parent is a party or bound.
(b) Except as set forth in Section 4.03(a) above or in
Schedule 4.03(b)(i) to the Parent Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or
commitments of any character to which the Parent or any of its
subsidiaries is a party relating to the issued or unissued capital
stock of the Parent or any of its subsidiaries or obligating the
Parent or any of its subsidiaries to grant, issue or sell any shares
of the capital stock of the Parent or any of its subsidiaries, by
sale, lease, license or otherwise. Except as set forth in Schedule
4.03(b)(ii) to the Parent Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Parent or any of its
subsidiaries to (A) repurchase, redeem or otherwise acquire any shares
of the Parent Common Stock or other capital stock of the Parent, or
the capital stock or other equity interests of any subsidiary of the
Parent; or (B) (other than advances to subsidiaries in the ordinary
course of business) provide material funds to, or make any material
investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations
of, any subsidiary of the Parent or any other person. Except as
described in Schedule 4.03(b)(iii) to the Parent Disclosure Schedule,
neither the Parent nor any of its subsidiaries (x) directly or
indirectly owns, (y) has agreed to purchase or otherwise acquire or
(z) holds any interest convertible into or exchangeable or exercisable
for 5% or more of the capital stock of any corporation, partnership,
joint venture or other business association or entity. Except as set
forth in Schedule 4.03(b)(iv) of the Parent Disclosure Schedule and
except for any agreements, arrangements or commitments between the
Parent and its subsidiaries or between such subsidiaries, there are no
agreements, arrangements or commitments of any character (contingent
or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues or earnings, or calculated
in accordance therewith, of the Parent or any of its subsidiaries.
There are no voting trusts, proxies or other agreements or
understandings to which the Parent or any of its subsidiaries is a
party or by which the Parent or any of its subsidiaries is bound with
respect to the voting of any shares of capital stock of the Parent or
any of its subsidiaries.
(c) The authorized capital stock of Merger Sub consists
of 1,000 shares of common stock, par value $0.01 per share ("Merger
Sub Common Stock"). As of the date of this Agreement, 100 shares of
Merger Sub Common Stock were issued and outstanding and held by
Parent, all of which are duly authorized, validly issued, fully paid
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and nonassessable and not subject to preemptive rights created by
statute, Merger Sub's charter or bylaws or any agreement to which
Merger Sub is a party or is bound.
(d) The shares of Parent Common Stock to be issued
pursuant to the Merger (i) will be duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights
created by statute, Parent's charter or bylaws or any agreement to
which Parent is a party or is bound and (ii) will, when issued, be
listed on the NYSE.
SECTION 4.04. Authority. Each of the Parent Companies has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby (subject to, with respect to the issuance of the Parent
Common Stock in the Merger, the approval thereof by the holders of the Parent
Common Stock as described in Section 4.12). The execution and delivery of this
Agreement by each of the Parent Companies and the consummation by each of the
Parent Companies of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of any of the Parent Companies are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (subject to,
with respect to the issuance of the Parent Common Stock in the Merger, the
approval thereof by the holders of the Parent Common Stock as described in
Section 4.12). This Agreement has been duly executed and delivered by each of
the Parent Companies and, assuming the due authorization, execution and
delivery thereof by the Company, constitutes the legal, valid and binding
obligation of each of the Parent Companies.
SECTION 4.05. No Conflict; Required Filings and Consent.
(a) Except as set forth in Schedule 4.05 of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by
each of the Parent Companies does not, and the consummation of the
transactions contemplated hereby will not (i) conflict with or violate
the charter or bylaws, or the equivalent organizational documents, in
each case as amended or restated, of Parent or any of Parent's
subsidiaries, (ii) conflict with or violate any Laws applicable to
Parent or any of Parent's subsidiaries or by which any of their
properties is bound or subject, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of Parent's subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or
any of Parent's subsidiaries is a party or by or to which Parent or
any of Parent's subsidiaries or any of their respective properties is
bound or subject, except in the case of clauses (ii) and (iii) where
such conflict, violation, breach, default, right, requirement, lien or
encumbrance could not reasonably be expected to have a Parent Material
Adverse Effect. The Board of Directors of the Parent has taken all
actions necessary under Delaware Law, including approving the
transactions contemplated by this Agreement and taking appropriate
actions under any stockholder protection laws applicable to the Parent
or any of its subsidiaries, to ensure that restrictions on business
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combinations or the owning or voting of the capital stock of the
Parent or any of its subsidiaries do not, and will not apply in
respect or as a result of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by each
of the Parent Companies does not, and the consummation of the
transactions contemplated hereby will not, require any of the Parent
Companies to obtain any consent, license, permit, approval, waiver,
authorization or order of, or to make any filing with or notification
to, any Governmental Entities, except for applicable requirements, if
any, of the Securities Act, the Exchange Act, Blue Sky Laws, the HSR
Act and those matters referenced in Schedule 4.05(b) of the Parent
Disclosure Schedule and the filing and recordation of appropriate
merger documents as required by Maryland Law.
SECTION 4.06. Permits; Compliance. Except as set forth in Schedule
4.06 of the Parent Disclosure Schedule, each of Parent and its subsidiaries is
in possession of all material franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals
and orders necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the "Parent Permits"),
and there is no action, proceeding or investigation pending or, to the
knowledge of Parent, threatened regarding suspension or cancellation of any of
the Parent Permits. Except as set forth in Schedule 4.06 of the Parent
Disclosure Schedule, neither Parent nor any of its subsidiaries is in material
conflict with, or in material default or violation of (a) any Law applicable to
Parent or any of its subsidiaries or by or to which any of their respective
properties is bound or subject or (b) any of the Parent Permits. Except as set
forth in Schedule 4.06 of the Parent Disclosure Schedule, since June 30, 1995,
neither Parent nor any of its subsidiaries has received from any Governmental
Entity any written notification with respect to possible material conflicts,
defaults or violations of Laws.
SECTION 4.07. SEC Reports; Financial Statements.
(a) Since June 30, 1995, Parent and its subsidiaries have
filed all forms, reports, statements and other documents required to
be filed with the SEC, including, without limitation, (1) all Annual
Reports on Form l0-K, (2) all Quarterly Reports on Form 10-Q, (3) all
proxy statements relating to meetings of stockholders (whether annual
or special), (4) all Current Reports on Form 8-K and (5) all other
reports, schedules, registration statements or other documents
(collectively, the "Parent SEC Reports"). The Parent SEC Reports,
including all Parent SEC Reports filed after the date of this
Agreement and prior to the Effective Time (x) were or will be prepared
in all material respects in accordance with the requirements of
applicable Law and (y) did not at the time they were filed, or will
not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
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(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the
Parent SEC Reports filed prior to the Effective Time (i) have been or
will be prepared in accordance with the published rules and
regulations of the SEC and generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except
(A) to the extent required by changes in generally accepted accounting
principles and (B) with respect to Parent SEC Reports filed prior to
the date of this Agreement, as may be indicated in the notes thereto)
and (ii) fairly present or will fairly present the consolidated
financial position of Parent and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and cash
flows for the periods indicated (including reasonable estimates of
normal and recurring year-end adjustments), except that (x) any
unaudited interim financial statements were or will be subject to
normal and recurring year-end adjustments and (y) any pro forma
financial information contained in such consolidated financial
statements is not necessarily indicative of the consolidated financial
position of Parent and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated.
SECTION 4.08. Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement
or as contemplated by this Agreement or as set forth in Schedule 4.08 to the
Parent Disclosure Schedule, since June 30, 1997, each of Parent and its
subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice, and there has not been:
(i) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any material assets of Parent or any of its
subsidiaries; (ii) any material change by Parent or its subsidiaries in their
accounting methods, principles or practices; (iii) except for dividends by a
subsidiary of Parent to Parent or another subsidiary of Parent, any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of Parent Common Stock or the shares of stock of, or other
equity interests in, any majority-owned subsidiary of Parent, or any
redemption, purchase or other acquisition by Parent or any of Parent's
subsidiaries of any of Parent's securities or any of the securities of any
subsidiary of Parent; or (iv) any Parent Material Adverse Effect.
SECTION 4.09. Absence of Litigation. Except as set forth in
Schedule 4.09 to the Parent Disclosure Schedule, there is no claim, action,
suit, litigation, proceeding, arbitration or, to the knowledge of Parent,
investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or, to the knowledge or Parent,
threatened against Parent or any of its subsidiaries or any properties or
rights of Parent or any of its subsidiaries (except for claims, actions, suits,
litigation, proceedings, arbitrations or investigations which could not
reasonably be expected to have a Parent Material Adverse Effect) and neither
Parent nor any of its subsidiaries is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of Parent, continuing investigation by, any Governmental
Entity, or any judgment, order, writ, injunction, decree or award of any
Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
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SECTION 4.10. Tax Matters; Pooling.
(a) None of the Parent Companies nor, to the knowledge of
Parent, any of their affiliates has taken or agreed to take any action
that would prevent the Merger (i) from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code or (ii)
from being treated as a Pooling Transaction for financial accounting
purposes.
(b) There is no intercorporate indebtedness existing
between Parent and the Company or between Merger Sub and the Company
that was issued, acquired, or will be settled at a discount.
(c) Parent has no present plan or intention to sell or
dispose of any of the assets of the Company or any of its subsidiaries
after the Effective Time, except for (i) sales, transfers or other
distributions made in the ordinary course of business and (ii)
transfers described in Section 368(a)(2)(C) of the Code.
(d) Parent has no present plan or intention to reacquire
any of the shares of Parent Common Stock it will issue to stockholders
of the Company in the Merger.
(e) Following the Effective Time, Parent currently
intends to continue the historic businesses of the Company and its
subsidiaries that are presently conducted.
SECTION 4.11. Vote Required. The only vote of the holders of any
class or series of Parent capital stock necessary to approve the issuance of
the Parent Common Stock in the Merger is, pursuant to the requirements of the
NYSE, the affirmative vote of the holders of a majority of the outstanding
shares of the common stock of Parent voted on the proposal to so issue the
Parent Common Stock; provided that the total vote cast on such proposal
represents over 50% in interest of the outstanding common stock of Parent. No
vote of the holders or any class or series of Parent capital stock is required
to approve the Merger and adopt this Agreement. Parent, as the sole
stockholder of Merger Sub, will promptly vote to approve the Merger and adopt
this Agreement.
SECTION 4.12. Brokers. Except as set forth on Schedule 4.12 to the
Parent Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of the Parent Companies.
SECTION 4.13. Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of Parent and no statement by the Parent or other information contained in the
Parent Disclosure Schedule, any side letters delivered or entered into by the
Parent pursuant to this Agreement or any document incorporated therein by
reference as of the date of such representation, warranty, statement or
document, contains any untrue statement of material fact, or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which such
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statements were made (but after taking into account (i) all such
representations, warranties, statements or documents and (ii) the information
included in Parent's reports filed with the SEC on or after July 1, 1996), not
misleading.
SECTION 4.14. Opinion of Financial Advisor. Parent has received
the opinion of Smith Barney Inc. to the effect that, as of the date of the
Agreement, the Exchange Ratio is fair, from a financial point of view, to
Parent.
SECTION 4.15. [Reserved]
SECTION 4.16. Employee Benefit Plans; Labor Matters.
(a) The Affiliated Computer Services, Inc. Savings Plan
(a) is the only employee pension benefit plan maintained by the Parent
or any ERISA Affiliate that is intended to qualify under Code Section
401; and (b) meets the qualification requirements of the Code in form
and operation, and such plan, and each trust (if any) forming a part
thereof, has received a favorable determination letter from the
Internal Revenue Service as to the qualification under the Code of
such plan and the tax-exempt status of such related trust, and nothing
has occurred since the date of such determination letter that may
adversely affect the qualification of such plan or the tax-exempt
status of such related trust. Except as set forth in Schedule 4.16 of
the Parent Disclosure Schedule, all Employee Plans purporting to
qualify for special tax treatment under any provision of the Code,
including, without limitation, Code Sections 79, 105, 106, 125, 127,
129, 132, 421 or 501(c)(9) meet the requirement of such sections in
form and in operation. All reports, returns or filings required by
any government agency have been filed in accordance with all
applicable requirements.
(b) Except as set forth in Schedule 4.16 of the Company
Disclosure Schedule, no condition exists that would subject the
Parent, any ERISA Affiliate or Parent to any excise tax, penalty tax
or fine related to any Employee Plan, except as could not reasonably
be expected to have a Parent Material Adverse Effect.
(c) There is no Employee Plan that is subject to Part 3
of Title I of ERISA or Title IV of ERISA; each Employee Plan has been
operated in all material respects in compliance with ERISA, the Code
and all other applicable laws; none of the Employee Plans is a
"multiple employer plan" or "multiemployer plan" (as described or
defined in ERISA or the Code), nor has the Parent or any ERISA
Affiliate ever contributed or been required to contribute to any such
plan; there are no material unfunded liabilities existing under any
Employee Plans, and each Employee Plan could be terminated as of the
Closing Date without any material liability to the Parent, the Parent
or any ERISA Affiliate.
(d) Except as set forth in Schedule 4.16 of the Parent
Disclosure Schedule, there are no material actions, suits, claims,
audits, or investigations pending or, to the
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knowledge of the Parent, threatened against, or with respect to, any
of the Employee Plans or their assets, other than benefit claims in
the normal course of plan operations, and except as set forth in
Schedule 4.16 of the Parent Disclosure Schedule and except as could
not reasonably be expected to have a Parent Material Adverse Effect,
all contributions required to be made to the Employee Plans have been
made.
SECTION 4.17. Certain Business Practices. None of the Parent, any
of its subsidiaries or any directors or officers, or to the knowledge of
Parent, any agents or employees, of the Parent or any of its subsidiaries has
individually or in the aggregate in any material respect (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iii) made any other unlawful payment.
SECTION 4.18. Environmental Matters. Except for matters disclosed
in Schedule 4.18 of the Parent Disclosure Schedule and except for matters that
could not reasonably be expected to result, individually or in the aggregate
with all other such matters, in liability to the Parent or any of its
subsidiaries in excess of $750,000, (i) the properties, operations and
activities of the Parent and its subsidiaries are in compliance with all
applicable Environmental Laws; (ii) the Parent and its subsidiaries and the
properties and operations of the Parent and its subsidiaries are not subject to
any existing, pending or, to the knowledge of the Parent, threatened action,
suit, claim, investigation, inquiry or proceeding by or before any governmental
authority under any Environmental Laws; (iii) all notices, permits, licenses,
or similar authorizations, if any, required to be obtained or filed by the
Parent or any of its subsidiaries under any Environmental Laws in connection
with any aspect of the business of the Parent or its subsidiaries, including
without limitation those relating to the treatment, storage, disposal or
release of a hazardous or otherwise regulated substance, have been duly
obtained or filed and will remain valid and in effect after the Merger, and the
Parent and its subsidiaries are in compliance with the terms and conditions of
all such notices, permits, licenses and similar authorizations; (iv) the Parent
and its subsidiaries have satisfied and are currently in compliance with all
financial responsibility requirements applicable to their operations and
imposed by any governmental authority under any Environmental Laws, and the
Parent and its subsidiaries have not received any notice of noncompliance with
any such financial responsibility requirements; (v) to the Parent's knowledge,
there are no physical or environmental conditions existing on any property of
the Parent or its subsidiaries or resulting from the Parent's or such
subsidiaries' operations or activities, past or present, at any location, that
would give rise to any on-site or off-site remedial obligations imposed on the
Parent or any of its subsidiaries under any Environmental Laws or that would
impact the soil, groundwater, or surface water or human health (to the extent
of exposure to hazardous substances); (vi) to the Parent's knowledge, since the
effective date of the relevant requirements of applicable Environmental Laws
and to the extent required by such applicable Environmental Laws, all hazardous
or otherwise regulated substances generated by the Parent and its subsidiaries
have been transported only by carriers authorized under Environmental Laws to
transport such substances and wastes, and disposed of only at treatment,
storage, and disposal facilities authorized under Environmental Laws to treat,
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store or dispose of such substances and wastes; (vii) there has been no
exposure of any person or property to hazardous substances or any pollutant or
contaminant, nor has there been any release of hazardous substances, or any
pollutant or contaminant into the environment by the Parent or its subsidiaries
or in connection with their properties or operations that could reasonably be
expected to give rise to any claim against the Parent or any of its
subsidiaries for damages or compensation; and (viii) subject to restrictions
necessary to preserve any attorney client privilege, the Parent and its
subsidiaries have made available to Parent all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters in the possession of the Parent or its subsidiaries
relating to any of the current or former properties or operations of the Parent
and its subsidiaries.
For purposes of this Agreement, the term "Environmental Laws" shall
mean any and all laws, statutes, ordinances, rules, regulations, or orders of
any Governmental Entity pertaining to health (to the extent of exposure to
hazardous substances) or the environment currently in effect in any and all
jurisdictions in which the Parent and its subsidiaries own property or conduct
business, including without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended,
the Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Oil Pollution Act of 1990 ("OPA"), any
state laws implementing the foregoing federal laws, and all other environmental
conservation or protection laws. For purposes of this Agreement, the terms
"hazardous substance" and "release" have the meanings specified in CERCLA and
RCRA and shall include petroleum and petroleum products, radon and PCB's, and
the term "disposal" has the meaning specified in RCRA; provided, however, that
to the extent the laws of the state in which the property is located establish
a meaning for "hazardous substance," "release," or "disposal" that is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
SECTION 4.19. Insurance. Except as set forth on Schedule 4.19 to
the Parent Disclosure Schedule, the Parent and each of its subsidiaries are
currently insured, and during each of the past five calendar years have been
insured, for reasonable amounts against such risks as companies engaged in a
similar business and similarly situated would, in accordance with good business
practice, customarily be insured.
SECTION 4.20. Intellectual Property Rights. There are no
registered patents, trademarks, service marks, trade names or copyrights, or
applications for or licenses (to or from the Parent or any of its subsidiaries)
with respect to any of the foregoing that are material to the Parent and its
subsidiaries taken as a whole, that (a) are owned by the Parent or any of its
subsidiaries, or with respect to which the Parent or any of its subsidiaries
has any rights, or (b) are used, whether directly or indirectly, by the Parent
or any of its subsidiaries, other than as set forth on Schedule 4.20 to the
Parent Disclosure Schedule. Except as set forth in Schedule 4.20 of the Parent
Disclosure Schedule, the Parent and its subsidiaries have the right to
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use the trademarks and trade names set forth on such Schedule 4.20 and any
other computer software and software licenses, intellectual property,
proprietary information, trade secrets, trademarks, trade names, copyrights,
material and manufacturing specifications, drawings and designs used by the
Parent or any of its subsidiaries and material to the operation of the business
of the Parent or any of its subsidiaries (collectively, "Intellectual
Property"), without infringing on or otherwise acting adversely to the rights
or claimed rights of any person, except to the extent such infringement or
actions adverse to another's rights or claimed rights could not reasonably be
expected to have a Parent Material Adverse Effect. Except as set forth on
Schedule 4.20 to the Parent Disclosure Schedule, neither the Parent nor any of
its subsidiaries is obligated to pay any royalty or other consideration
material to the Parent and its subsidiaries taken as a whole to any person in
connection with the use of any Intellectual Property. Except as set forth in
Schedule 4.20 of the Parent Disclosure Schedule and as could not reasonably be
expected to have a Parent Material Adverse Effect, to the Parent's knowledge,
no other person is infringing on the rights of the Parent and its subsidiaries
in any of their Intellectual Property.
SECTION 4.21. Credit Facilities. As of the date of this Agreement,
Parent has, and as of the Closing Date Parent will have, sufficient cash and
available sources of credit to repay any and all amounts outstanding under the
Company's principal credit facility with NationsBank, N.A.
SECTION 4.22. Company Common Stock. Neither Parent nor any of its
subsidiaries beneficially owns any shares of Company Common Stock of other
securities convertible into or exchangeable for Company Common Stock.
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company. The Company
hereby covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Parent,
the Company will and will cause its subsidiaries to:
(a) operate its business in all material respects in the
usual and ordinary course consistent with past practices;
(b) use all reasonable efforts to preserve substantially
intact its business organization, maintain its material rights and
franchises, retain the services of its respective officers and key
employees and maintain its relationships with its material customers
and suppliers;
(c) maintain and keep its material properties and assets
in as good repair and condition as at present, ordinary wear and tear
excepted, and maintain supplies and inventories in quantities
consistent with its customary business practice; and
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(d) use all reasonable efforts to keep in full force and
effect insurance and bonds comparable in amount and scope of coverage
to that currently maintained.
SECTION 5.02. Negative Covenants of the Company. Except as
expressly contemplated by this Agreement, otherwise consented to in writing by
Parent or set forth in Schedule 5.02 of the Company Disclosure Schedule, from
the date of this Agreement until the Effective Time, the Company will not do,
and will not permit any of its subsidiaries to do, any of the foregoing:
(a) (i) increase the compensation payable to or to become
payable to any director or executive officer, unless such increase
results from the operation of compensation arrangements in effect
prior to the date hereof; (ii) grant any severance or termination pay
(other than pursuant to the normal severance policy of the Company or
its subsidiaries as in effect on the date of this Agreement or any of
the agreements or arrangements disclosed in the Company Disclosure
Schedule) to, or enter into or amend any employment or severance
agreement with, any director, officer or employee; (iii) establish,
adopt or enter into any employee benefit plan or arrangement; or (iv)
except as may be required by applicable law and actions that are not
inconsistent with the provisions of Section 6.08 of this Agreement,
amend in any material respect, or take any other actions with respect
to, any of the Benefit Plans or any of the plans, programs,
agreements, policies or other arrangements described in Section
3.10(d) of this Agreement;
(b) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock,
except for dividends by a wholly owned subsidiary of the Company to
the Company or another wholly owned subsidiary of the Company and
except for regular semi-annual dividends with respect to the Company
Common Stock in an amount not to exceed $0.11 per share;
(c) (i) except as described in Schedule 3.03(b)(ii) of
the Company Disclosure Schedule, redeem, purchase or otherwise acquire
any shares of its or any of its subsidiaries' capital stock or any
securities or obligations convertible into or exchangeable for any
shares of its or its subsidiaries' capital stock (other than any such
acquisition directly from any wholly owned subsidiary of the Company
in exchange for capital contributions or loans to such subsidiary), or
any options, warrants or conversion or other rights to acquire any
shares of its or its subsidiaries' capital stock or any such
securities or obligations (except in connection with the exercise of
outstanding Stock Options in accordance with their terms); (ii) effect
any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or
authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its or its
subsidiaries' capital stock;
(d) (i) except as described in Schedule 3.03(b)(i) of the
Company Disclosure Schedule, issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims,
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pledges, limitations in voting rights, charges or other encumbrances)
of, any shares of any class of its or its subsidiaries' capital stock
(including shares held in treasury), any securities convertible into
or exercisable or exchangeable for any such shares, or any rights,
warrants or options to acquire any such shares (except as permitted
pursuant to Section 6.08 of this Agreement or for the issuance of
shares upon the exercise of outstanding Stock Options); (ii) amend or
otherwise modify the terms of any such rights or options the effect of
which shall be to make such terms more favorable to the holders
thereof; or (iii) except as contemplated by the terms of existing
Stock Options, take any action to accelerate the exercisability of
Stock Options;
(e) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization
or division thereof, or otherwise acquire or agree to acquire any
assets of any other person (other than the purchase of assets from
suppliers or vendors in the ordinary course of business and consistent
with past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its material assets
or any material assets of any of its subsidiaries, except for
dispositions of inventories and of assets in the ordinary course of
business and consistent with past practice;
(g) initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing
Transaction (as defined below), or enter into discussions or negotiate
with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or
employees of the Company or any of its subsidiaries or any investment
banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of the Company's
subsidiaries to take any such action, and the Company shall promptly
notify Parent of all relevant terms of any such inquiries and
proposals received by the Company or any of its subsidiaries or by any
such officer, director, investment banker, financial advisor,
attorney, accountant or other representative relating to any of such
matters and if such inquiry or proposal is in writing, the Company
shall promptly deliver or cause to be delivered to Parent a copy of
such inquiry or proposal; provided, however, that nothing contained in
this subsection (g) shall prohibit the Board of Directors of the
Company from (i) furnishing information to, or entering into
discussions or negotiations with, or following termination of this
Agreement in accordance with Section 8.01, entering into an agreement
with, any person or entity in connection with an unsolicited bona fide
written proposal, by such person or entity to acquire the Company
pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire a substantial
portion of the assets of the Company or any of its subsidiaries, if,
and only to the extent that (A) the Board of
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Directors of the Company, after consultation with and based upon the
advice of independent legal counsel, determines in good faith that
such action is necessary for such Board of Directors to comply with
its fiduciary duties to stockholders under applicable law and (B)
prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity the Company (x) provides
one day's prior written notice to Parent to the effect that it is
furnishing information to, or entering into discussions or
negotiations with, such person or entity and (y) enters into with such
person or entity a confidentiality agreement in reasonably customary
form on terms not more favorable to such person or entity than the
terms contained in that certain Confidentiality Agreement dated as of
July 20, 1997 between Parent and the Company (the "Confidentiality
Agreement"); (ii) complying with Rule 14e-2 or Rule 14d-9 promulgated
under the Exchange Act with regard to a Competing Transaction; or
(iii) failing to make or withdrawing or modifying its recommendation
referred to in Section 6.02(a) if there exists a Competing Transaction
and the Board of Directors of the Company, after consultation with and
based upon the advice of independent legal counsel, determines in good
faith that such action is necessary for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law.
For purposes of this Agreement, "Competing Transaction" shall mean any
of the following (other than the transactions contemplated by this
Agreement) involving the Company or any of its subsidiaries: (i) any
merger, consolidation, share exchange, business combination or similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of the
Company and its subsidiaries, taken as a whole, (iii) any tender offer
or exchange offer for 20% or more of the outstanding shares of capital
stock of the Company or the filing of a registration statement under
the Securities Act in connection therewith; (iv) any person having
acquired beneficial ownership of, or any group (as such term is used
in Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) having been formed which beneficially owns or
has the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of capital stock of the Company; or (v) any public
announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing;
(h) release any third party from its obligations, or
grant any consent, under any existing standstill provision relating to
a Competing Transaction or otherwise under any confidentiality or
other agreement relating thereto, or fail to fully enforce any such
agreement;
(i) adopt or propose to adopt any amendments to its
charter or bylaws, which would have an adverse impact on the
consummation of the transactions contemplated by this Agreement,
except to the extent necessary to implement the Advisory Board
contemplated by Section 1.05;
(j) (A) change any of its methods of accounting in effect
at June 30, 1997, or (B) make or rescind any express or deemed
election relating to Taxes, settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit
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or controversy relating to Taxes, or change any of its methods of
reporting income or deductions for federal income tax purposes from
those employed in the preparation of the federal income tax returns
for the taxable year ending June 30, 1997, except, in each case, as
may be required by Law or GAAP;
(k) incur any obligation for borrowed money or purchase
money indebtedness, whether or not evidenced by a note, bond,
debenture or similar instrument, except in the ordinary course of
business consistent with past practice and in no event in excess of
$250,000 in the aggregate (unless such borrowings are incurred under
the Company's principal credit facility with NationsBank, N.A. and
relate to working capital or capital expenditures in the ordinary
course of business);
(l) enter into any arrangement, agreement or contract
material to the Company and its subsidiaries taken as a whole with any
third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or
is substantially more restrictive on the Company or substantially less
advantageous to the Company than arrangements, agreements or contracts
existing on the date hereof;
(m) agree in writing or otherwise to do any of the
foregoing.
SECTION 5.03. Affirmative and Negative Covenants of Parent.
(a) Parent hereby covenants and agrees that, prior to the
Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by the Company, Parent will and
will cause its material subsidiaries to:
(i) operate its business in all material respects
in the usual and ordinary course consistent with past
practices;
(ii) use all reasonable efforts to preserve
substantially intact its business organization, maintain its
material rights and franchises, retain the services of its
respective officers and key employees and maintain its
relationships with its material customers and suppliers;
(iii) maintain and keep its material properties and
assets in as good repair and condition as at present, ordinary
wear and tear excepted, and maintain supplies and inventories
in quantities consistent with its customary business practice;
(iv) use all reasonable efforts to keep in full
force and effect insurance and bonds comparable in amount and
scope of coverage to that currently maintained; and
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(v) take all actions necessary to cause Merger
Sub to approve the Merger, this Agreement and the transactions
contemplated thereby and hereby.
(b) Except as expressly contemplated by this Agreement,
otherwise consented to in writing by the Company or set forth in
Schedule 5.03 of the Parent Disclosure Schedule, from the date of this
Agreement until the Effective Time, Parent will not do, and will not
permit any of its subsidiaries to do, any of the following:
(i) knowingly take any action which would result
in a failure to maintain the trading of the Parent Common
Stock on the NYSE;
(ii) declare or pay any dividend on, or make any
other distribution in respect of, outstanding shares of
capital stock, except for dividends by a wholly owned
subsidiary of Parent to Parent or another wholly owned
subsidiary of Parent;
(iii) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a
portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person (other than
the purchase of assets from suppliers or vendors in the
ordinary course of business and consistent with past
practice), which, in each case, would prevent the consummation
of the transactions contemplated by this Agreement;
(iv) adopt or propose to adopt any amendments to
its charter or bylaws, which would have an adverse impact on
the consummation of the transactions contemplated by this
Agreement; or
(v) agree in writing or otherwise to do any of
the foregoing.
With respect to Subsections 5.03(b)(iv) and (v) above, the
parties hereto acknowledge that, in connection with the Parent's
upcoming Annual Meeting of Stockholders, a proposed increase in the
amount of the Parent's authorized Class A Common Stock to 500,000,000
shares and a proposed increase in the amount of the Parent's
authorized Class B Common Stock to 14,000,000 shares and charter and
bylaw amendments to implement for Parent a staggered Board of
Directors consistent with the resolutions of the Parent's Board of
Directors passed on August 5, 1997 do not violate or breach such
subsections.
(c) Parent hereby expressly consents to the terms and
conditions of, and assumes the obligations of the Company under, the
split-dollar life insurance agreements between the Company and each of
Clifford Kendall, Ted Tinsley and Mary Ann Mayhew as are disclosed on
Schedule 3.10 to the Company Disclosure Schedule.
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SECTION 5.04. Access and Information.
(a) Except as may be deemed necessary or appropriate to
comply with applicable laws (including, without limitation, any
requirements with respect to security clearances) and subject to any
applicable privileges (including, without limitation, the
attorney-client privilege), the Company shall, and shall cause its
subsidiaries to (i) afford to Parent and its officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Parent Representatives")
reasonable access at reasonable times, upon reasonable prior notice,
to the officers, employees, agents, properties, offices and other
facilities of the Company and its subsidiaries and to the books and
records thereof and (ii) furnish promptly to Parent and the Parent
Representatives such information concerning the business, properties,
contracts, records and personnel of the Company and its subsidiaries
(including, without limitation, financial, operating and other data
and information) as may be reasonably requested, from time to time, by
Parent.
(b) Parent shall, and shall cause its subsidiaries to (i)
afford to the Company and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other
representatives (collectively, the " Company Representatives")
reasonable access at reasonable times, upon reasonable prior notice,
to the officers, employees, accountants, agents, properties, offices
and other facilities of Parent and its subsidiaries and to the books
and records thereof and (ii) furnish promptly to the Company and the
Company Representatives such information concerning the business,
properties, contracts, records and personnel of Parent and its
subsidiaries (including, without limitation, financial, operating and
other data and information) as may be reasonably requested, from time
to time, by the Company.
(c) Notwithstanding the foregoing provisions of this
Section 5.04, neither party shall be required to grant access or
furnish information to the other party to the extent that such access
or the furnishing of such information is prohibited by law. No
investigation by the parties hereto made heretofore or hereafter shall
affect the representations and warranties of the parties which are
herein contained and each such representation and warranty shall
survive such investigation.
(d) The information received pursuant to Section 5.04(a)
and (b) shall be deemed to be "Confidential Information" for purposes
of the Confidentiality Agreement.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Meetings of Stockholders.
(a) The Company shall, promptly after the date of this
Agreement, take all actions necessary in accordance with Maryland Law
and its charter and bylaws to convene a meeting of the Company's
stockholders to act on this Agreement (the "Company Stockholders
Meeting"), and the Company shall consult with Parent in connection
therewith. The Company shall use its best efforts to solicit from
stockholders of the Company proxies in favor of the approval and
adoption of this Agreement and to secure the vote of stockholders
required by Maryland Law and its charter and bylaws to approve and
adopt this Agreement, unless otherwise necessary due to the applicable
fiduciary duties of the directors of the Company, as determined by
such directors in good faith after consultation with and based upon
the advice of independent legal counsel.
(b) Parent shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the Delaware
General Corporation Law and its charter and bylaws to convene a
meeting of Parent's stockholders to approve the issuance of the Parent
Common Stock in connection with the Merger pursuant to the
requirements of the NYSE (the "Parent Stockholders Meeting"). Parent
shall use its best efforts to solicit from stockholders of Parent
proxies in favor of the approval of such issuance of Parent Common
Stock and to secure the vote of stockholders required by the NYSE.
SECTION 6.02. Registration Statement; Proxy Statements.
(a) As promptly as practicable after the execution of
this Agreement, Parent shall prepare and file with the SEC a
registration statement on Form S-4 (such registration statement,
together with any amendments thereof or supplements thereto, being the
"Registration Statement"), containing a proxy statement/prospectus for
stockholders of the Company (the "Company Proxy Statement/Prospectus")
and a proxy statement and form of proxy for stockholders of Parent
(together with any amendments thereof or supplements thereto, in each
case in the form or forms mailed to Parent's stockholders, the "Parent
Proxy Statement"), in connection with the registration under the
Securities Act of the offer and sale of Parent Common Stock to be
issued in the Merger and the other transactions contemplated by this
Agreement. As promptly as practicable after the execution of this
Agreement, the Company shall prepare and file with the SEC a proxy
statement that will be the same as the Company Proxy
Statement/Prospectus, and a form of proxy, in connection with the vote
of the Company's stockholders with respect to the Merger (such proxy
statement and form of proxy, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the
Company's stockholders, being the "Company Proxy Statement"). Each of
Parent and the Company will use its best efforts to cause the
Registration Statement to be declared effective as promptly as
practicable, and shall take any action required to be taken under
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any applicable federal or state securities laws in connection with the
issuance of shares of Parent Common Stock in the Merger. Each of
Parent and the Company shall furnish to the other all information
concerning it and the holders of its capital stock as the other may
reasonably request in connection with such actions. As promptly as
practicable after the Registration Statement shall have been declared
effective, the Company shall mail the Company Proxy Statement to its
stockholders entitled to notice of and to vote at the Company
Stockholders Meeting and Parent shall mail the Parent Proxy Statement
to its stockholders entitled to notice of and to vote at the Parent
Stockholders Meeting. The Company Proxy Statement shall include the
recommendation of the Company's Board of Directors in favor of the
Merger and adoption of this Agreement, unless otherwise necessary due
to the applicable fiduciary duties of the directors of the Company, as
determined by such directors in good faith after consultation with and
based upon the advice of independent legal counsel. The Parent Proxy
Statement shall include the recommendation of Parent's Board of
Directors in favor of approval of the issuance of the Parent Common
Stock in the Merger.
(b) The information supplied by the Company for inclusion
in the Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The information supplied by the Company for inclusion in
(i) the Company Proxy Statement to be sent to the stockholders of the
Company in connection with the Company Stockholders Meeting shall not,
at the date the Company Proxy Statement (or any supplement thereto) is
first mailed to stockholders, at the time of the Company Stockholders
Meeting or at the Effective Time and (ii) the Parent Proxy Statement
to be sent to the stockholders of Parent in connection with the Parent
Stockholders Meeting shall not, at the date the Parent Proxy Statement
(or any supplement thereto) is first mailed to stockholders, at the
time of the Parent Stockholders Meeting or at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they are made, not misleading. If at any time prior to the
Effective Time any event or circumstance relating to the Company or
any of its affiliates, or its or their respective officers or
directors, should be discovered by the Company that should be set
forth in an amendment to the Registration Statement or a supplement to
the Company Proxy Statement or the Parent Proxy Statement, the Company
shall promptly inform Parent thereof in writing. All documents that
the Company is responsible for filing with the SEC in connection with
the transactions contemplated herein will comply as to form in all
material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(c) The information supplied by Parent for inclusion in
the Registration Statement shall not, at the time the Registration
Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The
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information supplied by Parent for inclusion in (i) the Company Proxy
Statement to be sent to the stockholders of the Company in connection
with the Company Stockholders Meeting shall not, at the date the
Company Proxy Statement (or any supplement thereto) is first mailed to
stockholders, at the time of the Company Stockholders Meeting or at
the Effective Time and (ii) the Parent Proxy Statement to be sent to
the stockholders of Parent in connection with the Parent Stockholders
Meeting shall not, at the date the Parent Proxy Statement (or any
supplement thereto) is first mailed to stockholders, at the time of
the Parent Stockholders Meeting or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time
any event or circumstance relating to Parent or any of its affiliates,
or to their respective officers or directors, should be discovered by
Parent that should be set forth in an amendment to the Registration
Statement or a supplement to the Company Proxy Statement or the Parent
Proxy Statement, Parent shall promptly inform the Company thereof in
writing. All documents that Parent is responsible for filing with the
SEC in connection with the transactions contemplated hereby will
comply as to form in all material respects with the applicable
requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations
thereunder.
SECTION 6.03. Appropriate Action; Consents; Filings.
(a) The Company and Parent shall each use, and shall
cause each of their respective subsidiaries to use, all reasonable
efforts to (i) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective the
transactions contemplated by this Agreement, (ii) obtain from any
Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by
Parent or the Company or any of their subsidiaries in connection with
the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including,
without limitation, the Merger, (iii) make all necessary filings, and
thereafter make any other required submissions, with respect to this
Agreement and the Merger required under (A) the Securities Act (in the
case of Parent) and the Exchange Act and the rules and regulations
thereunder, and any other applicable federal or state securities laws,
(B) the HSR Act and (C) any other applicable Law; provided that Parent
and the Company shall cooperate with each other in connection with the
making of all such filings, including providing copies of all such
documents to the nonfiling party and its advisors prior to filings
and, if requested, shall accept all reasonable additions, deletions or
changes suggested in connection therewith. The Company and Parent
shall furnish all information required for any application or other
filing to be made pursuant to the rules and regulations of any
applicable Law (including all information required to be included in
the Company Proxy Statement, the Parent Proxy Statement or the
Registration Statement) in connection with the transactions
contemplated by this Agreement. Parent and the Company shall request
early termination of the waiting period with respect to the Merger
under the HSR Act.
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(b) Parent and the Company agree to cooperate with
respect to, and shall cause each of their respective subsidiaries to
cooperate with respect to, and agree to use all reasonable efforts
vigorously to contest and resist, any action, including legislative,
administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) (an "Order") of any
Governmental Entity that is in effect and that restricts, prevents or
prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by
vigorously pursuing all available avenues of administrative and
judicial appeal and all available legislative action.
(c) (i) Each of the Company and Parent shall give (or
shall cause their respective subsidiaries to give) any notices to
third parties, and use, and cause their respective subsidiaries to use
all reasonable efforts to obtain any third party consents (A)
necessary, proper or advisable to consummate the transactions
contemplated by this Agreement, (B) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated hereby or (C) required
to prevent a Company Material Adverse Effect or a Parent Material
Adverse Effect from occurring prior to the Effective Time.
(ii) In the event that any party shall fall to
obtain any third party consent described in subsection (c)(i) above,
such party shall use all reasonable efforts, and shall take any such
actions reasonably requested by the other parties, to limit the
adverse effect upon the Company and Parent, their respective
subsidiaries, and their respective businesses resulting, or which
could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
(d) Subject to any restrictions imposed by applicable
law, each of Parent and the Company shall promptly notify the other of
(w) any material change in its business, financial condition or
results of operations, (x) any complaints, investigations or hearings
(or communications indicating that the same may be contemplated) of
any Governmental Entities with respect to its business or the
transactions contemplated hereby, (y) the institution or the threat of
material litigation involving it or any of its subsidiaries or (z) any
event or condition that might reasonably be expected to cause any of
its representations, warranties, covenants or agreements set forth
herein not to be true and correct at the Effective Time. As used in
the preceding sentence, "material litigation" means any case,
arbitration or adversary proceeding or other matter which would have
been required to be disclosed on the Company Disclosure Schedule
pursuant to Section 3.09 or the Parent Disclosure Schedule pursuant to
Section 4.09, as the case may be, if in existence on the date hereof.
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SECTION 6.04. Affiliates; Pooling; Tax Treatment.
(a) The Company shall use all reasonable efforts to
obtain from any person who may be deemed to have become an affiliate
of the Company after the date of this Agreement and on or prior to the
Effective Time, a written agreement substantially in the form of
Exhibit A hereto as soon as practicable after attaining such status.
(b) Parent shall not be required to maintain the
effectiveness of the Registration Statement for the purpose of resale
by stockholders of the Company who may be affiliates of the Company or
Parent pursuant to Rule 145 under the Securities Act.
(c) Each party hereto shall use all reasonable efforts to
cause the Merger to be treated for financial accounting purposes as a
Pooling Transaction, and shall not take, and shall use all reasonable
efforts to prevent any affiliate of such party from taking, any
actions which could prevent the Merger from being treated for
financial accounting purposes as a Pooling Transaction,
(d) Each party hereto shall use all reasonable efforts to
cause the Merger to qualify, and shall not take, and shall use all
reasonable efforts to prevent any affiliate of such party from taking,
any actions which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368(a) of the Code.
SECTION 6.05. Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to the Merger and shall not issue any such
press release or make any such public statement prior to such consultation.
The press release announcing the execution and delivery of this Agreement may
be a joint press release of Parent and the Company.
SECTION 6.06. NYSE Listing. Parent shall use all reasonable
efforts to cause the shares of Parent Common Stock to be issued in the Merger
to be approved for listing (subject to official notice of issuance) on the NYSE
prior to the Effective Time.
SECTION 6.07. Comfort Letters.
(a) The Company shall use all reasonable efforts to cause
Ernst & Young LLP to deliver a letter dated as of the date of the
Company Proxy Statement, and addressed to itself and Parent and their
respective Boards of Directors, in form and substance reasonably
satisfactory to Parent, and customary in scope and substance for
agreed-upon procedures letters delivered by independent public
accountants in connection with registration statements and proxy
statements similar to the Registration Statement and the Company Proxy
Statement.
(b) Parent shall use all reasonable efforts to cause
Price Waterhouse LLP to deliver a letter dated as of the date of the
Parent Proxy Statement, and addressed to itself and the Company and
their respective Boards of Directors, in form and substance
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reasonably satisfactory to the Company, and customary in scope and
substance for agreed-upon procedures letters delivered by independent
public accounts in connection with registration statements and proxy
statements similar to the Registration Statement and the Parent Proxy
Statement.
SECTION 6.08. Stock Option Plans.
(a) Option Plans. Parent and the Company shall take such
actions not inconsistent with the Merger being accounted for financial
accounting purposes as a Pooling Transaction, including (with respect
to the Company) the amendment of the Option Plans and Stock Options,
to permit Parent to assume, and Parent shall assume, effective at the
Effective Time, each Stock Option that remains unexercised in whole or
in part as of the Effective Time and substitute shares of Parent
Common Stock for the shares of the Company Common Stock purchasable
under each such assumed option ("Assumed Option"), which assumption
and substitution shall be effected as follows:
(i) the Assumed Option shall not give the
optionee additional benefits which such optionee did not have
under the Stock Option before such assumption and shall be
assumed on the same terms and conditions as the Stock Option
being assumed (including any terms and conditions arising as a
result of the transactions contemplated by this Agreement),
subject to Section 6.08(a)(ii) and (iii) below;
(ii) the number of shares of Parent Common Stock
purchasable under the Assumed Option shall be equal to the
number of shares of Parent Common Stock that the holder of the
Stock Option being assumed would have received (without regard
to any vesting schedule) upon consummation of the Merger had
such Stock Option been exercised in full immediately prior to
consummation of the Merger; and
(iii) the per share exercise price of such Assumed
Option shall be an amount equal to the per share exercise
price of the Stock Option being assumed divided by the
Exchange Ratio.
(b) Registration. Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of the Assumed Options,
and, as soon as practicable after the Effective Time, Parent shall
file a registration statement on Form S-8 (or other appropriate form)
with respect to the shares of Parent Common Stock subject to the
Assumed Options, and shall use its best efforts to maintain the
effectiveness of such registration statement for so long as any of the
Assumed Options remain outstanding.
SECTION 6.09. Merger Sub. Prior to the Effective Time, Merger Sub
shall not conduct any business or make any investments other than as
specifically contemplated by this Agreement and will not have any assets (other
than a de minimis amount of cash paid to Merger Sub for the issuance of its
stock to Parent) or liabilities.
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SECTION 6.10. Indemnification; Insurance. For a period of six
years after the Effective Time, Parent shall not amend or otherwise modify, or
cause the Company to amend or otherwise modify, Article NINTH of the charter of
the Company or Article VII of the bylaws of the Company (in each case as in
effect on the date hereof), or similar provisions of the charter or bylaws of
any subsidiaries of the Company, in a manner that would adversely affect the
rights thereunder of any individuals who at any time prior to the Effective
Time were directors or officers of the Company or any of its subsidiaries in
respect of acts or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such amendment or modification is required by law. For a
period of six years after the Effective Time, Parent shall cause the Surviving
Corporation to maintain officers' and directors' liability insurance for all
persons currently covered under the Company's officers' and directors'
liability insurance policies, in their capacities as officers and directors, on
terms no less favorable to the covered persons than such existing insurance;
provided, however, that Parent shall not be required in order to maintain or
procure such coverage to pay an annual premium in excess of 150% of the current
annual premium paid by the Company for its existing coverage (the "Cap"); and
provided, further, that if equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, Parent shall
only be required to obtain as much coverage as can be obtained by paying an
annual premium equal to the Cap. This Section 6.10 is intended to be for the
benefit of, and shall be enforceable by, the persons referred to above, their
heirs and personal representatives, and shall be binding on Parent and its
successors and assigns.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and
the other transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Closing Date of the following conditions, any or all of
which may be waived in writing by the parties hereto, in whole or in part, to
the extent permitted by applicable law:
(a) Effectiveness of the Registration Statement; Blue
Sky. The Registration Statement shall have been declared effective by
the SEC under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by
the SEC and no proceedings for that purpose shall have been initiated
by the SEC. Parent shall have received all Blue Sky permits and other
authorizations necessary to consummate the transactions contemplated
by this Agreement.
(b) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of the
stockholders of the Company, and the issuance of the Parent Common
Stock in the Merger shall have been approved by the requisite vote of
the stockholders of Parent.
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(c) No Order. No Governmental Entity or federal or state
court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of
the Merger; and no such Governmental Entity shall have initiated or
threatened to initiate any proceeding seeking any of the foregoing
that reasonably could be expected to prevent the Merger or otherwise
result in a Company Material Adverse Effect or a Parent Material
Adverse Effect.
(d) HSR Act. The applicable waiting period under the HSR
Act with respect to the transactions contemplated by this Agreement
shall have expired or been terminated.
(e) Pooling of Interests. Parent and the Company shall
have been advised in writing by each of Price Waterhouse LLP and Ernst
& Young LLP, respectively, on the Closing Date that the Merger should
be treated for financial accounting purposes as a Pooling Transaction.
SECTION 7.02. Additional Conditions to Obligations of the Parent
Companies. The obligations of the Parent Companies to effect the Merger and
the other transactions contemplated hereby are also subject to the satisfaction
at or prior to the Closing Date of the following conditions, any or all of
which may be waived in writing by Parent, in whole or in part:
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct as of the Closing Date as though
made on and as of the Closing Date (except to the extent such
representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall be true and
correct as of such earlier date) except as, individually or in the
aggregate, could not reasonably be expected to have a Company Material
Adverse Effect. The Parent Companies shall have received a
certificate of the President and the Chief Financial Officer of the
Company, dated the Closing Date, to such effect.
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by it on or prior to the Closing Date. The Parent Companies shall
have received a certificate of the President and the Chief Financial
Officer of the Company, dated the Closing Date, to that effect.
(c) Material Adverse Change. Since June 30, 1997, there
shall have been no change, occurrence or circumstance in the financial
condition, results of operations, business, operations or prospects of
the Company or any of its subsidiaries having or
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reasonably likely to have, individually or in the aggregate, a
material adverse effect on the financial condition, results of
operations, business, operations or prospects of the Company and its
subsidiaries, taken as a whole. The Parent Companies shall have
received a certificate of the President and the Chief Financial
Officer of the Company, dated the Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be
any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, by any
Governmental Entity in connection with the grant of a regulatory
approval necessary, in the reasonable business judgment of Parent, to
the continuing operation of the current or future business of the
Company, which imposes any condition or restriction upon the Parent
Companies or the business or operations of the Company which, in the
reasonable business judgment of Parent, would be materially burdensome
in the context of the transactions contemplated by this Agreement.
(e) Earnings Per Share. The earnings per share of the
Company for the quarter ending September 30, 1997 shall be no less
than as disclosed elsewhere by the Company to the Parent, as
determined in accordance with GAAP applied on a consistent basis with
the financial statements referred to in Section 3.07.
(f) Tax Opinion. Hughes & Luce, L.L.P. shall have
delivered to Parent its written opinion as of the date that the Parent
Proxy Statement is first mailed to Parent stockholders substantially
to the effect that (x) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, (y) Parent, Merger
Sub and the Company will each be a party to that reorganization within
the meaning of Section 368(b) of the Code, and (z) Parent, Merger Sub
and the Company will not recognize any gain or loss for U.S. federal
income tax purposes as a result of the Merger, and such opinion shall
not have been withdrawn or modified in any material respect.
(h) VCR Submission. The Company shall have filed a VCR
submission with the Internal Revenue Service in respect of each of the
401(k) Savings Plan for Employees of Computer Data Systems, Inc., the
Retirement Plan for Employees of Computer Data Systems, Inc. and the
Company's Supplemental Deferred Compensation Plan, as set forth in
Schedule 3.10 to the Company Disclosure Schedule.
SECTION 7.03. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the satisfaction at or prior to the
Closing Date of the following conditions, any or all of which may be waived in
writing by the Company, in whole or in part:
(a) Representations and Warranties. Each of the
representations and warranties of the Parent Companies contained in
this Agreement shall be true and correct as of the Closing Date as
though made on and as of the Closing Date (except to the extent such
representations and warranties specifically relate to an earlier date,
in which case
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such representations and warranties shall be true and correct as of
such earlier date) except as, individually or in the aggregate, could
not reasonably be expected to have a Parent Material Adverse Effect.
The Company shall have received a certificate of the President and the
Chief Financial Officer of the Parent, dated the Closing Date, to such
effect.
(b) Agreements and Covenants. The Parent Companies shall
have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Closing Date. The Company
shall have received a certificate of the President and the Chief
Financial Officer of the Parent, dated the Closing Date, to that
effect.
(c) Material Adverse Change. Since June 30, 1997, there
shall have been no change, occurrence or circumstance in the financial
condition, results of operations, business, operations or prospects of
Parent or any of its subsidiaries having or reasonably likely to have,
individually or in the aggregate, a material adverse effect on the
financial condition, results of operations, business, operations or
prospects of Parent and its subsidiaries, taken as a whole. The
Company shall have received a certificate of the President and the
Chief Financial Officer of each of the Parent Companies, dated the
Closing Date, to such effect.
(d) Absence of Regulatory Conditions. There shall not be
any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, by any
Governmental Entity in connection with the grant of a regulatory
approval necessary, in the reasonable business judgment of the
Company, to the continuing operation of the current or future business
of Parent, which imposes any condition or restriction upon Parent or
the business or operations of Parent which, in the reasonable business
judgment of the Company, would be materially burdensome in the context
of the transactions contemplated by this Agreement.
(e) New York Stock Exchange Listing. The shares of
Parent Common Stock to be issued in the Merger shall have been
approved for listing (subject to official notice of issuance) on the
NYSE.
(f) Tax Opinion. Miles & Stockbridge, a Professional
Corporation, shall have delivered to the Company its written opinion
as of the date that the Company Proxy Statement is first mailed to the
Company stockholders substantially to the effect that (x) the Merger
will constitute a reorganization within the meaning of Section 368(a)
of the Code, (y) Parent, Merger Sub and the Company will each be a
party to that reorganization within the meaning of Section 368(b) of
the Code, and (z) no gain or loss for U.S. federal income tax purposes
will be recognized by the holders of the Company Common Stock upon
receipt of shares of Parent Common Stock in the Merger, except with
respect to any cash received in lieu of a fractional share interest in
Parent Common Stock, and such opinion shall not have been withdrawn or
modified in any material respect.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of this
Agreement and the Merger by the stockholders of the Company:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth
in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set
forth in Section 7.02(a) or Section 7.02(b) of this Agreement, as the
ease may be, would be incapable of being satisfied by February 15,
1998; provided, that in any case, a willful breach shall be deemed to
cause such conditions to be incapable of being satisfied for purposes
of this Section 8.01(b);
(c) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Parent Companies
set forth in this Agreement, or if any representation or warranty of
the Parent Companies shall have become untrue, in either case such
that the conditions set forth in Section 7.03(a) or Section 7.03(b) of
this Agreement, as the case may be, would be incapable of being
satisfied by February 15, 1998; provided, that in any case, a willful
breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this Section 8.01(c);
(d) by either Parent or the Company, if there shall be
any Order which is final and nonappealable preventing the consummation
of the Merger, except if the party relying on such Order to terminate
this Agreement has not complied with its obligations under Section
6.03(b) of this Agreement;
(e) by either Parent or the Company, if the Merger shall
not have been consummated before February 15, 1998, except if the
party relying on this Section 8.01(e) shall have failed to comply with
its covenants and agreements hereunder and such failure to consummate
the Merger shall be a result of the breach or violation of such
covenants and agreements;
(f) by either Parent or the Company, if this Agreement
and the Merger shall fail to receive the requisite vote for approval
and adoption by the stockholders of the Company at the Company
Stockholders Meeting or if the issuance of the Parent Common Stock in
connection with the Merger shall fail to receive the requisite vote
for approval by the stockholders of Parent at the Parent Stockholders
Meeting;
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(g) by Parent, if (i) the Board of Directors of the
Company withdraws, modifies or changes its recommendation of this
Agreement or the Merger in a manner adverse to Parent or shall have
resolved to do any of the foregoing; (ii) the Board of Directors of
the Company shall have recommended to the stockholders of the Company
any Competing Transaction or shall have resolved to do so; (iii) a
tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of the Company is commenced, and the Board of
Directors of the Company recommends that stockholders tender their
shares into such tender or exchange offer; or (iv) any person (other
than Parent or an affiliate thereof) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is used in Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 20% or more of the then outstanding shares of capital
stock of the Company; or
(h) by the Company, if the Board of Directors of the
Company (x) fails to make or withdraws its recommendation referred to
in Section 6.02(a) if there exists at such time a Competing
Transaction, or (y) recommends to the Company's stockholders approval
or acceptance of a Competing Transaction, in each case only if the
Board of Directors of the Company, after consultation with and based
upon the advice of independent legal counsel, determines in good faith
that such action is necessary for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section
8.05 or Section 9.01 of this Agreement, in the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the Parent Companies or the Company
to the other and all rights and obligations of any party hereto shall cease,
except that nothing herein shall relieve any party of any liability for (i) any
breach of such party's covenants or agreements contained in this Agreement, or
(ii) any willful breach of such party's representations or warranties contained
in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after approval of the Merger by the stockholders of the Company, (i) no
amendment, which under applicable law may not be made without the approval of
the stockholders of the Company, may be made without such approval, and (ii) no
amendment, which under the applicable rules of the NYSE, may not be made
without the approval of the stockholders of Parent, may be made without such
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
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SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby. For purposes of
this Section 8.04, the Parent Companies as a group shall be deemed to be one
party.
SECTION 8.05. Fees, Expenses and Other Payments.
(a) Except as provided in Section 8.05(c) of this
Agreement, all Expenses (as defined in paragraph (b) of this Section
8.05) incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred such Expenses; provided,
however, that (i) the allocable share of the Parent Companies as a
group and the Company for all Expenses related to printing, filing and
mailing the Registration Statement, the Company Proxy Statement and
the Parent Proxy Statement and all SEC and other regulatory filing
fees incurred in connection with the Registration Statement, the
Company Proxy Statement and the Parent Proxy Statement shall be
one-half each (ii) any and all filing fees under the HSR Act shall be
borne one-half each by Parent and the Company and (iii) in the event
that the Company Stockholders Meeting is held and this Agreement and
the transactions contemplated hereby are not approved by the requisite
vote of the stockholders of the Company (and at the time of such
meeting, there shall not exist a Competing Transaction), then the
Company shall pay all of Parent's Expenses up to $1 million if, but
only if (x) the conditions set forth in Sections 7.01(a), (b), (c) and
(d) and Sections 7.03(a), (b), (c), (d), and (e) have been satisfied,
(y) with respect to Section 7.01(e), Price Waterhouse LLP advises
Parent that but for the failure of the Company's stockholders to
approve the Merger or other actions or inactions by the Company or an
affiliate of the Company or within the control of either, the Merger
would be treated for financial accounting purposes as a Pooling
Transaction, and (z) with respect to Section 7.03(f), but for the
failure of the Company's stockholders to approve the Merger or other
actions or inactions by the Company or an affiliate of the Company or
within the control of either, the Merger would constitute a
reorganization with the meaning of Section 368(a) of the Code.
(b) "Expenses" as used in this Agreement shall include
all out-of-pocket expenses (including, without limitation, all fees
and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party
or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement,
the preparation, printing, filing and mailing of the Registration
Statement, the Company Proxy Statement and the Parent Proxy Statement,
the solicitation of stockholder approvals and all other matters
related to the consummation of the transactions contemplated hereby.
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(c) The Company agrees that if this Agreement is
terminated pursuant to:
(i) Section 8.01(b) and (x) such termination is
the result of a willful breach of any representation,
warranty, covenant or agreement of the Company contained
herein and (y) the Company shall have entered into
negotiations relating to a Competing Transaction, in any such
case at any time within the period commencing on the date of
this Agreement through the date of termination of this
Agreement; or
(ii) Section 8.01(f) because this Agreement and
the Merger shall fail to receive the requisite vote for
approval and adoption by the stockholders of the Company at
the Company Stockholders Meeting and, at the time of such
meeting there shall exist a Competing Transaction, the
conditions to the Company's obligations to close set forth in
Article VIII of this Agreement have been otherwise satisfied
and, within nine months of the Company Stockholders Meeting,
the Company or its Board of Directors enters into an agreement
with the same party, or an affiliate of that party, as is
involved in the Competing Transaction, which agreement relates
to (x) any merger, consolidation, share exchange, business
consolidation or similar transaction, or (y) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of
20% or more of the assets of the Company and its subsidiaries,
taken as a whole (provided, however, that in addition to the
foregoing provisions of this Section 8.05(c)(ii), (x) the
conditions set forth in Sections 7.01(a), (b), (c) and (d) and
Sections 7.03(a), (b), (c), (d), and (e) have been satisfied,
(y) with respect to Section 7.01(e), Price Waterhouse LLP
advises Parent that but for the failure of the Company's
stockholders to approve the Merger or other actions or
inactions by the Company or an affiliate of the Company or
within the control of either, the Merger would be treated for
financial accounting purposes as a Pooling Transaction, and
(z) with respect to Section 7.03(f), but for the failure of
the Company's stockholders to approve the Merger or other
actions or inactions by the Company or an affiliate of the
Company or within the control of either, the Merger would
constitute a reorganization with the meaning of Section 368(a)
of the Code); or
(iii) Section 8.01(g)(i) and at the time of the
withdrawal, modification or change (or resolution to do so) of
its recommendation by the Board of Directors of the Company,
there exists a Competing Transaction; or
(iv) Sections 8.01(g)(ii) or (iii); or
(v) Section 8.01(h);
then the Company shall pay to Parent an amount equal to $15,000,000,
which amount is inclusive of all of Parent's Expenses.
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(d) Any payment required to be made pursuant to Section
8.05(c) of this Agreement shall be made as promptly as practicable but
not later than three business days after termination of this
Agreement, and shall be made by wire transfer of immediately available
funds to an account designated by Parent.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements.
(a) Except as set forth in Section 9.01(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any person controlling any such party or any of their
officers, directors, representatives or agents, whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Article VIII, except that
the agreements set forth in Articles I and II and IX and Sections 6.08
and 6.10 shall survive the Effective Time and those set forth in
Sections 5.04(d), 8.02 and 8.05 and Article IX hereof shall survive
termination. Nothing herein shall be construed to cause the
Confidentiality Agreement to terminate upon the termination of this
Agreement pursuant to Article VIII.
SECTION 9.02. Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) or mailed by an
overnight delivery service to the parties at the following addresses (or at
such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(a) If to any of the Parent Companies, to:
Affiliated Computer Services, Inc.
2828 North Haskell
Dallas, Texas 75204
Attention: David Black, Esq.
Facsimile No.: (214)823-5746
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with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: David G. Luther, Jr.
Facsimile No.: (214) 939-6100
(b) If to the Company, to:
Computer Data Systems, Inc.
One Curie Court
Rockville, Maryland 20850-4389
Attention: Peter A. Bracken
Facsimile No: (301)921-7140
with a copy to:
Miles & Stockbridge, a Professional Corporation
10 Light Street
Baltimore, Maryland 21202-1487
Attention: Glenn C. Campbell
Facsimile No.: (410) 385-3700
SECTION 9.03. Certain Definitions. For the purposes of this
Agreement, the term:
(a) "affiliate" means a person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
person;
(b) a person shall be deemed a "beneficial owner" of or
to have "beneficial ownership" of the Company Common Stock or Parent
Common Stock, as the case may be, in accordance with the
interpretation of the term "beneficial ownership" as defined in Rule
13d-3 under the Exchange Act, as in effect on the date hereof;
provided that a person shall be deemed to be the beneficial owner of,
and to have beneficial ownership of, the Company Common Stock or
Parent Common Stock, as the case may be, that such person or any
affiliate of such person has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise.
(c) "business day" means any day other than a day on
which banks in the State of New York are authorized or obligated to be
closed;
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(d) "control" (including the terms "controlled,"
"controlled by," and "under common control with") means the
possession, directly or indirectly, or as trustee or executor, of the
power to direct or cause the direction of the management or policies
of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "ERISA Affiliate" means the Company and each
corporation, partnership, or other trade or business, whether or not
incorporated, which is or has been treated as a single employer or
controlled group member with the Company pursuant to Code Section 414
or ERISA Section 4001.
(f) "knowledge" or "known" means with respect to any
matter in question, if an executive officer of the Company or Parent,
as the case may be, has actual knowledge of such matter;
(g) "federal government contract" is to be given its
customary use within the industry. It is further defined to include
any contractual arrangement (implied or express) with any agency,
department, or branch of the United States Government that is subject
to the laws and regulations of the United States of America,
regardless of whether the Company is in privity of contract with the
United States or is operating through a subcontract, partnership,
teaming arrangement, affiliate, or other indirect arrangement.
(g) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization, other
entity or group (as used in Section l3(d) of the Exchange Act);
(h) "subsidiary" or "subsidiaries" of the Company,
Parent, the Surviving Corporation or any other person, means any
corporation, partnership, joint venture or other legal entity of which
the Company, Parent, the Surviving Corporation or any such other
person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, more than 50% of
the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity; and
(i) "Tax" or "Taxes" means any and all taxes, charges,
fees, levies, assessments, duties or other amounts payable to any
federal, state, local or foreign taxing authority or agency,
including, without limitation, (x) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social
security, workers compensation, unemployment compensation, utility,
severance, excise, stamp, windfall profits, transfer and gains taxes,
(y) customs, duties, imposts, charges, levies or other similar
assessments of any kind, and (z) interest, penalties and additions to
tax imposed with respect thereto.
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SECTION 9.04. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the
Exhibits, the Company Disclosure Schedule, the Parent Disclosure Schedule), the
Confidentiality Agreement and any side letter entered into pursuant to this
Agreement constitute the entire agreement of the parties, and supersede all
prior agreements and undertakings, both written and oral, among the parties or
between any of them, with respect to the subject matter hereof. The Company
agrees that nothing contained in this Agreement, the proxies granted by certain
officers and directors of the Company to Parent on or about the date hereof or
the transactions contemplated hereby or thereby shall be deemed to violate the
Confidentiality Agreement and that such agreements and proxies have been
entered into or granted with the prior written consent of the Company.
SECTION 9.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.08. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (other than as contemplated by Section 6.08 and
Section 6.11), is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.09. Specific Performance. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
SECTION 9.10. Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation,
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warranty or agreement herein, nor shall any single or partial exercise of any
such right preclude other or further exercise thereof or of any other right.
All rights and remedies existing under this Agreement are cumulative to, and
not exclusive to, and not exclusive of, any rights or remedies otherwise
available.
SECTION 9.11. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law. Notwithstanding the foregoing, the effect of the Merger
shall be governed by, and construed in accordance with, Maryland Law.
SECTION 9.12. Counterparts. This Agreement may be executed in
multiple counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 9.13. Disclosure. Certain information set forth in the
Company Disclosure Schedule has been included and disclosed solely for
informational purposes and may not be required to be disclosed pursuant to the
terms and conditions of this Agreement. The disclosure of any such information
shall not be deemed to constitute an acknowledgment or agreement that the
information is required to be disclosed in connection with the representations
and warranties made in this Agreement or that the information is material, nor
shall any information so included and disclosed be deemed to establish a
standard of materiality or otherwise used to determine whether any other
information is material.
SECTION 9.14. Voting. The directors and executive officers of each
of Parent and the Company, solely in their capacity as stockholders, have
entered into side letters agreeing (a) to not sell their shares of capital
stock of Parent and the Company, respectively, prior to the earliest to occur
of (i) the closing of the Merger or (ii) the termination of the Agreement
pursuant to its terms and (b) to vote their shares of capital stock in Parent
and the Company, respectively, in favor of the Merger and the transactions
contemplated by this Agreement at the Parent Stockholders Meeting and the
Company Stockholders Meeting, respectively.
****
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AFFILIATED COMPUTER SERVICES, INC.,
a Delaware corporation
By: /s/ DARWIN DEASON
--------------------------------------
Darwin Deason
Chief Executive Officer
ACS ACQUISITION CORP.,
a Maryland corporation
By: /s/ JEFFREY A. RICH
--------------------------------------
Jeffrey A. Rich
President
COMPUTER DATA SYSTEMS, INC.,
a Maryland corporation
By: /s/ PETER A. BRACKEN
--------------------------------------
Peter A. Bracken
President
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SCHEDULES
COMPUTER DATA SYSTEMS, INC.
Schedule 3.01 - Organization and Qualification; Subsidiaries
Schedule 3.03 - Capitalization
Schedule 3.05 - No Conflict; Required Filings and Consent
Schedule 3.06 - Permits; Compliance
Schedule 3.08 - Absence of Certain Changes or Events
Schedule 3.09 - Litigation
Schedule 3.10 - Employee Benefit Plans; Labor Matters
Schedule 3.11 - Taxes
Schedule 3.13 - Affiliates
Schedule 3.15 - Environmental Matters
Schedule 3.17 - Brokers
Schedule 3.18 - Insurance
Schedule 3.19 - Properties
Schedule 3.20 - Certain Material Contracts
Schedule 3.21 - Principal Customers; Competing Interests
Schedule 3.22 - Intellectual Property Rights
Schedule 3.26 - Federal Government Contracts
Schedule 5.02 - Negative Covenants of Company
AFFILIATED COMPUTER SERVICES, INC.
Schedule 4.02 - Charter and Bylaws
Schedule 4.03 - Capitalization
Schedule 4.05 - No Conflict; Required Filings and Consent
Schedule 4.06 - Permits; Compliance
Schedule 4.08 - Absence of Certain Changes or Events
Schedule 4.09 - Litigation
Schedule 4.12 - Brokers
Schedule 4.16 - Conditions Related to Employee Benefit Plans; Labor Matters
Schedule 4.18 - Environmental Matters
Schedule 4.19 - Insurance
Schedule 4.20 - Intellectual Property Rights
Schedule 5.03 - Affirmative and Negative Covenants of Parent
Affiliated Computer Services, Inc. and Computer Data Systems, Inc.
agree to furnish supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request.
<PAGE> 1
EXHIBIT 10.14
FIRST AMENDMENT TO RESTATED CREDIT AGREEMENT
(AND WAIVER)
THIS AMENDMENT is entered into as of July 29, 1997, to be effective as
of July 30, 1997, between AFFILIATED COMPUTER SERVICES, INC., a Delaware
corporation ("BORROWER"), certain Lenders, WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as Agent for Lenders ("AGENT"), and BANK ONE, TEXAS, N.A., as
Co-Agent for Lenders.
Borrower, Agent, Co-Agent, and certain Lenders are party to the
Restated Credit Agreement (as renewed, extended, and amended, the "CREDIT
AGREEMENT") dated as of June 20, 1996, providing for a $160,000,000 revolving
credit facility. Borrower, Agent, and Lenders have agreed, upon the following
terms and conditions, to amend the Credit Agreement to provide for (a) an
increase in the maximum amount available under the facility, (b) modification
to the maturity and pricing of the facility, (c) deletion of certain financial
covenants, (d) an increase to the amount of expenditures allowed to be made in
connection with certain acquisitions, and (e) certain other amendments and
modifications as more particularly set forth herein.
Accordingly, for adequate and sufficient consideration, Borrower,
Agent, and Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
amendment (a) terms defined in the Credit Agreement have the same meanings when
used in this amendment and (b) references to "Sections," "Schedules," and
"Exhibits" are to the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is
amended as follows:
(A) SECTION 1.1 is amended by deleting the
definitions of "COMMITMENT REDUCTION AMOUNT," "COMMITMENT REDUCTION
DATE," "FINAL MATURITY DATE," and "TERM LOAN."
(B) SECTION 1.1 is further amended by entirely
amending the definition of "APPLICABLE MARGIN," as follows:
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:
<TABLE>
<CAPTION>
Funded Debt/EBITDA Ratio Applicable Margin for
LIBOR Borrowings
<S> <C>
Greater than or equal to 2.50 to 1.00 0.875%
Less than 2.50 to 1.00, but greater than or equal to 2.00 0.625%
to 1.00
Less than 2.00 to 1.00, but greater than or equal to 1.50 0.500%
Less than 1.50 to 1.00, but greater than or equal to 1.00 0.375%
to 1.00
Less than 1.00 to 1.00 0.300%
</TABLE>
<PAGE> 2
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, 1997,
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. 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.
(C) SECTION 1.1 is further amended by entirely amending
the table at the end of the definition of "APPLICABLE PERCENTAGE," as
follows:
<TABLE>
<CAPTION>
================================================================================
Funded Debt/EBITDA Ratio Applicable Percentage
================================================================================
<S> <C>
Greater than or equal to 2.50 to 1.00 0.250%
- --------------------------------------------------------------------------------
Less than 2.50 to 1.00, but greater than or equal to 2.00 0.200%
- --------------------------------------------------------------------------------
Less than 2.00 to 1.00, but greater than or equal to 1.50 0.150%
- --------------------------------------------------------------------------------
Less than 1.50 to 1.00 0.125%
================================================================================
</TABLE>
(D) SECTION 1.1 is further amended by entirely amending
the following definitions:
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
SECTION 2.6.
DIVESTITURE SUBSIDIARY means, at any time, any
Subsidiary that (a) has assets representing less than 5% of
the Companies' consolidated total assets (measured as of the
date of consummation of any issuance, sale, or disposition of
such Subsidiary's securities described in SECTION 9.9(B)), and
(b) contributed less than 5% to the Companies' consolidated
EBITDA for the most recent reporting period of Borrower.
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) obligations of Borrower under letter of credit
number NZS241764 issued by Wells Fargo Bank (Texas), National
Association for the benefit of The Aetna Casualty and Surety
Company.
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
<PAGE> 3
$10,000,000 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 July 30, 2002.
SUBJECT SECURITIES ISSUANCE means any issuance by
Borrower of its debt or equity securities.
TOTAL COMMITMENT means, at any time, the maximum
Commitment Usage allowed under the Revolving Facility, which
amount shall initially be $200,000,000, as such amount may be
reduced from time to time pursuant to SECTION 2.6.
WHOLLY-OWNED SUBSIDIARY means any Company, other than
Borrower or any Company listed on SCHEDULE 7.7, with respect
to which 100% of the issued and outstanding shares of capital
stock or similar voting interests (excluding shares of capital
stock held under employee stock option plans) of such Company
is owned by another Company.
(E) SECTION 3.2(A) is amended by deleting the phrase, "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))", from the end of that Section and
inserting the phrase, "and on the Termination Date", in its place.
(F) SECTION 3.2(B) is entirely amended, as follows:
(b) Principal. The Principal Debt is due and
payable on the Termination Date. Before the occurrence of the
Termination Date, Borrower may prepay, without penalty and in
whole or in part, the Principal Debt, 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.
(G) SECTIONS 3.2(C) and 3.2(D) are deleted in their
entirety.
(H) SECTION 3.3 is entirely amended, as follows:
3.3 Interest Options. Borrowings under the
Revolving Facility (excluding Swing-Line Borrowings) 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. 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.
(I) SECTION 4.4(B) is amended by deleting the surrounding
brackets from such section.
(J) CLAUSES (F) and (G) in the first sentence of SECTION
7.3 are entirely amended, as follows:
3
<PAGE> 4
(f) the percentage of shares of outstanding capital
stock (or similar voting interests) of each Subsidiary held by
Company, and (g) the Company holding such stock (or similar
voting interests).
(K) CLAUSE (c) in the second sentence of SECTION 7.3 is
entirely amended, as follows:
(c) not subject to (i) with respect to each
Subsidiary (other than The LAN Company) existing as of July
30, 1997, any warrants, options, or other acquisition Rights
of any Person that could result in the holders of such
warrants, options, or other acquisition Rights owning, in the
aggregate, at least 5% of the outstanding shares of capital
stock of the applicable Subsidiary, (ii) with respect to The
LAN Company and any Subsidiary formed or acquired after July
30, 1997, any warrants, options, or other acquisition Rights
of any Person that could result in the holders of such
warrants, options, or other acquisition Rights owning, in the
aggregate, at least 10% of the outstanding shares of capital
stock or (iii) any transfer restriction except restrictions
imposed by securities Laws and general corporate Laws.
(L) SECTIONS 7.17 (b), (c), and (d) are entirely amended,
as follows:
(b) hours worked by and payment made to the employees
of any Company or any predecessor of such Company have not
been in material violation of the Fair Labor Standards Act or
any other applicable Laws pertaining to labor matters, (c) all
material 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 materially in compliance with
OSHA and other applicable health and safety Laws.
(M) SECTION 7.18 is amended by inserting the phrase, "To
the best of Borrower's knowledge, after exercise of due diligence"
immediately preceding CLAUSE (a) of such Section.
(N) SECTION 8.2 is entirely amended, as follows:
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, provided
that notwithstanding anything herein to the contrary, Borrower
may also use the proceeds of the Revolving Facility (including
the Swing-Line Subfacility but excluding the LC Subfacility)
for the purpose of performing its payment obligations in
connection with ITEM 8 on SCHEDULE 9.2.
(O) SECTION 8.12(a) is entirely amended, as follows:
(a) not relocate its chief executive office or place
where its books and records are kept (except for the
relocation of its books and records to Borrower's chief
executive offices) 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),
4
<PAGE> 5
(P) The table at the end of SECTION 9.3 is entirely
amended, as follows:
<TABLE>
<CAPTION>
========================================================
FISCAL YEAR END MAXIMUM AMOUNT
<S> <C>
========================================================
6/30/97 $65,000,000
--------------------------------------------------------
6/30/98 $75,000,000
--------------------------------------------------------
6/30/99 $75,000,000
--------------------------------------------------------
6/30/00 and thereafter $100,000,000
========================================================
</TABLE>
(Q) SECTIONS 9.4, 10.2, and 10.5 are each deleted and
replaced with the bracketed phrase, "[INTENTIONALLY BLANK]."
(R) The first sentence of SECTION 9.7 is entirely
amended, as follows:
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 (a) 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, (b)
transfers of assets to Borrower by any Subsidiary, and (c)
transfers of assets by Borrower or any other Subsidiary to any
Subsidiary party to a Guaranty.
(S) SECTION 9.9 is entirely amended, as follows:
9.9 Issuance of Securities.
(a) Borrower may not permit any
Subsidiary to, directly or indirectly, issue, sell,
or otherwise dispose of any carrying Rights,
warrants, options or other Rights to subscribe for or
purchase any such shares, other than (i) 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, (ii) with respect to each
Subsidiary (other than The LAN Company) existing as
of July 30, 1997, any warrants, options, or other
acquisition Rights of any Person that could not
result in the holders of such warrants, options, or
other acquisition Rights owning, in the aggregate, at
least 5% of the outstanding shares of capital stock
of the applicable Subsidiary, and (iii) with respect
to The LAN Company and any Subsidiary formed or
acquired after July 30, 1997, any warrants, options,
or other acquisition Rights of any Person that could
not result in the holders of such warrants, options,
or other acquisition Rights owning, in the aggregate,
at least 10% of the outstanding shares of capital
stock.
(b) Borrower may not permit any
Subsidiary to, directly or indirectly, issue, sell,
or otherwise dispose of any of its shares of capital
stock or other investment securities of any class, or
any securities convertible into or exchangeable for
any such shares, unless (i) such Subsidiary is party
to a Guaranty, and, after giving effect to such
issuance, sale, or disposition, such Subsidiary will
continue to be a Subsidiary of Borrower, or (ii) such
Subsidiary
5
<PAGE> 6
is a Divestiture Subsidiary and the aggregate amount
of assets owned by all Divestiture Subsidiaries
consummating a transaction permitted under this
SECTION 9.9(B)(II) as of the date of such issuance,
sale, or disposition does not exceed 5% of the
Companies' consolidated assets.
(T) SECTION 9.11 is entirely amended, as follows:
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, (c)
transfers of assets permitted under SECTION 9.7, and (d) other
dispositions of assets which do not in the aggregate exceed
$10,000,000 during any fiscal year of Borrower.
(U) The first sentence of SECTION 9.14 is entirely
amended, as follows:
No Company may change its fiscal year more than once
during the term of this agreement (except that a Subsidiary
may change its fiscal year at any time to match Borrower's
fiscal year), and then only after giving written notice of its
intent to make such change to Agent.
(V) SECTION 11.2 is entirely amended, as follows:
11.2 Covenants. Any Company's failure or
refusal to punctually and properly perform, observe, and
comply with any covenant (other than covenants to pay the
Obligation) applicable to it:
(a) In SECTIONS 8.1 through 8.4, 8.6 through
8.13, 9.1, 9.3(b), 9.4, 9.7, 9.9 through 9.14, and 9.16
through 9.19; or
(b) In SECTIONS 10.1, 10.3, or 10.4, and that
failure or refusal continues for twenty Business Days after
any Company has knowledge thereof (or for a period of twenty
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); or
(c) In SECTIONS 8.5, 8.14, 9.3(a), 9.5, 9.6, 9.8,
9.15, or, if such Debt has been assumed in connection with an
acquisition, SECTION 9.2, and that failure or refusal
continues for thirty days after any Company has knowledge
thereof (or for a period of thirty 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); or
(d) The failure or refusal of Borrower (and, if
applicable, any other Company) to punctually and properly
perform, observe, and comply with any other covenant,
agreement, or condition contained in any of the Loan Documents
to which such Company is a party, other than covenants listed
in CLAUSES (a) - (c) preceding, and such failure or refusal
continues for a period of ten days after any Company has
knowledge thereof (or
<PAGE> 7
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).
(W) The first sentence of SECTION 11.5 is entirely
amended, as follows:
Any Company fails to pay any judgment or order for
the payment of money in excess of $10,000,000 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.
(X) SECTION 11.8 is entirely amended, as follows:
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 (or similar
voting interests) of the Wholly-Owned Subsidiaries, other
than Divestiture Subsidiaries.
(b) For Borrower's Subsidiaries that are not
Wholly-Owned Subsidiaries, (i) with respect to Subsidiaries
that are not Divestiture Subsidiaries, 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 (or similar voting interests) of such Subsidiaries
sufficient to constitute control of such Subsidiary, or (ii)
such Subsidiaries incur Debt to any Person other than
Permitted Debt.
(Y) SECTION 11.10 is entirely amended, as follows:
11.10 Other Funded Debt. In respect of any Debt
(other than the Obligation) individually or collectively of at
least $3,000,000 (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 (and
solely with respect to the Debt set forth in ITEM 8 of
SCHEDULE 9.2, such default or other event or condition
continues for twenty Business Days beyond such 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 (and
solely with respect to the Debt set forth in ITEM 8 of
SCHEDULE 9.2, such prepayment is not made by Borrower within
twenty Business Days after such guaranty is called).
Notwithstanding the foregoing sentence, it shall not be a
Default if (y) either (i) the validity or amount of such
accelerated Debt is being contested in good faith by lawful
proceedings diligently conducted, or (ii) a nonappealable
judgment has been entered against any Company with respect to
such Debt, and such judgment is satisfied within ninety days
after it is entered, and (z) a reserve or other provision
required by GAAP has been made.
(Z) SECTION 11.14(b) is entirely amended, as follows:
7
<PAGE> 8
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 $10,000,000.
Notwithstanding the foregoing sentence, it shall not be a
default if (y) either (i) the validity or amount of such
accelerated payment is being contested in good faith by lawful
proceedings diligently conducted, or (ii) a nonappealable
judgment has been entered against any Company with respect to
such Debt, and such judgment is satisfied within ninety days
after it is entered, and (z) a reserve or other provision
required by GAAP has been made.
(AA) CLAUSES (vi) and (vii) of SECTION 14.8(b) are deleted
and replaced by the following:
or (vi) changes this CLAUSE (b) or any other matter
specifically requiring the consent of all Lenders under this
agreement.
(BB) SCHEDULE 3.2 is deleted, and SCHEDULES 1, 7.3,
7.3(1), 7.7, 7.8, 7.14, 9.2, and 12.1(c) are entirely amended in the
form of, and all references to SCHEDULES 1, 7.3, 7.3(1), 7.7, 7.8,
7.14, 9.2, and 12.1(c) are changed to, the attached AMENDED SCHEDULES
1, 7.3, 7.3(1), 7.7, 7.8, 7.14, 9.2, and 12.1(c), respectively.
(CC) EXHIBITS A-1, C-1, and C-4 and are entirely amended
in the form of, and all references to EXHIBITS A-1, C-1, and C-4 are
changed to, the attached AMENDED EXHIBITS A-1, C-1, and C-4,
respectively.
3. WAIVER. Upon Borrower's previous request, Lenders waive any
Potential Default or Event of Default that may exist solely as a result of the
existence of Liens on certain assets of Intelligent Solutions, Inc. that are
not Permitted Liens, in violation of SECTION 9.5 of the Credit Agreement. This
waiver shall remain effective from the effective date of this amendment through
and including (but not after) August 30, 1997. Except as expressly stated,
this paragraph is not a waiver of existing or future Potential Defaults or
Events of Default or a waiver of Lenders' rights to insist upon compliance by
all other relevant parties with each Loan Document.
4. CONDITIONS PRECEDENT. PARAGRAPHS 2 and 3 above are not
effective until the later to occur of (a) July 30, 1997, or (b) the date Agent
receives (i) counterparts of this amendment executed by Borrower, Agent,
Co-Agent, and Lenders, and (ii) each document and other item listed on the
attached ANNEX A, each of which must be in form and substance acceptable to
Agent and its counsel.
5. RATIFICATIONS. Borrower (a) ratifies and confirms all
provisions of the Loan Documents as amended by this amendment, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed, or
assigned to Agent under the Loan Documents are not released, reduced, or
otherwise adversely affected by this amendment and continue to guarantee,
assure, and secure full payment and performance of the present and future
Obligation, and (c) agrees to perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record such additional documents and
certificates as Agent may request in order to create, perfect, preserve, and
protect those guaranties, assurances, and Liens.
6. REPRESENTATIONS. Borrower represents and warrants to Agent
and Lenders that as of the date of this amendment (a) all representations and
warranties in the Loan Documents are true and correct in all material respects
except to the extent that (i) any of them speak to a different specific date or
(ii) the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Credit Agreement, and (b) no
Material Adverse Event, Default or Potential Default exists.
8
<PAGE> 9
7. MISCELLANEOUS. All references in the Loan Documents to the
"Credit Agreement" refer to the Credit Agreement as amended by this amendment.
This amendment is a "Loan Document" referred to in the Credit Agreement, and
the provisions relating to Loan Documents in SECTIONS 1 and 14 of the Credit
Agreement are incorporated in this amendment by reference. Unless stated
otherwise (a) the singular number includes the plural and vice versa and words
of any gender include each other gender, in each case, as appropriate, (b)
headings and captions may not be construed in interpreting provisions, (c) this
amendment must be construed, and its performance enforced, under Texas law, (d)
if any part of this amendment is for any reason found to be unenforceable, all
other portions of it nevertheless remain enforceable, and (e) this amendment
may be executed in any number of counterparts with the same effect as if all
signatories had signed the same document, and all of those counterparts must be
construed together to constitute the same document.
8. ENTIRETIES. THE CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF
THE CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT 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.
9. PARTIES. This amendment binds and inures to Borrower, Agent,
Lenders, and their respective successors and assigns.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
9
<PAGE> 10
EXECUTED as of the date first stated above.
AFFILIATED COMPUTER SERVICES, INC., WELLS FARGO BANK (TEXAS), NATIONAL
as Borrower ASSOCIATION,
as Agent and a Lender
By By
--------------------------------- ---------------------------------------
Nancy Vineyard, Treasurer Kyle G. Hranicky, Assistant
Vice President
BANK ONE, TEXAS, N.A.,
as Co-Agent and a Lender
By
---------------------------------------
Alan L. Miller, Vice President
First Amendment Signature Page
One of Four Pages
<PAGE> 11
EXECUTED as of the date first stated above.
THE FIRST NATIONAL BANK OF BANK OF TOKYO - MITSUIBISHI, LTD.,
CHICAGO, as a Lender as a Lender
By By
----------------------------------- ----------------------------------
Cory Olson Name:
Vice President ---------------------------
Title:
--------------------------
SUNTRUST BANK, ATLANTA, as a Lender THE SANWA BANK LIMITED., as a Lender
By By
------------------------------------ -----------------------------------
Trisha Hardy Eric Reimer
Banking Officer Assistant Vice President
By TEXAS COMMERCE BANK NATIONAL
------------------------------------ ASSOCIATION, as a Lender
John Fields
Vice President
By
-----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH, Allison W. O'Neal, Vice President
as a Lender
By
------------------------------------
Ronald N. Finn, First Vice President
and Co-General Counsel
First Amendment Signature Page
Two of Four Pages
<PAGE> 12
GUARANTOR CONSENT
To induce Agent, Co-Agent and Lenders to enter into this amendment, the
undersigned consent and agree (a) to its execution and delivery, (b) that this
amendment in no way releases, diminishes, impairs, reduces, or otherwise
adversely affects any guaranties, assurances, or other obligations or
undertakings of any of the undersigned under any Loan Documents, and (c) waive
notice of acceptance of this consent and agreement, which consent and agreement
binds the undersigned and its successors and permitted assigns and inures to
Agent, Co-Agent, and Lenders and their respective successors and permitted
assigns.
EXECUTED as of the date first stated above.
THE GENIX GROUP, INC., as a Guarantor GENIX CSI, INC., as a Guarantor
By By
----------------------------------- ------------------------------------
Name Name:
----------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
GENIX CORPORATION, as a Guarantor ACS HEALTHCARE SERVICES, INC.,
as a Guarantor
By By
----------------------------------- ------------------------------------
Name Nancy Vineyard, Treasurer
-----------------------------
Title:
---------------------------
ACS EASTERN SERVICES, INC., ACS NATIONAL SYSTEMS, INC.,
as a Guarantor as a Guarantor
By By
----------------------------------- ------------------------------------
Nancy Vineyard, Treasurer Nancy Vineyard, Treasurer
SHARED AFFILIATED SERVICES, INC., 2828 NORTH HASKELL, INC., as a Guarantor
as a Guarantor
By By
----------------------------------- ------------------------------------
Name Name:
----------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
First Amendment Signature Page
Three of Four Pages
<PAGE> 13
DATAPLEX CORPORATION, THE MONTEREY GROUP, INC., as a Guarantor
as a Guarantor
By By
---------------------------------- --------------------------------------
Nancy Vineyard, Treasurer Nancy Vineyard, Treasurer
HEALTHTECH ACQUISITION CORPORATION, TECHNICAL DIRECTIONS, INC., as a
as a Guarantor Guarantor
By By
---------------------------------- --------------------------------------
Nancy Vineyard, Treasurer Name
--------------------------------
Title
-------------------------------
INTELLIFILE, INC., as a Guarantor UNIBASE TECHNOLOGIES, INC., as a
Guarantor
By By
---------------------------------- --------------------------------------
Nancy Vineyard, Treasurer Name
--------------------------------
Title
-------------------------------
THE LAN COMPANY, INC., as a Guarantor
By
----------------------------------
Name
-----------------------------
Title
----------------------------
First Amendment Signature Page
Four of Four Pages
<PAGE> 1
EXHIBIT 10.15
SEVERANCE AGREEMENT
THIS AGREEMENT made and effective this 6th day of August, 1997 by
and between AFFILIATED COMPUTER SERVICES, INC. (the "Company") and
________________________ (the "Executive").
The Company has determined that both the Executive's performance
and the Company's ability to retain the Executive as an employee will be
significantly enhanced if the Executive is provided with fair and reasonable
protection from a Change of Control of the Company. Accordingly, the Company
and the Executive agree as follows:
1. Defined Terms. Unless otherwise indicated, capitalized
terms used in this Agreement shall have the meanings set forth herein or in
Schedule A.
2. Effective Date; Term. This Agreement shall be effective on
the date hereof and shall remain in effect until the Company terminates this
Agreement by giving the Executive at least one (1) year advance written notice
of termination. Notwithstanding the foregoing, this Agreement shall, if in
effect on the date of a Change of Control, remain in effect for at least three
(3) years following such Change of Control, and such additional time as may be
necessary to give effect to the terms of the Agreement.
3. Change of Control Benefits. Upon a Change of Control, the
Executive shall be entitled to the benefits provided herein.
(a) Severance Payments. Within two (2) business days after a
Change of Control, the Company shall pay the Executive a lump sum amount, in
cash, equal to:
(i) three (3) times the sum of:
(A) the Executive's per annum base salary in effect on
the date of the Change of Control ("Base Salary"),
and
(B) the Executive's bonus for the immediately preceding
fiscal year; and
(ii) the Executive's target bonus for the current fiscal year
multiplied by a fraction, the numerator of which shall be
the number of days the Executive was employed by the Company
in the fiscal year in which the Change of Control occurs and
the denominator of which shall be 365.
(b) Continued Benefits. Until the earlier of the third
anniversary of the termination of the Executive's employment with the Company
after a Change of Control or the date on which the Executive becomes employed
by a new employer, the Company shall, at its expense, provide the Executive
with medical, dental, life insurance, disability and accidental death and
dismemberment benefits ("Insurance Benefits") at the highest level provided to
the
1
<PAGE> 2
Executive immediately prior to the Change of Control, provided, however, that
if the Executive becomes employed by a new employer which maintains Insurance
Benefits that either (i) do not cover the Executive with respect to a
pre-existing condition which was covered under the Company's Insurance
Benefits, or (ii) do not cover the Executive for a designated waiting period,
the Executive's coverage under the Company's Insurance Benefits shall continue,
without limitation, until the earlier of the end of the applicable period of
noncoverage under the new employer's Insurance Benefits or the third
anniversary of the Change of Control.
(c) Payment of Accrued But Unpaid Amounts. Within two (2)
business days after a Change of Control, the Company shall pay the Executive
(i) any unpaid portion of compensation previously earned by the Executive; and
(ii) all compensation previously deferred by the Executive but not yet paid.
(d) Post-Retirement Welfare Benefits. For purposes of
determining the Executive's eligibility for post-retirement benefits under any
welfare benefit plan (as defined in Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended) maintained by the Company immediately
prior to the Change of Control and in which the Executive then participated,
the Executive shall be credited with the excess of three (3) years of
participation in the applicable plan and three (3) years of age over the actual
years of participation and age credited to the Executive on the date of the
Change of Control. If, after taking into account the credited participation
and age, the Executive would have been eligible for post-retirement benefits,
the Executive shall receive, commencing on the date of the Change of Control,
post-retirement benefits based on the terms and conditions of the applicable
plans in effect immediately prior to the Change of Control.
(e) Effect on Existing Plans. All Change of Control provisions
applicable to the Executive and contained in any plan, program, agreement or
arrangement maintained on or after the date hereof by the Company (including,
but not limited to, any stock option, restricted stock or pension plan) shall
remain in effect for such period after the date of a Change of Control as is
necessary to carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which adversely affects the
Executive without the Executive's prior written approval.
(f) Outplacement Counseling. The Company shall reimburse all
reasonable expenses incurred by the Executive for professional outplacement
services by qualified consultants selected by the Executive.
4. Mitigation. The Executive shall not be required to seek
other employment after a Change of Control and any compensation earned from
other employment shall not reduce the amounts otherwise payable under this
Agreement.
5. Gross-up.
(a) In the event it shall be determined that any payment,
benefit or distribution (or combination thereof) by the Company, or any trust
established by the Company for the
2
<PAGE> 3
benefit of its employees, to or for the benefit of the Executive (whether
payable pursuant to the terms of this Agreement (a "Payment")) would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code and any
interest or penalties are incurred by the Executive with respect to such excise
tax (the excise tax, together with interest and penalties thereon, hereinafter
collectively referred to as the "Excise Tax"), the Executive shall be entitled
to receive an additional payment (a "Gross-up Payment") in an amount such that
after payment by the Executive of all taxes, including, without limitation, any
income taxes and the Excise Tax imposed upon the Gross-up Payment, the
Executive retains an amount of the Gross-up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 5(c), all
determinations required to be made under this Section 5, including whether and
when a Gross-up Payment is required and the amount of such Gross-up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by a nationally recognized certified public accounting firm as may be
designated by the Executive (the "Accounting Firm"). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-up
Payment, as determined pursuant to this Section 5, shall be paid by the Company
to the Executive within five (5) days after the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall so indicate to the Executive in writing.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-up Payment. Such notification shall be given
no later than ten (10) business days after the Executive is informed in writing
of such claim and shall apprise the Company of the nature of the claim and the
date of requested payment. The Executive shall not pay the claim prior to the
expiration of the thirty (30) day period following the date on which it gives
notice to the Company. If the Company notifies the Executive in writing prior
to the expiration of the period that it desires to contest such claim, the
Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim;
(2) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company;
(3) cooperate with the Company in good faith in order to
effectively contest such claim; and
(4) permit the Company to participate in any proceedings
relating to such claim;
3
<PAGE> 4
Without limitation on the foregoing provisions of this Section 5(c), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administration tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of the
contest; provided, further, that it the Company directs the Executive to pay
any claim and sue for a refund, the Company shall advance the amount of the
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to the advance or with respect to any imputed income with respect to
the advance.
(d) In the event that the Company exhausts its remedies pursuant
to Section 5(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the Gross-up
Payment required and such payment shall be promptly paid by the Company to or
for the benefit of the Executive.
(e) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 5(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-up Payment required to
be paid.
6. Termination for Cause. Nothing in this Agreement shall be
construed to prevent the Company from terminating the Executive's employment
for Cause.
7. Indemnification; Director's and Officer's Liability
Insurance. The Executive shall, after the Change of Control, retain all rights
to indemnification under applicable law or under the Company's Certificate of
Incorporation or Bylaws, as they may be amended or restated from time to time.
In addition, the Company shall maintain Director's and Officer's liability
insurance on behalf of the Executive, at the level in effect immediately prior
to the Change of Control, for the five (5) year period following the Change of
Control.
8. Executive Covenants. During the twelve (12) month period
following the Change of Control, the Executive shall not disclose to any
person, or use to the significant
4
<PAGE> 5
disadvantage of any of the Company, any non-public information relating to
business plans, marketing plans, customers or employees of the Company other
than information the disclosure of which cannot reasonably be expected to
adversely affect the business of the Company ("Confidential Information"),
provided that nothing contained in this Section 8 shall prevent the Executive
from being employed by a competitor of the Company or utilizing the Executive's
general skills, experience, and knowledge, including those developed while
employed by the Company.
9. Disputes. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Dallas, Texas, or, at the option of the Executive, in the county where the
Executive then resides, in accordance with the Rules of the American
Arbitration Association then in effect to be completed within 45 days after
notice of such dispute or controversy is given pursuant to Section 13.
Judgment may be entered on an arbitrator's award relating to this Agreement in
any court having jurisdiction.
10. Costs of Proceedings. The Company shall pay all costs and
expenses, including attorneys' fees and disbursements, at least monthly, of the
Executive in connection with any legal proceeding (including arbitration),
whether or not instituted by the Company or the Executive, relating to the
interpretation or enforcement of any provision of this Agreement, except that
if the Executive instituted the proceeding and the judge, arbitrator or other
individual presiding over the proceeding affirmatively finds that the Executive
instituted the proceeding in bad faith, the Executive shall pay all costs and
expenses, including attorney's fees and disbursements, of the Executive.
11. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder can be assigned or delegated by the
Executive, without the prior written consent of the Company. Except as
otherwise provided herein, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and the Executive and their
respective heirs, legal representatives, successors and assigns. If the
Company shall be merged into or consolidated with another entity, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the entity surviving such merger or resulting from such consolidation. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the Company, by agreement in form and substance satisfactory to
the Executive, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. The provisions of this
Section 11 shall continue to apply to each successive employer of the Executive
hereunder in the event of any merger, consolidation or transfer of assets of a
successor employer.
12. Withholding. Notwithstanding the provisions of Sections 4
and 5 hereof, the Company may, to the extent required by law, withhold
applicable federal, state and local income and other taxes from any payments
due to the Executive hereunder.
13. Notices. All notices and other communications hereunder
must be in writing and will be deemed to have been duly given if delivered
personally, mailed by certified
5
<PAGE> 6
mail (return receipt requested) or sent by overnight delivery service or
facsimile transmission to the Executive at the Executive's most recent address
in the records of the Company and to the Company at:
Affiliated Computer Services, Inc.
2828 North Haskell Avenue
Dallas, Texas 75204
Attention: President and General Counsel
Fax: 214/823-5746
14. Confidentiality. The parties agree to keep the terms and
conditions of this Agreement in strictest confidence, it being understood that
this restriction shall not prohibit disclosure required by applicable law, rule
or regulation.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN.
16. Entire Agreement. This Agreement (along with grants of
stock options, if any, to the Executive, pursuant to the Company's 1988 Stock
Option Plan, as amended) constitutes the entire agreement between the parties
and, except as expressly provided herein, supersedes all other prior agreements
concerning the effect of a Change of Control on the relationship between the
Company and the Executive. This Agreement may be changed only by a written
agreement executed by the Company and the Executive.
The parties have executed this Agreement on the 6th day of August, 1997.
AFFILIATED COMPUTER SERVICES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-------------------------------------------
EXECUTIVE
6
<PAGE> 7
SCHEDULE A
CERTAIN DEFINITIONS
An used in this Agreement, and unless the context requires a
different meaning, the following terms, when capitalized, have the meaning
indicated;
"Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Board
which specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purpose of this provision, no act or failure to act, on the part of the
Executive, shall be considered willful unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
termination of employment of the Executive shall not be deemed to be for cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (i) or (ii) above and
specifying the particulars thereof in detail.
"Change of Control" shall mean the first to occur of any of the
following dates:
(1) if the Board of Directors does not approve and recommend to
the stockholders a Corporate Event, the date such Corporate Event is
consummated:
(2) if the Board of Directors does approve and recommend to the
stockholders a Corporate Event and such Corporate Event is consummated, then
the date the Executive's employment is terminated without Cause or the date
Constructive Termination occurs if such termination occurs within three years
of such Corporate Event;
A-1
<PAGE> 8
(3) the date of any person (as such term as used in Section
13(d) of the Securities Exchange Act of 1934, hereinafter the "1934 Act"),
other than one or more trusts established by the Company for the benefit of
employees of the Company or its subsidiaries, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the 1934 Act) of Rule 13d-3 under the
1934 Act) of fifteen percent (15%) or more of the Company's outstanding Common
Stock, other than holders of such amounts as of the date hereof; or
(4) the date, during any period of twenty-four (24) consecutive
months, on which individuals who at the beginning of such period constitute the
entire Board of Directors of the Company shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director comprising the
majority was approved by a vote of at least a majority of the Continuing
Directors in office on the date of such election or nomination for election of
the new director. For purposes hereof, a "Continuing Director" shall mean:
(A) any member of the Board of Directors at the close of
business on August 5, 1997;
(B) any member of the Board who succeeds any Continuing Director
described in subparagraph (A) above if such successor was
elected, or nominated for election by the Company's
stockholders, by a majority of the Continuing Directors then
still in office; or
(C) any director elected, or nominated for election by the
Company's stockholders to fill any vacancy or newly created
directorship on the Board of Directors of the Company by a
majority of the Continuing Directors then still in office.
"Constructive Termination" shall mean any of the following:
(i) the failure to elect, reelect or otherwise maintain
the Executive in the office or position in the Company which the
Executive held immediately prior to the Corporate Event, or the
removal of the Executive as a Director of the Company (or any
successor thereto) if the Executive shall have been a Director of
the Company immediately prior to the Corporate Event;
(ii) a significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company which the Executive held
immediately prior to the Corporate Event or a reduction in the
aggregate of the Executive's base pay, incentive pay or employee
benefits to which the Executive was entitled to prior to the
Corporate Event;
(iii) a determination by the Executive made in good faith
that as a result in the Corporate Event and change in
circumstances thereafter significantly
A-2
<PAGE> 9
affecting the Executive's position, the Executive has been
rendered substantially unable to carry out, has been substantially
hindered in the performance of, or has suffered a substantial
reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the
Executive immediately prior to the Corporate Event, which
situation is not remedied within 10 calendar days after written
notice to the Company from the Executive of such determination;
(iv) the Company shall relocate its principal executive
offices, or require the Executive to have the Executive's
principal location of work changed, to any location which is in
excess of 30 miles from the location thereof immediately prior to
the Corporate Event or the Company shall require the Executive to
travel away from the Executive's office in the course of
discharging the Executive's responsibilities or duties
significantly more (in terms of either consecutive days or
aggregate days in any calendar year) than was required of the
Executive prior to the Corporate Event; or
(v) any material breach of this Agreement by the Company
or any successor thereto.
"Corporate Event" shall mean any of the following:
(i) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than any
consolidation or merger of the Company in which the holders of the
Company's Common Stock immediately prior to the consolidation or
merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger;
(ii) any sale, lease, or other transfer of all, or
substantially all, of the assets of the Company, other than any
sale, lease, or other transfer to any corporation where the
Company owns, directly or indirectly, at least eighty percent
(80%) of the outstanding voting securities of the corporation
after the transfer; or
(iii) any plan or proposal for the liquidation or
dissolution of the Company.
A-3
<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, 1997, 1996 AND 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
1997 1996 1995
--------- ----------- --------
<S> <C> <C> <C>
Net Income $ 38,510 $ 23,756 $ 17,604
PRIMARY
Weighted average number of shares outstanding 35,571 28,104 24,478
Additional weighted average shares from assumed exercise of dilutive stock
options and warrants, net of shares
assumed to be repurchased with exercise proceeds 996 776 1,080
Additional weighted average shares from assumed issuance of shares
issuable from acquisitions -- -- 58
-------- -------- --------
$ 36,567 $ 28,880 $ 25,616
======== ======== ========
Earnings per share (primary) $ 1.05 $ .82 $ .69
======== ======== ========
FULLY DILUTED
Weighted average number of shares outstanding 35,571 28,104 24,478
Additional weighted average shares from assumed exercise of dilutive stock
options and warrants, net of shares assumed
to be repurchased with exercise proceeds 1,069 1,000 1,230
Additional weighted average shares from assumed conversion
of preferred stock -- 46 72
Additional weighted average shares from assumed issuance of shares
issuable from acquisition -- -- 58
-------- -------- --------
36,640 29,150 25,838
======== ======== ========
Earnings per share (fully diluted) $ 1.05 $ .81 $ .68
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY PLACE OF INCORPORATION
<S> <C>
2828 N. Haskell, Inc. Texas
ACS Claims Services, Inc. Texas
ACS Eastern Services, Inc. Delaware
Pinpoint Marketing, Inc. New York
FCTC Transfer Company Delaware
ACS Government Services, Inc. Texas
ACS National Systems, Inc. Delaware
Dataplex Corporation Louisiana
Intellifile, Inc. Nevada
The Genix Group, Inc. Michigan
Genix CSI, Inc. Michigan
Affiliated Computer Services, Ltd. United Kingdom
ACS Healthcare Services, Inc. California
Intelligent Solutions, Inc. Virginia
The LAN Company, Inc. Pennsylvania
Medianet, Inc. Delaware
Shared Affiliated Services, Inc. Texas
Technical Directions, Inc. Texas
Wesson, Taylor, Wells & Associates, Inc. North Carolina
Artisys, Inc. Georgia
TransFirst, Inc. Texas
Unibase Technologies, Inc. Nevada
Network Data Entry, Inc. Delaware
Unibase Technologies de Mexico Mexico
Unibase Technologies Spain S.L. Spain
TransFirst Corporation Texas
Integrated Delivery Technologies, Inc. New York
</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, 1997, appearing on page 20 of the Annual Report of
this Form 10-K.
Price Waterhouse L.L.P.
Dallas, Texas
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,667
<SECURITIES> 0
<RECEIVABLES> 111,385
<ALLOWANCES> 1,784
<INVENTORY> 9,915
<CURRENT-ASSETS> 168,189
<PP&E> 103,005
<DEPRECIATION> 48,048
<TOTAL-ASSETS> 577,427
<CURRENT-LIABILITIES> 102,402
<BONDS> 89,534
0
0
<COMMON> 359
<OTHER-SE> 348,189
<TOTAL-LIABILITY-AND-EQUITY> 577,427
<SALES> 0
<TOTAL-REVENUES> 624,533
<CGS> 0
<TOTAL-COSTS> 553,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,726
<INCOME-PRETAX> 64,995
<INCOME-TAX> 26,485
<INCOME-CONTINUING> 38,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,510
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
